<PAGE>
As filed with the Securities and Exchange Commission on October 31, 1997.
- --------------------------------------------------------------------------------
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Registration No. 333-_____________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------------
ONTRO, INC.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
CALIFORNIA 2820 33-0638356
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
12675 DANIELSON COURT, SUITE 401, POWAY, CALIFORNIA 92064, (619) 486-7200
(Address and telephone number of principal executive offices and principal place
of business)
CT CORPORATION SYSTEM
818 WEST SEVENTH STREET, LOS ANGELES, CA 90017, (213) 627-8252
(Name, address and telephone number of agent for service)
-------------------------------------
with copies to:
DAVID A. FISHER, ESQ. THOMAS J. POLETTI, ESQ.
TIMOTHY J. FITZPATRICK, ESQ. SUSAN B. KALMAN, ESQ.
FISHER THURBER LLP FRESHMAN, MARANTZ, ORLANSKI,
4225 Executive Square, Suite 1600 COOPER & KLEIN
La Jolla, California 92037-1483 9100 Wilshire Blvd., 8th Floor East
Tel. (619) 535-9400 Beverly Hills, California 90212-3480
Fax (619) 535-1616 Tel. (310) 285-1654
Fax (310) 274-8357
Approximate date of proposed sale to public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------------------
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
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- ----------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO PROPOSED PROPOSED AMOUNT OF
SECURITIES TO BE BE MAXIMUM MAXIMUM REGISTRATION
REGISTERED REGISTERED OFFERING AGGREGATE FEE
(1) PRICE PER OFFERING PRICE
UNIT (2) (1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units (each Unit
consists of one share
of Common Stock, no
par value and
one Common Stock
Purchase Warrant)(3) . . . . . 2,875,000 $ 6.00 $17,250,000 $5,227.27
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Common Stock, no par
value(4) . . . . . . . . . . . 2,875,000 --- --- ---
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Common Stock Purchase
Warrants(5). . . . . . . . . . 2,875,000 --- --- ---
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Common Stock, no par
value, underlying
Warrants(6). . . . . . . . . . 2,875,000 $ 9.00 $25,875,000 $7,840.91
- ----------------------------------------------------------------------------------------------------
Representative's
Option(7). . . . . . . . . . . 1 $0.001 $ 250.00 $ 7.58
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<PAGE>
<CAPTION>
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- ---------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
BE REGISTERED REGISTERED (1) PRICE PER UNIT (2) AGGREGATE OFFERING PRICE REGISTRATION FEE
(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units underlying Representative's
Option (each Unit consists of one
share of Common Stock, no par
value, and one Common Stock
Purchase Warrant). . . . . . . . . . 250,000 $7.20 $1,800,000 $ 545.45
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value,
underlying Representative's
Option . . . . . . . . . . . . . . . 250,000 --- --- ---
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Common Stock Purchase
Warrants, underlying Representative's
Option . . . . . . . . . . . . . . . 250,000 --- --- ---
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Common Stock, no par
value, underlying Common Stock Purchase
Warrants underlying
Representative's Option. . . . . . . 250,000 $9.00 $2,250,000 $ 681.82
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value, owned
by the Selling Security Holders. . . 70,587 $6.00 $ 423,522 $ 128.34
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value,
underlying the Selling Security
Holder's Warrants(8) . . . . . . . . 70,587 $9.00 $ 635,283 $ 192.51
- ---------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,623.88
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</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933 (the "Act"), this
Registration Statement covers such additional indeterminate number of
shares of Common Stock and Warrants as may be issued by reason of
adjustments in the number of shares of Common Stock and Warrants pursuant
to anti-dilution provisions contained in the Warrants and Representative's
Option. Because such additional shares of Common Stock and Warrants will,
if issued, be issued for no additional consideration, no registration fee
is required.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(3) Includes 375,000 Units subject to the Underwriters' over-allotment option
(the "Over-allotment Option). The Common Shares included in these Units
will be offered by L.L. Knickerbocker Company, Inc. and the Warrants
included in these Units will be offered by the Registrant.
(4) Includes 375,000 shares of Common Stock subject to the Over-allotment
Option.
(5) Includes 375,000 Warrants subject to the Over-allotment Option. The
Warrants are exercisable over a three year period commencing on the Closing
Date of the Offering at 150% of the price of the Units offered herein.
(6) The number of shares of Common Stock specified is the number which may be
acquired upon exercise of the Warrants at the maximum exercise price
thereof.
(7) The Representative's Option entitles the Representative to purchase 250,000
Units at $7.20 per Unit. The Common Stock and Warrants included in the
Units underlying the Representative's Option may only be purchased
together. The Representative's Option is exercisable over a four year
period commencing one year from the Effective Date of this Registration
Statement.
(8) The Concurrent Selling Security Holders' Warrants are not registered
herein. The Concurrent Selling Security Holders' Warrants are
exercisable over a three year period commencing on the Closing Date
of the Offering at 150% of the Offering Price of the Units.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
ii
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED OCTOBER 31, 1997
PROSPECTUS 2,500,000 UNITS
ONTRO, INC.
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE THREE YEAR REDEEMABLE COMMON STOCK PURCHASE WARRANT
Ontro, Inc. (the "Company") hereby offers units (the "Units"), each Unit
consisting of one share of the Company's Common Stock, no par value (the "Common
Shares"), and one three year redeemable Common Stock purchase warrant (the
"Warrant(s)"). Until the completion of this offering (the "Offering") the
Common Shares and the Warrants may only be purchased together as a Unit. The
anticipated initial public offering price of the Units is between $5.00 and
$6.00 per Unit ("Offering Price"), of which $.10 is the public offering price
allocated to the Warrants. Upon completion of the Offering, the Common Shares
and the Warrants will immediately trade separately, and the Units will not
trade. Each Warrant entitles the holder to purchase one Common Share at an
exercise price of 150% of the Offering Price of a Unit, until the date which is
three years from the date of this Prospectus. The Warrants are redeemable at
the option of the Company at $0.05 per Warrant following at least 30 days prior
notice if the closing price of the Common Stock equals or exceeds 140% of the
Offering Price for 20 consecutive trading days ending within the 30 days prior
to the date the notice of redemption is given, and at such time as there is a
current effective registration statement covering the Common Shares underlying
the Warrants. Upon 30 days written notice to all holders of the affected class
of Warrants, the Company shall have the right to reduce the exercise price
and/or extend the term of the Warrants. The Units, Common Shares and the
Warrants offered hereby are collectively sometimes hereinafter referred to as
the "Securities."
Simultaneously with the Offering made hereby, the Company is registering
70,587 shares of outstanding Common Stock owned by three shareholders (the
"Selling Security Holders") and the 70,587 shares of Common Stock underlying
outstanding warrants held by the same shareholders (the "Security Holders'
Warrants"). These shares may be resold from time to time in the future by the
Selling Security Holders. The Security Holders' Warrants are identical to the
Warrants included in the Units offered hereby. The Company has covenanted to
use its best efforts to keep the Registration Statement of which this
Prospectus is a part effective in order to permit such resales, and it is
expected that such resales will be made from time to time on AMEX or
otherwise. Such resales are subject to prospectus delivery and other
requirements of the Securities Act of 1933, as amended. The Company will not
receive any proceeds from the market sales of the shares owned by the Selling
Security Holders or the Common Stock underlying the Security Holders'
Warrants, although it will receive the proceeds from the exercise of the
Security Holders' Warrants. See "Concurrent Offering by Selling Security
Holders."
Prior to this Offering, there has been no public market for the Company's
Securities, and there can be no assurance that such a market will develop or be
sustained after this Offering. The Offering Price of the Units and the exercise
price and other terms of the Warrants have been determined by negotiation
between the Company and Joseph Charles & Associates, Inc., the representative of
the Underwriters (the "Representative"). The Offering Price does not
necessarily bear any particular relationship to common valuation criteria such
as assets, book value, performance or any other established criteria. For
information regarding the factors considered in determining the Offering Price
of the Units and the terms of the Warrants, see "Underwriting." The Company has
applied to have the Common Shares and Warrants approved for listing on the
American Stock Exchange, Inc. ("AMEX") under the symbols ONT and ONTW,
respectively. The Units will not be traded on AMEX or elsewhere.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY
INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS" BEGINNING ON PAGE SEVEN AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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Underwriting Discounts and
Price to Public Commissions (1)(2) Proceeds to Company(2)(3)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit
- -------------------------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
(SEE NOTES, NEXT PAGE)
</TABLE>
The Securities are offered by several underwriters ("Underwriters"),
subject to prior sale when, as, and if delivered to and accepted by the
Underwriters and subject to approval of certain legal matters by counsel and to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel, or modify the Offering and to reject any offer to purchase in whole or
in part. It is expected that delivery of the certificates representing the
Securities will be made against payment therefor at the offices of the
Representative, 9701 Wilshire Boulevard, Ninth Floor, Beverly Hills, California
90212, or through the facilities of Depository Trust Company, on or about
_______________, 1997.
JOSEPH CHARLES & ASSOCIATES, INC.
The date of this Prospectus is ___________, 1997.
<PAGE>
NOTES
(1) Does not include additional compensation to be received by the
Representative in the form of: (i) a three percent non-accountable expense
allowance and (ii) the sale to the Representative for $250 of options
("Representative's Options") to purchase 250,000 Units (each Unit
consisting of one Common Share and one Warrant) at a price of 120% of the
Offering Price of the Units, exercisable over a period of four years,
commencing one year from the date of this Prospectus. The Company has also
agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
to be $807,500, including the Representative's non-accountable expense
allowance.
(3) The Company and L.L. Knickerbocker Company, Inc. ("Knickerbocker") have
granted the Underwriters an option ("Over-allotment Option"), exercisable
within 45 days from the date of this Prospectus, to purchase up to
375,000 Units on the same terms as set forth above, solely for the
purpose of covering over-allotments, if any. The Common Shares included
in such additional Units will be offered by Knickerbocker and the
Warrants included in such additional Units will be offered by the
Company. If the Over-allotment Option is exercised in full, the total
price to the public, Underwriting Discounts, and Proceeds to the Company
with respect to the Securities sold by the Company will be $__________,
$_________, and $________, respectively and Knickerbocker will receive
gross proceeds of $__________, after payment of __________ of
Underwriting Discounts and Commissions. See "Underwriting."
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OR
WARRANTS, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
FORWARD-LOOKING STATEMENTS
When included in this Prospectus, the words "expects," "intends,"
"anticipates," "plans," "projects" and "estimates," and analogous or similar
expressions are intended to identify forward-looking statements. Such
statements, which include statements contained in "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," are inherently subject to a variety of
risks and uncertainties that could cause actual results to differ materially
from those reflected in such forward-looking statements. For a discussion of
certain of such risks, see "Risk Factors." These forward-looking statements
speak only as of the date of this Prospectus. The Company expressly disclaims
any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
_________________
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, and in accordance
therewith will file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company intends to
furnish its shareholders and the holders of the Securities with annual reports
containing audited financial statements and such other periodic reports as the
Company deems appropriate or as may be required by law. The Company's fiscal
year ends December 31.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS
PROSPECTUS. ALL SHARE AND PER SHARE INFORMATION GIVES EFFECT TO A 28.12 FOR
ONE STOCK SPLIT EFFECTED DECEMBER 31, 1996. UNLESS OTHERWISE INDICATED, THE
INFORMATION IN THIS PROSPECTUS DOES NOT GIVE EFFECT TO THE EXERCISE OF: (i)
THE OVER-ALLOTMENT OPTION; (ii) ISSUANCE AND EXERCISE OF THE WARRANTS; (iii)
THE REPRESENTATIVE'S OPTIONS; OR (iv) EXERCISE OF OTHER OUTSTANDING WARRANTS
AND OPTIONS.
THE COMPANY
Ontro, Inc. (the "Company" or "Ontro") is engaged in the research and
development of integrated thermal containers. The Company has the rights to
exploit a unique proprietary technology which it has incorporated into a
proposed product line of fully contained self-heating beverage containers
designed to heat liquid contents such as coffee, tea, hot chocolate, soups,
and baby formula. These containers are similar to typical beverage
containers in size and shape, and are activated by the consumer to heat the
contents within a few minutes. The Company seeks to market its container
technology to develop and expand a consumer market for remote and mobile
heating of beverages and other products.
The Company believes substantial market opportunities exist for the
exploitation of the Company's integrated thermal container technology. The
Company believes as society has become more mobile, demand has risen for
remote heating of goods, and conventional heating sources do not supply truly
remote consumption due primarily to inconvenience and the inability of
consumers to access these sources in a mobile environment. The Company's
self-heating containers are expected to meet the needs of consumers such as
mothers requiring warmed baby formula, commuters, mobile professionals,
sports enthusiasts and others without quick and convenient access to
conventional heating sources.
The Company intends to become a leading provider of integrated thermal
containers and related technology to food, beverage and other manufacturers.
The Company's principal strategies include:
SUB-LICENSE AGREEMENTS WITH MAJOR FOOD, BEVERAGE AND CONTAINER COMPANIES
The Company's principal marketing strategy is to target major food,
beverage and container manufacturers for the sub-license of its integrated
thermal container technologies. These manufacturers are expected to
manufacture, label, fill, market and distribute containers under their own
brand name or for third parties in exchange for providing the Company
royalties and/or research and development and marketing assistance.
Management believes this approach should allow the Company to access the
manufacturing, marketing, name brand and distribution capabilities of
potential licensees without the high overhead costs of plant, equipment and
labor. The Company believes its integrated thermal containers could assist
manufacturers in offering a value-added product to complement existing
product lines and assist in expanding market share. To date, the Company has
entered into an evaluation agreement with Nestle USA Inc. ("Nestle") and a
distribution agreement with Knickerbocker (see below).
STRATEGIC MANUFACTURING AND MARKETING
Concurrently with seeking sub-license agreements, the Company plans to
directly produce and market self-heating beverage containers to selected
niche markets. The Company believes such manufacturing and marketing should
provide substantial benefits including: (i) additional revenues to fund
marketing efforts to major food, beverage and container companies as
described above; (ii) demonstration of product feasibility and the
manufacturing process; and (iii) providing evaluation units for use in
conducting marketing and product feasibility studies by the Company and
others. The Company plans to selectively market to customers and
distributors whom the Company believes would not interfere with potential
sub-licenses the Company intends to seek with major food and beverage
container manufacturers. The
3
<PAGE>
Company intends to use a portion of the net proceeds of this Offering to
complete its development of a full-scale production facility.
DEVELOP INTEGRATED THERMAL TECHNOLOGY FOR OTHER APPLICATIONS
The Company plans to develop additional integrated thermal containers to
further access the beverage market. The Company is designing a proprietary
thermos-Registered Trademark- type container with insertable thermal
cartridges, which would allow consumers to heat and re-heat an integrated
thermal container filled by the consumer with the liquid of their choice.
The Company is developing a disposable self-heating baby bottle, which could
be pre-filled with baby formula and heated on demand. The Company's plans
also include additional research and development into designs and potential
uses of integrated thermal containers for medical, pharmaceutical, health and
beauty products, as well as other potential industrial applications. The
Company intends to utilize the expertise of its management and Advisory Board
to identify market opportunities for its technology.
The Company has entered into an evaluation agreement (the "Evaluation
Agreement") with Nestle which allows Nestle an exclusive period to review the
Company's designs and technology in order to determine Nestle's interest in
acquiring rights for the commercial use of the Company's self-heating food
and beverage containers. The Evaluation Agreement requires Nestle to
cooperate with the Company in evaluating certain commercial uses and market
for the Company's technology, and includes an obligation to pay for one-half
of the cost of certain market research studies that are currently underway.
The Company has also entered into a distributorship agreement with
Knickerbocker, a marketer of specialty products. The Company and
Knickerbocker are working to develop certain specialty lines of beverages
which would utilize the Company's integrated thermal containers and be
marketed by Knickerbocker.
Ontro was incorporated in the State of California under the name Self
Heating Container Corporation of California on November 8, 1994. The Company
changed its name to Ontro, Inc. on December 31, 1996. The Company's offices
are located at 12675 Danielson Court, Suite 401, Poway, California 92064, and
its telephone number is (619) 486-7200.
4
<PAGE>
THE OFFERING
SECURITIES OFFERED BY THE COMPANY(1). . . . 2,500,000 Units
COMMON STOCK OUTSTANDING PRIOR TO THIS
OFFERING(2) . . . . . . . . . . . . . . . . 3,089,478 shares
COMMON STOCK OUTSTANDING AFTER THIS
OFFERING(3) . . . . . . . . . . . . . . . . 5,589,478 shares
USE OF PROCEEDS . . . . . . . . . . . . . . The net proceeds of this
Offering will be used for the
following: acquiring
manufacturing equipment,
marketing, research and
development, repayment of
indebtedness, expansion of
facilities, prepaid royalties,
and working capital and general
corporate purposes. The Company
will not receive the proceeds,
if any, from the sale of Common
Shares underlying any Units sold
on exercise of the Over-allotment
Option See "Use of Proceeds."
PROPOSED AMEX SYMBOLS
COMMON SHARES . . . . . . . . . . . . . ONT
WARRANTS. . . . . . . . . . . . . . . . ONTW
RISK FACTORS. . . . . . . . . . . . . . . . The Units offered hereby are
speculative and involve a high
degree of risk, as well as
immediate substantial dilution.
The Units should not be
purchased by investors who
cannot afford the loss of their
entire investment. See "Risk
Factors" and "Dilution."
(1) Until completion of the Offering, the Units may only be purchased on the
basis of one Common Share and one Warrant per Unit. Upon completion of
the Offering, the Common Shares and the Warrants will be immediately
detachable and separately transferable. Each Warrant entitles the holder
to purchase one Common Share at a price per share equal to 150% of the
Offering Price until that date which is three years from the date of this
Prospectus. The Warrants are redeemable at the option of the Company, at
$.05 per Warrant, at any time upon 30 days prior written notice, if the
closing price of the Common Shares, as reported by the principal exchange
on which the Common Shares are quoted, equals or exceeds 140% of the
Offering Price for 20 consecutive trading days within the 30 day period
preceding the date of the notice of redemption and at such time as there
is a current effective registration statement covering the Common Shares
underlying the Warrants. Upon 30 days written notice to all holders of
the Warrants, the Company shall have the right to reduce the exercise
price and/or extend the term of the Warrants. See "Description of
Securities."
(2) Excludes shares issuable upon the exercise of options to purchase
1,379,506 shares of Common Stock outstanding as of the date of this
Prospectus, and warrants to purchase 400,587 shares of Common Stock
outstanding as of the date of this Prospectus.
(3) Excludes: (i) 2,500,000 shares reserved for issuance upon exercise of the
Warrants; (ii) 375,000 shares issuable upon exercise of the Warrants
included within the Over-allotment Option; (iii) 250,000 shares issuable
upon exercise of the Representative's Options; (iv) 250,000 shares issuable
upon exercise of the Representative's Warrants included in the
Representative's Options; (v) 545,400 shares reserved for issuance under
the Company's 1996 Omnibus Stock Plan (the "1996 Stock Plan"), of which
options to acquire 113,000 shares of Common Stock have been granted prior
to the date of this Prospectus; (vi) 1,266,506 shares underlying other
outstanding options granted prior to the date of this Prospectus; and (vii)
400,587 shares reserved for issuance upon exercise of outstanding warrants
issued prior
5
<PAGE>
to the date of this Prospectus. See "Risk Factors - Dilutive and Other
Adverse Effects of Outstanding Options and Warrants," "Use of Proceeds,"
"Dilution," and "Underwriting."
SUMMARY FINANCIAL INFORMATION
The Summary Financial Information set forth below should be read in conjunction
with audited and unaudited financial statements included elsewhere herein.
<TABLE>
<CAPTION>
FROM INCEPTION
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, THROUGH
1995 1996 1996 1997 JUNE 30, 1997
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: (Unaudited) (Unaudited) (Unaudited)
Operating expenses:
Marketing, general and
administrative. . . . . . . . . . $94,500 $830,400 $52,100 $786,200 $1,723,400
Research and development. . . . . 67,900 235,900 167,600 258,900 562,700
Compensation related to a grant
of stock options. . . . . . . . . - 379,300 - 17,200 396,500
----------- ------------ ----------- ------------- -------------
Total operating expenses. . . . . 162,400 1,445,600 219,700 1,062,300 2,682,600
Interest expense. . . . . . . . . . . 1,700 22,800 400 54,700 79,400
----------- ------------ ----------- ------------- -------------
Net loss(1) . . . . . . . . . . . . . $ (164,100) $ (1,468,400) $(220,100) $ (1,117,000) $ (2,762,000)
----------- ------------ ----------- ------------- -------------
----------- ------------ ----------- ------------- -------------
Net loss per common share(1). . . . . $ (0.06) $ (0.46) $ (0.08) $ (0.28)
----------- ------------ ----------- ------------- -------------
----------- ------------ ----------- ------------- -------------
Weighted average common and common
equivalent shares
outstanding . . . . . . . . . . . . . 2,604,900 3,174,100 2,790,900 3,959,000
----------- ------------ ----------- ------------- -------------
----------- ------------ ----------- ------------- -------------
BALANCE SHEET DATA: JUNE 30, 1997
--------------------------------------------
DECEMBER 31, PRO FORMA
1996 ACTUAL PRO FORMA(2) AS ADJUSTED(3)
Working capital (deficiency). . . . . . . . . . . $ (220,800) $ (953,900) (505,900) $11,015,400
Total assets. . . . . . . . . . . . . . . . . . . 328,600 999,800 1,447,800 11,594,100
Notes payable (bridge loans). . . . . . . . . . . 110,000 1,245,000 1,245,000 ---
Total liabilities . . . . . . . . . . . . . . . . 445,400 1,601,900 1,601,900 111,900
Deficit accumulated during the development stage (1,645,000) (2,762,000) (2,762,000) (2,762,000)
Shareholders' equity (deficit). . . . . . . . . . . (116,800) (602,100) (154,100) 11,482,200
</TABLE>
- ------------------
(1) See Note 1 of Notes to Financial Statements for information concerning the
computation of net loss and net loss per common share and shares used in
computing net loss per share.
(2) Pro forma reflects the issuance of 124,315 shares of Common Stock and
70,587 warrants to purchase Common Stock from June 30, 1997 through
October 27, 1997 for an aggregate consideration of $448,000 (the
"Recent Issuances").
(3) Adjusted to reflect the Recent Issuances (Note 2 above) and the sale
by the Company of the 2,500,000 Units offered hereby at an assumed
Offering Price of $5.50 per Unit, and the application of the estimated
net proceeds therefrom of $11.6 million. The pro forma as adjusted also
reflects the repayment of principal and interest on the bridge loans of
$1,245,000, payment of deferred consulting fees of $55,000 and the
repayment of equipment leases of approximately $150,000. See "Use of
Proceeds", "Capitalization" and "Certain Transactions."
6
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RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN NATURE,
INVOLVES A HIGH DEGREE OF RISK AND SHOULD NOT BE MADE BY ANY INVESTOR WHO CANNOT
AFFORD THE LOSS OF HIS/HER ENTIRE INVESTMENT. ACCORDINGLY, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS, IN ADDITION TO ALL OF
THE OTHER INFORMATION PRESENTED IN THIS PROSPECTUS BEFORE PURCHASING THE
SECURITIES OFFERED HEREBY. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED
IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS.
RISK FACTORS RELATING TO THE COMPANY
NO OPERATING REVENUES; ACCUMULATED DEFICIT; EXPECTATION OF FUTURE LOSSES
The Company has experienced operating losses in each fiscal period since
its inception in 1994. As of June 30, 1997, the Company had a deficit
accumulated in the development stage of approximately $2,762,000 and a working
capital deficiency of $953,900. The Company expects to incur additional
operating losses through at least 1998 and possibly thereafter. The Company has
generated no revenues from operations. The development of the Company's
integrated thermal containers will require the commitment of substantial
resources in order to make it feasible for such containers to be sold, or for
the underlying technology to be licensed to third parties, and/or for the
Company to sell its proposed containers to distributors or others who may be
responsible for the manufacture and marketing of the proposed containers, or to
establish commercial scale manufacturing processes and facilities for such
manufacturing, and to establish additional quality control, marketing, sales and
administrative capabilities. There can be no assurance the Company will be
successful in any of these endeavors. There can be no assurance the Company
will enter into arrangements with third parties for product development and
commercialization, or will successfully market or license any containers. To
achieve profitable operations, the Company, alone or with others, must
successfully develop, manufacture and market its proprietary containers or
technologies. There can be no assurance the Company will be able to accomplish
these tasks. Significant delays in any of these matters could have a material
adverse impact on the Company's business, financial condition and results of
operations.
GOING CONCERN ASSUMPTION
The Company's independent auditors' report on the Company's financial
statements at December 31, 1996 and for the years ended December 31, 1995 and
1996 contains an explanatory paragraph indicating the Company had recurring
operating losses that raise substantial doubt about its ability to continue
as a going concern. In addition, the Company had an accumulated deficit of
$2,762,000 at June 30, 1997. The Company may require substantial additional
funds in the future, and there can be no assurance that any independent
auditors' report on the Company's future financial statements will not
include a similar explanatory paragraph if the Company is unable to raise
sufficient funds or generate sufficient cash from operations to cover the
cost of its operations. The existence of the explanatory paragraph may
materially adversely affect the Company's relationship with prospective
customers and suppliers, and therefore could have a material adverse effect
on the Company's business, financial condition and results of operations.
FUTURE CAPITAL REQUIREMENTS UNCERTAIN; NO ASSURANCE OF FUTURE FUNDING
The Company will be required to make substantial expenditures to conduct
existing and planned research and development, to manufacture or contract for
the manufacture of, and to market its proposed containers. The net proceeds
from this Offering are expected to be approximately $11.6 Million at an
assumed Offering Price of $5.50, assuming no exercise of the Over-allotment
Option. In the absence of receiving the proceeds of this Offering, the
Company anticipates its existing capital resources and cash generated from
operations, if any, will be sufficient to meet the Company's cash
requirements only through the end of December, 1997 at its anticipated level
of operations. The Company's future capital requirements will depend upon
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<PAGE>
numerous factors, including the amount of revenues generated from operations
(if any), the cost of the Company's sales and marketing activities and the
progress of the Company's research and development activities, none of which
can be predicted with certainty. The Company anticipates the proceeds of
this Offering, together with existing capital resources and cash generated
from operations, if any, will be sufficient to meet the Company's cash
requirements for at least the next 18-24 months at its anticipated level of
operations. However, the Company may seek additional funding during the next
24 months and could seek additional funding after such time. There can be no
assurance any additional financing will be available on acceptable terms, or
at all, when required by the Company. Moreover, if additional financing is
not available, the Company could be required to reduce or suspend its
operations, seek an acquisition partner or sell securities on terms that may
be highly dilutive or otherwise disadvantageous to investors purchasing the
Units offered hereby. The Company has experienced in the past, and may
continue to experience, operational difficulties and delays in its product
development due to working capital constraints. Any such difficulties or
delays could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 1 of
Notes to Financial Statements.
The Company has no established bank financing arrangements, and it is not
anticipated the Company will secure any bank financing in the foreseeable
future. The Company intends to finance the development and marketing of its
proposed containers through license agreements, distribution agreements,
strategic alliances and other arrangements with third parties. There can be
no assurance such license, distribution, marketing, strategic, or other
collaborative arrangements will be obtained, or that additional funds will be
available when needed, or on terms acceptable to the Company. If adequate
funds are not available, the Company may be required to relinquish rights to
certain of its technologies or potential products the Company would not
otherwise relinquish. The Company's future cash requirements will be
affected by results of research and development, collaborative relationships,
if any, changes in the focus and direction of the Company's research and
development programs, competitive and technological advances, and other
factors. See "Use of Proceeds" and "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
EARLY STAGE OF DEVELOPMENT; ABSENCE OF PRODUCTS
The Company is a development stage Company. It has not completed the
final development of any product and, accordingly, has not begun to market or
generate revenues from operations. The Company's first anticipated
commercial product is a self-heating beverage container which will require
additional research and development, including further design improvements,
testing, and marketing studies before it will likely be introduced in the
marketplace. There can be no assurance the Company's research and
development efforts will be successful, the self-heating beverage container
or any of the Company's other potential products under development will be
able to be manufactured at acceptable costs and quality standards. See
"Business -- Manufacturing and Production." The Company cannot predict with
certainty when, if ever, it will begin to market the proposed self-heating
beverage container or any other integrated thermal container it is
developing, and currently does not expect them to be available to consumers
prior to the end of 1998.
While the Company believes it is in the final stages of completing
development of its self-heating beverage container, significant additional
work testing or verifying of different aspects of the containers is required
before the prototypes will be ready for commercial production. Such aspects
include, but are not limited to the areas of seam failure, heat transfer,
type of content issues, heating control, pasteurization, timing and
temperature ranges, appearance, and packaging. The Company has identified
certain unusual circumstances where the self-heating container could heat to
unacceptably high levels and jeopardize the structural integrity of the
container. The Company is currently researching the use of moderating agents
to inhibit such potential reactions. The Company is also researching
different compositions of the active ingredients to increase the
predictability of the heating reaction and simplify the manufacturing
process. There can be no assurance the Company will be successful in
finalizing a commercially viable design for its proposed products. See
"Business -- Technological Development."
8
<PAGE>
COMPLETE DEPENDENCE ON MARKET ACCEPTANCE OF INTEGRATED THERMAL CONTAINERS
The Company has not yet commenced sales of its self-heating beverage
container, which is currently the Company's only substantially developed
product. The Company anticipates it will derive substantially most of its
revenues from the sale of licenses of its integrated thermal container
technology. Consequently, the Company is entirely dependent on the
successful introduction and commercial acceptance of this technology. Unless
and until such integrated thermal containers receive market acceptance, the
Company will not likely have any material source of revenue. There can be no
assurance that integrated thermal containers will achieve market acceptance.
The Company's ability to license its technology or sell its containers will
be substantially dependent on the results of certain market studies, and
there can be no assurance the studies currently underway or to be conducted
in the future will demonstrate the level of probable market acceptance
sufficient to interest licensees and distributors to enter into agreements
with the Company regarding its products and technologies. Although the
Company has one distributor for its containers, commercial acceptance of its
containers will require the Company to successfully establish sales through
this and other distribution channels, of which there can be no assurance.
Any such failure will likely have a material adverse effect on the Company's
business, financial condition and results of operations. Failure of the
Company's integrated thermal containers to achieve significant market
acceptance will have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business - Strategy."
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
If the Company's proposed integrated thermal containers are commercially
accepted, such markets are expected to be characterized by rapid
technological advances, evolving industry standards, and frequent new product
introductions and enhancements. The introduction by competitors of
containers embodying new integrated thermal technologies and the emergence of
industry standards could render the Company's containers currently under
development obsolete or unmarketable. The Company's future success may
depend upon its ability to keep pace with technological developments, and
respond to evolving consumer demands. Failure by the Company to anticipate or
respond adequately to technological developments or changes in consumer
tastes, or significant delays in product development could damage the
Company's potential position in the marketplace and could result in less
revenues and/or lack of profits. The Company may need to increase the size
of its product development staff in the near term to meet these challenges.
There can be no assurance the Company will be successful in hiring and
training adequate product development personnel to meet its needs or that it
will have the resources to do so. There can be no assurance the Company will
be successful in developing and marketing its proposed containers, new
products, or product enhancements, or will not experience significant delays
in such endeavors in the future. Any failure to successfully develop and
market its integrated thermal containers or other products and product
enhancements could have a material adverse effect on the Company's financial
condition, business, and results from operations. See "Business."
IHI LICENSE
The Company has obtained all of the core technology for its integrated
thermal containers through a license agreement (the "IHI License") with
Insta-Heat, Inc. ("IHI"), an affiliated company which owns three issued
patents and patents pending concerning IHI's thermal technologies. The IHI
License grants the Company an exclusive worldwide license in perpetuity to
manufacture, use, sell, and promote IHI's technology, and for all products
developed in connection with the IHI technology. The IHI License grants the
Company the right to sub-license the technology and to subcontract the
manufacture of the licensed products. The IHI License requires minimum
royalty payments of $50,000 per year and also requires additional royalty
payments from the Company on the sale of products utilizing IHI technology
subject to the Company achieving minimum annual net income after payment
including the royalty and all taxes of no less than $4 million. Upon
achieving the required minimum net income the IHI License requires royalty
payments equal to the greater of: (i) two percent of the gross sales of
integrated thermal containers and products developed in connection with it;
or (ii) 1.5 cents per unit sold up to the first $30 million in sales by the
Company. For sales in excess of $30 million the IHI License requires royalty
payments (subject to the same minimum income levels) equal to the greater of:
(i) three percent of gross annual sales in excess of $30 million; or (ii) 1.5
cents per Unit sold. Royalty payments are reduced at such time as IHI does
not hold one or more patents or patent applications on the IHI technology.
The
9
<PAGE>
Company is required to prosecute any patent infringements of the IHI
technology and to defend any infringement claims brought in connection with
the IHI technology. Prosecution of patent infringement claims and the
defense of infringement claims could result in substantial costs to the
Company. If the Company were unable to pay such costs, the Company could
lose the rights to the IHI technology, which would likely have a material
adverse impact on the business and financial condition of the Company. The
IHI License may be terminated in the event the Company ceases its business,
dissolves, liquidates, or on completion of any proceeding in bankruptcy or
reorganization, or the appointment of a permanent receiver or trustee or any
other proceeding under any law for the relief of debtors or on any assignment
for the benefit of the Company's creditors. If the IHI License were
terminated, the Company would lose all of its rights to the IHI technology.
The IHI License provides an option to the Company to purchase all of the IHI
technology and terminate the IHI License. However this option requires the
Company pay IHI $3 million and is only available through December 31, 2000
including a one year right to extend upon the payment of $100,000. See
"Business - License Agreement with Insta-Heat, Inc."
CONFLICTS OF INTEREST
IHI has licensed its integrated thermal container technology and related
technology to the Company pursuant to the IHI License. Messrs. Berntsen and
Scudder, co-founders, officers, directors, and significant shareholders of
the Company are also co-founders, officers, directors, and significant
shareholders of IHI. The Board of Directors of IHI is comprised of Messrs.
Scudder, Berntsen, and their spouses. The Company and IHI currently have
substantially similar shareholders. These relationships raise substantial
potential conflicts of interest with regard to the development, licensing,
marketing, and sale of the IHI technology by the Company, as well as
conflicts of interest in the interpretation of the terms and conditions of
the IHI License. The interests of IHI may conflict with the interests of the
Company in certain instances regarding the IHI technology, including if the
Company were unable to comply with the terms of the IHI License. The
directors of IHI may have fiduciary obligations to IHI, which may influence
them to take actions which are contrary to the interests of the Company, and
which could result in material adverse consequences to the business,
financial condition, and results of operations of the Company. In the event
of termination of the IHI License, the Company would lose all of the
technology relating to the integrated thermal process it is currently
developing, which would have a material adverse impact on the financial
condition, business, and results of operations of the Company. See "Business
- - License Agreement with Insta-Heat, Inc."
IHI and the Company are both California corporations and are subject to
California law. California law requires transactions between corporations
with interested directors either be approved by the shareholders or by an
independent board of directors, and the transaction must also be just and
reasonable. If these conditions are not met, the person asserting the
validity of the transaction must prove the transaction is just and reasonable
to the corporation. The IHI License was approved by the shareholders of both
IHI and the Company. Any future material amendments to the IHI License will
require that the Company and IHI comply with these requirements of California
law.
PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend, in large part, on IHI's or the
Company's ability to obtain patent protection for the proposed containers,
both in the United States and in foreign countries. IHI currently has three
patents issued, and one additional patent application pending in the United
States. There have been foreign counterparts to certain of these
applications filed in other countries on behalf of IHI. The Company intends
to support IHI in filing additional applications as appropriate for patents
covering one or more proposed containers and related processes. There can be
no assurance patents will issue from any of the pending applications, or for
patents that have been issued or may be issued, that the claims allowed will
be sufficiently broad to protect the Company's technology. In addition,
there can be no assurance any patents issued to IHI or to the Company will
not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide adequate proprietary protection to IHI or to the
Company. In addition, any patents obtained by IHI or by the Company will be
of limited duration. All United States patents issuing from patent
applications filed June 8, 1995 or thereafter will have a term of 20 years
from the date of filing. All United States patents in force before June 8,
1995 will have a term of the longer of: (i) 17 years from the date of
issuance; or (ii) 20 years from
10
<PAGE>
the date of filing. All United States patents issuing from patent
applications applied for before June 8, 1995 will have a term equal to the
longer of: (i) 17 years from the date of issuance; or (ii) 20 years from the
date of filing. All United States design patents have a 14 year life from the
date of issuance.
The commercial success of the Company may also depend upon avoiding
infringing on patents issued to competitors, and upon maintaining the IHI
License. If competitors prepare and file patent applications in the United
States that claim technology also claimed by IHI, the Company, in accordance
with the requirements of the IHI License, may have to participate in
interference proceedings declared by the U.S. Patent and Trademark Office
("PTO") to determine the priority of invention, which could result in
substantial cost, even if the outcome is favorable to the Company. An
adverse outcome could subject the Company to significant liabilities to third
parties, and could require the Company to license disputed rights from third
parties or cease using all or part of the licensed technology. The Company
is aware of U.S. patents issued to third parties that broadly claim
self-heating technology similar to the IHI's. Although the Company believes
its current activities do not infringe on these patents, there can be no
assurance the Company's belief would be affirmed in any infringement
litigation over the patents, or that the Company's future technological
developments would be outside the scope of these patents. A U.S. patent
application is maintained under conditions of confidentiality while the
application is pending in the PTO, so the Company cannot determine the
inventions being claimed in pending patent applications filed by its
competitors in the PTO. Further, U.S. patents do not provide any remedies
for infringement that occurred before the patent is granted.
The Company also attempts to protect its proprietary and its licensed
technology and processes by seeking to obtain confidentiality agreements with
its contractors, consultants, employees, potential collaborative partners,
licensees, licensors and others. There can be no assurance these agreements
will adequately protect the Company, will not be breached, the Company will
have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or be independently discovered by
competitors. This approach could increase the risk to the Company which may
not be able to protect its proprietary and licensed technology.
There can be no assurance others will not independently develop similar
or more advanced technologies or designs around aspects of IHI's technology
which may be patented, or duplicate IHI's or the Company's trade secrets. In
some cases, the Company may rely on trade secrets to protect IHI's or its
inventions. There can be no assurance trade secrets will be established,
secrecy obligations will be honored, or that others will not independently
develop similar or superior technology. To the extent consultants, key
employees, or other third parties apply technological information
independently developed by them or by others to Company projects, disputes
may arise as to the proprietary rights to such information, which may not be
resolved in favor of the Company. See "Business - Patents and Proprietary
Technology" and "Management."
LIMITED MANUFACTURING FACILITIES;
PROBABLE SIGNIFICANT DEPENDENCE ON SUB-LICENSEES FOR MANUFACTURE,
MARKETING, AND SALE OF PROPOSED PRODUCTS
The Company's strategy is to sub-license its integrated thermal
technologies to major food, beverage, and container companies. The Company
anticipates requiring such companies to be responsible for the manufacture,
marketing, and sale of the overwhelming majority of the Company's proposed
containers. With the proceeds of this Offering, the Company intends to
purchase equipment which will enable it to manufacture self-heating beverage
containers for testing and marketing studies, and to sell limited quantities
of certain self-heating containers to distributors or other customers. The
Company intends to require most of its distributors and other customers to
manufacture and market the containers they purchase or sub-license, or to
contract for the manufacture, marketing, and distribution of the containers.
There can be no assurance the Company will enter into satisfactory license
agreements with any parties for the manufacture, marketing, or sale of its
integrated thermal containers; such licenses, if any, will result in revenues
to the Company; the Company will enter into any agreements with distributors
or others for the manufacture, marketing, or sale of its proposed containers,
or that parties who do enter into such agreements will perform adequately.
In the event the Company is unable to license its technology to third parties
or is unable to require third parties to manufacture, market, and sell
substantial quantities of its proposed containers, the Company could be
required to develop adequate manufacturing facilities to fulfill any demand
for its containers. The development of such facilities could require
additional capital, personnel, and other resources beyond any available from
the proceeds of this Offering. There can be no assurance the Company will be
able to successfully establish such manufacturing operations or obtain any
additional capital.
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<PAGE>
PROBABLE DEPENDENCE ON OUTSIDE PARTIES FOR MARKETING AND DISTRIBUTION
If the Company is successful in completing the development of its
proposed integrated thermal containers the Company intends to primarily
market its proposed products through contractual arrangements with others
such as sub-licensing, distribution or similar collaborative agreements.
This may result in a lack of control by the Company over some or all of the
material marketing and distribution aspects of its potential products. There
can be no assurance the Company will be able to maintain the quality of its
products when they are manufactured by unrelated parties. Any significant
quality control problems could result in excessive recalls, increased product
liability exposure, and reduced market acceptance.
There can be no assurance the Company will enter into any marketing and
related arrangements on terms acceptable to the Company, or that any
marketing efforts undertaken on behalf of the Company by third parties will
be successful. The inability of the Company to license its products to others
for their distribution, or inadequacy of such licensees' distribution, or the
inability of the Company to enter into distributorship or similar agreements
to market products produced by the Company would likely have a material
adverse impact on the ability of the Company to market its products.
The Company may, in the future, determine to directly market certain of
its proposed containers. The Company has a limited marketing budget and
resources. Additional capital expenditures and management resources would be
required to develop more complete marketing and distribution capabilities.
In the event the Company elects to engage in broader or more direct marketing
activities, there can be no assurance the Company will be able to obtain the
requisite funds, or attract and retain the human and other resources
necessary to successfully expand its marketing plans for any of its potential
products. See "Business - Marketing."
The Company's future growth and profitability is expected to depend, in
large part, on the success of its licensees, sub-licensees and distributors,
if any, and others who may participate in marketing efforts on behalf of the
Company. Success in marketing the Company's containers will be substantially
dependent on educating the targeted markets as to the distinctive
characteristics and perceived benefits of the Company's proposed containers.
COMPETITION
The Company believes competition among marketers of self-heating beverage
containers will be based primarily on price, product safety, ease of use,
quality, product recognition, access to distribution channels, product
innovation, and packaging. The competitive position of the Company will in
part depend on the ability of the Company to remain current in plastics
manufacturing technology and to anticipate innovations in integrated thermal
container technology as well as changes in consumer preferences. If the
Company's integrated thermal containers are successfully received in the
market, increased competition is probable. Increased competition is likely
to result in price reductions, reduced operating margins, and loss of market
share, any of which could materially and adversely affect the Company's
business, operating results, and financial condition. There can be no
assurance the Company will be able to compete successfully, keep pace with
technological developments, or have sufficient funds to invest in new
technologies, products, or processes.
There also can be no assurance companies in the food and beverage or
container industry, or other companies, will not enter the market for
integrated thermal containers with products that are superior to, less
expensive, or which achieve greater market acceptance than the Company's
proposed containers. The majority of food and beverage and container
manufacturers are substantially larger and more diversified than the Company;
have substantially greater financial and marketing resources than the
Company; have greater name recognition and distribution channels than the
Company; and may have the ability to develop competitively priced integrated
thermal containers.
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DEPENDENCE UPON KEY PERSONNEL
The Company's success in developing marketable containers and achieving a
competitive position will depend, in large part, on its ability to attract
and retain qualified management personnel, and in particular to retain Mr.
Scudder and Mr. Berntsen. The proprietary technology which has been licensed
to the Company by IHI was primarily developed by Mr. Scudder and Mr.
Berntsen. Messrs. Scudder and Berntsen have entered into employment
agreements obligating them to provide services to the Company through August,
1999. The loss of either of these individuals could have a material adverse
impact on the business and operations of the Company. The Company maintains
life insurance policies on Messrs. Scudder and Berntsen but no assurance can
be given that the proceeds from any such policy will be adequate to offset
the loss of their services. The Company will need to hire additional
management, administrative and engineering personnel in the next year to meet
its plans. Competition for such personnel is intense and no assurance can be
given that the Company will be able to hire and/or retain adequate personnel.
The Company's potential growth and any expansion into areas and activities
requiring additional expertise, such as expanded programs for manufacturing
and marketing, would be expected to place increased demands on the Company's
human resources. These demands are expected to require the addition of new
management personnel and the development of additional expertise by existing
management personnel. The failure to acquire such services or to develop
such expertise could have a material adverse effect on the Company's
prospects for success. In addition, the Company relies on consultants and
advisors to assist the Company from time to time in reviewing its marketing,
management, research and development strategies. Most if not all of the
Company's consultants and advisors are self-employed or are employees of
other companies, and may have commitments to, or consulting or advisory
contracts with, more than one other entity that may affect their ability to
contribute to the Company. See "Management."
EXPOSURE TO FLUCTUATIONS IN RESIN PRICES AND SUPPLY
Upon receipt of the proceeds from this Offering, the Company intends to
manufacture certain parts of the proposed integrated thermal containers using
plastic resins. The Company does not currently have agreements with any raw
material suppliers, including suppliers of resins. After this Offering the
Company intends to enter into agreements with resin and other raw material
suppliers. There can be no assurance the Company will obtain supply
agreements on acceptable terms and conditions. Since plastic resin is
anticipated to be a principal component in the Company's proposed containers,
the Company's financial performance could become materially dependent on its
ability, and the ability of its licensees and/or distributors, if any, to
acquire resin in acceptable amounts and at acceptable costs, and to pass
resin price increases on to its future customers through contractual
agreements or otherwise. The capacity, supply, and demand for plastic resins
and the petrochemical intermediates from which they are produced are subject
to cyclical price fluctuations, including those arising from supply
shortages. There can be no assurance a significant increase in resin prices
or a shortage of supply would not have a material adverse impact on the
business, financial condition, and results from operations of the Company.
See "Business - Raw Materials and Suppliers."
SUPPLY OF RAW MATERIALS; DEPENDENCE ON SINGLE SOURCE SUPPLIERS
The Company does not have agreements with the suppliers of any of its raw
materials. The Company currently obtains certain self-heating beverage
container components from single source suppliers. Specifically, the outside
container and the activating device (button) for the beverage container are
supplied by Johnson Controls, Inc. and Complex Tool & Mold, respectively. The
Company intends to purchase equipment with the proceeds of this Offering to
manufacture the outside container to provide an alternative supply source to
Johnson Controls, Inc. Although the Company is also currently dependent on
Complex Tool & Mold Company as the sole sources of supply for one of its
proprietary components, the Company believes this component can be obtained
from numerous suppliers and as a result thereof the Company believes it is
not materially dependent upon any single source for any of its raw materials.
Until such time as the Company manufactures the outside container, locates a
second source of supply for the container and the activating device (button),
there can be no assurance the Company will be able to procure or substitute
such components without a significant interruption in its supply of component
parts. The failure or delay by any supplier to furnish the Company with
these component parts could have a material adverse effect on the Company's
business, financial condition, and results from operations.
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ENVIRONMENTAL MATTERS
Federal, state, and local governments or regulatory agencies could enact
laws or regulations concerning environmental matters that may increase the
cost of producing, or otherwise adversely affect the demand for plastic
products such as those proposed by the Company. A decline in consumer
preference for plastic products due to environmental considerations could
have a material adverse effect upon the Company's business, financial
condition, and results of operations. In addition, certain of the Company's
operations are subject to federal, state, and local environmental laws and
regulations that impose limitations on the discharge of pollutants into the
air and water, and establish standards for the treatment, storage, and
disposal of solid and hazardous wastes. While the Company has not been
required, in its limited history of assembling integrated thermal containers,
to make significant capital expenditures in order to comply with applicable
environmental laws and regulations, the Company may have to make substantial
future capital expenditures due to changing compliance standards and
environmental technology. Furthermore, unknown contamination of sites
currently or formerly owned or operated by the Company (including
contamination caused by prior owners and operators of such sites) and
off-site disposal of hazardous substances may give rise to additional
compliance costs.
In addition the principal components of the Company's products are made
from plastic. Although the Company's products use all recyclable plastics
they cannot generally be recycled into the same component parts, and there
are likely fewer potential uses for the recycled plastic used in the
Company's products than there were for the original raw materials. Therefore
the Company would be expected to be contributing to an increasing supply of
plastic needing to be recycled into fewer uses or simply an increasing amount
of plastic which although recyclable may not be recycled. Similar factors
have been the source of increasing environmental concern by some and
increasing legislative and regulatory activity. The Company cannot predict
the nature of future legislation, regulation or liability exposure which may
evolve from these environmental concerns or the adverse impact it may have on
the Company. The Company does not have insurance coverage for environmental
liabilities and does not anticipate obtaining such coverage in the future.
See "Business - Environmental Matters and Governmental Regulations."
LIABILITY INSURANCE
The Company's proposed containers expose it to possible product liability
claims if, among other things, the use of its proposed containers results in
personal injury, death or property damage. There can be no assurance the
Company will have sufficient resources to satisfy any liability resulting
from such claims or will be able to cause its customers to indemnify or
insure the Company against such claims. The Company intends to obtain
product liability insurance prior to the commencement of commercial shipment
of its products. There can be no assurance such insurance coverage will be
adequate in terms and scope to protect the Company against material adverse
effects in the event of a successful claim, or that such insurance will be
renewed, or the Company will be able to acquire additional coverage when it
deems it desirable to do so.
RISK FACTORS RELATING TO THIS OFFERING
IMMEDIATE AND SUBSTANTIAL DILUTION
An investor in this Offering will experience immediate and substantial
dilution of approximately $3.45, or 63%, per share between the adjusted pro
forma net tangible book value per share after the Offering and an assumed
Offering Price of $5.50 per Unit. To the extent that any Warrants, options
or other securities convertible into shares of Common Stock currently
outstanding or subsequently granted to purchase shares of Common Stock are
exercisable at a price less than the net tangible book value per share
following the Offering, there will be further dilution upon the exercise of
such securities. See "Dilution" and "Description of Securities."
14
<PAGE>
CONTROL BY PRESENT SHAREHOLDERS; POSSIBLE DEPRESSIVE EFFECT ON THE COMPANY'S
SECURITIES
Without consideration of the Warrants, the Representative's Options, the
Over-allotment Option, or other outstanding options and warrants; the
Company's shareholders own 3,089,478 shares of Common Stock upon the
completion of this Offering, representing approximately 55.3% of the
Company's outstanding shares of Common Stock. The Company's officers and
directors currently own 1,893,870 of the 3,089,478 outstanding shares
representing 61.3% of the currently outstanding Common Stock. The Company's
officers and directors also have the right to acquire an additional 138,000
shares of Common Stock, which are reserved for issuance upon the exercise of
existing options. Accordingly, without consideration of the Warrants, the
Representative's Options, the Over-allotment Option, or other outstanding
options and warrants; if the Company's officers and directors exercised all
of the options they currently hold they could own up to 63.0% of the
Company's outstanding Common Stock before this Offering, and 35.5% of the
Company's outstanding Common Stock after this Offering. The price range for
the officers' and directors' options is $1.00 to $5.00 per share. Even after
this Offering, the Company's present shareholders will be able to elect a
majority of the Company's directors and otherwise control the Company's
operations. Also, the concentration of ownership by the Company's officers
and directors may discourage potential acquirors from seeking control of the
Company through the purchase of Common Stock, and this possibility could have
a depressive effect on the price of the Company's Securities. See "Principal
Shareholders" and "Description of Securities."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS
Purchasers of Units will only be able to exercise the Warrants if a
current prospectus under the Securities Act relating to the shares underlying
the Warrants is then in effect, and such securities are qualified for sale or
exempt from qualification under the applicable securities laws of the states
in which the various holders of Warrants reside. Although the Company has
undertaken to use its best efforts to maintain the effectiveness of a current
prospectus covering the shares underlying the Warrants, there can be no
assurance the Company will be able to do so. The Warrants may have a lower
value if such securities are not qualified, or exempt from qualification in
the states in which the holders of Warrants reside, and may have no value if
a current prospectus, covering the shares issuable upon the exercise of the
Warrants, is not kept effective. See "Description of Securities - Warrants."
DILUTIVE AND OTHER ADVERSE EFFECTS OF OUTSTANDING OPTIONS AND WARRANTS
Under the terms of the Warrants, the Representative's Options, options
issued under the Company's 1996 Stock Plan, the Over-allotment Option, and
other outstanding options and warrants, the holders thereof are given an
opportunity to profit from a rise in the market price of the Common Stock
with a resulting dilution in the interests of the other shareholders. The
terms on which the Company may obtain additional financing may be adversely
affected by the existence of such options and warrants. For example, the
holders of the Warrants could exercise them at a time when the Company was
attempting to obtain additional capital through a new offering of securities
on terms more favorable than those provided by the Warrants. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations," "Underwriting," "Description of Securities," and "Shares
Eligible for Future Sale."
ARBITRARY DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF STOCK PRICE
The Offering Price of the Units and the exercise price and other terms of
the Warrants have been determined by negotiation between the Company and the
Representative and do not bear any relationship to any established valuation
criteria such as assets, book value, or prospective earnings. The market
prices for securities of emerging and development stage companies have
historically been volatile. Future announcements concerning the Company or
its competitors, including the results of testing, technological innovations
or new commercial products, government regulations, developments concerning
proprietary rights, litigation or public concern as to safety of potential
containers developed by the Company or others, may have a significant impact
on the market price of the Company's Securities. See "Underwriting."
15
<PAGE>
POSSIBLE DEPRESSIVE EFFECT ON PRICE OF SECURITIES OF FUTURE SALES OF COMMON
STOCK
The sale or other disposition of much of the currently outstanding shares
of Common Stock is restricted by the Securities Act. Unless such sale is
registered, these shares may only be sold in compliance with Rule 144
promulgated under the Securities Act or some other exemption from
registration thereunder. For a description of the conditions under which
shares may be sold pursuant to Rule 144, see "Shares Eligible for Future
Sale." Actual sales or the prospect of sales of Common Stock under Rule 144
or otherwise in the future may depress the prices of the Securities or any
market that may develop, and may also make it difficult for investors herein
to sell the Securities. All officers and directors and substantially all
shareholders have agreed not to offer, sell, assign, transfer, pledge or
otherwise hypothecate without the Representative's prior written consent, any
of his/her securities of the Company for a period of 12 months from the date
of this Prospectus. The sale or availability for sale of substantial amounts
of Common Stock in the public market after this Offering could adversely
affect the prevailing market price of the Securities and could impair the
Company's ability to raise additional capital through the sale of its equity
securities. See "Description of Securities," "Shares Eligible for Future
Sale," and "Underwriting."
POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION AND ISSUANCE OF PREFERRED STOCK
The Company's Board of Directors is authorized to issue up to 5,000,000
shares of preferred stock. The Board of Directors has the power to establish
the dividend rates, liquidation preferences, voting rights, redemption and
conversion terms, and all other rights, preferences and privileges with respect
to any series of preferred stock. The issuance of any series of preferred stock
having rights superior to those of the Common Stock may result in a decrease in
the value or market price of the Common Stock and could be used by the Board of
Directors as a means to prevent a change in control of the Company. Future
issuances of preferred stock may provide for dividends, certain preferences in
liquidation, as well as conversion rights. Such preferred stock issuances could
make the possible takeover of the Company, or the removal of management of the
Company, more difficult. The issuance of such preferred stock could discourage
hostile bids for control of the Company in which shareholders could receive
premiums for their Common Stock or Warrants, could adversely affect the voting
and other rights of the holders of the Common Stock, or could depress the market
price of the Common Stock or Warrants.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
Each Warrant will entitle the holder to purchase one Common Share at an
exercise price equal to 150% of the Offering Price commencing from the effective
date of the Registration Statement ("Effective Date"). The Warrants are
redeemable by the Company for $.05 per Warrant at any time after the Common
Shares and Warrants become separately tradable. To redeem the Warrants the
Company must provide at least 30 days prior written notice, and may only provide
such notice after the closing price of the Common Stock has for 20 consecutive
trading days within the 30 day period preceding the date of the notice of
redemption equaled or exceeded 140% of the Offering Price. In the event the
Company exercises its right to redeem the Warrants, a holder would be forced:
(i) to exercise the Warrant within the period of the notice of redemption, which
could occur at a time when it may be disadvantageous for them to do so; (ii) to
sell the Warrants at the then current market price, which could be at a time the
holder might otherwise wish to hold them; or (iii) to accept the redemption
price which will likely be substantially less than the market value of the
Warrants at the time of redemption. The Company may elect to call all of the
Warrants for redemption as soon as the trading price of its Common Stock meets
the minimum amount for the specified number of days, provided it is one year
from the Effective Date, or such earlier date as may be determined by the
Representative, and a current Prospectus relating to the Common Shares
underlying such Warrants is then in effect. See "Description of Securities -
Warrants."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
Although the Company has tentatively allocated the net proceeds from this
Offering for various uses, the projected expenditures are estimates and
approximations only and do not represent firm commitments of the Company.
Accordingly, the Company's management will retain broad discretion in the use of
these funds. In the event the
16
<PAGE>
Company's plans change, or if the proceeds of this Offering or cash flow
otherwise prove to be insufficient to fund operations, the Company may find it
necessary or advisable to reallocate some or all of the proceeds from the
Offering or may be required to seek additional financing or curtail its product
development activities. There can be no assurance any additional financing will
be available to the Company or that any available financing will be on
commercially reasonable terms. See "Use of Proceeds."
ANTI-TAKEOVER PROVISIONS; LIMITATION ON VOTING RIGHTS
The Company's Amended and Restated Articles of Incorporation ("Articles")
and its Bylaws contain provisions that may make it more difficult to acquire
control of the Company by means of tender offer, over-the-counter purchases,
a proxy fight, or otherwise. The Articles also include provisions
restricting shareholder voting rights. The Company's Articles include a
provision prohibiting action by written consent of the shareholders. The
Company's Articles provide that certain provisions of the Articles may only
be amended by a vote of 662/3% of the shareholders. The Company's Articles
also require that shareholders give advance notice to the Company of any
nomination for election to the Board of Directors, or other business to be
brought at any shareholders' meeting. This provision makes it more difficult
for shareholders to nominate candidates to the Board of Directors who are not
supported by management. In addition, the Articles require advance notice
for shareholder proposals to be brought before a meeting of shareholders and
requires the notice to specify certain information regarding the shareholder
and the proposal. This provision makes it more difficult to implement
shareholder proposals even if a majority of shareholders are in support
thereof. Each of these provisions may also have the effect of deterring
hostile take-overs or delaying changes in control or management of the
Company. In addition, the indemnification provisions of the Company's
Articles and Bylaws may represent a conflict of interest between management
and the shareholders since officers and directors may be indemnified prior to
any judicial determinations as to their conduct. The Articles provide that
the shareholders' right to cumulative voting will terminate automatically
when the Company's shares are listed on either the New York Stock Exchange or
the American Stock Exchange, or alternatively when the Company's shares are
qualified for trading as a National Market System ("NMS") security on the
Nasdaq Stock Market, and the Company has at least 800 shareholders as of the
record date for the most recent meeting of shareholders. Upon consummation
of this Offering, the Common Shares are anticipated to be listed on AMEX.
Therefore, cumulative voting will likely terminate following consummation of
this Offering. When and if the Company so qualifies, the absence of
cumulative voting may have the effect of limiting the ability of minority
shareholders to effect changes in the Board of Directors and, as a result,
may have the effect of deterring hostile takeovers or delaying or preventing
changes in control or management of the Company.
The Company's Articles also include a provision ("Fair Price Provision")
requiring the approval of the holders of 662/3% of the Company's voting stock
as a condition to a merger or certain other business transactions with, or
proposed by, a holder of 15% or more of the Company's voting stock (an
"Interested Shareholder"), except in cases where the continuing directors
approve the transaction or certain minimum price criteria and other
procedural requirements are met. A "Continuing Director" is a director who
is not affiliated with an Interested Shareholder and was elected prior to the
time such Interested Shareholder became an Interested Shareholder, or any
successor chosen by a majority of the Continuing Directors. The minimum
price criteria generally require that, in a transaction in which shareholders
are to receive payments, holders of Common Stock must receive a value equal
to the highest price of: (i) the price paid by the Interested Shareholder for
Common Stock during the prior two years; (ii) the Fair Market Value (as
defined) at the time; or (iii) the amount paid in the transaction in which
such person became an Interested Shareholder. In addition, such payment must
be made in cash or in the type of consideration paid by the Interested
Shareholder for the greatest portion of the Interested Shareholder's shares.
The Company's Board of Directors believes the Fair Price Provision will help
assure similar treatment for all of the Company's shareholders if certain
kinds of business combinations are effected. However, the Fair Price
Provision may make it more difficult to accomplish certain transactions
potentially beneficial to shareholders, but opposed by the incumbent Board of
Directors.
The Company's Articles provide for a classified Board of Directors to
automatically become effective when the Company's shares are listed on either
the New York Stock Exchange or the American Stock Exchange, or alternatively
when shares of Common Stock of the Company are qualified for trading as a NMS
security, and the Company has at least 800 shareholders as of the record date
for the most recent meeting of shareholders. The classified Board of
Directors provisions, when and if effective, divide the Board of Directors
into two or more classes of directors serving staggered
17
<PAGE>
two-year terms, with one director to be elected at each annual meeting of
shareholders. The classification of directors extends the time required to
change the composition of the Board of Directors. Upon consummation of this
Offering, the Common Shares and Warrants are anticipated to be listed on the
American Stock Exchange which will result in a classified Board of Directors.
See "Description of Securities - Possible Anti-Takeover Effect of Certain
Provisions of the Company's Articles of Incorporation."
NO ASSURANCE OF PUBLIC MARKET
Prior to this Offering, there has been no public trading market of the
securities of the Company. There can be no assurance a regular trading
market for the Common Shares and Warrants will develop after this Offering
or, if developed, it will be sustained.
NO DIVIDENDS
The Company has never paid cash or other dividends on its Common Stock.
It is the Company's intention to retain earnings, if any, to finance the
operation and expansion of its business, and therefore, it does not expect to
pay any cash dividends in the foreseeable future. See "Dividend Policy."
POSSIBLE DELISTING OF SECURITIES FROM THE AMEX AND POSSIBLE MARKET ILLIQUIDITY
While the Company expects the Common Shares and Warrants will be included
for initial listing on the AMEX there can be no assurance the Company will
meet the criteria for continued listing of the Securities on AMEX. Based on
existing listing criteria, an AMEX listing will generally require the Company
to have a minimum public distribution of 500,000 shares of Common Stock with
a minimum of 800 public holders or a minimum distribution of 1,000,000 shares
with a minimum of 400 public holders, a minimum market price of $3.00 per
share, shareholder equity of $4,000,000 and aggregate market value of
publicly held shares of $15,000,000. AMEX has adopted a number of
alternative and additional criteria for listing and there is no assurance the
Company will be successful in obtaining a listing or in maintaining its
listing, once granted. In the event the Company is either unsuccessful in
obtaining an initial listing or is thereafter delisted for any reason,
investors would likely find it more difficult to dispose of the Securities,
or to obtain accurate quotations as to their value.
DISCLOSURES RELATING TO LOW PRICED STOCKS; POSSIBLE RESTRICTIONS ON RESALE OF
LOW PRICED STOCKS AND ON BROKER-DEALER SALES; POSSIBLE ADVERSE EFFECT OF
"PENNY STOCK" RULES ON LIQUIDITY FOR THE COMPANY'S SECURITIES
If the Securities were delisted from the AMEX (see "Possible Delisting of
Securities from AMEX and Possible Market Illiquidity" above) at a time when
the Company had net tangible assets of $2,000,000 or less, further
transactions in the Securities would become subject to Rule 15g-9 under the
Securities Exchange Act of 1934 (the "Exchange Act"). Rule 15g-9 imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with a net worth in excess of $1,000,000
or annual income exceeding $200,000 individually, or $300,000 together with
their spouses). For transactions covered by this Rule, a broker-dealer must
make a special suitability determination for the purchaser and have received
the purchaser's written consent to the transaction prior to the sale.
Consequently, this Rule could affect the ability of broker-dealers to sell
the Securities, and may affect the ability of purchasers in this Offering to
sell any of the Securities acquired hereby in the secondary market.
The Commission has adopted regulations which generally define a "penny
stock" to be any security of a company that has a market price (as therein
defined) less than $5.00 per share, or with an exercise price of less than
$5.00 per share subject to certain exceptions, and which is not traded on any
exchange or quoted on Nasdaq. For any transaction by broker-dealers
involving a penny stock, unless exempt, the rules require delivery of a risk
disclosure document relating to the penny stock market prior to a transaction
in a penny stock. Disclosure is also required to be made about
18
<PAGE>
compensation payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for
the penny stock held in an account and information on the limited market in
penny stocks.
The foregoing restrictions will not apply to the Securities if the
Securities are listed on AMEX or another exchange or on Nasdaq, and have
certain price and volume information provided on a current and continuing
basis, or if the Company meets certain minimum net tangible asset
requirements, or certain average annual revenue criteria over specific
periods. There can be no assurance the Securities will continue to qualify
for exemption from these restrictions. If the Securities were subject to
these restrictions, the market liquidity for the Securities could be
materially and adversely affected.
CONTRACTUAL OBLIGATIONS TO REPRESENTATIVE
The Underwriting Agreement with the Representative provides for the
Company's continuing involvement with the Representative after the Offering,
including: (i) the Company's agreement to retain the Representative as a
consultant for two years from the date of this Prospectus for a fee of $3,000
per month; (ii) the Company's agreement to allow the Representative to
nominate one director or to designate a consultant to the Board of Directors
for a period of four years from the date of this Prospectus; (iii) the
Company's agreement to appoint the Representative as Warrant solicitation
agent and to pay a fee for such services equal to two percent of the exercise
price of Warrant exercises solicited by the Representative; and (iv) the
grant to the Representative of an option to purchase 250,000 Units at an
exercise price of $6.60 per Unit, or 120% of the Offering Price. The ongoing
fees to be paid to the Representative will reduce the amount of working
capital available for other purposes. See "Underwriting." In addition,
pursuant to a warrant agreement between the Company and the Representative,
the holders of the Representative's Options have the right, for a period of
five years, to require the registration under the Securities Act, at the
Company's expense, of the Common Shares and Warrants issuable upon exercise
of the Representative's Option and of the Common Shares issuable upon
exercise of the Warrants included therein, as well as certain "piggyback"
registration rights. The cost to the Company of effecting a demand
registration may be substantial. See "Description of Securities
- -Representative's Options."
To the extent the Representative elects to effect transactions in the
Company's Common Shares and Warrants, the Representative may exert a dominating
influence on the market for such Common Shares and Warrants. Such market making
activity may be discontinued at any time. In the event the Representative
elects or is forced to discontinue such activity following the completion of the
Offering, the price and liquidity of the Common Shares and Warrants may be
materially adversely affected. Further, as a result of the Representative's
role as a Warrant solicitation agent, unless granted an exemption by the
Commission from its rules, the Representative may be prohibited from engaging in
any market making activities with regard to the Company's Securities for the
period from one to five business days prior to any solicitation by the
Representative of the exercise of the Warrants until the later of: (i)
termination of such solicitation activity; or (ii) the termination, by waiver or
otherwise, of any right that the Representative may have to receive a fee for
the exercise of the Warrants following the solicitation. As a result, the
Representative may be unable to continue to provide a market for the Company's
Securities under certain periods while the Warrants are exercisable. See
"Underwriting."
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<PAGE>
USE OF PROCEEDS
The Company estimates the net proceeds from the sale of the 2,500,000 Units
offered hereby will be approximately $11.6 million assuming an Offering Price of
$5.50 per Unit, and after deducting underwriting discounts and commissions of
$1,306,300 and other expenses of this Offering estimated to be approximately
$807,500 (which includes the Representative's non-accountable expense
allowance). The Company intends to use the proceeds substantially as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE
APPLICATION OF PROCEEDS DOLLAR AMOUNT OF NET PROCEEDS
------------------------ ------------- ---------------
<S> <C> <C>
Acquisition of manufacturing equipment......................... $3,250,000 28%
Marketing...................................................... 2,000,000 17
Research and development....................................... 1,500,000 13
Repayment of certain loans and deferred consulting fees(1)..... 1,571,000 14
Expansion of facilities(2)..................................... 750,000 6
Prepaid royalties(3)........................................... 250,000 2
Working capital and general corporate purposes................. 2,315,000 20
----------- ------
$11,636,000 100%
----------- ------
----------- ------
</TABLE>
- ----------------------------
(1) Includes repayment of principal and accrued interest on certain loans in
the original principal amount of $1,245,000 (the "Bridge Loans"), and
payment of deferred consulting fees to one consultant in the amount of
$72,000 as of November 1, 1997, increasing at the rate of $5,000 per month
thereafter. The Bridge Loans all provide for accruing interest at 10% per
annum, with all interest and principal due upon the earlier to occur of
five business days after completion of this Offering, or 25 months. The
Bridge Loans were issued between December, 1996 and May, 1997. One Bridge
Loan contains a provision which allows the Company to convert the amount
owed to Common Stock based on a purchase price of one half of the Offering
Price. The amount shown above also includes repayment of equipment leases
in the approximate amount of $150,000.
(2) The Company has entered into a lease in order to relocate its facilities to
an approximately 28,400 square foot single user building presently under
construction. Includes the Company's estimate of costs to conform the
building to its requirements.
(3) Five year prepayment of minimum royalty due pursuant to IHI License.
The estimates shown above exclude any proceeds from exercise of any of the
Warrants, the Representative's Options, the Over-allotment Option, and other
outstanding options and warrants to acquire the Common Stock of the Company.
The Common Shares included in all Units purchased pursuant to exercise of the
Over-allotment Option will be sold by Knickerbocker and the Company will not
receive any of the proceeds from the sale of such Common Shares. The Company
will receive the proceeds from the sale of the Warrants included in all Units
purchased pursuant to exercise of the Over-allotment Option. The net proceeds,
if any, from the exercise of the Warrants, the Representative's Options or other
outstanding options and warrants will be added to working capital.
The Company may use a portion of the net proceeds of this Offering to
acquire businesses, products, or technologies anticipated by management to be
complementary to those of the Company. The Company has no present plans,
agreements, or commitments and is not currently engaged in any negotiations with
respect to any such transaction.
The Board of Directors has broad discretion in determining how the net
proceeds of this Offering will be applied. The foregoing represents the
Company's best estimate of the allocation and use of proceeds based upon its
present plans and certain assumptions including industry conditions and the
Company's anticipated expenditures. The projected expenditures described
above are estimates and approximations only and do not represent firm
commitments of the Company. Actual expenditures may vary substantially from
these estimates depending upon many factors, including the costs and results
of research and product development activities, marketing studies, product
testing, product availability, costs of third party manufacturing facilities,
market acceptance of the Company's proposed containers, changes in current
regulations or competitive conditions, and the availability of other
financing arrangements.
The Company's future capital requirements will depend upon numerous
factors, including the amount of revenues generated from operations (if any),
the cost of the Company's sales and marketing activities and the progress of
the
20
<PAGE>
Company's research and development activities, none of which can be predicted
with certainty. The Company anticipates the proceeds of this Offering,
together with existing capital resources and cash generated from operations,
if any, will be sufficient to meet the Company's cash requirements for at
least the next 18-24 months at its anticipated level of operations. However,
the Company may seek additional funding during the next 24 months and could
seek additional funding after such time. There can be no assurance any
additional financing will be available on acceptable terms, or at all, when
required by the Company. Moreover, if additional financing is not available,
the Company could be required to reduce or suspend its operations, seek an
acquisition partner or sell securities on terms that may be highly dilutive
or otherwise disadvantageous to investors purchasing the Units offered
hereby. The Company has experienced in the past, and may continue to
experience, operational difficulties and delays in its product development
due to working capital constraints. Any such difficulties or delays could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 of Notes to
Financial Statements.
Pending use of the proceeds from this Offering as set forth above, the
Company will invest all or a portion of such proceeds in short-term bank
certificates of deposit, U.S. Government obligations, money market investments,
and short-term investment grade securities.
DIVIDEND POLICY
No dividends have ever been paid on the Company's Common Stock and the
Company does not currently anticipate paying any cash or other dividends on the
Common Stock, but instead intends to retain future earnings, if any, for
reinvestment in the Company. Future dividend policy will be determined by the
Board of Directors of the Company in light of prevailing financial need,
earnings, if any, as well as other relevant factors. In addition, any financing
which the Company may obtain in the future may contain provisions restricting
the Company's ability to pay dividends.
DILUTION
Dilution represents the difference between the Offering Price per share
paid by purchasers in this Offering, and the pro forma net tangible book
value per share immediately after completion of this Offering. "Net tangible
book value per share" represents the amount of the Company's total assets
less the amount of its intangible assets and its liabilities, divided by the
number of shares of Common Stock outstanding. As of June 30, 1997, as
adjusted for the Recent Issuances, the negative net tangible book value of
the Company was $(164,800), or $(0.05) per share of Common Stock, based on
3,089,478 shares of Common Stock outstanding as of date of this Prospectus.
After giving effect to the receipt of the net proceeds from the sale by the
Company of 2,500,000 Units offered hereby at an estimated Offering Price of
$5.50 per Unit (assuming no part of the Offering Price is allocated to the
Warrants), and after deduction of estimated underwriting discounts and
commissions and offering expenses to be incurred by the Company in connection
with this Offering, the pro forma net tangible book value of the Company at
June 30, 1997 adjusted for the Recent Issuances would have been approximately
$11,471,500, or $2.05 per share based on 5,589,478 shares of Common Stock to
be outstanding. This represents an immediate increase in such pro forma net
tangible book value of $2.10 per share to existing shareholders and an
immediate dilution of $3.45 per share to new investors purchasing the Units
offered herein, which dilution amounts to approximately 63% of the Offering
Price per share of Common Stock.
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<PAGE>
The following table illustrates the per share dilution resulting from this
Offering.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assumed Offering Price per share(1).................................................. $5.50
Negative tangible book value per share as of June 30, 1997...................... $(0.21)
Adjustment for the Recent Issuances(2)........................................ 0.16
------
Negative tangible book value after Recent Issuances............................. (0.05)
Increase in net tangible book value per share attributable to new investors..... 2.10
------
Pro forma net tangible book value per share value after Offering..................... 2.05
-----
Dilution per share to new investors(3)............................................... $3.45
-----
-----
</TABLE>
- -----------------------------
(1) Assumes no allocation of the Offering Price to the Warrants.
(2) Pro forma reflects the Recent Issuances.
(3) Does not reflect the issuance of up to: (i) 375,000 shares contained in the
Units issuable upon exercise of the Warrants included as part of
Over-Allotment Option; (ii) 2,500,000 shares issuable upon exercise of the
Warrants included as part of the Units offered hereby; (iii) 500,000 shares
issuable upon exercise of the Representative's Options and the
Representative's Warrants included in the Representative's Options; (iv)
545,400 shares reserved for issuance under the Company's 1996 Stock Plan of
which options to acquire 113,000 shares have been granted prior to the date
of this Prospectus; and (v) 1,667,093 shares underlying other options and
warrants granted prior to the date of the Prospectus. See "Management,"
"Description of Securities," and "Underwriting."
The following table sets forth, as of June 30, 1997, after giving effect
to the Recent Issuances: (i) the number of shares of Common Stock purchased
from the Company by the existing shareholders, the total consideration paid
and the average price per share paid for such shares by the existing
shareholders; and (ii) the number of Common Shares to be sold by the Company
to the purchasers of the 2,500,000 Units offered hereby, the total
consideration to be paid and the average price per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------------- ---------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders............. 3,089,478 55.3% $ 2,047,000 13.0% $0.66
New Investors..................... 2,500,000 44.7 13,750,000 87.0 $5.50(1)
----------- ----- ----------- -----
Total.......................... 5,589,478(2) 100.0% $15,797,000 100.0%
----------- ----- ----------- -----
----------- ----- ----------- -----
</TABLE>
- ------------------------------
(1) Of the assumed $5.50 Offering Price, $5.40 is attributed to one Common
Share and $0.10 is attributed to one Warrant.
(2) Does not reflect the issuance of up to: (i) 375,000 shares contained in the
Units issuable upon exercise of the Warrants included as part of
Over-Allotment Option; (ii) 2,500,000 shares issuable upon exercise of the
Warrants included as part of the Units offered hereby; (iii) 500,000 shares
issuable upon exercise of the Representative's Options and the
Representative's Warrants included in the Representative's Options; (iv)
545,400 shares reserved for issuance under the Company's 1996 Stock Plan of
which options to acquire 113,000 shares have been granted prior to the date
of this Prospectus; and (v) 1,667,093 shares underlying other options and
warrants granted prior to the date of the Prospectus. See "Management,"
"Description of Securities," and "Underwriting."
22
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company: (i) actual at June 30, 1997; (ii) pro forma to reflect the
Recent Issuances; and (iii) as adjusted to reflect the Recent Issuances and
the sale by the Company of 2,500,000 Units offered hereby at an estimated
Offering Price of $5.50 per Unit and the initial application of the estimated
net proceeds of $11.6 million of this Offering (after deducting the
underwriting discounts and commissions and estimated related expenses to be
incurred). The table should be read in conjunction with the audited and
unaudited financial statements and notes thereto appearing elsewhere in the
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- -------------
<S> <C> <C> <C>
Short term debt(1) . . . . . . . . . . . . . $ 1,245,000 1,245,000 ---
------------- ------------- -------------
------------- ------------- -------------
Preferred Stock no par value, 5,000,000
shares authorized, of which no
shares have been issued . . . . . . . . . --- --- ---
Common Stock no par value
20,000,000 shares authorized
2,965,163 shares issued and outstanding
(actual); 3,089,478 shares issued and
outstanding (pro forma);
5,589,478 shares issued and outstanding
(pro forma) as adjusted(2). . . . . . . . 1,606,300 2,047,200 13,683,500
Additional paid-in capital . . . . . . . . . 993,800 1,000,900 1,000,900
Deficit accumulated during the
development stage . . . . . . . . . . . . . (2,762,000) (2,762,000) (2,762,000)
Deferred compensation . . . . . . . . . . . (440,200) (440,200) (440,200)
------------- ------------- -------------
Total shareholders' equity (deficit) . . . . . (602,100) (154,100) 11,482,200
------------- ------------- -------------
Total capitalization . . . . . . . . . . . . . $ (602,100) (154,100) 11,482,200
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
- --------------------
(1) Pro forma reflects the Recent Issuances.
(2) Adjusted to reflect the Recent Issuances (Note 1 above) and the sale by
the Company of the 2,500,000 Units offered hereby at an assumed Offering
Price of $5.50 per Unit, and the application of the estimated net
proceeds therefrom of $11.6 million. The pro forma as adjusted also
reflects the repayment of principal and interest on the bridge loans of
$1,245,000, payment of deferred consulting fees of $55,000 and the
repayment of equipment leases of approximately $150,000. See "Use of
Proceeds," "Capitalization" and "Certain Transactions."
(3) Consists of Bridge Loans received by the Company that will be repaid from
the proceeds from this Offering.
(4) Excludes: (i) 2,500,000 shares reserved for issuance upon exercise of the
Warrants; (ii) 375,000 shares issuable upon exercise of the Warrants
included within the Over-allotment Option; (iii) 250,000 shares issuable
upon exercise of the Representative's Options; (iv) 250,000 shares issuable
upon exercise of the Representative's Warrants included in the
Representative's Options; (v) 545,400 shares reserved for issuance under
the Company's 1996 Stock Plan, of which options to acquire 113,000 shares
of Common Stock have been granted prior to the date of this Prospectus;
(vi) 1,266,506 shares underlying other outstanding options granted prior to
the date of this Prospectus; and (vii) 400,587 shares reserved for issuance
upon exercise of outstanding warrants issued prior to the date of this
Prospectus. See "Management," "Description of Securities," "Underwriting,"
and Note 7 of Notes to Financial Statements.
23
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below under the captions "Statement
of Operations Data" and "Balance Sheet Data" should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Financial Statements and Notes thereto, and the independent
auditors' report, which contains an explanatory paragraph that states that the
Company's recurring losses from operations and net capital deficiency raise
substantial doubt about its ability to continue as a going concern, and other
financial information included elsewhere. The Statement of Operations Data for
the years ended December 31, 1995 and 1996, the period from November 8, 1994
(inception) through December 31, 1996, and the Balance Sheet Data as of December
31, 1996 are derived from the financial statements of the Company, which
financial statements have been audited by KPMG Peat Marwick LLP, independent
auditors. The financial statements as of December 31, 1996, and for each of the
years in the two-year period ended December 31, 1996, the period from November
8, 1994 (inception) through December 31, 1996, and the independent auditors'
report thereon, are included elsewhere in this Prospectus. The unaudited
financial statements have been prepared on a basis consistent with the Company's
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, that management believes necessary for a fair
presentation of the Company's financial position and results of operations for
these periods. Results of operations for the six months ended June 30, 1997
are not necessarily indicative of results to be expected for the year ended
December 31, 1997, or a full year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS SIX MONTHS FROM INCEPTION
------------------------ ENDED ENDED THROUGH
1995 1996 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1997
--------- ----------- ------------- ------------- --------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Marketing, general and
administrative. . . . . . . . . . . . . . . $ 94,500 830,400 52,100 786,200 1,723,400
Research and development. . . . . . . . . . 67,900 235,900 167,600 258,900 562,700
Stock-based compensation expense. . . . . . - 379,300 - 17,200 396,500
--------- ----------- ---------- ------------ -----------
Total operating expenses . . . . . . . . . 162,400 1,445,600 219,700 1,062,300 2,682,600
Interest expense . . . . . . . . . . . . . . 1,700 22,800 400 54,700 79,400
--------- ----------- ---------- ------------ -----------
Net loss(1). . . . . . . . . . . . . . . . . $(164,100) (1,468,400) (220,100) (1,117,000) (2,762,000)
--------- ----------- ---------- ------------ -----------
--------- ----------- ---------- ------------ -----------
Net loss per common share(1)................. $ (0.06) (0.46) (0.08) (0.28)
--------- ----------- ---------- ------------
Weighted average common and
common equivalent shares
outstanding(1)............................. 2,604,900 3,174,100 2,790,900 3,959,000
--------- ----------- ---------- ------------
--------- ----------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: DECEMBER 31, 1996 JUNE 30, 1997
----------------- ------------------------
ACTUAL PRO FORMA (2(3)
AS ADJUSTED
<S> <C> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . $12,000 $514,800 $11,109,100
Working capital (deficit). . . . . . . . . . . . (220,800) (953,900) 11,015,400
Total assets . . . . . . . . . . . . . . . . . . 328,600 999,800 11,594,100
Total liabilities. . . . . . . . . . . . . . . . 445,400 1,601,900 111,900
Deficit accumulated during the development stage (1,645,000) (2,762,000) (2,762,000)
Shareholders' equity (deficit) . . . . . . . . . (116,800) (602,100) 11,482,200
</TABLE>
- ------------------------------
(1) See Note 1 of Notes to Financial Statements for information concerning the
computation of net loss per common share and shares used in computing net
loss per share.
(2) Pro forma reflects the Recent Issuances.
(3) Adjusted to reflect the Recent Issuances (Note 2 above) and the sale by
the Company of the 2,500,000 Units offered hereby at an assumed Offering
Price of $5.50 per Unit, and the application of the estimated net
proceeds therefrom of $11.6 million. The pro forma as adjusted also
reflects the repayment of principal and interest on the bridge loans of
$1,245,000, payment of deferred consulting fees of $55,000 and the
repayment of equipment leases of approximately $150,000. See "Use of
Proceeds" and "Capitalization."
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES
THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE
CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE
TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS
PROSPECTUS. SEE "FORWARD-LOOKING STATEMENTS." THE COMPANY'S ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS
AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED
IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Ontro, Inc. is engaged in the research and development of integrated
thermal containers. The Company, through a related entity, has worldwide,
exclusive rights to patented and patent pending products and technology for
self-heating and self-cooling containers. The Company plans on licensing its
integrated thermal containers to food, beverage, and container manufacturers who
will manufacture, market, and sell the containers under their own brand names or
to third parties. At this time the Company is still in its development stage
with no commercially available products and there can be no assurance that the
Company will successfully develop, manufacture, and market its proprietary
containers or technologies.
The Company has never generated any revenue from product sales or through
licensing agreements and has relied on private equity financing and Bridge
Loans. The Company has been unprofitable since its inception and expects to
incur additional operating losses in 1997 and 1998. As of June 30, 1997, the
Company's accumulated deficit was $2,762,000, and it had a working capital
deficiency of $953,900. Until September, 1996, the Company's shareholders
elected to have the Company be treated as an S Corporation in which all
losses passed through to the shareholders to be reported on their personal
tax returns. In September 1996, the Company elected to be treated as a C
Corporation for tax reporting purposes. At December 31, 1996, the Company
had available net operating loss carry forwards of approximately $548,000 for
federal income tax reporting purposes which expire in 2011.
The Company's recurring operating losses and cash flow deficiencies and
working capital and shareholders' deficiencies as of December 31, 1996, raise
substantial doubt about the Company's ability to continue as a going concern.
Therefore, Management believes that the Company will need substantial funds
from debt or equity financing such as the funds that would be provided if
this Offering were consummated.
LIQUIDITY AND CAPITAL RESOURCES
From inception, the Company financed its operations primarily through
private placements of equity securities, which provided aggregate net
proceeds of approximately $2,047,000 and bridge loans of $1,245,000.
The Company raised $1,245,000 from sales of the Bridge Loans from
December, 1996 through May, 1997. At June 30, 1997, the Company's current
liabilities exceeded its current assets by approximately $953,900 and its
cash balance was $514,800. Since such date, the Company has expended all of
the net proceeds from the sale of the Bridge Loans as well as approximately
$115,000 of the proceeds from Recent Issuances. The Company's cash position
has declined accordingly.
Net cash used by operating activities for the years ended 1995 and 1996
was $132,100 and $693,800 respectively. The Company's net cash flow used by
investing activities was $32,500 in 1995 and $150,100 in 1996. Net cash
flows from financing activities were $146,000 in 1995 and $854,300 in 1996.
During the 12-month period following the consummation of this Offering
the Company plans to spend $3,250,000 for capital equipment and $750,000 for
improvement to its new facility.
25
<PAGE>
The Company's future capital requirements will depend upon numerous
factors, including the amount of revenues generated from operations (if any),
the cost of the Company's sales and marketing activities and the progress of the
Company's research and development activities, none of which can be predicted
with certainty. The Company anticipates the proceeds of this Offering, together
with existing capital resources and cash generated from operations, if any, will
be sufficient to meet the Company's cash requirements for at least the next
18-24 months at its anticipated level of operations. However, the Company may
seek additional funding during the next 24 months and could seek additional
funding after such time. There can be no assurance any additional financing
will be available on acceptable terms, or at all, when required by the Company.
Moreover, if additional financing is not available, the Company could be
required to reduce or suspend its operations, seek an acquisition partner or
sell securities on terms that may be highly dilutive or otherwise
disadvantageous to investors purchasing the Units offered hereby. The Company
has experienced in the past, and may continue to experience, operational
difficulties and delays in its product development due to working capital
constraints. Any such difficulties or delays could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 1 of Notes to Financial Statements.
RESULTS OF OPERATIONS
The Company incurred a loss of $1,117,000 in the six months ended June
30, 1997 (the "1997 first six months"), $1,468,400 for the year ended
December 31, 1996 ("1996"); and $164,100 for the year ended December 31, 1995
("1995").
Research and development expenses increased $91,300 to $258,900 for the
1997 first six months from $167,600 for the six months ended June 30, 1996
(the "1996 first six months") and increased $168,000 to $235,900 for 1996
from $67,900 for 1995. These increases were due to additional costs of
outside consultants and companies hired by the Company to aid in its research
and development efforts, as well as salaries paid to employees in 1996. Prior
to May, 1996, the Company did not pay any salaries to employees.
The Company's marketing, general and administrative expenses increased
$734,100 to $786,200 in the 1997 first six months from $52,100 in the 1996
first six months and increased $735,900 to $830,400 in 1996 from $94,500 in
1995. These increases were due to a number of factors including the
following: (1) the hiring of business consultants to develop long-term
marketing and business strategies, (2) employee salaries in 1996, (3)
increase in professional fees, and (4) overall increase in corporate expenses
due to increased business activities at the Company.
During 1996, the Board of Directors granted and the stockholders approved
1,216,506 stock options outside the 1996 Stock Plan at a price range of
$0.001 to $3.00 to non-employees. The Company recognized $379,300 of
compensation expense to non-employees relating to these options during 1996
and deferred $405,700 of compensation expense for options that have not
vested as of December 31, 1996 using the prescribed valuation methods of SFAS
No. 123. The Company determined that the per share weighted average fair
value of stock options granted during 1996 was $0.67 on the date of grant.
Interest expense was $54,700 in the 1997 first six months compared to
$400 in the 1996 first six months and increased to $21,100 in 1996 from
$1,700 in 1995 due to short term borrowings and equipment financing.
NEW ACCOUNTING STANDARDS
In February, 1997, the FASB issued SFAS No. 128, "EARNINGS PER SHARE."
This statement specified the computation, presentation, and disclosure
requirements for earnings per share for entities with publicly held common stock
or potential common stock. This statement shall be effective for financial
statements for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. At this time the Company does not believe
that this statement will have a significant impact on the financial position or
results of operations for the year ending December 31, 1997.
In February, 1997, the FASB issued SFAS No. 129, "DISCLOSURE OF INFORMATION
ABOUT CAPITAL STRUCTURE." This statement shall be effective for financial
statements for both interim and annual periods ending after December 15, 1997.
26
<PAGE>
At this time the Company does not believe that this statement will have a
significant impact on the financial position or results of operations for the
year ending December 31, 1997.
In June, 1997, the FASB issued SFAS No. 130, "REPORTING COMPREHENSIVE
INCOME." This statement established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purposes financial statements. This statement shall be
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required. At this time the Company does not believe that this statement will
have a significant impact on the financial position or results of operations for
the year ending December 31, 1998.
In June, 1997, the FASB issued SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION." This statement established standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. This statement shall be effective for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. At this time the
Company does not believe that this statement will have a significant impact on
the financial position or results of operations for the year ending December 31,
1998.
BUSINESS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT
LIMITED TO, STATEMENTS REGARDING FUTURE EVENTS AND THE COMPANY'S PLANS AND
EXPECTATIONS. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THE PROSPECTUS OR INCORPORATED HEREIN BY
REFERENCE. SEE "FORWARD-LOOKING STATEMENTS."
OVERVIEW
Ontro, Inc. (the "Company" or "Ontro") is engaged in the research and
development of integrated thermal containers. The Company has the rights to
exploit a unique proprietary technology which it has incorporated into a
proposed product line of fully contained self-heating beverage containers
designed to heat liquid contents such as coffee, tea, hot chocolate, soups, and
baby formula. These containers are similar to typical beverage containers in
size and shape, and are activated by the consumer to heat the contents within a
few minutes. The Company seeks to market its container technology to develop
and expand a consumer market for remote and mobile heating of beverages and
other products.
The Company believes substantial market opportunities exist for the
exploitation of the Company's integrated thermal container technology. The
Company believes as society has become more mobile, demand has risen for remote
heating of goods, and conventional heating sources do not supply truly remote
consumption due primarily to inconvenience and the inability of consumers to
access these sources in a mobile environment. The Company's self-heating
containers are expected to meet the needs of consumers such as mothers requiring
warmed baby formula, commuters, mobile professionals, sports enthusiasts and
others without quick and convenient access to conventional heating sources.
The Company intends to become a leading provider of integrated thermal
containers and related technology to food, beverage and other manufacturers.
The Company's principal strategies include:
SUB-LICENSE AGREEMENTS WITH MAJOR FOOD, BEVERAGE AND CONTAINER COMPANIES.
The Company's principal marketing strategy is to target major food,
beverage and container manufacturers for the sub-license of its integrated
thermal container technologies. These manufacturers are expected to
manufacture, label, fill, market and distribute containers under their own brand
name or for third parties in exchange for providing the Company royalties and/or
research and development and marketing assistance. Management believes this
approach
27
<PAGE>
should allow the Company to access the manufacturing, marketing, name brand and
distribution capabilities of potential licensees without the high overhead costs
of plant, equipment and labor. The Company believes its integrated thermal
containers could assist manufacturers in offering a value-added product to
complement existing product lines and assist in expanding market share. To
date, the Company has entered into an evaluation agreement with Nestle USA Inc.
("Nestle") and a distribution agreement with Knickerbocker (see below).
STRATEGIC MANUFACTURING AND MARKETING.
Concurrently with seeking sub-license agreements, the Company plans to
directly produce and market self-heating beverage containers to selected
niche markets. The Company believes such manufacturing and marketing should
provide substantial benefits including: (i) additional revenues to fund
marketing efforts to major food, beverage and container companies as
described above; (ii) demonstration of product feasibility and the
manufacturing process; and (iii) providing evaluation units for use in
conducting marketing and product feasibility studies by the Company and
others. The Company plans to selectively market to customers and
distributors whom the Company believes would not interfere with potential
sub-licenses the Company intends to seek with major food and beverage
container manufacturers. The Company intends to use a portion of the net
proceeds of this Offering to complete its development of a full-scale
production facility.
DEVELOP INTEGRATED THERMAL TECHNOLOGY FOR OTHER APPLICATIONS.
The Company plans to develop additional integrated thermal containers to
further access the beverage market. The Company is designing a proprietary
reusable thermos-Registered Trademark- type container with insertable thermal
cartridges, which would allow the consumer to heat and re-heat, an integrated
thermal container filled by the consumer with the liquid of his/her choice. The
Company is developing a disposable self-heating baby bottle, which could be
pre-filled with formula and heated on demand. The Company's plans also include
additional research and development into designs and potential uses of
integrated thermal containers for medical, pharmaceutical, health, and beauty
products, as well as other potential industrial applications. The Company
intends to utilize the expertise of its management and Advisory Board to
identify market opportunities for its technology.
The Company has entered into an evaluation agreement (the "Evaluation
Agreement") with Nestle which allows Nestle an exclusive period to review the
Company's designs and technology in order to determine Nestle's interest in
acquiring rights for the commercial use of the Company's self-heating food and
beverage containers. The Evaluation Agreement requires Nestle to cooperate with
the Company in evaluating certain commercial uses and markets for the Company's
technology, and includes an obligation to pay for one-half of the cost of
certain market research studies that are currently underway.
The Company has also entered into a distributorship agreement with
Knickerbocker, a marketer of specialty products. The Company and Knickerbocker
are working to develop certain specialty lines of beverages which would utilize
the Company's integrated thermal containers and be marketed by Knickerbocker.
PRODUCTS
SELF-HEATING BEVERAGE CONTAINERS
The Company's first product is a fully contained, disposable, self-heating
beverage container similar in size and shape to an ordinary 16-ounce beverage
can. The containers are being designed to be heated by pushing a button on the
bottom of the container. Activating the heating mechanism by pressing the
button causes the contents in the container, such as approximately 10 ounces of
coffee, soup, tea, hot chocolate or baby formula, to safely warm to a pre-
determined range of temperatures within a specified range of time periods. The
container can then be opened by a typical style pop top for immediate
consumption. This product is expected to be available to the marketplace in the
last quarter of 1998.
The Company's proposed self-heating containers heat the contents inside the
container through a patented and patent pending process developed by the
Company. The process utilizes two separate compartments in the container. One
compartment holds the beverage or food. The second compartment contains
non-toxic heat activating ingredients and water which are segregated into two
component areas. Pressing the button causes the water to be mixed with the
28
<PAGE>
active ingredients and heat develops from the resulting chemical reaction. The
following diagram illustrates the current design of the Company's initial self-
heating beverage container.
To date, the Company has developed several prototypes which it believes
demonstrate the feasibility of its self-heating beverage container technology.
Management believes the key attributes of its systems are the following:
EASE OF USE - This system is designed so that a consumer can activate the
system merely by pushing a button; the contents are heated to a predetermined
range of temperatures within a specified range of time periods.
EASE OF USE BY MANUFACTURER - The Company's products are designed
to be easily integrated into a manufacturer's existing production system. The
current design of the self-heating container is similar to a 16 oz. beverage
container, which configuration should allow manufacturers to integrate
containers on an existing assembly line for filling without substantial
modification to their existing manufacturing processes.
[ONTRO SELF-HEATING CONTAINER DIAGRAM]
In addition, the Company's product is designed to be easily modified to
provide heated contents at a pre-determined range of temperatures within a
specified range of time periods. By varying the amount of heat activating
ingredients in the heating compartment, the manufacturer can tailor the time and
temperature to heat to the contents without altering the container itself.
EASE OF DISPLAY BY RETAIL DISTRIBUTORS - The container's current 16 oz.
style beverage configuration should allow distributors the ability to easily
integrate the product in space and point of purchase displays at supermarkets
and convenience stores without substantial modification to existing displays.
PRICING - The Company has designed the product to be easily and simply
manufactured, with readily available components. The Company believes that
manufacturers are more likely to integrate the process with existing products so
long as the incorporation of such technology does not result in substantial
price increases to consumers.
USE OF NON-TOXIC MATERIALS - The Company's products utilize non-toxic,
natural materials in its heating process. Management believes that consumers
could be more likely to purchase the Company's products if they believe the
beverage contents are not subject to toxic contamination from the heating
source.
The Company is continually evaluating certain design features of its
self-heating containers to refine such items as: the speed and efficiency of the
heat transfer; suitability for high viscosity contents; maintaining structural
integrity of the container; temperature control; and ease of use. Certain
aspects of the product are still under development. See "Manufacturing and
Products."
OTHER PROPOSED PRODUCTS
The Company is developing a self-heating food container which could be
pre-filled with items such as chili, soups, stews, and other food products. The
Company is also designing a proprietary reusable thermos-Registered Trademark-
type container with insertable thermal cartridges, which would allow the
consumer to heat and re-heat, or cool and re-cool, an integrated thermal
container filled by the consumer with the beverage of his/her choice.
29
<PAGE>
The Company plans to develop similar containers of differing designs, which
may be able to be used for beverages or food. For example, the Company is
developing a disposable self-heating baby bottle, which could be pre-filled with
formula and heated on demand. The Company plans on conducting additional
research and development into designs and potential uses of integrated thermal
containers for medical, pharmaceutical, health and beauty products, and other
potential industrial applications.
The Company believes it can formulate differing active ingredients to
enable the contents of its integrated thermal containers to be cooled. The
Company is currently investigating the development of self-cooling technology.
As of the date of this Prospectus, the Company has not expended substantial
research and development efforts toward and has not produced any prototypes of a
self-cooling container.
For the six months ended June 30, 1997 and the years ended December 31,
1996 and 1995, the Company expended $258,900, $235,900 and $67,900,
respectively, on research and development. The Company intends to spend a
portion of the net proceeds of this Offering on additional research and
development.
MARKETING
The Company's principal marketing strategy is to sub-license to major
manufacturers rights to integrated thermal container technologies developed by
or licensed to the Company. The initial focus of the Company's marketing
efforts will be on food and beverage and container manufacturers such as Nestle
who the Company believes may choose to package or sell containers, including
such contents as coffee, tea, hot chocolate, low-viscosity soups, and baby
formula. The Company is targeting companies such as Nestle which have large
operations in an effort to take advantage of their marketing and distribution
capabilities and brand name recognition. The Company intends to expend a
portion of the proceeds of this Offering on marketing.
Since the Company believes securing such sub-license agreements may be a
very time consuming process, the Company also plans to produce and sell self-
heating beverage containers to customers and distributors. The Company believes
this secondary marketing strategy may assist in generating revenues prior to the
time larger volume sub-license agreements, if any, are obtained. The Company
plans to select such customers and distributors who the Company believes would
not interfere with sub-licenses the Company intends to seek with major food and
beverage container manufacturers. The Company has executed one distributorship
agreement of this type to market its integrated thermal containers. See
"Distributorship Agreement."
There can be no assurance this secondary marketing strategy of direct sales
or distribution arrangements will be successful, or if it is, that such
agreements will not preclude or impede sub-license agreements, if any, with
major food and beverage or container manufacturers. The Company intends to
retain a small sales staff to pursue such direct sale and distribution
opportunities. To assist in securing sub-license candidates and to determine
the potential market for its proposed containers, the Company intends to conduct
significant marketing studies in the next year. It is anticipated such
marketing studies will be contracted from third parties; however, the Company
may conduct a portion of such marketing studies internally. There can be no
assurance the results of such marketing studies will be favorable to the
Company. If they are not, they could have a material adverse impact on the
business, financial condition, and results from operations of the Company.
DISTRIBUTORSHIP AGREEMENT
The Company has entered into a distributorship agreement with Knickerbocker
dated April 4, 1997 (the "LLK Agreement"). The LLK Agreement grants
Knickerbocker certain rights to market and distribute certain products
incorporated in the Company's integrated thermal containers. Knickerbocker has
the right to appoint sub-distributors, subject to approval by the Company.
Pursuant to the LLK Agreement, in the first calendar month after the Company
accepts an order, Knickerbocker must purchase a minimum of 50,000 containers;
the minimum requirement in the second month is 100,000 containers; a 200,000
container minimum is required in the third month; a 250,000 container minimum is
required during each calendar month thereafter for the next succeeding three
month period; and a minimum of 750,000 containers during each three month period
thereafter. Failure to purchase the minimum requirements is grounds for
termination. Knickerbocker has agreed not to disclose any confidential
information of the Company during the term of
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the LLK Agreement. The term of the LLK Agreement is five years. The price to
be paid by Knickerbocker for the containers is the published list price current
at the time of shipment. The Company is not required to ship any containers to
Knickerbocker until the applicable integrated thermal container is fully
developed and ready for commercial production. Although the Company anticipates
its self-heating containers may be ready to go to market in the fourth quarter
of 1998, no date is currently set for when any of the Company's integrated
thermal containers will be ready for commercial production. There can be no
assurance Knickerbocker will ever order any containers from the Company, or that
the Company will be able to develop any integrated thermal container to a point
it is ready for commercial production. Knickerbocker owns 858,673 shares of
Common Stock, which it purchased for $600,000 in September, 1996. Knickerbocker
owns 29,262 shares of IHI Common Stock, which it purchased for $50,000 in
September, 1996. Louis L. Knickerbocker, Chairman, Chief Executive Officer,
President, and significant shareholder of Knickerbocker, is a director of the
Company.
MANUFACTURING AND PRODUCTION
The Company intends to sub-license most of the integrated thermal container
technology developed by IHI to large food, beverage, and container
manufacturers. The Company believes this strategy could provide material
benefits, including use of the greater manufacturing, marketing, and
distribution expertise of such companies, and potential reduction of substantial
manufacturing costs. While no sub-license agreements have been executed to
date, the Company anticipates entering into sub-licenses where the sub-licensees
are responsible for purchasing the raw materials, manufacturing or contracting
for the manufacture of the container, labeling, filling, marketing, selling, and
distributing the integrated thermal container technology or any other related
technologies licensed by the Company and sub-licensed to them. There can be no
assurance the Company will be able to sub-license the IHI technology to anyone
including such companies, or on what terms.
As of the date hereof, the Company has a semi-automated production facility
located in approximately 2,000 square feet of industrial space. The production
facility is used to manufacture and assemble the components of the Company's
self-heating beverage containers. With the proceeds of this Offering, the
Company intends to move its administration offices and this production facility
to leased office-industrial space of approximately 33,000 square feet, and to
install additional integrated thermal container manufacturing equipment. The
Company's proposed new facility will be dedicated to research and development
and to manufacturing and assembling integrated thermal containers. The purpose
of the manufacturing and assembly facilities are to demonstrate the commercial
viability of the Company's manufacturing processes, to supply enough self-
heating containers for additional testing and market studies, and to produce
self-heating beverage containers which can be sold directly or to distributors.
It is anticipated containers sold directly or to distributors will be filled,
packaged, and distributed by the customer, the distributor or their contract
manufacturer. The Company does not intend to fill the contents of any
containers at its facilities. The Company's semi-automated production facility
is designed to allow most of the component parts of the Company's self-heating
beverage container, with the exception of the activating device, to be
manufactured on the Company's premises. The Company believes its production
facility will assist commercialization efforts as it is anticipated such
production efforts will assist in further refinement of the Company's integrated
thermal containers following future testing and marketing studies.
Contractors currently retained by the Company utilize the blow-molding
process to produce the main component of the Company's self-heating beverage
containers. In the blow-molding process, pellets of plastic resin are heated
and extruded into a tube of plastic. A two-piece metal mold is then closed
around the plastic tube, and high pressure air is blown into it, causing a
plastic container to form in conformance to the mold's shape. The Company
believes the blow-molding method is an established process in the plastic
beverage container industry. The Company believes the blow-molding process
offers certain advantages, including the following: it is less expensive than
injection molding; it is expected to allow the Company to completely control the
thickness of the inner and outer walls of the container thereby assisting in
heat retention and heat transfer; it generally results in a strong oxygen
barrier which could increase shelf stability; and all equipment used in the
process is generally available and can be purchased with little, if any, custom
parts or conversions. The Company intends to expend a substantial portion of
the proceeds of this Offering on acquiring and incorporating blow-molding
equipment into its production facility.
The Company has implemented certain quality control procedures for its
production facility. The Company's quality control personnel now regularly
monitor the manufacturing process and the Company anticipates they will monitor
additional items in the future such as blow-molding to assure the plastic
containers and component parts are free
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from defects. At such time, when the Company sells integrated thermal
containers produced by its facilities, if ever, the Company expects some or
all of its customers will impose additional quality control standards. It is
possible such customer or other required quality control standards will
require the expenditure of substantial resources over a long period of time,
or that the Company will determine such measures are not cost-effective.
To ensure contents are not contaminated during or after packaging and to
comply with food and beverage manufacturers' requirements, the Company has
refined the design of its containers so they may be filled by the various
sterilization processes, generally in use today for food and beverage
containers. The design of its containers currently allows them to be processed
through all but one (hot fill, aseptic, ultra high temperature, pasteurization,
and irradiation) method of sterilization. The Company is continuing to further
the development of its designs to enable its containers to also be suitable for
the "retort" method of sterilization. Sterilization methods generally expose
the containers to high temperatures and/or pressures, for a designated period of
time to sterilize the container of microorganisms which could have an effect
upon the contents therein. Some sterilization processes place a great deal of
stress on a container because the process subjects the container to high
pressure and/or high temperature for a period of time which can challenge the
seams or compromise the integrity of a plastic container. The Company believes
its self-heating beverage containers will be able to satisfactorily endure the
various sterilization processes with a beverage or liquid inside. There can be
no assurance the Company will resolve these design issues or resolve other
design issues which may appear during testing or commercial use.
To ensure sub-licensees, if any, comply with the level of quality control
standards the Company anticipates will be essential for its success, the Company
intends to require its sub-licensees to comply with what are known as the ISO
9000 standards. The Company plans to actively review the production processes
and to routinely test the goods produced by its sub-licensees. The Company also
plans on requiring any contract manufacturers to also comply with ISO 9000
standards. The Company believes ISO 9000 standards are generally regarded as
fairly rigorous. There can be no assurance the Company will be able to
successfully require sub-licensees or contractors to comply with these
standards, or any specific quality control standards.
The Company intends to design all integrated thermal containers used by its
licensees or contract manufacturers, and intends to participate in the design of
such parties production tooling and molds. The Company plans on requiring molds
and tooling used for the manufacture of containers utilizing its technologies to
comply with specifications and quality control parameters established by the
Company. There can be no assurance the Company will be able to adequately
monitor, require or assure such parameters are met or otherwise, adequately
control the manufacturing processes of any licensee or contract manufacturer.
The Company estimates its improved production facility utilizing a single
blow-molder and one eight hour shift should be able to produce approximately
2,000,000 containers per year, and using a double shift should be able to
produce approximately 4,000,000 containers per year. It is anticipated these
production figures could be increased with the installation of additional
equipment. There can be no assurance the proposed production facility, if
completed, will produce the estimated number of containers or if this number of
containers is produced, it will be sufficient to supply the demand, if any,
which may result for containers manufactured by the Company.
RAW MATERIALS AND SUPPLIERS
The primary raw materials used by the Company in the manufacture of its
integrated thermal containers are plastic resins, polyvinyl chloride (plastic),
calcium oxide, water, and foil seal lids. The Company does not currently have
agreements with any of its suppliers for the purchase of its raw materials.
Since it began developing its current self-heating prototypes the
Company has relied on Johnson Controls, Inc. and Complex Tool & Mold as the
sole sources of supply for its containers and the proprietary component
containing the water and the activation trigger, respectively. With the
proceeds of this Offering, the Company intends to purchase blow-molding
equipment and to manufacture self-heating beverage containers at its
semi-automated production facility, while continuing to rely on Johnson
Controls, Inc. as a supplier of related equipment components. There can be
no assurance Johnson Controls, Inc. will be able to continue to supply the
Company with adequate amounts of such components on a timely basis, so the
Company will be able to meet its production requirements, if any. The
unanticipated loss of Johnson Controls, Inc. or Complex Tool & Mold as
suppliers, or a delay in container shipments which occurs before the
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Company begins to manufacture its containers, could have a material adverse
impact on the Company, although the Company believes numerous other suppliers
are available for these components. The Company does not believe it is
materially dependent upon any single source for any of its raw materials. The
Company anticipates it will enter into agreements with certain raw material
suppliers after the completion of this Offering, although there can be no
assurance it will obtain supply agreements, if any, on acceptable terms and
conditions with any supplier.
The Company believes increases in the prices of its raw materials should be
able to be passed along to its licensees and customers. The inability to pass
on increased raw material costs could have a material adverse impact on the
Company's business, financial condition, and results from operations,
particularly if the Company is not able to pass on such price increases in the
license agreements, if any, with its intended market of food, beverage or
container manufacturers.
The primary plastic resins used by the Company are produced from
petrochemical intermediates derived from products of the natural gas and crude
oil refining processes. Natural gas and crude oil markets in the past have
experienced substantial cyclical price fluctuations as well as other market
disturbances, including shortages of supply and crises in some of the larger oil
producing regions of the world. The capacity, supply, and demand for plastic
resins and the petrochemical intermediates from which they are produced are also
subject to cyclical and other market factors. Consequently, plastic resin
prices may fluctuate as a result of natural gas and crude oil prices and the
capacity, supply and demand for resin and petrochemical intermediates.
LICENSE AGREEMENT WITH INSTA-HEAT, INC.
The Company's integrated thermal container technology was developed by
Insta-Heat, Inc., an affiliated corporation. IHI owns three issued and one
pending patent, and all intellectual property relating to the integrated thermal
container technology the Company is developing. The Company secured the
exclusive worldwide rights to IHI's proprietary technology and all associated
intellectual property from IHI, pursuant to a license agreement dated September
30, 1995, as amended. The IHI License grants the Company an exclusive worldwide
license in perpetuity to manufacture, use, sell, and promote IHI's intellectual
property and technologies and all possible commercial uses, improvements, and
products developed with IHI's technologies. The IHI License grants the Company
the right to sub-license the IHI technologies and to subcontract the manufacture
of all commercial uses and products resulting from the integrated thermal
container technology. The IHI License also grants the Company the right to
license all additional technology and intellectual property developed by IHI,
and all improvements to and continuations thereof.
The IHI License requires minimum royalty payments of $50,000 per year
and also requires additional royalty payments from the Company on the sale of
products utilizing IHI technology subject to the Company achieving $4 million
minimum annual net operating income after payment of the royalty and all
taxes. Upon achieving the required minimum net operating income the IHI
License requires additional royalty payments equal to the greater of: (i) two
percent of the gross sales of integrated thermal containers and products
developed in connection with it; or (ii) 1.5 cents per unit sold, for up to
the first $30 million in sales by the Company. For sales in excess of $30
million the IHI License requires additional royalty payments (subject to the
same minimum income levels) equal to the greater of: (i) three percent of
gross annual sales in excess of $30 million; or (ii) 1.5 cents per Unit sold.
Additional royalty payments are reduced 25% when IHI does not hold one or
more issued patents or patent applications on the IHI technology or any
commercial uses or products developed in connection therewith. Pursuant to
the terms of the IHI License, the Company is required to prosecute any patent
infringement claims regarding the IHI technology, and to defend any
infringement claims brought against IHI or the Company. In addition, the
Company is required to indemnify IHI for any claims or lawsuits brought
against IHI, regarding the IHI technology. The License may be terminated in
the event the Company ceases its business, dissolves or liquidates, or on
completion of any proceeding in bankruptcy or reorganization, or the
appointment of a permanent receiver or trustee, or any other proceeding under
any law for the relief of debtors, or on any assignment for the benefit of
the Company's creditors. Termination of the IHI License would have a
material adverse impact on the business, financial condition, and results
from operations of the Company since the Company would lose all its rights to
the IHI technology.
The IHI License includes an option in favor of the Company to purchase all
of the IHI technology and terminate the License for a payment to IHI of $3
million. The option term lasts until December 31, 1999 and may be extended for
one year at the election of the Company upon payment to IHI of $100,000. Any
prepaid minimum royalties may be
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applied to the option extension payments. The Company plans to use a portion of
the proceeds received from this Offering ($250,000) to prepay the minimum annual
royalty payments required by the IHI License for a period of five years.
IHI is an affiliated corporation. Messrs. Berntsen and Scudder,
co-founders, officers, directors, and significant shareholders of the Company
are also co-founders, officers, directors, and significant shareholders of
IHI. The Board of Directors of IHI is comprised of Messrs. Scudder,
Berntsen, and their spouses. These relationships raise substantial conflicts
of interest with regard to the development, licensing, marketing, and sale of
the IHI technology by the Company, as well as conflicts of interest regarding
the option to purchase the technology and interpreting the terms and
conditions of the IHI License. The interests of IHI may conflict with the
interests of the Company in certain instances regarding the IHI technology,
including, but not limited to, if the Company were unable to pay the minimum
annual royalty due, if the Company sought to amend or seek interpretations of
the IHI License, if royalty payments were late, in the event of copyright or
patent infringement claims against IHI or the Company, or adverse claims to
the ownership of related technology. The common directors of the Company and
IHI may have fiduciary obligations to both the Company and to IHI. The IHI
directors may take actions which are contrary to the interests of the
Company, and which could foreseeably result in material adverse consequences
to the business and operations of the Company.
IHI, and the Company, are both California corporations and are subject to
California law. California law requires that transactions between corporations
with interested directors be either approved by the shareholders or by an
independent board of directors, and also require a determination that the
transaction is just and reasonable. A person asserting the validity of such
transactions must prove the transaction is just and reasonable to the
corporation it is asserted against if these conditions are not met. The IHI
License agreement was approved by the shareholders of both IHI and the Company.
Any future material amendments to the IHI License agreement will require the
Company and IHI comply with these requirements of California law.
PATENTS AND PROPRIETARY TECHNOLOGY
To date, IHI has three issued patents and one patent application pending
in the United States, each one relating to various aspects of IHI's
integrated thermal container technology. Patent No. 5,461,867 was issued
October 31, 1995 and includes 39 claims regarding a container with an
integral module for heating or cooling contents. Patent No. DES 371,513 was
issued July 9, 1996, and includes one claim regarding an end cap for a
container. Patent No. 5,626,022 was issued May 6, 1997, and is a
continuation in part of Patent No. 5,461,867 and includes 25 claims regarding
a container with an integral module for heating or cooling the contents.
There can be no assurance any patents will be issued to IHI as a result of
IHI's pending application, or if issued, such patents combined with existing
IHI patents will be sufficiently broad to afford protection against
competitors using similar technology. The Company's success will depend in
large part on its ability and that of IHI to obtain patents for integrated
thermal container technologies and related technologies, if any, to defend
patents once obtained, to maintain trade secrets and to operate without
infringing upon the proprietary rights of others, both in the United States
and in foreign countries. IHI also has foreign patents pending for certain
elements of the current and earlier designs of its integrated thermal
containers.
There can be no assurance any patents issued to IHI or the Company will not
be challenged, invalidated, or circumvented, or that the rights granted
thereunder will provide competitive advantages to the Company. Litigation over
patent or other intellectual property claims could result in substantial costs
to the Company. The Company is required by the IHI License agreement to
prosecute and defend all infringement claims, necessary to enforce the Company's
license rights or to determine the scope and validity of others' proprietary
rights. U.S. patents do not provide any remedies for infringement occurring
before a patent is granted. Because patent rights are territorial, the Company
may not have an effective remedy against use of its patented technology in any
country in which IHI or the Company does not, at the time, have an issued
patent.
The commercial success of the Company may also depend upon avoiding the
infringement of patents issued to competitors and upon maintaining the IHI
License. All of the Company's currently proposed containers and all containers
currently under development are based on the IHI License. If competitors
prepare and file patent applications in the United States claiming technology
also claimed as proprietary by the Company, the Company may be forced to
participate in interference proceedings declared by the PTO to determine the
priority of the invention. Such proceedings could result in substantial costs
to the Company, even if the outcome is favorable to the Company. An adverse
outcome
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of such proceedings could subject the Company to significant liabilities to
third parties and could require the Company to license disputed rights from
third parties or cease using the infringing technology. The Company is aware of
U.S. patents issued to third parties that broadly claim self-heating technology
similar to IHI's. Although the Company believes its current and proposed
activities do not and will not infringe upon these patents, there can be no
assurance the Company's belief would be affirmed in any litigation over any
patent or the Company's future technological developments will be outside the
scope of these patents. A U.S. patent application is maintained under
conditions of confidentiality while the application is pending in the PTO, so
the Company cannot determine the inventions being claimed in pending patent
applications filed by its competitors. U.S. patents do not provide remedies for
infringement occurring before the patent is granted.
The Company relies on certain technologies which are not patentable and are
therefore potentially available to the Company's competitors. The Company also
relies on certain proprietary trade secrets and know-how which may not be
patentable. Although the Company has taken steps to protect its unpatented
technologies, trade secrets, and know-how, in part through the use of
confidentiality agreements with certain employees, consultants, and contractors,
there can be no assurance these agreements will not be breached, the Company
would have adequate remedies for any breach, or the Company's trade secrets will
not otherwise become known or be independently developed or discovered by
competitors.
TRADEMARKS
The Company filed two trademark applications with the United States
Patent and Trademark Office on February 10, 1997 to register the name "Ontro"
and the Company logo. The filed applications have been published and are
awaiting a notice from the PTO. IHI has one registered trademark,
"Anytime-Anywhere," and has received notice of allowance for the trademark
"Insta-Heat." Pursuant to the IHI License, IHI uses and has licensed to the
Company trademarks claimed by IHI.
COMPETITION
The Company believes the market for integrated thermal containers is an
emerging market. There can be no assurance there will be sufficient demand
for a producer of such containers to profit therefrom. The plastic and
beverage container industry is highly competitive and sensitive to changing
consumer preferences and demands. The Company is aware of five firms that
currently manufacture or market self-heating containers or products sold in
self-heating containers. The Company believes one of these firms
manufactures and markets its containers in the U.S. and the other four
currently manufacture and market exclusively in foreign countries. The
Company is not aware of any other current direct competition for integrated
thermal containers in the U.S. marketplace.
The Company believes the other competitors manufacture self-heating
containers for meals, a single serving hot espresso container and at least
two providers of self-heating hot sake containers. The Company believes each
of these foreign firms hold one or more U.S. patents on their designs.
The Company believes at least two of the known competitors use a reactant
system similar to the Company's proposed self-heating containers.
The Company believes competition among marketers of self-heating beverage
containers will be based primarily on price, product safety, ease of use,
quality, product recognition, access to distribution channels, product
innovation, and packaging. The competitive position of the Company will in part
depend on the ability of the Company to remain current in plastics manufacturing
technology and to anticipate innovations in integrated thermal container
technology as well as changes in consumer preferences. If the Company's
integrated thermal containers are successfully received in the market, increased
competition is probable. Increased competition is likely to result in price
reductions, reduced operating margins, and loss of market share, any of which
could materially and adversely affect the Company's business, operating results,
and financial condition. There can be no assurance the Company will be able to
compete successfully, keep pace with technological developments, or have
sufficient funds to invest in new technologies, products, or processes.
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There also can be no assurance companies in the food and beverage or
container industry, or other companies, will not enter the market for integrated
thermal containers with products that are superior to, less expensive, or which
achieve greater market acceptance than the Company's proposed containers. The
majority of food and beverage and container manufacturers are substantially
larger and more diversified than the Company; have substantially greater
financial and marketing resources than the Company; have greater name
recognition and distribution channels than the Company; and may have the ability
to develop competitively priced integrated thermal containers.
LIABILITY INSURANCE
The Company's proposed containers expose it to possible product
liability claims if, among other things, the use of its proposed containers
results in personal injury, death or property damage. There can be no
assurance the Company will have sufficient resources to satisfy any liability
resulting from such claims or will be able to cause its customers to
indemnify or insure the Company against such claims. The Company intends to
obtain product liability insurance prior to the commencement of commercial
shipment of its products. There can be no assurance such insurance coverage
will be adequate in terms and scope to protect the Company against material
adverse effects in the event of a successful claim, or that such insurance
will be renewed, or the Company will be able to acquire additional coverage
when it deems it desirable to do so.
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATIONS
All of the currently projected uses for the Company's integrated thermal
containers presently fall under the authority in the United States of the United
States Food and Drug Administration ("FDA") and the United States Department of
Agriculture ("USDA"). The FDA regulates the material content of direct-contact
food containers and packages, including certain thin wall containers
manufactured by the Company. The Company does not intend to fill any of its
proposed self-heating beverage containers on its premises and expects that
licensees or distributors will be responsible for filling the containers with
beverages and complying with appropriate FDA regulations. The Company uses
approved resins and pigments in its direct-contact food products and believes
its proposed containers will be in material compliance with all applicable FDA
and USDA regulations.
The Company, like all companies in the plastics industry, is also subject
to federal, state, and local legislation designed to reduce solid wastes by
requiring, among other things, plastics to be degradable in landfills, minimum
levels of recycled content, various recycling requirements, disposal fees and
limits on the use of plastic products. In addition, various consumer and
special interest groups have lobbied from time to time for the implementation of
additional environmental protection measures. The Company does not know of any
legislation promulgated to date or similar initiatives that would, if enacted,
have a material adverse effect on its business. There can be no assurance
future legislative or regulatory enactments or other similar initiatives would
not have a material adverse effect on the Company's business, financial
condition, and results from operations. See "Risk Factors - Environmental
Matters."
EMPLOYEES
As of the date of this Prospectus, the Company employs eight full-time
employees. None of the Company's employees are represented by a labor union or
bound by a collective bargaining agreement. The Company believes its employee
relations are good.
PROPERTIES
The Company leases approximately 2,000 square feet of space for its
production facility located at 12625 Danielson Court, Suite 110, Poway,
California 92064, at a monthly rent of $1,142. The lease expired August 31,
1997 and has been extended to April 30, 1998. The Company also leases office
space at 12675 Danielson Court, Suite 401, Poway, California 92064, at a monthly
rent of $982. That lease also expired August 31, 1997 and has been extended to
April 30, 1998. The Company has entered into a lease for approximately 28,400
square feet of space to be built in the Pomerado Business Park located in Poway,
California 92064. The provisions of the lease provide for commencement of the
lease
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term during March, 1998. The lease has an initial term of five years with a
renewal option to the Company for an additional three years. Base rent for the
initial term is $0.445 per square foot (approximately $12,600 per month). Base
rent for the extension term is $0.56 per square foot (approximately $15,900 per
month).
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS, AND KEY EMPLOYEES
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
James A. Scudder . . . . . . 41 President, Chief Executive Officer
and Director
James L. Berntsen. . . . . . 41 Executive Vice President, Secretary
and Director
Kevin A. Hainley(1). . . . . 40 Chief Financial Officer
Allan C. Mayer, Jr . . . . . 48 Vice President, Marketing
Robert F. Coston(1). . . . . 64 Director
Louis L. Knickerbocker(1). . 53 Director
(1) Members of the Audit Committee
JAMES A. SCUDDER, a co-founder of the Company, has been President, Chief
Executive Officer, and a director of the Company since its inception in 1994.
From 1986 to 1993, Mr. Scudder was President of Operations of Gourmet Quality
Foods, Inc., a frozen foods manufacturing and distribution Company. From 1978
to 1986, Mr. Scudder developed, owned, and operated three restaurants in San
Diego, California.
JAMES L. BERNTSEN, a co-founder of the Company, has been Executive Vice
President, Secretary, and a director of the Company since its inception in 1994.
From 1988 to 1993, Mr. Berntsen was the President and Chief Executive Officer of
Minds in Motion, Inc., a distributor of copier and printer products. From 1978
to 1987, Mr. Berntsen developed, owned, and operated two restaurants in San
Diego, California.
ALLAN C. MAYER, JR. joined the Company as the Vice President of Marketing
in October, 1996. Since 1991, he has been the President of Allan C. Mayer &
Associates, a Company which provides management support in the areas of
strategic planning, new business development, marketing and communications.
From 1989 to 1991, Mr. Mayer was Vice President of Marketing & Sales at
Energetics Corporation, a technology company. From 1987 to 1989, Mr. Mayer was
Vice President of Marketing at Crescent Foods, Inc., a food distribution
company.
KEVIN A. HAINLEY joined the Company as Chief Financial Officer in December,
1996. From 1992 to November, 1996, Mr. Hainley was corporate controller of
Hometown Buffet, Inc., a restaurant operator. From 1986 to 1992, Mr. Hainley
was an accountant with KPMG Peat Marwick LLP. Mr. Hainley is a Certified Public
Accountant.
LOUIS L. KNICKERBOCKER has been a director of the Company since February
28, 1997. From 1985 through the present, Mr. Knickerbocker has been the
President, Chief Executive Officer, and a director of the L.L. Knickerbocker
Company, Inc., a California-based company which specializes in selling celebrity
endorsed products through home shopping television channels.
37
<PAGE>
ROBERT F. COSTON has been a director of the Company since October 27, 1997.
Mr. Coston has been a self-employed consultant since 1990, specializing in
production and distribution of various food products. Mr. Coston was President
of Ardmore Farms, Inc., a subsidiary of the Quaker Oats Company, from 1986
through 1989. He held various positions with A.E. Staley Manufacturing Company
from 1981 to 1986. Mr. Coston was a Vice President and General Manager of the
Carnation Company from 1978 to 1981, and held various positions with General
Foods Corp. from 1959 to 1978. He has a B.S. in Civil Engineering from Lehigh
University.
All directors hold office until the next annual meeting of shareholders and
the election and qualification of their successors, if any. The Company's
Articles provide that a classified Board of Directors will automatically become
effective when shares of Common Stock of the Company become listed on the New
York Stock Exchange or the American Stock Exchange, or alternatively when they
are qualified for trading as a NMS security on Nasdaq and the Company has at
least 800 shareholders as of the record date for the most recent annual meeting
of shareholders. The classified Board of Director provisions, when and if
effective, divide the Board of Directors into two classes of directors serving
staggered two-year terms. Upon consummation of this Offering, the Common Shares
are anticipated to be listed on the American Stock Exchange, and therefore, a
classified Board of Directors will likely become operative following such
consummation. Directors currently receive no cash compensation for serving on
the Board of Directors and may receive reimbursement of reasonable expenses
incurred in attending meetings. All executive officers serve at the discretion
of the Board of Directors. There are no family relationships between any of the
directors or executive officers of the Company.
The Company has agreed, for a period of four years from the closing of
this Offering, if so requested by the Representative, to allow the
Representative to designate one nominee for election as a director of the
Company, and if the Company is unable to maintain directors and officers
liability insurance, the Representative has the right to designate a
consultant to the Company's Board of Directors who has the right to attend
directors' meetings and will be compensated on the same basis as outside
members of the Board of Directors. Messrs. Scudder and Berntsen and
Knickerbocker have entered into agreements with the Representative to vote
their shares in favor of the election of the Representative's designee to the
Board of Directors. The Representative has not yet exercised its right to
designate such a person.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has an Audit Committee. The Board of
Directors does not have a Compensation Committee or a Nominating Committee. The
functions of the compensation and nominating committees are currently performed
by the Board of Directors.
AUDIT COMMITTEE
The Audit Committee recommends a public accounting firm to be appointed by
the Board of Directors, subject to ratification by the shareholders, as
independent auditors to audit the Company's financial statements and to perform
services related to the audit. The Audit Committee also has the responsibility
to review the scope and results of the audit with the independent auditors,
review with management and the independent auditors the Company's interim and
year-end operating results, consider the adequacy of the internal accounting and
control procedures of the Company, review any non-audit services to be performed
by the independent auditors, and consider the effect of such performance on the
auditor's independence. The Audit Committee was established in January 1997,
and currently consists of Messrs. Knickerbocker, Coston, and Hainley.
ADVISORY BOARD
The Company's Advisory Board is composed of persons with expertise in
fields related to the Company's business. Since the Company's technology,
financing and business plans are in the development stage, the advisors
currently meet routinely as a group, but meetings of all advisors may not be
held or may not be held as often in the future. Certain of these advisors and
other advisors and consultants also meet from time to time with the Company's
personnel and management to discuss the Company's present and long-term
planning, research and development, marketing, and finance matters. Members of
the Advisory Board are not presently compensated by the Company as members of
the
38
<PAGE>
Advisory Board, except with respect to stock options granted to them as
discussed herein. The Company currently provides reimbursement of advisors'
expenses, and has no plans to provide additional compensation to its advisors,
but may do so in the future. The Company presently has written consulting
arrangements with four of these advisors; Messrs. Hanson, Petterson, Potomac,
and Thorogood, who provide more definitive or extensive consulting services to
the Company. These advisor/consultants are being compensated by the Company.
The Company has not required the members of its Advisory Board to agree not
to provide services to other entities that might conflict with the activities
they provide as advisors. All advisors are expected to devote only a small
portion of their time to the Company, are generally employed by employers other
than the Company, and may have commitments to and/or consulting or advisory
contracts with other entities that may limit their availability to the Company.
These entities may also be competitors or potential customers of the Company.
Furthermore, inventions or processes unrelated to integrated thermal containers
discovered by advisors will not, unless otherwise agreed, become the property of
the Company, but will remain such inventor's property, or the property of their
employers. The Company does not believe it is dependent on any member of the
Advisory Board, and believes the loss of any member will not have a material
adverse impact on the business or operations of the Company. The Company
believes it could obtain comparable services from other advisors in each given
field should the Company lose any member of its Advisory Board. Each member of
the Advisory Board has been granted options to purchase Common Stock of the
Company in consideration for their service on the Advisory Board. See "Certain
Transactions." The members of the Advisory Board currently are:
C. ROWLAND HANSON is the founder of C.R.H. Associates a management
consulting firm specializing in strategic planning, marketing, and
communications. Prior to forming C.R.H., Mr. Hanson was Vice President of
Corporate Communications at Microsoft Corporation. Before joining Microsoft
Corporation, Mr. Hanson was Vice President of Marketing for Neutrogena
Corporation, and held various marketing positions with the Carnation Company and
General Mills, Inc. Mr. Hanson received a B.B.A. in Marketing from Loyola
University, and an MBA from the University of Pennsylvania Wharton School of
Business.
ROBERT B. HORSMAN is the President and a director of San Diego National
Bank, where he has held various positions since 1981. From 1972 to 1981, Mr.
Horsman held various positions with California First Bank. He received his
B.B.A. in Finance/Banking from Texas Tech University.
FRED HULL is the immediate past President of Nestle Brands Foodservice
Company, the food service division of Nestle U.S.A. Mr. Hull joined the
Carnation Company in 1959, which was acquired by Nestle in 1985. He received a
B.S. in Business Administration from the University of Colorado.
SUZANNE JOHNSON is a co-founder, Vice President, and member of the
Management Committee of Vantis International a subsidiary of the BASES Group.
Ms. Johnson joined the BASES Group in 1985, where she worked until 1996.
Prior to joining BASES, Suzanne worked for Walker Research and prior to that
she worked for Ketchum Advertising.
JAMES W. MASON, PH.D., has been the Chief Chemist for Seal Laboratories
from 1991 to the present, where he is responsible for all organic chemical
analysis, quality control, and product development. From 1990 to 1991, Dr.
Mason was an independent consultant. From 1987 to 1990, he was the manager
of the analytical service center for Baxter Health Care. Dr. Mason
specializes in the chemistry of plastics. He received his B.S. in Chemistry
from the University of California, Los Angeles, and his Ph.D. from the
University of California, Los Angeles.
SALVADORE LA BARBERA is the President of Terracommercial Real Estate
Corporation, a commercial real estate company he founded in the 1970's. Mr. La
Barbera is a licensed California Real Estate Broker, and both his and
Terracommercial's businesses are involved primarily in shopping center
development. Mr. La Barbera served as Chairman of the Board of Info.NET from
December, 1993 through June, 1996, when the company was merged into Simply
Interactive. A former Professor of Mathematics and Computer Programming at San
Jose State University, Mr. La Barbera also founded Passatempo Development
Corporation, an importer of agricultural equipment, developed an agricultural
equipment retail agency, and founded and was Chairman of Cal West Auto Auction,
Inc. Mr. La Barbera received his Bachelors and Masters degrees in Mathematics
from San Jose State University.
TOR PETTERSON is the founder of Tor Petterson Associates, designers and
engineers of industrial products. Among other products, he was the designer of
the Ray-O-Vac Workhorse and Roughneck flashlight lines, the Snakelight and
39
<PAGE>
the Nissan thermos lines. Mr. Petterson received an honorary degree as a Doctor
of Engineering Science from the City University of Los Angeles.
L. LAWRENCE POTOMAC is an Attorney, Certified Public Accountant, Certified
Financial Planner, and a licensed principal of the National Association of
Securities Dealers. Mr. Potomac has been President of Financial Insight
Corporation in La Jolla, California since 1980. Financial Insight provides
financial planning, investment analysis, tax advice, and prepares and files tax
returns and other tax reports for an international clientele. Prior to
acquiring Financial Insight, Mr. Potomac was the Chief Financial Officer for
Electron Inc., a manufacturer of electronic equipment in Rancho Bernardo
California, and prior to that was with the public accounting firms of Peat
Marwick Mitchell & Co., and Arthur Andersen & Co. Mr. Potomac is a graduate of
Stanford University and received his law degree and a Master of Business
Administration from Cornell University.
D. SCOTT THOROGOOD is the founder of the Trinalta Group LLC, a consultant
to technology companies. From 1994 to 1995, Mr. Thorogood was Chief Executive
Officer of the Info.NET Technology Corporation. Mr. Thorogood served as Chief
Executive Officer of OASiS, Inc. from 1992 until it was acquired by Sybase, Inc
in 1994. From 1991 to 1992, he was Director of Strategic Marketing for Texas
Instruments Advanced Information Management Division. From 1987 to 1991 he
served as Director of Marketing for Fourth Generation Technologies. Mr.
Thorogood received a B.S. in Mathematics and Psychology from the University of
Alberta.
EXECUTIVE COMPENSATION
The following table sets forth compensation for services rendered in all
capacities to the Company during the fiscal year ended December 31, 1996 paid to
the Chief Executive Officer and the Executive Vice President of the Company. No
executive officers of the Company compensation exceeded $100,000 during the
fiscal years ended December 31, 1994, 1995 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) ($) ($)(1) ($) (2)
- --------------------------- ---- ------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James A. Scudder, Chief Executive 1996 62,000 0 0 0 5,000
Officer, President and Director 1995 0 0 0 0 42,000
1994 0 0 0 0 4,500
James L. Berntsen, 1996 62,000 0 0 0 5,000
Executive Vice President, Secretary 1995 0 0 0 0 42,000
and Director 1994 0 0 0 0 4,500
</TABLE>
- -----------------------------
(1) The options granted to the Company's executive officers were all granted
under the Company's 1996 Stock Plan.
(2) Represents consulting fees and Common Stock issued in consideration for
guaranteeing certain equipment leases to the Company.
40
<PAGE>
OPTION GRANTS
The following table sets forth certain information as of December 31, 1996,
concerning the stock option grants to all of the Company's executive officers
made for the fiscal year ended December 31, 1996. No stock appreciation rights,
restricted stock awards, or long-term performance awards have been granted as of
the date of this Prospectus.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of % of Total
Securities Options Granted
Underlying Options to Employees Exercise or Base Expiration
Name Granted in Fiscal Year Price Per Share Date
---- ------- --------------- --------------- ----
<S> <C> <C> <C> <C>
Kevin A. Hainley (1) 60,000 50% $1.00 12/30/2006
Allan C. Mayer, Jr (1) 60,000 50% 1.00 12/30/2006
</TABLE>
- -----------------------------
(1) Mr. Mayer joined the Company in October, 1996, and Mr. Hainley joined the
Company in December, 1996. Messrs. Hainley and Mayer are currently being
compensated at annual rates of $96,000 and both of their employment
agreements provide for salary increases to $120,000 per year following
completion of this Offering, and certain other conditions.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option exercises and
option holdings under the 1996 Stock Plan for the year ended December 31, 1996,
with respect to all of the Company's executive officers.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
VALUE REALIZED OPTIONS/SAR'S AT FISCAL IN-THE-MONEY OPTIONS/SAR'S
SHARES MARKET PRICE YEAR-END AT FISCAL YEAR END ($)(1)
ACQUIRED ON AT EXERCISE LESS -------------------------------- ------------------------------
NAME EXERCISE (#) EXERCISE PRICE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kevin A. Hainley . 0 0 12,000 48,000 1,600 6,200
Allan C. Mayer, Jr. 0 0 12,000 48,000 1,600 6,200
</TABLE>
- -----------------------------
(1) Assuming the market value of the Company's restricted Common Stock on
December 31, 1996 was $1.13 based on an independent appraisal using the
Black Scholes valuation model.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Messrs. Scudder,
Berntsen, Hainley and Mayer. Mr. Scudder's employment agreement provides for
his employment by the Company as its President and Chief Executive Officer at
an initial annual salary of $96,000, which shall automatically increase to
$144,000 per year after the completion of this Offering. Mr. Berntsen's
employment agreement provides for his employment by the Company as its
Executive Vice President at an initial annual salary of $96,000, which shall
automatically increase to $144,000 after the completion of this Offering.
Messrs. Scudder and Berntsen are party to agreements providing for an initial
term expiring on August 31, 1999. Messrs. Hainley and Mayer are party to
agreements providing for an initial term expiring
41
<PAGE>
on December 31, 1997. Each officer may receive bonuses awarded in the
discretion of the Board of Directors. The agreements do not provide for any
fixed or formula bonuses to be paid to the officers. The Employment Agreements
provide that Messrs. Scudder and Berntsen may, at their election, receive a
severance payment equal to 299% of their average annual base salary and bonuses
during the preceding five year period in the event of a change of control as
defined in their employment agreements. The Company also has employment
agreements with Messrs. Hainley and Mayer for one year terms, each at annual
salaries of $96,000, which shall increase to $120,000 for both after the
completion of this Offering and certain other conditions.
STOCK OPTION PLAN
PURPOSE. The Company's 1996 Stock Plan was adopted by the Board of
Directors in November, 1996, and approved by the shareholders in December,
1996. 545,400 shares of the Company's Common Stock are currently reserved for
issuance pursuant to options or stock awards granted pursuant to the 1996 Stock
Plan of which options to acquire 113,000 shares of Common Stock have been
granted prior to the date of this Prospectus. The purpose of the 1996 Stock
Plan is to provide an incentive to eligible employees, officers, directors, and
consultants, whose present and potential contributions are important to the
continued success of the Company, to afford these individuals the opportunity to
acquire a proprietary interest in the Company, and to enable the Company to
enlist and retain in its employment qualified personnel for the successful
conduct of its business. It is intended this purpose will be effected through
the granting of: (i) Stock Options, including incentive stock options
("Incentive Stock Options") under Section 422 of the Internal Revenue Code and
non-qualified stock options ("Non-qualified Stock Options") which are not
intended to meet the requirements of such section; (ii) stock appreciation
rights ("Stock Appreciation Rights"); (iii) restricted stock ("Restricted
Stock"); and (iv) long-term performance awards ("Long Term Performance Awards").
Officers, directors, consultants, and other employees of the Company whom
the Board of Directors deems to have the potential to contribute to the success
of the Company shall be eligible to receive awards under the 1996 Stock Plan.
The 1996 Stock Plan provides that Non-qualified Stock Options, Stock
Appreciation Rights, Restricted Stock, and Long-Term Performance Awards may be
granted to employees (including officers), directors, and consultants of the
Company or any parent or subsidiary of the Company. The 1996 Stock Plan
provides Incentive Stock Options may only be granted to employees (including
officers) of the Company or any parent or subsidiary of the Company.
The 1996 Stock Plan is administered by the Board of Directors, or a duly
appointed committee thereof. Subject to the provisions of the 1996 Stock Plan,
the Board of Directors or a committee thereof has full power to select the
eligible individuals to whom awards will be granted, to make any combination of
awards to any participant and to determine the specific terms of each grant.
The interpretation and construction of any provision of the 1996 Stock Plan by
the Board of Directors shall be final and conclusive. The Board of Directors
shall have discretion in determining the number of shares and other terms of
each option granted to each recipient. Each option grant shall be evidenced by
an option agreement that shall specify the option price, the duration of the
option, the number of shares to which the option pertains, the percentage of the
option that may be exercised on specified dates in the future, and such other
provisions as the Board of Directors shall determine.
The option price for each grant of an option shall be determined by the
Board of Directors, provided that, in the case of Incentive Stock Options, the
option price shall not be less than the fair market value of a share of the
Company's Common Stock, or in the case of Incentive Stock Options granted to the
holder of 10% or more of the Company's Common Stock, at least 110% of the fair
market value of such shares on the date of grant.
All options granted under the 1996 Stock Plan shall expire no later than 10
years from the date of grant, subject to the limitations set forth in the 1996
Stock Plan. Options may be granted authorizing exercise by payment to the
Company of cash or by surrender of shares of the Company's Common Stock already
owned by the employee, a combination of cash and such shares, or such other
consideration as is approved by the Board of Directors.
The 1996 Stock Plan places limitations on the exercise of options under
certain circumstances upon or after termination of employment or in the event of
the death, disability, or termination associated with a change in control (as
defined in the 1996 Stock Plan) of the Company. At the discretion of the Board
of Directors the agreement evidencing the grant of a stock option may contain
additional limitations upon the exercise of the option under specified
circumstances, or may provide certain limited rights to exercise such options
under specified circumstances. The
42
<PAGE>
granting of an option under the 1996 Stock Plan does not accord the recipient
the rights of a shareholder, and such rights shall only accrue after the
exercise of an option, and the issuance of the underlying shares of Common Stock
in the recipient's name.
The 1996 Stock Plan provides for the award of shares of Common Stock of the
Company which are subject to certain restrictions ("Restricted Stock") provided
in the 1996 Stock Plan or otherwise determined by the Board of Directors.
Restricted Stock awards pursuant to the 1996 Stock Plan will be represented by a
stock certificate registered in the name of a recipient to whom the award is
made subject to the restrictions upon which it is granted. Upon the grant of
Restricted Stock, such recipient will be entitled to vote the Restricted Stock
and to exercise other rights as a shareholder of the Company, including the
right to receive all dividends and other distributions paid or made with respect
to the Restricted Stock. Pursuant to the 1996 Stock Plan, a Restricted Stock
award recipient may not sell, transfer, pledge, exchange, hypothecate, or
otherwise dispose of the Restricted Stock during the restriction period
designated by the Board of Directors, except by testamentary disposition, or as
may otherwise be determined by the Board of Directors. When the conditions of a
Restricted Stock award established by the Board of Directors lapse or are
satisfied, the Company will deliver stock certificates representing the shares
of Common Stock which are no longer subject to any restrictions, except those
required by applicable law.
Pursuant to the 1996 Stock Plan, the Board of Directors in its discretion
may grant Stock Appreciation Rights ("SARs"). A Stock Appreciation Right
generally will entitle the holder to receive money or stock from the Company in
an amount equal to the excess, if any, of the aggregate fair market value of the
Company's Common Stock which is subject to such right over the fair market value
of the same stock on the date of grant. The Company may grant SARs allowing for
the payment of the amount to which the participant exercising the SAR is
entitled by delivering shares of the Company's Common Stock or cash or a
combination of stock and cash as the Board of Directors in its sole discretion
may determine. SARs may contain additional rights, limitations, terms, and
conditions which the Board of Directors otherwise deems desirable.
The 1996 Stock Plan also permits the granting of Long-Term Performance
Awards. Such awards, if issued, are anticipated to be based upon Company,
subsidiary, and/or individual performance over designated periods based on such
performance factors or other criteria as the Board of Directors deems
appropriate. Performance objectives may vary from participant to participant,
group to group, and period to period. Such awards will generally be granted for
no cash consideration. The Board of Directors may adjust Long-Term Performance
Awards as they deem necessary or appropriate in order to avoid windfalls or
hardships or to compensate for changes in tax, accounting, legal rules, or other
circumstances. Long-Term Performance Awards may be payable in cash or Common
Stock (including Restricted Stock.)
Options, SARs, Restricted Stock Awards, and Long-Term Performance Awards
granted pursuant to the 1996 Stock Plan will generally be nontransferable by the
participant, other than by will or by the laws of descent and distribution, and
may generally be exercised only by the participant during the lifetime of the
participant.
Subject to the 1996 Stock Plan's change in control provisions, in the event
of a sale of all or substantially all of the assets of the Company or the merger
of the Company with or into another corporation, each outstanding Option, SAR,
Restricted Stock award, or Long-Term Performance Award shall be assumed or
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event the successor corporation does not agree to
such assumption or substitution, the administrators shall, in lieu of such
assumption or substitution, provide for the participant to have the right to
exercise the Option, SAR, Restricted Stock award, or Long-Term Performance Award
as to all or a portion of the Common Stock subject to the option, including
shares of Common Stock as to which the option would not otherwise be
exercisable.
As of the date of this Prospectus, options to purchase an aggregate of
113,000 shares of Common Stock at an exercise price range of $1.00 to $3.00 were
granted under the 1996 Stock Plan, such options vesting at the rate of 20% to
33.3% per year.
The Company has agreed with the Representative that except with respect to
options granted under the 1996 Stock Plan at an exercise price equal to the fair
market value on the date of grant, it will not, for a period of 18 months from
the date of this Prospectus, issue any options, or warrants, or sell any shares
of capital stock without the prior written consent of the Representative.
43
<PAGE>
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Articles that eliminate to the
fullest extent permissible under California law the liability of its directors
to the Company for monetary damages. Such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Articles and Bylaws provide that the Company shall indemnify
its directors and officers to the fullest extent permitted under California law,
and the forms of indemnification include indemnification in circumstances in
which indemnification is otherwise discretionary under California law. The
Company has entered into indemnification agreements with its officers and
directors containing provisions that may require the Company, among other
things, to indemnify the officers and directors against certain liabilities that
may arise by reason of their status or service as directors or officers (other
than liabilities arising from intentional or knowing and culpable violations of
law) and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified. The Company has obtained an
insurance policy covering officers and directors for claims made that such
officers or directors may otherwise be required to pay or for which the Company
is required to indemnify them, subject to certain exclusions. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors of the Company pursuant to the foregoing provision, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee, or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened material litigation or proceeding which may result in a claim for
such indemnification.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's outstanding Common Stock on a pro forma
basis as of the date of this Prospectus, and as adjusted to reflect the sale of
the 2,500,000 Units offered hereby by: (i) each person (or group of affiliated
persons) who is known by the Company to own beneficially more than five percent
of the Company's Common Stock; (ii) each of the Company's directors; (iii) each
executive officer of the Company; and (iv) all directors and executive officers
of the Company as a group.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENTAGE BENEFICIALLY OWNED (2)
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) ----------------------------------
------------------------------------ ------------ BEFORE OFFERING AFTER OFFERING
--------------- --------------
<S> <C> <C> <C>
James A. Scudder(3) . . . . . . . . . . . . . . . . . . . . . . . . . 561,274 18.2% 10.0%
James L. Berntsen(3) . . . . . . . . . . . . . . . . . . . . . . . . 453,923 14.7 8.1
Robert F. Coston(4) . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 1.0 0.5
Kevin A. Hainley(5) . . . . . . . . . . . . . . . . . . . . . . . . . 68,000 2.2 1.2
Allan C. Mayer, Jr.(6) . . . . . . . . . . . . . . . . . . . . . . . 60,000 1.9 1.1
Manhattan West, Inc.(7) . . . . . . . . . . . . . . . . . . . . . . . 696,944 22.6 12.5
233 Wilshire Blvd., Suite 930, Santa Monica, CA 90401
The L.L. Knickerbocker Co., Inc.(8) . . . . . . . . . . . . . . . . . 858,673 27.8 15.4
30055 Commerce, Rancho Santa Margarita, CA 92688
All directors and executive officers as a group (6 persons)(9) . . . 2,031,870 65.8 36.4
</TABLE>
- -----------------------------
(1) Calculated pursuant to Rule 13d-3(d)1 of the Exchange Act. Shares not
outstanding that are subject to options or other rights which may be
exercised by the holder thereof within 60 days of the date of this
Prospectus and, in addition, including all shares subject to the
outstanding options in favor of Robert Coston, Kevin Hainley, Allan Mayer,
and Manhattan West, Inc., are deemed outstanding for the purposes of
calculating the number and percentage owned by such shareholder and all
directors and officers as a group, but are not deemed outstanding for the
purpose of calculating the percentage owned by any other shareholder
listed.
(2) Percentage of ownership is based on 3,089,478 shares of Common Stock
outstanding as of the date of this Prospectus and 5,589,478 shares of
Common Stock outstanding after the Offering, without consideration of the
Warrants, the Representative's
44
<PAGE>
Options, the Over-allotment Option, other outstanding options and warrants
except as set forth below. The Company believes the persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in these
notes. Except as set forth above, the address of each person set forth
above is the address of the Company appearing elsewhere in this Prospectus.
(3) The shareholder has entered into an agreement with the Representative to
vote these shares in favor of the election to the Board of Directors of the
designee of the Representative.
(4) Represents 30,000 shares which Mr. Coston has the right to acquire upon
exercise of options only 10,000 of which may be exercised within 60 days
of the date of this Prospectus.
(5) Includes 48,000 shares which Mr. Hainley has the right to acquire upon
exercise of options, none of which may be exercised within 60 days of the
date of this Prospectus.
(6) Includes 60,000 shares which Mr. Mayer has the right to acquire upon
exercise of options only 12,000 of which may be exercised within 60 days of
the date of this Prospectus.
(7) Includes 696,944 shares of Common Stock which are held pursuant or subject
to a Voting Trust Agreement dated December 13, 1996, between Manhattan
West, Inc., the trustee, and the Company ("Manhattan Trust"). The 696,944
shares subject to the Manhattan Trust include 553,841 shares which
Manhattan West, Inc. has the right to acquire upon exercise of one option
and one warrant both of which may be exercised within 60 days of the date
of this Prospectus. The term of the Manhattan Trust is five years, subject
to an extension for an additional term of up to 10 years upon the written
agreement of Manhattan West and the trustee. The sole voting trustee is
James A. Scudder, who has sole power to vote or direct the vote of such
shares. The trustee does not have any power to exercise the option to
acquire the shares underlying the option, is not entitled to any dividends
paid to the shares subject to the Manhattan Trust, if any, may not
hypothecate the shares subject to the Manhattan Trust, is not entitled to
any proceeds from the sale of the shares, and does not have any power to
sell or direct the sale of any of the shares held in the Manhattan Trust.
Mr. Scudder disclaims beneficial ownership of the 696,944 shares held or
which may be held in the Manhattan Trust.
(8) Louis L. Knickerbocker, a director of the Company, is the President, Chief
Executive Officer and Chairman of the L.L. Knickerbocker Company, Inc. Mr.
Knickerbocker and his spouse own approximately 40% of the common stock of
the L.L. Knickerbocker Company, Inc.
(9) Includes 858,673 shares owned by Knickerbocker.
CONCURRENT OFFERING BY SELLING SECURITY HOLDERS
An aggregate of 70,587 shares of Common Stock owned by the Selling
Security Holders and 70,587 shares of Common Stock issuable upon expercise of
the warrants also owned by the Selling Security Holders (the "Security
Holders' Warrants") are being registered simultaneously with this Offering
for resale by the Selling Security Holders from time to time. The Security
Holders' Common Stock, including the Common Stock underlying the Security
Holders' Warrants will not be subject to any restriction on sale and may be
sold at any time following this Offering.
The following table sets forth information with respect to the Selling
Security Holders, who will own an aggregate of 141,174 shares of Common Stock
including 70,587 shares of Common Stock issuable upon exercise of the
Security Holders' Warrants all of which are being registered hereby. The
shares of Common Stock owned by the Selling Security Holders including the
shares of Common Stock issuable upon exercise of the Security Holders'
Warrants may be sold from time to time in the future. The Security Holders'
Warrants may be exercised and the Common Stock underlying the Security
Holders' Warrants may be purchased and sold at the earliest on the effective
date of this Prospectus or any prospectus covering any Common Stock of the
Company. The Company will not receive any of the proceeds from the sale of
the Common Stock by the Selling Security Holders, although the Company will
receive proceeds from the exercise of the Security Holders' Warrants. The
costs of qualifying these shares under federal and state securities laws,
will be paid by the Company. Sales by the Selling Security Holders, or even
the potential of such sales, could have an adverse effect on the market
prices of the Common Shares or the Warrants.
<TABLE>
<CAPTION>
Shares Owned
Name Shares Offered (1) After Offering
---- ------------------ --------------
<S> <C> <C>
Francesca Daniels . . . . . . . . . . 11,764 0
Grant King . . . . . . . . . . . . . 82,352 0
Henri B. Schkud . . . . . . . . . . . 47,058 0
-------
Total . . . . . . . . . . . . . . . 141,174 0
-------
-------
</TABLE>
- ----------------
(1)Includes shares underlying Selling Security Holders' Warrants
45
<PAGE>
There are no material relationships between any of the Selling Security
Holders and the Company, nor have any such material relationships existed
within the past three years. The Company has been informed by the
Representative and the other Underwriters that there are no agreements
between the Representative and the other Underwriters and any Selling
Security Holder regarding the distribution of the Common Stock held by the
Selling Security Holders or the Common Stock underlying the Selling Security
Holders' Warrants.
The sale by the Selling Security Holders of the Common Stock and the
Common Stock underlying the Selling Security Holder's Warrants may be
effected from time to time in transactions (which may include block
transactions by or for the account of the Selling Security Holders) on an
exchange or in negotiated transactions, a combination of such methods of sale
or otherwise. Sales may be made at fixed prices which may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. Sales
by the Selling Security Holders, or even the potential of such sales, could
have an adverse effect on the market prices of the Common Shares or the
Warrants.
Selling Security Holders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents
for the Selling Security Holders, or to broker-dealers who may purchase
shares as principals and thereafter sell the securities from time to time on
an exchange, in negotiated transactions or otherwise. Such broker-dealers,
if any, may receive compensation in the form of discounts, concessions or
commissions from the Selling Security Holders and/or the purchasers from whom
such broker-dealer may act as an agent or to whom they may sell as principals
or otherwise (which compensation as to a particular broker-dealer may exceed
customary commissions).
At the time a particular offer to sell Common Stock is made by or on
behalf of a Selling Security Holders, to the extent required, a prospectus
shall be distributed which will set forth the number of shares being offered
and the terms of the offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for shares purchased from the Selling Security Holders and any
discounts, commissions or concessions allowed or reallowed or paid to
dealers, and the proposed selling price to the public.
If any of the following events occur, the prospectus will be amended to
include additional disclosure before an offer or sale of Common Stock by the
Selling Security Holders are made: (a) to the extent such securities are sold
at a fixed price or by option at a price other than the prevailing market
price, such price would be set forth in the prospectus; (b) if the securities
are sold in block transactions and the purchaser wishes to resell, such
arrangements would be described in the prospectus; and (c) if the
compensation paid to broker-dealers is other than usual and customary
discounts, concessions or commissions, disclosure of the terms of the
transaction would be included in the prospectus. The prospectus would also
disclose if there are other changes to the stated plan of distribution,
including arrangements that either individually or as a group would
constitute an orchestrated distribution of the securities.
Under applicable rules and regulations of the Securities Exchange Act of
1934 (the "Exchange Act"), any person engaged in the distribution of the
Common Stock may not simultaneously engage in market making activities with
respect to any securities of the Company for a period of at least one (and
possibly five) business days prior to the commencement of the pricing of the
Common Stock. Accordingly, in the event the Representative or any of the
other Underwriters is engaged in a distribution of the Common Stock, they
will not be able to make a market in the Company's securities during the
applicable restrictive period. However, none of the Underwriters has agreed
to or are any of them obligated to act as a broker-dealer in the sale of the
Common Stock by the Selling Security Holders. In addition, each Concurrent
Selling Security Holder desiring to sell Common Stock will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Regulation M Rules 101, 102 and 104,
which provisions may limit the timing of the purchases and sales of shares of
the Company's securities by such Selling Security Holders.
46
<PAGE>
The Selling Security Holders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities may be deemed
underwriting discounts and commissions under the Securities Act.
CERTAIN TRANSACTIONS
Messrs. Scudder and Berntsen acquired 652,946 and 435,298 shares,
respectively, of the Company's Common Stock in exchange for $21,000 and
$14,000, respectively, in December, 1994. 95,693 of these shares were
subsequently transferred by Mr. Scudder, and 20,550 of these shares were
subsequently transferred by Mr. Berntsen to parties unrelated to the Company.
James Scudder was issued 28,120 shares of Common Stock of the Company on
June 8, 1996, in exchange for the guarantee of equipment leases to the Company
with a value of approximately $200,000. A portion of the net proceeds of this
Offering will be used to repay these loans.
James Berntsen was issued 28,120 shares of Common Stock of the Company on
July 7, 1996, in exchange for his guarantee of equipment lease payments in the
amount of $65,518 for the benefit of the Company. A portion of the net
proceeds of this Offering will be used to repay these loans.
In 1995, Steve McKay, a shareholder, loaned the Company the principal
amount of $8,000 which was repaid with interest in 1996.
Between February 29, 1996 and October 2, 1996, IHI loaned an aggregate
of $92,000 to the Company, interest free. All of these amounts were repaid
by October 2, 1996.
On March 6, 1995, May 16, 1995, June 30, 1995, June 30, 1995, October 31,
1995, and November 30, 1995, James Berntsen loaned the Company the principal
sums of $15,000; $5,000; $9,963; $5,063; $5,000; and $1,000, respectively, all
of which were represented by promissory notes payable on demand and bearing
interest at the rate of eight percent per anum. The Company also owed Mr.
Berntsen accrued consulting fees in the amount of $16,500 as of December 31,
1996. All of these obligations have been paid.
On July 1, 1996, the Company entered into a consulting agreement with Scott
Thorogood, a member of the Company's Advisory Board, to provide administrative,
financial, and organizational advice and services. The agreement was extended
on August 1, 1997 for an additional term of one year. Mr. Thorogood receives
$7,500 per month for his part-time consulting services.
On July 15, 1996, the Company entered into a consulting agreement with
Manhattan West, Inc. to assist the Company in locating and arranging
distributor agreements. The agreement is for a term of 30 months. Manhattan
West, Inc. is to receive $15,000 per month from July 15, 1996 through April
15, 1997, and $5,000 per month for the remainder of the term for its
part-time consulting services. Manhattan West, Inc. has agreed to defer
collection of a portion of its consulting fees until after the initial public
offering of the Company's securities.
On July 15, 1996, the Company issued 143,102 shares of Common Stock to
Manhattan West, Inc., for a total consideration of $100,000, and granted an
option to Manhattan West to purchase 543,841 shares of Common Stock at an
exercise price of $.0002 per share.
On August 5, 1996, the Company entered into a consulting agreement with
L. Lawrence Potomac, a member of the Company's Advisory Board, to provide
financial and administrative services to the Company. The agreement extends
through July 31, 1998. Mr. Potomac receives $1,000 per month for his
part-time consulting services.
On August 15, 1996, the Company entered into a consulting agreement with
C.R.H. & Associates to provide marketing and strategic planning advice and
assistance. C. Rowland Hanson, a member of the Company's Advisory Board, is the
principal member of C.R.H. & Associates. The agreement was amended to be by and
between the Company and Mr. Hanson and was extended through December 31, 1999.
Mr. Hanson receives $7,500 per month for his part-time consulting services,
which increases to $10,000 per month upon completion of an initial public
offering of the Company's securities.
On September 20, 1996, the Company issued 858,673 shares of Common Stock to
Knickerbocker for $600,000.
On December 31, 1996, the Board of Directors granted Scott Thorogood an
option to acquire 250,930 shares of Common Stock for $.001 per share.
On December 31, 1996, the Board of Directors granted Rowland Hanson an
option to acquire 198,000 shares of Common Stock for $.001 per share.
47
<PAGE>
On December 31, 1996, the Board of Directors granted L. Lawrence Potomac an
option to acquire 59,400 shares of Common Stock for $.001 per share. On July
24, 1997, Mr. Potomac exercised a portion of this option and purchased 5,000
shares of Common Stock for $5.00.
On December 31, 1996, the Board of Directors granted Kevin Hainley, Chief
Financial Officer of the Company, an incentive stock option under the 1996 Stock
Plan to purchase 60,000 shares of Common Stock for $1.00 per share, which may be
exercised for 10 years. 20% of such option vested immediately and an additional
20% vests at the end of each year thereafter, provided Mr. Hainley is employed
by the Company as its Chief Financial Officer. On March 14, 1997, Mr. Hainley
exercised a portion of this option and purchased 12,000 shares of Common Stock
for $12,000.
On December 31, 1996, the Board of Directors granted Allan Mayer, Vice
President-Marketing of the Company, an incentive stock option under the 1996
Stock Plan, to purchase 60,000 shares of Common Stock for $1.00 per share, which
may be exercised for 10 years. 20% of such option vested 20% immediately and an
additional 20% vests at the end of each year thereafter, provided Mr. Mayer is
employed as an officer of the Company at the end of each year.
On December 31, 1996, the Board of Directors granted Robert Coston, a
director of the Company, an option to acquire 20,000 shares of Common Stock
for $2.50 per share. The option vests 25% at the end of each year over the
first four years of its five year term, provided Mr. Coston is a member of the
Board of Directors or the Advisory Board at the end of each year.
On December 31, 1996, the Board of Directors granted James Mason, a member
of the Advisory Board, an option to acquire 20,000 shares of Common Stock for
$2.50 per share. The option vests 25% at the end of each year over the first
four years of its five year term, provided Mr. Mason is a member of the Advisory
Board at the end of each year.
On December 31, 1996, the Board of Directors granted Robert Horsman, a
member of the Advisory Board, an option to acquire 20,000 shares of Common Stock
for $2.50 per share. The option vests 25% at the end of each year over the
first four years of the five year term, provided Mr. Horsman is a member of the
Advisory Board at the end of each year.
On December 31, 1996, the Board of Directors granted Tor Petterson, a
member of the Advisory Board, an option to acquire 20,000 shares of Common Stock
for $2.50 per share. The option vests 25% at the end of each year over the
first four years of the five year term, provided Mr. Petterson is a member of
the Advisory Board at the end of the year.
On February 15, 1997, the Board of Directors granted Fred Hull, a member of
the Advisory Board, an option to acquire 20,000 shares of Common Stock for $2.50
per share. The option vests 25% at the end of each year over the first four
years of the five year term, provided Mr. Hull is a member of the Advisory Board
at the end of each year.
On February 15, 1997, the Board of Directors granted Suzanne Johnson, a
member of the Advisory Board, an option to acquire 5,000 shares of Common Stock
for $3.00 per share. The option vests 25% at the end of each year over the
first four years of the five year term, provided Ms. Johnson is a member of the
Advisory Board at the end of the year.
On April 4, 1997, the Company entered into a distributorship agreement with
Knickerbocker to develop certain specialty lines of beverages which would
utilize the Company's integrated thermal containers and be marketed by
Knickerbocker.
On April 8, 1997, Manhattan West, Inc. loaned the Company $50,000 as part
of the Bridge Loans, and in consideration therefor acquired a warrant to
purchase 10,000 shares of the Company's Common Stock for $1.00 per share at any
time during the earlier to occur of: (i) 25 months from the date thereof; or
(ii) 30 days from the date the loan is fully repaid. The Bridge Loans are all
anticipated to be repaid with a portion of the net proceeds of the Offering.
On May 22, 1997, the Board of Directors granted Salvadore La Barbera, a
member of the Advisory Board, an option to acquire 20,000 shares of Common
stock for $3.00 per share. The option vests 25% at the end of each year over
the first four years of the five year term, provided Mr. La Barbera is a
member of the Advisory Board at the end of the year.
On October 27, 1997, the Board of Directors granted Robert Coston, a
director, an option to acquire 10,000 shares of Common Stock for $5.00 per
share in consideration for his agreement to become a member of the Company's
Board of Directors. The option has a five year term.
All future transactions by the Company with officers, directors, and five
percent shareholders and their affiliates will be entered into only if the
Company believes that such transactions are reasonably expected to benefit the
Company and the terms of such transactions are no less favorable to the Company
than could be obtained from unaffiliated parties. Furthermore, such
transactions will be approved by a majority of disinterested directors.
48
<PAGE>
DESCRIPTION OF SECURITIES
The following description of the capital stock of the Company and certain
provisions of the Company's Articles and Bylaws is a summary and is qualified in
its entirety by the provisions of the Articles and Bylaws, which have been filed
as exhibits to the Company's Registration Statement, of which this Prospectus is
a part.
Upon the closing of this Offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, no par value, and
5,000,000 shares of Preferred Stock, no par value ("Preferred Stock"). As of
the date of this Prospectus, 3,089,478 shares of Common Stock were
outstanding, there were 70 holders of record of the Company's Common Stock,
and no Preferred Stock was outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. The holders of
Common Stock are entitled to cumulative voting rights with respect to the
election of directors, and as a consequence, minority shareholders will be able
to elect directors on the basis of their votes alone. The shareholders right to
cumulative voting will terminate automatically when the Company shares are
listed on the New York Stock Exchange or the American Stock Exchange, or
alternatively are qualified for trading as a NMS security on the Nasdaq Stock
Market, and the Company has at least 800 shareholders as of the record date for
its most recent meeting of shareholders. The Common Stock is anticipated to be
listed on AMEX after the consummation of the Offering and, therefore, it is not
anticipated that cumulative voting rights will continue. See "Possible Anti-
Takeover Effect of Certain Provisions of the Company's Articles of
Incorporation." Subject to preferences that may be applicable to any then
outstanding shares of Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to
convert their Common Stock into any other securities. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are, and all shares of Common Stock to be outstanding
upon completion of this Offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Preferred Stock may be issued in series, and shares of each series will
have such rights and preferences as are fixed by the Board of Directors in the
resolutions authorizing the issuance of that particular series. In designating
any series of Preferred Stock, the Board of Directors may, without further
action by the holders of Common Stock, fix the number of shares constituting
that series, and fix the dividend rights, dividend rate, conversion rights,
voting rights (which may be greater or lesser than the voting rights of the
Common Stock), rights and terms of redemption (including any sinking fund
provisions), and the liquidation preferences of that series of Preferred Stock.
It should be expected that the holders of any series of Preferred Stock, when
and if issued, will have priority claims to dividends and to any distributions
upon liquidation of the Company, and possibly other preferences over the holders
of Common Stock.
The Board of Directors may issue one or more series of Preferred Stock
without action of the shareholders of the Company. Accordingly, the issuance of
Preferred Stock may adversely affect the rights of the holders of the Common
Stock. In addition, the issuance of Preferred Stock may be used as an "anti-
takeover" device without further action on the part of the shareholders.
Issuance of Preferred Stock may dilute the voting power of a holder of Common
Stock (such as by issuing Preferred Stock with super-voting rights), may
discourage bids for the Company's Common Stock, and may render more difficult
the removal of current management, even if such removal may be in the
shareholders' best interest. The Company has no current plans to issue any
Preferred Stock.
PRESENTLY OUTSTANDING WARRANTS
As of the date of this Prospectus, the Company has outstanding warrants
to purchase 400,587 shares of Common Stock. 70,587 of these Warrants
comprise the Security Holders' Warrants. All of the remaining warrants may be
exercised for up to 36 months from the date of issuance, and will all expire
by the end of May, 2000. The exercise price
49
<PAGE>
of 230,000 of these warrants is $1.00 per share, and the exercise price of the
remaining 100,000 is $3.00 per share. The exercise price of each of these
warrants is subject to adjustment in the event of stock splits, stock dividends
and similar events, and if at any time the Common Stock of the Company trades on
an exchange, the Nasdaq market, the OTC Bulletin Board, or in the pink sheets
for $8.00 per share for 20 out of 30 consecutive trading days, the Company has
the right to shorten the exercise period for these warrants by providing 10 days
prior written notice to the warrant holder, granting the warrant holder 45 days
after the last day of the 30 day trading period to exercise the warrant. The
Company must have an effective registration statement covering all of the shares
of Common Stock underlying the warrants before it can provide notice to shorten
the exercise period. The Company must also use its best efforts to keep the
registration statement effective for a minimum period of six months after the
termination of the shortened exercise period.
The Selling Security Holders' Warrants may be exercised to purchase
70,587 shares of Common Stock on substantially identical terms as the
Warrants offered herein.
OPTIONS
As of the date of this Prospectus, options to purchase a total of 1,379,506
shares of Common Stock were outstanding. 599,665 of the shares underlying these
options are capable of being exercised as of the date of this Prospectus. An
additional 543,841 of the shares underlying these options will be capable of
being exercised upon completion of this Offering. The Company has granted
Incentive Stock Options to certain of its employees for the purchase of up to an
aggregate of 113,000 shares of Common Stock pursuant to the 1996 Stock Plan. An
aggregate of 545,400 shares of Common Stock are currently reserved under the
1996 Stock Plan, and options may be granted under the 1996 Stock Plan which can
be exercised for a period of up to 10 years and may contain such other terms as
the Board of Directors or a committee appointed to administer the 1996 Stock
Plan may determine. See "Management - Stock Option Plan."
UNITS
Each Unit consists of one Common Share and one Warrant. Each Warrant
entitles the holder thereof to purchase one Common Share. The Warrants may be
exercised for three years from the date of this Prospectus. Upon completion of
the Offering the Warrants and Common Shares comprising the Units will be
immediately detachable and separately transferable from the date of this
Prospectus. The Offering Price of the Units is allocated $5.40 to the Common
Share and $.10 to the Warrant.
WARRANTS
In connection with this Offering, the Company has authorized the
issuance of up to 3,125,000 Warrants (including 375,000 Warrants that may be
issued by the Company upon exercise of the Over-allotment Option, and 250,000
warrants that may be issued upon exercise of the Representative's Options),
and has reserved 3,125,000 shares of Common Stock for issuance upon exercise
of such Warrants. Each Warrant entitles the holder to purchase one Common
Share at an exercise price equal to 150% of the Offering Price of the Common
Shares subject to adjustment, for a period of three years commencing from the
date of this Prospectus. The Warrants will trade separately immediately
after this Offering.
Each Warrant will be redeemable by the Company for $.05 per Warrant at any
time upon 30 days prior written notice to the holder, at any time the closing
bid price per share of the Company's Common Stock equals or exceeds 140% of the
Offering Price of a Common Share for 20 consecutive trading days within the 30
day period prior to the date notice of redemption is given, and further provided
at such time there is a current effective registration statement covering the
Common Shares underlying the Warrants. The Company presently expects to call
all of the Warrants for redemption as soon as legally possible, but several
factors may modify that intention. In the event the Company provides a notice
of redemption, a holder of the Warrants would be forced to exercise such
holder's Warrants within the period set forth in the notice of redemption and
pay the exercise price including at a time when it may be disadvantageous for
such holder to do so, or to sell the Warrants at the current market price
including at a time when such holder might otherwise wish to hold the Warrants,
or to accept the redemption price which will likely be substantially less than
the market value of the Warrants.
50
<PAGE>
The Warrants will be issued in registered form under a Warrant Agreement
between the Company and ChaseMellon Shareholder Services, as warrant agent (the
"Warrant Agent"). The Common Shares underlying the Warrants, when issued upon
exercise of a Warrant in accordance with its terms, will be fully paid and
nonassessable, and the Company will pay any transfer tax incurred as a result of
the issuance of Common Shares to the holder upon its exercise.
Holders of the Warrants will be able to sell the Warrants, if a market
exists, rather than exercise them. However, there can be no assurance that a
market will develop, or if developed, will continue for the Warrants.
Each Warrant may be exercised by surrendering the Warrant certificate, with
the formal subscription form on the reverse side of the Warrant certificate
properly completed and executed, together with payment of the exercise price to
the Warrant Agent. Prior to their expiration or redemption by the Company, the
Warrants may be exercised in whole or, from time to time, in part. If less than
all of the Warrants evidenced by a Warrant certificate are exercised, a new
Warrant certificate will be issued for the remaining number of Warrants.
Prior to the exercise of the Warrants, the holders of the Warrants will not
have any of the rights or privileges of shareholders of the Company (except to
the extent they own Common Stock of the Company). The exercise price of the
Warrants and the number of Common Shares issuable upon the exercise thereof are
subject to adjustment upon the occurrence of certain events such as stock
splits, stock dividends, recapitalizations, mergers or consolidations, as set
forth in the Warrant Agreement. No adjustment of the exercise price will be
required unless such adjustment would require an increase or decrease of at
least one percent in the number of Common Shares issuable upon exercise of the
Warrants; however, any such adjustment not made will be carried forward and
taken into account in any subsequent adjustment.
For the life of the Warrants, the Warrant holders have the opportunity to
profit from a rise in the market price of the Common Stock without assuming the
risk of ownership of the Common Shares issuable upon the exercise of the
Warrants, with a resulting dilution in the interest of the Company's
shareholders by reason of the exercise of Warrants at any time, if ever, when
the exercise price of the Warrants is less than the market price for the Common
Stock. The terms on which the Company may be able to obtain additional capital
during the life of the Warrants may be adversely affected as a result of the
outstanding Warrants. The Warrant holders may exercise their Warrants at a time
when the Company would seek capital by offering Common Stock on terms more
favorable to the Company than those provided in the Warrants. In such an event
the existence of the outstanding Warrants could have a material adverse impact
on the price and/or terms the Company may be able to obtain from an offering of
its Common Stock.
For a holder to exercise the Warrants there must be a current registration
statement in effect with the Securities and Exchange Commission and registration
or qualification with, or approval from, various state securities agencies with
respect to the shares underlying the Warrants. The Company has agreed to use
its best efforts to cause a registration statement with respect to such shares
under the Securities Act to continue to be effective during the term of the
Warrants and to take such other actions under the laws of various states as may
be required to cause the sale of Common Shares upon exercise of the Warrants to
be lawful. However, the Company will not be required to honor the exercise of
Warrants if, in the opinion of the Company's Board of Directors upon advice of
counsel, the sale of the underlying shares upon exercise would be unlawful.
The Company is not required to issue fractional shares of Common Stock, and
in lieu thereof will make a cash payment based upon the current market value of
such fractional shares. A holder of the Warrants will not possess any voting or
any other rights as a shareholder of the Company unless he or she exercises the
Warrants.
The Warrant exercise price was arbitrarily determined by negotiation
between the Company and the Representative. The Company may reduce the exercise
price of the Warrants or extend the warrant expiration date upon notice to
Warrant holders. The foregoing is merely a summary of the rights and privileges
of the holders of Warrants, and is qualified in its entirety by reference to the
Warrant Agreement.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion sets forth certain federal income tax
consequences, under current law, which may result from the purchase and
ownership of the Units, and the Common Shares and Warrants constituting the
Units. The Company has not requested and does not intend to request a ruling
from the Internal Revenue Service or a formal tax opinion from its counsel on
any tax aspect of this Offering. This tax discussion is intended only as a
descriptive summary and does not purport to be a complete analysis or listing of
all potential federal income tax effects resulting from or which
51
<PAGE>
may result from the purchase and ownership of the Units, Common Shares, or
Warrants. Prospective purchasers of the Units should consult their own tax
advisors with respect to the tax consequences to them from the purchase and
ownership of the Securities, and the applicability and effect of federal, state,
local, foreign and other tax laws.
The Company has allocated the cost of each Unit between each of its
elements (one Common Share at a cost of $5.40 and one Warrant to purchase one
Common Share at a cost of $0.10) in accordance with their perceived relative
fair market values at the time of issuance. The portion of the cost of a Unit
allocated to each element will constitute the initial tax basis of such element
for federal income tax purposes.
No gain or loss will be recognized by a holder of a Warrant on the holder's
purchase of Common Shares for cash upon exercise of the Warrant. The adjusted
tax basis of the Common Shares so acquired will be equal to the tax basis
of the Warrant plus the exercise price. The holding period of the Common Shares
acquired upon the exercise of the Warrant will begin on the date the Warrant is
exercised.
The sale of Common Shares or the sale of a Warrant will result in the
recognition of gain or loss to the holder in an amount equal to the difference
between the amount realized (generally the cash and fair market value of other
property received) and the holder's adjusted tax basis therein. Such a sale of
Common Shares will result in capital gain or loss, provided the Common Shares
are a capital asset in the hands of the holder. The sale of a Warrant will
likewise result in capital gain or loss, provided the Warrant is a capital asset
in the hands of the holder and the Common Shares underlying the Warrant would be
a capital asset to the holder if acquired by the holder.
Under Section 305 of the Internal Revenue Code of 1986, as amended, certain
actual or constructive distributions of stock (including warrants to purchase
stock) with respect to such stock (or warrants) may be taxable to the
shareholders (or Warrant holders) of the Company. Adjustments in the exercise
price of the Warrants, or the number of shares which may be purchased upon
exercise of the Warrants, in each case made pursuant to certain provisions of
the Warrants, may result in a distribution which is taxable as a dividend to the
holders of Warrants.
If a Warrant is not exercised and allowed to expire, the Warrant will be
deemed to have been sold or exchanged for no consideration on the expiration
date. Any loss to the holder of a Warrant will be a capital loss if the Warrant
was held as a capital asset and if the Common Shares underlying the Warrant
would have been a capital asset had such Warrant been exercised.
No gain or loss will be recognized by the Company upon the acquisition,
exercise or expiration of any Warrants.
REPRESENTATIVE'S OPTIONS
At the closing of this Offering, the Company has agreed to sell to the
Representative the Representative's Options for an aggregate purchase price of
$250 ($0.001 per underlying Unit). The Representative's Options grant to the
Representative the right to purchase up to 250,000 Units from the Company (each
Unit consisting of one Common Share, and one warrant to purchase one Common
Share each of which to be under terms substantially identical to the Common
Shares and Warrants offered herein). The Representative's Options may be
exercised for a period of four years commencing one year after the date of this
Prospectus at an exercise price of 120% of the Offering Price of the Units, and
will contain certain anti-dilution provisions. The Representative's Option will
be restricted from sale, assignment, transfer or hypothecation prior to its
exercise date except to officers of the Representative and members of the
selling group and officers and partners thereof.
The Representative's Options to acquire up to 250,000 Units contains
certain registration rights under the Securities Act relating to the shares
of Common Shares and Representative's Warrants included in the Units
underlying the Representative's Options and the shares of Common Stock
issuable upon exercise of the Representative's Warrants included in such
Units (collectively, the "Representative Shares"). Under the terms of the
Representative's Options, the Company is obligated to register all or part of
the Representative Shares if it receives a request to do so by the holders
owning or entitled to purchase a majority of the Representative Shares,
provided that the request is made 12 months after the date of this
Prospectus. The Representative's Options provides for one such request, at
the Company's expense. The demand registration right contained in the
Representative's Options will expire five years from the date of this
Prospectus. In addition, if the Company proposes to register any of its
securities under the Securities Act for its own account, holders of the
Representative's Options or Representative's Shares are entitled to notice of
such registration and the Company
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<PAGE>
is obligated to use all reasonable efforts to cause the Representative Shares to
be included, provided that the underwriter of any such offering shall have the
right to limit the number of shares included in the registration. The Company
is responsible for all expenses incurred in connection with any such piggyback
registration of the Representative Shares. The piggyback registration rights
contained in the Representative's Options will expire no later than five years
from the date of this Prospectus. The exercise of such registration rights by
the Representative may result in dilution in the interests in the Company of
then-present stockholders, hinder efforts by the Company to arrange future
financings of the Company and/or have an adverse effect on the market price of
the Company's Common Stock and Warrants. See "Underwriting."
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION
The holders of Common Stock are currently entitled to one vote for each
common share held of record on all matters submitted to a vote of the
shareholders other than the election of directors, in which event any holder may
demand cumulative voting. Under cumulative voting, the holders of Common Stock
are entitled to cast for each share held the number of votes equal to the number
of directors to be elected, which is currently four. A holder may cast all of
his or her votes for one nominee or distribute them among any number of nominees
for election. The Company's Articles provide that the shareholders' right to
cumulative voting will terminate automatically when the Company's shares are
listed on the New York Stock Exchange or the American Stock Exchange, or
alternatively are qualified for trading as a NMS security on the Nasdaq Stock
Market, provided further the Company has at least 800 shareholders as of the
record date for the most recent annual meeting of its shareholders. Upon
consummation of this Offering, the Company's Common Shares are anticipated to be
listed on AMEX and therefore cumulative voting will likely terminate after
consummation of this Offering. The absence of cumulative voting may have the
effect of limiting the ability of minority shareholders to effect changes in the
Board of Directors, and may have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of the Company.
The Company's Articles also include a provision ("Fair Price Provision")
that requires the approval of the holders of two-thirds of the Company's voting
stock as a condition to a merger or certain other business transactions with, or
proposed by a holder of 15% or more of the Company's voting stock (an
"Interested Shareholder"), except in cases where the continuing directors
approve the transaction or certain minimum price criteria and other procedural
requirements are met. A "Continuing Director" is a director who is not
affiliated with an Interested Shareholder and was elected prior to the time such
Interested Shareholder became an Interested Shareholder, or any successor chosen
by a majority of the Continuing Directors. The minimum price criteria generally
require that, in a transaction in which shareholders are to receive payments,
holders of Common Stock must receive a value equal to the higher of either the
price paid by the Interested Shareholder for Common Stock during the prior two
years, the Fair Market Value (as defined in the Articles) at the time, or the
amount paid in the transaction in which such person became an Interested
Shareholder, and that such payment be made in cash or in the type of
consideration paid by the Interested Shareholder for the greatest portion of its
shares. The Company's Board of Directors believes the Fair Price Provision will
help assure all of the Company's shareholders will be treated similarly if
certain kinds of business combinations are effected. However, the Fair Price
Provision may also make it more difficult to accomplish certain transactions
that could be beneficial to shareholders but are opposed by the incumbent Board
of Directors.
The Company's Articles provide for a classified Board of Directors to
automatically become effective when the shares of Common Stock of the Company
are listed on the New York Stock Exchange or the American Stock Exchange, or
alternatively are qualified for trading as a NMS security, and when the Company
has at least 800 shareholders as of the record date for the most recent annual
meeting of its shareholders. The classified Board of Director provisions, when
and if effective, divide the Board of Directors into two classes of directors
serving staggered two-year terms. The classification of directors has the
effect of making it take more time to change the composition of a majority of
the Board of Directors. Upon consummation of this Offering, the Company's
Common Shares are anticipated to be listed on AMEX and therefore a classified
Board of Directors will likely become operative following consummation of the
Offering.
The Company's Articles also require any action required or permitted to be
taken by shareholders of the Company must be effected at a duly called meeting
of shareholders and may not be effected by a consent in writing. The Company's
Articles also provide newly created directorships resulting from any increase in
the authorized number of directors may be filled by a majority vote of the
directors then in office. In addition, the Articles of the Company require
shareholders give advance notice to the Company's Secretary of any director
nominations or other business to be brought
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by shareholders at any shareholders' meeting. The Articles also require the
approval of two-thirds of the Company's voting stock to amend certain provisions
of the Articles. Each of these provisions may have the effect of deterring
hostile takeovers or delaying changes in control or management of the Company.
See "Risk Factors - Anti-Takeover Provisions; Limitation on Voting Rights" and
"Management."
AMERICAN STOCK EXCHANGE LISTING
The Company has applied for a listing of the Common Shares and Warrants on
the American Stock Exchange under the symbols "ONT" and "ONTW", respectively.
This Offering is the initial public offering of the Securities and, accordingly,
there is currently no public trading market for any such Securities. Even if
the Common Shares and Warrants are accepted for trading on the American Stock
Exchange, there can be no assurance that a public trading market will ever
develop or, if one develops, that it will be maintained. Although it has no
legal obligation to do so, the Representative from time to time may act as a
market maker and otherwise effect transactions for its own account, or for the
account of others, in the Securities. The Representative, if it so
participates, may be a dominating influence in any market that may develop for
any of the Securities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock and the
Warrant Agent for the Company's Warrants is ChaseMellon Shareholder Services.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 5,589,478 shares
of Common Stock outstanding, assuming no exercise of the Warrants, the
Over-allotment Option, the Warrants included in the Representative's Options,
and other outstanding warrants and options. All of the 2,500,000 Common
Shares sold in this Offering (plus any Common Shares sold upon exercise of
the Over-allotment Option) will be freely transferable and tradable without
restriction or further registration under the Securities Act except for any
shares purchased or held by any affiliate of the Company, which will be
subject to the resale limitations of Rule 144 under the Securities Act. An
aggregate of 141,174 shares of Common Stock, including 70,587 underlying the
Security Holders' Warrants are being registered simultaneously with this
Offering for resale by the Selling Security Holders from time to time. When
sold, such shares will be freely tradable without restrictions or further
registration under the Securities Act. See "Concurrent Offering by
Concurrent Security Holders." The remaining 3,018,891 shares of Common Stock
were issued and sold by the Company in private transactions ("Restricted
Shares") and are eligible for public sale only if registered under the
Securities Act, sold in accordance with Rule 144 thereunder, or pursuant to
an exemption from such registration requirements.
Holders of the Warrants included in the Units offered hereby will be
entitled to purchase an aggregate of 2,500,000 Common Shares upon exercise of
the Warrants at any time during the three-year period following the date of this
Prospectus, provided the Company satisfies certain securities registration
requirements with respect to the shares underlying the Warrants. See
"Description of Securities - Warrants." Any and all Common Shares purchased
upon exercise of the Warrants will be freely tradable, provided such
registration requirements are met.
Up to 250,000 Common Shares and 250,000 Warrants may be purchased by the
Representative during the four year period commencing upon the first anniversary
date of this Prospectus through the exercise of the Representative's Options and
the Representative's Warrants included therein. Any and all securities
purchased upon exercise of the Representative's Options will not be freely
tradable unless the Company satisfies certain securities registration
requirements. See "Underwriting."
Approximately 339,087 of the Restricted Shares are currently eligible for
sale in the public market pursuant to Rule 144(k). All of these shares are
subject to the lock-up agreement not to sell which is described below. In
addition, as of the date of this Prospectus, 545,400 shares are reserved for
issuance pursuant to the 1996 Stock Plan of which options to acquire 113,000
shares have been granted, and in addition another 1,266,506 shares are
reserved for issuance upon the exercise of other outstanding options and
400,587 shares are reserved for issuance upon exercise of outstanding
warrants. All of the shares underlying outstanding options and 330,000 of
the shares underlying outstanding warrants are subject to the lock-up
agreement described below. Approximately 1,555,760 of all outstanding
options and warrants shall be capable of being exercised upon completion of
this Offering, 1,483,506 which are all subject to the lock-up agreement
described below.
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<PAGE>
The Company, its executive officers and directors, and certain other
shareholders of the Company owning an aggregate of approximately 3,018,891
shares of Common Stock and an additional 1,379,506 shares subject to outstanding
options, have agreed they will not, without the prior written consent of the
Representative, sell or otherwise transfer or dispose of, pledge or hypothecate
any securities of the Company for a period of 12 months from the date of this
Prospectus (the "Lock-up Period"). The Representative, in its sole discretion
at any time and without notice to the public, may release any or all of the
Company's securities from these lock-up agreements and permit holders of the
Company's securities to resell all or any portion of the securities held by them
at any time prior to the expiration of the Lock-up Period.
In general, under Rule 144 as currently in effect, (beginning 90 days after
the date of this Prospectus), any holder of Restricted Shares, including an
affiliate of the Company, as to which at least one year has elapsed since the
later of the date of their acquisition thereof from the Company or from an
affiliate, would be entitled within any three month period to sell a number of
shares that does not exceed the greater of one percent of the then outstanding
shares of Common Stock (approximately 55,895 shares immediately after the
completion of this Offering assuming no exercise of the Over-allotment Option)
or the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales under Rule 144 are subject to certain
requirements relating to notice and availability of current public information
about the Company. However, a person (or persons whose shares are aggregated)
who is not deemed to have been an affiliate of the Company at any time during
the 90 days immediately preceding the sale and who beneficially owns Restricted
Shares is entitled to sell such shares under Rule 144(k) without regard to the
limitations described above, provided that at least two years have lapsed since
the date the shares were acquired. The foregoing is a summary of Rule 144 and
is not intended to be a complete description of the rule and other applicable
regulations.
Prior to this Offering, there has been no public market for the Company's
securities. Following this Offering, the Company cannot predict the effect,
if any, that market sales of the Common Stock, or the availability of such
shares for sale pursuant to Rule 144, registration rights or otherwise, will
have on the market price prevailing from time to time. Nevertheless, sales
by the existing shareholders of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices for the
Company's securities and the ability of the Company to obtain additional
equity financing. In addition, the availability for sale of substantial
amounts of Common Shares acquired through the exercise of the Warrants, other
options or warrants, or the Representative's Options and the Representative's
Warrants included therein could adversely affect prevailing market prices for
the Common Stock.
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting
Agreement, the Underwriters named below, for whom Joseph Charles & Associates,
Inc. is acting as the Representative, have severally agreed to purchase from
the Company, and the Company has agreed to sell to the Underwriters named below,
the aggregate number of Securities set forth opposite their respective names in
the table below at the price to the public less underwriting discounts set forth
on the cover page of this Prospectus. The Units are being sold on a firm
commitment basis. The Underwriting Agreement provides, however, the obligations
of the Underwriters to pay for and accept delivery of the Units are subject to
certain conditions precedent. The Underwriters are committed to purchase all of
the Securities offered hereby if any are purchased.
NUMBER OF UNITS
UNDERWRITERS TO BE PURCHASED
------------ ----------------
Joseph Charles & Associates, Inc.
___________________________
___________________________
-----------------
Total........................................ 2,500,000
-----------------
-----------------
The Representative has informed the Company the Underwriters do not expect
to sell any Units to any accounts over which they have discretionary authority.
The Representative has advised the Company the Underwriters propose to
offer the Units directly to the public at the Offering Price set forth on the
cover page of this Prospectus, and to selected dealers at that price, less a
concession
55
<PAGE>
of not more than $_____ per Unit. The Underwriters may allow a discount of
not more than $0.___ per Unit on sales to certain dealers. After the
initial offering to the public, the price to the public of the Units of
Common Shares and Warrants and the other terms may be changed.
The Company has granted the Representative an option, which may be
exercised during the 45 day period following the date of this Prospectus, to
purchase up to 375,000 additional Units at the Offering Price, less the
underwriting discounts and commissions. The Underwriters may exercise such
option only for the purpose of covering any over-allotments in the sale of the
Units offered hereby.
The Company has agreed to pay the Representative a non-accountable expense
allowance of 3% of the gross proceeds received by the Company from the sale of
the Units. In addition to the Underwriters' discount and the non-accountable
expense allowance, the Company is required to pay the costs of qualifying the
Securities under federal and state securities laws, together with legal and
accounting fees, printing and other costs incurred by the Company in connection
with this Offering.
The Company has also agreed to retain the Representative as a financial
consultant for a period of two years from the date of this Prospectus for a fee
of $3,000 per month, payable in advance at the closing of the Offering. The
financial consulting services to be provided by the Representative include
assisting in the development of a long-term financial strategy and working with
financial analysts.
The Company has also agreed, for a period of four years from the date of
this Prospectus, at the option of the Representative, to nominate a designee of
the Representative reasonably acceptable to the Company, for election to the
Company's Board of Directors or, at the option of the Representative, if the
Company is unable to obtain directors and officers insurance satisfactory to the
Representative, to designate a consultant to the Board of Directors who will
have the right to attend all Board of Directors and committee meetings thereof,
and who will be compensated on the same basis as non-employee members of the
Board. The Representative has not yet exercised its right to designate such a
person.
The Company has agreed with the Representative, if the Company redeems
the Warrants, the Representative will act as the Company's exclusive
solicitation agent and the Company will pay the Representative a fee of 2% of
the aggregate exercise price if: (i) the exercise of the Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
who is so designated in writing by the holder exercising the Warrant; (ii)
the Warrant is not held in a discretionary account except where prior
specific written approval for the exercise has been received; (iii)
disclosure of compensation arrangements was made both at the time of the
Offering and at the time of exercise of the Warrant; (iv) the solicitation of
the exercise of the Warrant was not in violation of applicable rules
promulgated under the Exchange Act; and (v) the Representative provides bona
fide services in connection with the solicitation of the Warrant. No
solicitation fee will be paid to the Representative on Warrants exercised
within one year of the date of this Prospectus or on Warrants voluntarily
exercised at any time without solicitation. In addition, unless granted an
exemption by the Commission from applicable rules under the Exchange Act, the
Representative will be prohibited from engaging in any market making
activities or solicited brokerage activities until the later of the
termination of such solicitation activity or the termination by waiver or
otherwise of any right the Representative may have to receive a fee for the
exercise of the Warrants following such solicitation. Such a prohibition,
while in effect, could impair the liquidity and market price of the
Securities.
At the closing of this Offering, and subject to the terms and conditions
of the Underwriting Agreement between the Company and the Representative, the
Company has agreed to sell to the Representative the Representative's Options
for an aggregate purchase price of $250 as additional compensation in
connection with this Offering. The Representative's Options grant to the
Representative the right to purchase up to 250,000 Units (each consisting of
one Common Share and one Warrant) at a price equal to 120% of the Offering
Price. The Warrants underlying the Representative's Options will have an
exercise price and other terms identical to the Warrants being offered to the
public pursuant to this Prospectus.
The Representative's Option may be exercised for a four-year period,
commencing one year from the date of this Prospectus. The Representative's
Options will be restricted from sale, transfer, assignment, or hypothecation for
a period of one year from the date of this Prospectus, except to officers, and
employees of the Representative, other Underwriters and/or their officers and
employees. The Representative's Option will also contain anti-dilution
provisions for stock splits, stock dividends, recombinations and
reorganizations, a one-time demand registration provision (at the Company's
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<PAGE>
expense), and piggyback registration rights (which registration rights will
expire five years from the date of this Prospectus).
Except in connection with acquisitions or the grant of options to the
Company's officers and employees under the Company's 1996 Stock Plan, and at an
exercise price equal to the fair market value the Company has agreed, for a
period of 18 months from the closing of this Offering, not to issue, sell, or
purchase any shares of Common Stock or other equity securities of the Company
without the prior written consent of the Representative. The officers,
directors, and certain shareholders have agreed they will not except in certain
circumstances, offer, sell, or otherwise dispose of any securities of the
Company owned by them for a period of 12 months from the closing of this
Offering without the prior written consent of the Representative, which consent
may be withheld in its sole discretion. The Representative may, in its
discretion and without notice to the public, waive such restrictions and permit
such holders to sell any or all of their securities of the Company, the effect
of which could be a substantial decline in the trading price of the Company's
Common Stock or Warrants.
Prior to this Offering, there has been no public market for the Common
Shares or Warrants and there can be no assurance a market will develop or be
sustained following this Offering. The Offering Price of the Common Shares and
Warrants and the exercise price of the Warrants were determined by negotiations
between the Representative and the Company. Among the factors considered in
determining the Offering Price and the exercise price of the Warrants were the
prospects for the Company, an assessment of the industry in which the Company
operates, the assessment of management, the number of Common Shares and Warrants
offered, the price purchasers of the Securities might be expected to pay given
the nature of the Company and the general condition of the securities markets at
the time of the Offering. Accordingly, the Offering Price set forth on the
cover page of this Prospectus should not necessarily be considered an indication
of the actual value of the Company or the Common Shares or Warrants. The price
of the Securities is subject to change as a result of market conditions and
other factors, and no assurance can be given the Common Shares or Warrants can
be resold at their respective Offering Price.
Certain persons participating in the Offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Shares and Warrants at levels above those which might otherwise
prevail in the open market, including by entering stabilizing bids, effecting
syndicate covering transactions or imposing penalty bids. A stabilizing bid
means the placing of any bid or effecting of any purchases, for the purpose of
pegging, fixing or maintaining the price of the Common Shares or Warrants. A
syndicate covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the Offering. A penalty bid means an
arrangement that permits the Representative to reclaim a selling concession from
a syndicate member in connection with the Offering when Common Shares or
Warrants sold by the syndicate member are purchased in syndicate covering
transactions. Such transactions may be effected on the AMEX or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Securities
offered hereby have been passed upon for the Company by Fisher Thurber LLP.
David A. Fisher is the owner of an option to purchase 50,000 shares of Common
Stock at $2.50 per share and is a partner of Fisher Thurber LLP. Certain legal
matters will be passed upon for the Underwriters by Freshman, Marantz, Orlanski,
Cooper & Klein, a law corporation, Beverly Hills, California.
EXPERTS
The financial statements of the Company as of December 31, 1996 and for the
years ended December 31, 1995 and 1996, and the period from November 8, 1994
(inception) through December 31, 1996 have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of such firm as experts in accounting and auditing.
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ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2
("Registration Statement") under the Securities Act with the Securities and
Exchange Commission in Washington, D.C. with respect to the Units offered by
this Prospectus. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in or
annexed as exhibits to the Registration Statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities Act
and the rules and regulations of the Commission thereunder. For further
information with respect to the Company and the Units offered by this
Prospectus, reference is made to the Registration Statement and to the
financial statements, and exhibits filed as part thereof. Copies of the
Registration Statement, together with such financial statements and exhibits,
may be obtained from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at 500 West Madison Street,
Chicago, Illinois 60661 and 75 Park Place, New York, New York 10007, upon
payment of the charges prescribed therefor by the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
documents are not necessarily complete, and in each instance reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects
by such reference. The Commission maintains a World Wide Web site containing
reports, proxy and information statements and other information regarding
registrants who file electronically with the Commission. The address of the
site is http:/www.sec.gov.
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- --------------------------------------------------------------------------------
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST BE NOT
RELIED UPON AS HAVING BEEN AUTHORIZED THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES, OR
AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------------------
TABLE OF CONTENTS
PAGE
Prospectus Summary ...........................................................3
Risk Factors .................................................................7
Use of Proceeds..............................................................20
Dividend Policy .............................................................21
Dilution.....................................................................21
Capitalization ..............................................................23
Selected Financial Data .....................................................24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..............................................................26
Business.....................................................................29
Management...................................................................38
Principal Shareholders.......................................................46
Concurrent Selling Security Holders..........................................46
Certain Transactions.........................................................47
Description of Securities....................................................50
Shares Eligible for Future Sale..............................................55
Underwriting.................................................................56
Legal Matters................................................................58
Experts......................................................................58
Additional Information.......................................................59
Index to Financial Statements...............................................F-1
--------------------------------
UNTIL __________, 1998, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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ONTRO, INC.
2,500,000 UNITS
EACH UNIT CONSISTS OF
ONE SHARE OF
COMMON STOCK AND
ONE COMMON STOCK PURCHASE WARRANT
------------------------------------------------
PROSPECTUS
------------------------------------------------
JOSEPH CHARLES & ASSOCIATES, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
ONTRO, INC.
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets:
December 31, 1996
Unaudited June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations:
Years ended December 31, 1995 and 1996,
Period from inception (November 8, 1994) through December 31, 1996,
Unaudited six months ended June 30, 1996 and 1997, and
Period from inception (November 8, 1994) through June 30, 1997. . . . . F-4
Statements of Stockholders' Equity (Deficit):
Years ended December 31, 1995 and 1996
Period from inception (November 8, 1994) through June 30, 1997. . . . . F-5
Statements of Cash Flows:
Years ended December 31, 1995 and 1996,
Period from inception (November 8, 1994) through December 31, 1996,
Unaudited six months ended June 30, 1996 and 1997, and
Period from inception (November 8, 1994) through June 30, 1997. . . . . F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Ontro, Inc.:
We have audited the accompanying balance sheet of Ontro, Inc. (a development
stage enterprise) as of December 31, 1996, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the years ended
December 31, 1995 and 1996 and the period from November 8, 1994 (inception)
through December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ontro, Inc. (a development
stage enterprise) as of December 31, 1996, and the results of its operations and
its cash flows for the years ended December 31, 1995 and 1996 and the period
from November 8, 1994 (inception) through December 31, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
San Diego, California
February 14, 1997 KPMG Peat Marwick LLP
F-2
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, JUNE 30,
1996 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 12,000 $ 514,800
Prepaid expenses and other current assets 2,500 9,500
----------- ------------
Total current assets 14,500 524,300
Property and equipment, net 287,200 368,800
Deferred financing costs 7,000 86,400
Other assets 13,600 9,600
Intangible assets, net 6,300 10,700
----------- ------------
328,600 999,800
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accrued consulting fees $ 85,500 55,000
Other accrued expenses 111,000 111,600
Current portion of capital lease obligations 26,800 36,200
Payroll taxes payable 12,000 30,400
Notes payable (bridge loans) --- 1,245,000
----------- ------------
Total current liabilities 235,300 1,478,200
Notes payable (bridge loans) 110,000 ---
Capital lease obligations, excluding current portion 100,100 123,700
----------- ------------
Total liabilities 445,400 1,601,900
----------- ------------
Stockholders' Equity (deficit):
Preferred stock, no par value, 5,000,000 shares --- ---
authorized, no shares issued Common stock, no
par value, 20,000,000 shares authorized,
2,726,900, and 2,965,122 shares issued and
outstanding as of December 31, 1996, and
June 30, 1997, respectively 1,141,900 1,606,300
Additional paid-in capital 792,000 993,800
Deficit accumulated during the development stage (1,645,000) (2,762,000)
Deferred compensation (405,700) (440,200)
----------- ------------
Total stockholders' equity (deficit) (116,800) (602,100)
----------- ------------
Commitments and contingencies (Note 12)
$ 328,600 999,800
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
-----------------------------------------
FROM INCEPTION FROM INCEPTION
YEAR ENDED YEAR ENDED (NOVEMBER 8, 1994) SIX MONTHS ENDED (NOVEMBER 8, 1994)
DECEMBER 31, DECEMBER 31, THROUGH DECEMBER 31, JUNE 30, THROUGH JUNE 30,
1995 1996 1996 1996 1997 1997
------------ ------------ ------------------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Operating expenses:
Marketing, general and administrative $ 94,500 830,400 937,200 52,100 786,200 1,723,400
Research and development expense 67,900 235,900 303,800 167,600 258,900 562,700
Compensation related to grant of
stock options --- 379,300 379,300 --- 17,200 396,500
------------ ------------ ------------------- ----------- ---------- -----------------
Total operating expense 162,400 1,445,600 1,620,300 219,700 1,062,300 2,682,600
Interest expense 1,700 22,800 24,700 400 54,700 79,400
------------ ------------ ------------------- ----------- ---------- -----------------
Net loss $ (164,100) (1,468,400) (1,645,000) (220,100) (1,117,000) (2,762,000)
------------ ------------ ------------------- ----------- ---------- -----------------
------------ ------------ ------------------- ----------- ---------- -----------------
Net loss per common share $ (0.06) (0.46) (0.08) (0.28)
------------ ------------ ----------- ----------
------------ ------------ ----------- ----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ONTRO, INC.
(A Development Stage Enterprise)
Statements of Stockholders' Equity (Deficit)
For the years ended December 31, 1995 and 1996
and the period from November 8, 1994 (inception) through June 30, 1997
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TOTAL
--------------------- PAID-IN DEVELOPMENT DEFERRED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE COMPENSATION EQUITY (DEFICIT)
--------- ----------- ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 8, 1994 (inception) --- $ --- --- --- --- ---
Issuance of common stock at $.032 per share 1,088,200 35,000 --- --- --- 35,000
Net Loss --- --- --- (12,500) --- (12,500)
--------- ----------- ----------- ----------- ------------ ---------------
Balance at December 31, 1994 1,088,200 35,000 --- (12,500) --- 22,500
Issuance of common stock at $.032 per share 177,100 5,700 --- --- --- 5,700
Issuance of common stock at $.889 per share 98,400 87,500 --- --- --- 87,500
Net loss --- --- --- (164,100) --- (164,100)
--------- ----------- ----------- ----------- ------------ ---------------
Balance at December 31, 1995 1,363,700 128,200 --- (176,600) --- (48,400)
Issuance of common stock at $.699 per share 1,001,800 700,000 --- --- --- 700,000
Issuance of common stock at $.71 per share
for services 42,200 29,900 --- --- --- 29,900
Issuance of common stock at $.889 per share 119,500 106,300 --- --- --- 106,300
Issuance of common stock at $.889 per share
for services 59,100 52,500 --- --- --- 52,500
Issuance of common stock at $.889 per share
in exchange for loan guarantees 140,600 125,000 --- --- --- 125,000
Fair value of detachable warrants on debt --- --- 7,000 --- --- 7,000
Issuance of stock options --- --- 785,000 --- (405,700) 379,300
Net loss --- --- --- (1,468,400) --- (1,468,400)
--------- ----------- ----------- ----------- ------------ ---------------
Balance at December 31, 1996 2,726,900 1,141,900 792,000 (1,645,000) (405,700) (116,800)
Exercise of stock option (unaudited) 12,000 12,000 --- --- --- 12,000
Fair value of detachable warrants on debt
(unaudited) --- --- 94,500 --- --- 94,500
Issuance of common stock at $2.25 per share and
warrants (unaudited) 222,222 444,400 55,600 --- --- 500,000
Issuance of stock options (unaudited) --- --- 51,700 --- (47,300) 4,400
Issuance of common stock at $2.00 per share
for services (unaudited) 4,000 8,000 --- --- --- 8,000
Compensation related to grant of stock options
(unaudited) --- --- --- --- 12,800 12,800
Net loss (unaudited) --- --- --- (1,117,000) --- (1,117,000)
--------- ----------- ----------- ----------- ------------ ---------------
Balance at June 30, 1997 2,965,122 $ 1,606,300 993,800 (2,762,000) (440,200) (602,100)
--------- ----------- ----------- ----------- ------------ ---------------
--------- ----------- ----------- ----------- ------------ ---------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
<TABLE>
<CAPTION>
FROM INCEPTION
YEAR ENDED (NOVEMBER 8, 1994)
DECEMBER 31, THROUGH DECEMBER 31,
1995 1996 1996
------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (164,100) $ (1,468,400) $ (1,645,000)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 800 26,700 27,600
Amortization of debt issue discount cost --- --- ---
Issuance of common stock for services --- 207,400 207,400
Compensation related to grant of stock options --- 379,300 379,300
(Increase) decrease in prepaid and other current assets (1,300) (1,200) (2,500)
(Increase) decrease in other assets (900) (12,700) (13,600)
Increase (decrease) in accrued expenses 33,400 175,100 208,500
------------- --------------- ----------------
Net cash used in operating activities (132,100) (693,800) (838,300)
------------- --------------- ----------------
Cash flows from investing activities:
Intangible assets (6,500) --- (9,000)
Purchase of property and equipment (26,000) (150,100) (176,100)
------------- --------------- ----------------
Net cash used in investing activities (32,500) (150,100) (185,100)
------------- --------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of common stock 93,200 806,300 934,500
Proceeds from notes payable --- 110,000 110,000
Net proceeds from (payments on) notes
payable to stockholder 52,900 (52,900) ---
Payments on advance from stockholder (100) --- ---
Payments on capital lease obligations --- (9,100) (9,100)
------------- --------------- ----------------
Net cash provided by financing activities 146,000 854,300 1,035,400
------------- --------------- ----------------
Net increase (decrease) in cash (18,600) 10,400 12,000
Cash, beginning of period 20,200 1,600 ---
------------- --------------- ----------------
Cash, end of period $ 1,600 $ 12,000 $ 12,000
------------- --------------- ----------------
------------- --------------- ----------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ --- $ 24,300 $ 24,300
Supplemental disclosure of non-cash transactions:
Equipment acquisitions under capital lease $ --- $ 136,000 $ 136,000
Warrants issued in connection with debt $ --- $ 7,000 $ 7,000
<CAPTION>
(UNAUDITED)
FROM INCEPTION
SIX MONTHS ENDED (NOVEMBER 8, 1994)
JUNE 30, THROUGH JUNE 30,
1996 1997 1997
-------------- ------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (220,100) $ (1,117,000) $ (2,762,000)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 8,700 30,900 58,500
Amortization of debt issue discount cost --- 15,100 15,100
Issuance of common stock for services --- 8,000 215,400
Compensation related to grant of stock options --- 17,200 396,500
(Increase) decrease in prepaid and other current assets 700 (7,000) (9,500)
(Increase) decrease in other assets (5,600) 4,000 (9,600)
Increase (decrease) in accrued expenses 44,600 (11,500) 197,000
-------------- ------------- ---------------
Net cash used in operating activities (171,700) (1,060,300) (1,898,600)
-------------- ------------- ---------------
Cash flows from investing activities:
Intangible assets --- (4,700) (13,700)
Purchase of property and equipment (39,800) (64,100) (240,200)
-------------- ------------- ---------------
Net cash used in investing activities (39,800) (68,800) (253,900)
-------------- ------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common stock 96,300 512,000 1,446,500
Proceeds from notes payable --- 1,135,000 1,245,000
Net proceeds from (payments on) notes
payable to stockholder 121,000 --- ---
Payments on advance from stockholder --- --- ---
Payments on capital lease obligations --- (15,100) (24,200)
-------------- ------------- ---------------
Net cash provided by financing activities 217,300 1,631,900 2,667,300
-------------- ------------- ---------------
Net increase (decrease) in cash 5,800 502,800 514,800
Cash, beginning of period 1,600 12,000 ---
-------------- ------------- ---------------
Cash, end of period 7,400 $ 14,800 $ 514,800
-------------- ------------- ---------------
-------------- ------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 3,500 $ 18,200 $ 42,500
Supplemental disclosure of non-cash transactions:
Equipment acquisitions under capital lease $ 100,300 $ 48,100 $ 184,100
Warrants issued in connection with debt $ --- $ 94,500 $ 101,500
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information at June 30, 1997 and for the six-month periods ended
June 30, 1996 and 1997 is unaudited)
(1) NATURE OF OPERATIONS
Ontro, Inc. ("Ontro" or the "Company") (formerly Self-Heating Container
Corporation of California) was incorporated on November 8, 1994 under the
laws of the state of California.
Through a license agreement with Insta-Heat, Inc. (Note 8), Ontro has
exclusive worldwide rights to produce, market, and distribute a
self-heating container.
The Company is a development stage enterprise. Accordingly, the Company's
operations have been directed primarily toward raising capital, developing
business strategies, research and development, establishing sources of
supply, acquiring operating assets, initial production, and recruiting
personnel. The Company commenced operations during 1994. Operations prior
to January 1, 1995 were not significant.
Ontro has been unprofitable and has not generated revenue from the sale of
products or other sources since inception. The Company expects to incur
losses as it expands its development activities and pursues
commercialization of its technologies. The future success of the Company
is dependent upon its ability to obtain additional working capital to
develop, manufacture and market its products and, ultimately, upon its
ability to attain future profitable operations.
The Company has suffered recurring operating losses and has net capital and
working capital deficiencies. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
In order to provide financing to continue its development activities and to
pursue commercialization of its technologies as planned, the Company has
decided to pursue raising equity through private sales of its common Sstock
and entering into licensing arrangements.
(2) SIGNIFICANT ACCOUNTING POLICIES
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost with depreciation provided
using the straight-line method over the estimated useful lives of such
assets, which range from three to five years. Equipment held under capital
leases and leasehold improvements are amortized over the shorter of the
lease term or estimated useful life of the asset.
INTANGIBLE ASSETS
Intangible assets consist of patents and organization costs, and are
carried at cost less accumulated amortization. Costs are amortized on a
straight-line basis over an estimated useful life of 5 years. Accumulated
amortization at December 31, 1996 was $2,700.
STOCK-BASED COMPENSATION
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS No. 123"), which permits entities to recognize as
expense over the vesting period, the fair value of all stock-based
F-7
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information at June 30, 1997 and for the six-month periods ended
June 30, 1996 and 1997 is unaudited)
(Continued)
awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to apply the provisions of Accounting Principles Board ("APB")
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB Opinion
No. 25"). Under APB Opinion No. 25, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. If the provisions of APB
Opinion No. 25 are applied, pro forma net loss disclosures for employee
stock option grants made in 1996 and future years must be provided as if
the fair-value-based method defined in SFAS No. 123 had been applied.
The Company has elected to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed in the period incurred.
INCOME TAXES
Until September 1996, the Company's stockholders elected to have the
Company be treated as an S Corporation in which all income, losses and
credits pass through to the stockholders to be reported on their personal
tax returns. Thus, no deferred federal taxes were provided since the
Company was not liable for federal income taxes, and state deferred taxes
were immaterial. In September 1996, the Company elected to be treated as a
C corporation.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating losses. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
On January 1, 1996, the Company adopted the provisions of SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amounts of the assets exceed the fair
values of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell. Adoption of this
Statement did not have a material impact on the Company's financial
position, results of operations, or liquidity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,"
requires that fair values be disclosed for the Company's financial
instruments. The carrying
F-8
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information at June 30, 1997 and for the six-month periods ended
June 30, 1996 and 1997 is unaudited)
(Continued)
amounts of cash, prepaid expenses and other current assets, accrued
consulting fees, and other accrued expenses approximate fair values due to
the short-term nature of these instruments.
The carrying amount of the note payable is a reasonable estimate of fair
value as terms of the note payable are substantially similar to terms which
could be obtained by the Company from similar parties.
NET LOSS PER COMMON SHARE
Net loss per common share is computed based upon the weighted average
number of common shares and common equivalent shares (using the treasury
stock method) outstanding. Common equivalent shares are not included in
the per-share calculations where the effect of their inclusion would be
anti-dilutive, except that, in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 83, all common and common
equivalent shares issued during the twelve-month period prior to the
initial filing of the initial public offering have been included in the
calculation as if they were outstanding for all periods using the treasury
stock method and the anticipated public offering price of common stock.
The weighted average common and common equivalent shares outstanding
used in the calculation of net loss per common share are 2,604,900,
and 3,174,100, for the years ended December 31, 1995 and 1996,
respectively, and 2,790,900, and 3,959,000, for the six month periods
ended June 30, 1996 and 1997, respectively.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amount of expenses during the reporting period to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying interim financial information as of June 30, 1997, and for
the six-month periods ended June 30, 1996 and 1997, is unaudited and, in
the opinion of management, reflects all adjustments that are necessary for
a fair presentation of the Company's financial position, results of
operations and cash flows for the periods then ended. All such adjustments
are of a normal and recurring nature.
(3) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 consists of the following:
Machinery and equipment $ 205,000
Molds 56,500
Office equipment 20,400
Leasehold improvements 30,200
-----------
312,100
(24,900)
-----------
Less accumulated depreciation and amortization $ 287,200
-----------
-----------
F-9
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information at June 30, 1997 and for the six-month periods ended
June 30, 1996 and 1997 is unaudited)
(Continued)
(4) INCOME TAXES
The Company has no significant taxable temporary differences which would
require recognition of deferred tax liabilities, and due to the uncertainty
of future realizability has not recognized any deferred tax assets for
deductible temporary differences and tax operating loss carry forwards. At
December 31, 1996, the Company's net deferred tax asset, which principally
relates to the tax operating loss carry forwards, was approximately
$214,000 which was completely offset by a valuation allowance in the same
amount. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Based upon the historical losses incurred to
date and uncertainty of projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes
it is not more likely than not that the Company will realize the benefits
of these deductible differences.
At December 31, 1996, the Company had available net operating loss carry
forwards of approximately $548,000 for federal income tax reporting
purposes which expire in 2011. The net operating loss carry forwards for
state purposes, which expire in 2001, are approximately 50% of federal
amounts.
In accordance with Internal Revenue Code Section 382, the annual
utilization of net operating loss carry forwards and credits existing prior
to a change in control may be limited upon a change in control.
(5) LEASES
The Company leases office and plant facilities in Poway, California and
office and plant equipment under noncancelable operating lease agreements
that expire on various dates through October 1999. The Company also
maintains capital leases on equipment. Assets recorded under capital
leases had a total cost of $136,000 less accumulated amortization of $6,600
as of December 31, 1996, and are included in property and equipment in the
accompanying balance sheet.
F-10
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information at June 30, 1997 and for the six-month periods ended
June 30, 1996 and 1997 is unaudited)
(Continued)
Future minimum lease payments under noncancelable operating leases and
future minimum capital lease payments as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, CAPITAL OPERATING
LEASE LEASE
--------- ---------
<S> <C> <C>
1997 $ 57,000 26,100
1998 57,000 3,500
1999 53,600 2,000
2000 27,400 --
--------- ---------
Total minimum lease commitments 195,000 $31,600
---------
---------
Less amount representing interest (at rates ranging
from 12.0% to 28.1%) (68,100)
---------
Present value of future minimum capital lease obligations 126,900
Less current portion of capital lease obligations (26,800)
---------
Capital lease obligations, excluding current portion $100,100
---------
---------
</TABLE>
Rent expense was $8,600 and $25,500 for the years ended December 31, 1995
and 1996, respectively.
(6) NOTE PAYABLE
The Board of Directors authorized the Company to borrow up to $1,320,000 in
bridge loan financing. The general terms of this financing are two year
notes at 10% interest rate, and provides for the granting of warrants to
purchase 20,000 shares of common stock for every $110,000 borrowed by the
Company (Note 7). Payment of principal and interest are due at the earlier
of two years or the completion of an initial public offering. In addition,
this financing imposes restrictions on dividend payments during the term of
such indebtedness. At December 31, 1996 and June 30, 1997, the Company had
$110,000 and $1,245,000 outstanding on the bridge loan financing,
respectively. (Note 7)
(7) STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has 5,000,000 shares of preferred stock authorized for issuance
with no par value. No shares have been issued.
STOCK OPTIONS
During the year ended December 31, 1996, the Board of Directors adopted an
incentive stock option plan for executives and key employees (the "Plan").
The Plan authorizes the granting of options to purchase shares of the
Company's common stock. Options generally vest evenly over four years from
the date of grant. Options expire ten years after the date of grant, or at
the employee's termination date, if earlier. The number of shares
authorized for the Plan is 357,400. On October 27, the number of shares
authorized was increased to 545,400.
F-11
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information at June 30, 1997 and for the six-month periods ended
June 30, 1996 and 1997 is unaudited)
(Continued)
At December 31, 1996, there were 237,400 shares available for grant under
the Plan. Using the prescribed valuation methods of SFAS No. 123, the
Company determined that the per share weighted-average fair value of stock
options granted during 1996 was $0.38 on the date of grant. The following
weighted-average assumptions were included in this method for 1996: no
expected dividend yield, volatility rate of 37.5%, risk-free interest rate
of 6.0%, and an expected life of 5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized in the financial
statements for its stock options issued to employees or directors of the
Company. Had the Company determined compensation cost for its stock
options based on the fair value at the grant date under SFAS No. 123, the
Company's net loss in 1996 would have been increased to the pro forma
amount indicated below:
Net loss, as reported $ 1,468,400
Pro forma net loss 1,489,200
Pro forma net loss per common share (0.47)
Pro forma net loss reflects only options granted in 1996. Pro forma net
loss stated in accordance with SFAS No. 123 may not be representative of
the effects on reported net loss in future years.
The following is a summary of option activity for the year ended
December 31, 1996:
NUMBER EXERCISE
OF SHARES PRICE
----------- ----------
Outstanding at January 1, 1996 -- --
Granted 120,000 $1.00
-----------
Outstanding at December 31, 1996 120,000 $1.00
Exercised (12,000) $1.00
Granted 5,000 $3.00
-----------
Outstanding at June 30, 1997 113,000 $1.00-$3.00
-----------
-----------
Exercisable at June 30, 1997 12,000 $1.00
-----------
-----------
The weighted-average remaining contractual life for options outstanding as
of December 31, 1996 was approximately 10 years.
During 1996, the Board of Directors granted and the stockholders approved
1,216,506 stock options outside the Plan at a price range of $0.001 to
$3.00 to non-employees. The Company recognized $379,300 of compensation
expense to non-employees relating to these options during 1996 and deferred
$405,700 of compensation expense for options that have not vested as of
December 31, 1996 using the prescribed valuation methods of SFAS No. 123.
The Company determined that the per share weighted-average fair value of
stock options granted during 1996 was $0.67 on the date of grant. The
following weighted-average assumptions were included in this method for
1996: no expected dividend yield, volatility rate of 37.5%, risk-free
interest rate of 6.0%, and an expected life of 5 years.
During the six months ended June 30, 1997, the Board of Directors granted
and the stockholders approved 45,000 stock options outside the Plan at a
price range of $2.50 to $3.00 to non-employees. The Company
F-12
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information at June 30, 1997 and for the six-month periods ended
June 30, 1996 and 1997 is unaudited)
(Continued)
recognized $17,200 of compensation expense to non-employees relating to
these options during the six months ended June 1997 and deferred $47,300 of
compensation expense for options that have not vested as of June 30, 1997
using the prescribed valuation methods of SFAS No. 123. The Company
determined that the per share weighted-average fair value of stock options
granted during the six months ended June 30, 1997 ranged from $1.25 to
$2.00 on the date of grant. The following weighted-average assumptions
were included in this method for 1997: no expected dividend yield,
volatility rate of 37.5%, risk-free interest rate of 6.0%, and an expected
life ranging from 3 to 5 years.
At December 31, 1996, there were 542,665 options to non-employees fully
vested, 543,841 which vest upon completion of an initial public offering,
and 80,000 options to non-employees which vest over four years and expire
after five years.
WARRANTS
In conjunction with obtaining bridge-loan financing in December 1996
(Note 6), the Company granted warrants to purchase 20,000 shares of common
stock at an exercise price of $1.00 per share. These warrants were deemed
to have an aggregate fair value of $7,000 at the date of grant based on
valuation methods prescribed by SFAS No. 123 using the following
weighted-average assumptions: no expected dividend yield, volatility rate
of 37.5%, risk-free interest rate of 6.0%, and an expected life of two
years. The Company has recorded the value ascribed to the warrants of
$7,000 as deferred financing costs and is amortizing the amount over the
life of the related debt.
In conjunction with obtaining bridge-loan financing in January 1997 through
May 1997 (Note 6), the Company granted warrants to purchase 210,000
shares of common stock at an exercise price of $1.00 per share. These
warrants were deemed to have an aggregate fair value of $94,500 at the
date of grant based on valuation methods prescribed by SFAS No. 123 using
the following weighted-average assumptions: no expected dividend yield,
volatility rate of 37.5%, risk-free interest rate of 6.0%, and an
expected life of two years. The Company has recorded the value ascribed
to the warrants of $94,500 as deferred financing costs and is amortizing
the amount over the life of the related debt. Amortization of such costs
for the six months ended June 30, 1997 was $15,100.
STOCK SPLIT
On December 31, 1996, the Company completed a 28.12-for-1 stock split in
the form of a stock dividend payable to all existing stockholders. All
references in the accompanying financial statements to average number of
shares outstanding and related prices, per share amounts, stock option
plan, and warrant data have been restated to reflect the split.
(8) LICENSE AGREEMENT
The Company is party to a license agreement with Insta-Heat, Inc. ("IHI")
an affiliated company through common ownership. This agreement grants the
Company an exclusive worldwide license in perpetuity with respect to the
patents and technology developed by IHI. The Company is obligated to
prosecute infringement claims regarding the IHI technology and to defend
any infringement claims brought against IHI or the Company. The license
agreement requires the Company to make annual continuing royalty payments
to IHI based on a percentage of sales but not less than a minimum annual
royalty of $25,000. In March 1997, the license agreement was amended to
increase the minimum annual royalty for future
F-13
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information at June 30, 1997 and for the six-month periods ended
June 30, 1996 and 1997 is unaudited)
(Continued)
periods to $50,000 and also requires additional royalty payments from the
Company on the sale of products utilizing IHI technology subject to the
Company achieving minimum annual net operating income after payment of all
taxes of no less than $4 million. Upon achieving the minimum net operating
income the IHI license requires royalty payments equal to the greater of
(i) 2% of the gross sales of integrated thermal container and products
developed in connection with it, or (ii) $.015 per unit sold up to the
first $30 million in sales by the Company. For sales in excess of $30
million the IHI License requires royalty payments (subject to the same
minimum income levels) equal to the greater of (i) 3% of the gross annual
sales in excess of $30 million, or (ii) $.015 per unit sold.
The Company recognized the minimum royalty liability to IHI of $25,000
during 1996.
The IHI license provides an option to the Company to purchase all of the
IHI technology and terminate the IHI license. However this option requires
the Company to pay IHI $3 million and is only available through December
31, 2000 including a one year right to extend upon the payment of $100,000.
(9) RELATED PARTY TRANSACTIONS
During 1996, IHI advanced money to the Company to be used for working
capital purposes. These balances were repaid and there was no balance
outstanding at December 31, 1996.
The Company paid accrued consulting fees to its founding stockholders
during 1995 and 1996. At December 31, 1996, the Company owed $16,500 in
accrued consulting fees to one of those stockholders, which was repaid in
1997.
The Company has entered into various consulting agreements with members of
its Advisory Board resulting in current monthly commitments of
approximately $20,000 with terms expiring on various dates between August
1997 and December 1999.
During 1996, various stockholders made loans to the Company. These loans
were payable on demand at 8% annual interest. There were no amounts owed
to stockholders at December 31, 1996.
(10) EMPLOYEE BENEFIT PLAN
Effective January 1, 1996, the Company sponsored a salary reduction
simplified employee pension plan. Employees who have completed one year of
service and are 21 years of age or older are eligible to participate.
Eligible employees may elect to defer up to 15% of annual compensation,
subject to limitations. The Company may make discretionary contributions
to the plan. The Company made no contributions to the plan during 1996.
(11) SUBSEQUENT EVENTS (UNAUDITED)
In February 1997, the Board of Directors authorized the Company to borrow
an additional $330,000 in bridge loan financing making the total amount
authorized $1,320,000.
F-14
<PAGE>
ONTRO, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information at June 30, 1997 and for the six-month periods ended
June 30, 1996 and 1997 is unaudited)
(Continued)
Subsequent to December 31, 1996, the Company borrowed $1,135,000 through
bridge loan financing. These loans included an interest rate of 10% per
annum with accrued principal and interest due at the earlier of an initial
public offering by the Company or 24 months. Attached to these loans are
warrants to purchase 210,000 shares of common stock of the Company at a
price of $1.00 per share. One loan for $55,000 also includes a provision
which allows the Company, at its discretion, to convert the amount of
principal and interest owed to common stock in the event of an initial
public offering, based on a price per share which is 50% of the initial
public offering price.
In 1997, the Board of Directors authorized the issuance of and granted to
members of its Advisory Board and Board of Directors 55,000 non-qualified
stock options (outside the Plan) at prices ranging from $2.50 to $5.00 and
issued 5,000 shares of Common Stock to an Advisory Board Member for total
consideration of $5.00 upon exercise of an outstanding non-qualified stock
option.
On April 4, 1997, the Company entered into a distribution agreement with
L.L. Knickerbocker Company, Inc. ("Knickerbocker"), a stockholder of the
Company, to develop certain specialty lines of beverages which would
utilize the Company's integrated thermal containers and be marketed by
Knickerbocker.
On May 30, 1997, the Company sold 222,222 shares of common stock for
$500,000 along with a warrant to purchase 100,000 shares of common stock at
$3.00. These warrants expire in three years.
Subsequent to December 31, 1996, the Company sold 64,728 shares of common
stock for a total consideration of $167,998. The Company also sold 70,587
shares of common stock for $299,995 along with a warrant to purchase 70,587
shares of common stock at 150% of the initial public offering price. These
warrants expire in four years.
(12) COMMITMENT AND CONTINGENCIES
The Company has employment agreements with certain officers which provide
such officers, at their discretion, severance payments equal to 299% of
their average annual base salary and bonuses during the preceding five year
period in the event of a change of control as defined in their employment
agreements.
F-15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The statutes, charter provisions, Bylaws, Indemnification Agreements, or
other arrangements under which any controlling person, director, or officer of
the Registrant is insured or indemnified in any manner against any liability
which he or she may incur in his or her capacity as such, are as follows:
(a) Section 317 of the California General Corporation Law provides for the
indemnification of officers and directors of the Company against expenses,
judgments, fines, and amounts paid in settlement under certain conditions and
subject to certain limitations.
(b) Article V of the Bylaws of the Company provides that the Company shall
have power to indemnify any person who is or was an agent of the Company as
defined in Section 317 of the California General Corporation Law through Bylaw
provisions, agreements with agents, vote of the stockholders or disinterested
directors, or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California General Corporation Law, subject to applicable
limits set forth in Section 204 of the California General Corporation Law with
respect to actions for breach of duty to the corporation and its shareholders.
(c) Article IV of the Company's Articles of Incorporation provides that
the liability of the directors of the Company for monetary damages shall be
eliminated to the fullest extent permissible under California law. Accordingly,
a director will not be liable for monetary damages for breach of duty to the
Company or its shareholders in any action brought by or in the right of the
Company. However, a director remains liable to the extent required by
California law. The provisions will not alter the liability of directors under
federal securities laws.
(d) Pursuant to authorization provided under the Articles of
Incorporation, the Company has entered into Indemnification Agreements with each
of its directors and officers. Generally, the Indemnification Agreements
attempt to provide the maximum protection permitted by California law as it may
be amended from time to time. However, an individual will not receive
indemnification for judgments, settlements or expenses if he or she is found
liable to the Company, except to the extent the court determines he or she is
fairly and reasonably entitled to indemnity for expenses, for settlements not
approved by the Company or for settlements and expenses if the settlement is not
approved by the court. The Indemnification Agreements provide for the Company
to advance to the individual any and all reasonable expenses, including legal
fees and expenses, incurred in investigating or defending any such action, suit
or proceeding. In order to receive an advance of expenses, the individual must
submit to the Company copies of invoices presented to him or her for such
expenses. Also, the individual must repay such advances upon a final judicial
decision that he or she is not entitled to indemnification.
(e) There is directors and officers liability insurance now in effect
which insures directors and officers of the Company. Such policy expires on
December 31, 1997 and provides limits of $2,000,000 per policy year and does not
provide coverage with respect to this filing. Under the policy, the directors
and officers are insured against loss arising from claims made against them due
to wrongful acts while acting in their individual and collective capacities as
directors and officers, subject to certain exclusions. The policy insures the
Company against loss as to which its directors and officers are entitled to
indemnification. Upon completion of this Offering, the Company intends to
obtain a policy that will provide limits of $5,000,000 per policy year and will
provide coverage with respect to this filing.
(f) The Underwriting Agreement (Exhibit 1.1 hereto) contains provisions by
which the Underwriters have agreed to indemnify the Company, each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act of 1933 (the "Act"), each director of the Company, and each officer of the
Company who signs this Registration Statement, with respect to information
furnished in writing by or on behalf of the Underwriters for use in the
Registration Statement.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors of the Company pursuant to the
foregoing provision, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee and the AMEX filing fee.
Securities and Exchange Commission filing fee. . . . . . . . $ 14,624
-----------
AMEX listing fee . . . . . . . . . . . . . . . . . . . . . . $ *
-----------
NASD filing fee . . . . . . . . . . . . . . . . . . . . . . $ 5,324
-----------
Blue Sky fees and expenses . . . . . . . . . . . . . . . . . $ *
-----------
Non-Accountable Expense Allowance to the Representative. . . $ *
-----------
Printing and engraving expenses. . . . . . . . . . . . . . . $ *
-----------
Accounting fees and expenses . . . . . . . . . . . . . . . . $ *
-----------
Legal fees and expenses. . . . . . . . . . . . . . . . . . . $ *
-----------
Transfer Agent and Registrar fees. . . . . . . . . . . . . . $ *
-----------
Miscellaneous fees . . . . . . . . . . . . . . . . . . . . . $ *
-----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ *
-----------
* to be filed by amendment
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since incorporation in November, 1994, the Company has sold and issued the
unregistered securities shown below, all of which reflect the fact the Company's
Common Stock was split 28.12 shares for each one share outstanding on December
31, 1996.
(1) On December 29, 1994, the Company issued 652,947 and 435,298 shares of
Common Stock to Messrs. Scudder and Berntsen, respectively, for a total
consideration of $35,000, or $.03 per share.
(2) On May 18, 1995, the Company issued 177,157 shares of Common Stock to
Harvey Ruben, Daniel Gibbs, Kevin Mineo, Dennis Webb, the McKay Trust, the
Siebert Trust, and the Christopher Trust, for a total consideration of $5,695.20
or $.03 per share.
(3) On June 26, 1995, the Company issued 28,120 shares of Common Stock to
Alan Ligi for a total consideration of $25,000, or $.89 per share.
(4) On August 24, 1995, the Company issued a total of 28,120 shares of
Common Stock to Yale Fowler and Curtis Colt for a total consideration of
$25,000, or $.89 per share.
(5) On November 22, 1995, the Company issued 28,120 shares of Common Stock
to James Hopper and Dennis Huston for a total consideration of $25,000, or $.89
per share.
(6) On December 1, 1995, the Company issued 14,060 shares of Common Stock
to Edward Villanueva for a total consideration of $12,500, or $.89 per share.
II-2
<PAGE>
(7) On January 31, 1996, the Company issued 22,496 shares of Common Stock
to James Hopper, Dennis Huston, and Richard Johnson for a total consideration of
$20,000, or $.89 per share, and issued 2,813 shares of Common Stock to the McKay
Trust for services rendered.
(8) On February 14, 1996, the Company issued 14,060 shares of Common Stock
to Fernando Fregoso and Frank Barone for services rendered, and 2,812 shares of
Common Stock to the McKay Trust for a total consideration of $2,500, or $.89 per
share.
(9) On May 15, 1996, the Company issued 29,526 shares of Common Stock to
the Kadane Trust, Alan Ligi, and Richard Johnson for a total consideration of
$26,250, or $.89 per share.
(10) On June 7, 1996, the Company issued 140,600 shares of Common Stock
(28,120 shares each) to James Hopper, Dennis Huston, Edward Villanueva, and
Messrs. Scudder and Berntsen, in exchange for their personal guarantees on
equipment leases to the Company.
(11) On June 18, 1996, the Company issued 19,684 shares of Common Stock to
James Hopper, John Caldwell, and the Christopher Trust for a total
consideration of $17,500, or $.89 per share.
(12) On June 26, 1996, the Company issued 2,812 shares of Common Stock to
the Kadane Trust for a total consideration of $2,500, or $.89 per share.
(13) On June 28, 1996, the Company issued 28,120 shares of Common Stock to
Andre Bell and William Winston for a total consideration of $25,000, or $.89 per
share.
(14) On July 1, 1996, the Company issued 42,180 shares of Common Stock each
to Jerine Rosato and Ann Davern for services rendered.
(15) On July 15, 1996, the Company issued 143,103 shares of Common Stock to
Manhattan West, Inc. for a total consideration of $100,000, or $.70 per share.
(16) On July 15, 1996, the Company issued 14,060 shares of Common Stock
to Dennis Huston for a total consideration of $12,500, or $.89 per share.
(17) On September 20, 1996, the Company issued 858,673 shares of Common
Stock to the L.L. Knickerbocker Company, Inc. for a total consideration of
$600,000, or $.70 per share.
(18) On October 1, 1996, the Company issued 42,180 shares of Common Stock
to L. Kevin Mineo for services rendered.
(19) On March 22, 1997, the Company issued 12,000 shares of Common Stock to
Kevin A. Hainley, its Chief Financial Officer, for a total consideration of
$12,000, or $1.00 per share, upon exercise of an outstanding incentive stock
option.
(20) On May 5, 1997, the Company issued 222,222 shares of Common Stock to
the Danna Trust, Salvador La Barbera, Trustee, for a total consideration of
$499,999.50, or approximately $2.25 per share and a warrant to purchase 100,000
shares of Common Stock for $3.00 per share.
(21) On June 1, 1997, the Company issued 4,000 shares of Common Stock to
Kevin A. Hainley, its Chief Financial Officer, in exchange for services rendered
(waiver of $8,000 in salary due or $2.00 per share).
(22) On July 24, 1997, the Company issued 5,000 shares of Common Stock to
L. Lawrence Potomac, one of its advisory board members, for a total
consideration of $5.00, or approximately $.001 per share, upon exercise of an
outstanding non-qualified stock option.
(23) On August 1, 1997, the Company issued 4,000 shares of Common Stock to
Kevin A. Hainley, its Chief Financial Officer, in exchange for services rendered
(waiver of $8,000 in salary due or $2.00 per share).
II-3
<PAGE>
(24) On September 23, 1997, the Company issued 20,000 shares of Common
Stock to C. James Moore for a total consideration of $62,600, or $3.13 per
share.
(25) On September 24, 1997, the Company issued 11,949 shares of Common
Stock to Scott and Susan Moore for a total consideration of $37,400, or $3.13
per share.
(26) On October 27, 1997, the Company issued 7,987 shares of Common Stock
to Tony Orlina and 4,792 shares of Common Stock to Stephen A. Shields for a
total consideration of $39,998.27, or $3.13 per share.
(27) On October 27, 1997, the Company issued to Henri B. Schkud, Grant
King, and Francesca Daniels, an aggregate of 70,587 units consisting of one
share of Common Stock and a warrant to purchase one share of Common Stock on
terms substantially similar to the Warrants for a total consideration of
$299,994.75 or $4.25 per unit.
The sales and issuance of securities in the above transactions were deemed
to be exempt under the Act by virtue of Sections 3(b) and/or 4(2) thereof
including but not limited to the provisions of Regulation D promulgated
thereunder as transactions not involving any public offering. Appropriate
legends were affixed to the certificates issued in such transactions. The
Company believes all recipients had adequate access through employment or other
relationships with the Company or its management, or information about the
Company which was supplied to them to allow them to make an informed investment
decision.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
1.1 Form of Underwriting Agreement. (2)
1.2 Form of Selected Dealers Agreement. (2)
3.1 Restated Articles of Incorporation filed with the California
Secretary of State on March 10, 1997. (1)
3.2 Bylaws of the Registrant as amended. (1)
3.3 Form of Indemnification Agreement for Officers and
Directors, and certain advisors. (1)
4.1 Form of Warrant Certificate. (2)
4.2 Form of Representative's Options. (2)
4.3 Warrant Agreement between the Company and ChaseMellon
Shareholder Services. (2)
4.4 Form of Common Stock Certificate. (2)
5.1 Opinion of Fisher Thurber LLP regarding the legality of the
securities being registered. (2)
9.1 Voting Trust Agreement between the Company, James Scudder as
Trustee, and Manhattan West, Inc. (1)
II-4
<PAGE>
10.1 Consulting Agreement effective August 22, 1996 as amended,
between the Company and Rowland Hanson. (2)
10.2 Consulting Agreement dated July 15, 1996, between the
Company and Manhattan West, Inc. (1)
10.3 Consulting Agreement dated August 5, 1996, between the
Company and L. Lawrence Potomac. (1)
10.4 Consulting Agreement effective October 15, 1996, between the
Company and Tor Petterson & Associates. (1)
10.5 Consulting Agreement dated August 11, 1997, between the
Company and D. Scott Thorogood. (1)
10.6 Stock Purchase Agreement dated July 15, 1996, between the
Company and Manhattan West, Inc. (1)
10.7 Option Agreement with Manhattan West, Inc., dated July 15,
1996. (1)
10.8 Agreement of Purchase and Sale between the Company and the
L.L. Knickerbocker Company, Inc., dated September 17, 1996.
(1)
10.9 Form of Loan Agreement between the Company and the lenders
identified on the attached schedule. (1)
10.10 Loan Agreement between the Company and 4D Enterprises, Inc.,
dated February 24, 1997.
10.11 Employment Agreement between the Company and Allan C. Mayer,
Jr., dated January 1, 1997. (1)
10.12 Employment Agreement between the Company and James A.
Scudder, dated September 1, 1996. (1)
10.13 Employment Agreement between the Company and James L.
Berntsen, dated September 1, 1996. (1)
10.14 Employment Agreement between the Company and Kevin A.
Hainley, dated January 1, 1997. (1)
10.15 Distributorship Agreement with the L.L. Knickerbocker
Company, Inc., dated April 4, 1997. (1)
10.16 Amended and Restated License Agreement with Insta-Heat, Inc,
effective September 30, 1995. (2)
10.17 The Company's 1996 Omnibus Stock Plan. (1)
10.18 1996 Omnibus Stock Plan Form of Incentive Stock Option
Agreement. (1)
10.19 1996 Omnibus Stock Plan Form of Nonqualified Stock Option
Agreement. (1)
II-5
<PAGE>
10.20 1996 Omnibus Stock Plan Form of Restricted Stock Purchase
Agreement. (1)
10.21 Form of Option Agreement with Advisory Board Members listed
on attached schedule. (1)
10.22 Option Agreement with David A. Fisher, dated January 6,
1997. (1)
10.23 Form of Warrant between the Company and the lenders
identified on the attached schedule. (1)
10.24 Form of Employee Proprietary Information Agreements. (2)
10.25 Stock Purchase Agreement dated May 30, 1997, between the
Company and the Danna Trust. (1)
10.26 Stock Purchase Agreement dated September 23, 1997, between
the Company and C. James Moore. (1)
10.27 Stock Purchase Agreement dated September 24, 1997, between
the Company and Scott and Susan Moore. (1)
10.28 Evaluation Agreement dated May 23, 1997, between the Company
and Nestle USA, Inc. (1)
10.29 Leases for the Company's facilities at 12625 and 12675
Danielson Court, Suites 110 and 401, dated February 8,
1996, as amended. (2)
10.30 Lease for the Company's proposed facility to be constructed
dated August 7, 1997. (2)
10.31 Stock Purchase Agreement dated October 27, 1997, between the
Company and Tony Orlina. (2)
10.32 Stock Purchase Agreement dated October 27, 1997, between the
Company and Stephen A. Shields. (2)
10.33 Form of Stock Purchase Agreements dated October 27, 1997,
between the Company and the Concurrent Selling Security
Holders. (2)
10.34 Form of Warrant between the Company and the Concurrent
Selling Security Holders. (2)
11.1 Computation of net loss per share. (1)
23.1 Consent of Fisher Thurber LLP (contained in their opinion
filed as Exhibit 5). (2)
23.2 Consent of KPMG Peat Marwick LLP, Independent Public
Accountants. (1)
24.1 Form of Power of Attorney (see page II-8).
27 Financial Data Schedule.
- --------------------
(1) Filed herewith
(2) To be filed by amendment
II-6
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted, as the required information is
inapplicable or the information is presented in the Financial Statements or the
notes thereto.
ITEM 28. UNDERTAKINGS
Insofar as indemnification of liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) The Registrant will provide to the underwriters at the closing(s)
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
(4) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-7
<PAGE>
(5) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(6) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Poway,
State of California, on October 31, 1997.
ONTRO, INC.
By:
-----------------------------------------
James A. Scudder, Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James A. Scudder and James L. Berntsen and each
of them, as his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and any registration
statement relating to the Offering covered by this Registration Statement and
filed pursuant to Rule 462(b) under the Securities Act of 1933, to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, and
each of them, or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES
/s/ /s/
----------------------------------- ----------------------------
James A. Scudder Louis L. Knickerbocker
President, Chief Executive Officer, Director
and Director October 31, 1997
October 31, 1997
/s/ /s/
---------------------------------- ----------------------------
James L. Berntsen Robert F. Coston
Executive Vice President, Secretary Director
and Director October 31, 1997
October 31, 1997
/s/
-----------------------------------
Kevin A. Hainley
Chief Financial Officer
October 31, 1997
II-9
<PAGE>
VOLUME I
INDEX TO EXHIBITS TO FORM SB-2
EXHIBIT NO. TITLE
1.1 Form of Underwriting Agreement. (2)
1.2 Form of Selected Dealers Agreement. (2)
3.1 Restated Articles of Incorporation filed with
the California Secretary of State on March
10, 1997. (1)
3.2 Bylaws of the Registrant as amended. (1)
3.3 Form of Indemnification Agreement for
Officers and Directors, and certain
advisors. (1)
4.1 Form of Warrant Certificate. (2)
4.2 Form of Representative's Option. (2)
4.3 Warrant Agreement between the
Company and ChaseMellon Shareholder
Services. (2)
4.4 Form of Common Stock Certificate. (2)
5.1 Opinion of Fisher Thurber LLP regarding
the legality of the securities being
registered. (2)
9.1 Voting Trust Agreement between
the Company, James Scudder as Trustee,
Manhattan West, Inc. (1)
10.1 Consulting Agreement effective August 22,
1996, as amended, between the Company
and Rowland Hanson. (2)
10.2 Consulting Agreement dated July 15, 1996,
between the Company and Manhattan West,
Inc. (1)
10.3 Consulting Agreement dated August 5, 1996,
between the Company and L. Lawrence
Potomac. (1)
10.4 Consulting Agreement effective October 15,
1996, between the Company and Tor
Petterson & Associates. (1)
10.5 Consulting Agreement dated August 11,
1997, between the Company and D. Scott
Thorogood. (1)
<PAGE>
10.6 Stock Purchase Agreement dated July 15,
1996, between the Company and Manhattan
West, Inc. (1)
10.7 Option Agreement with Manhattan West,
Inc., dated July 15, 1996. (1)
10.8 Agreement of Purchase and Sale between
the Company and the L.L. Knickerbocker
Company, Inc., dated September 17, 1996.
(1)
10.9 Form of Loan Agreement between the
Company and the lenders identified on the
attached schedule. (1)
10.10 Loan Agreement between the Company and
4D Enterprises, Inc., dated February 24, 1997.
10.11 Employment Agreement between the
Company and Allan C. Mayer, Jr., dated
January 1, 1997. (1)
10.12 Employment Agreement between the
Company and James A. Scudder, dated
September 1, 1996. (1)
10.13 Employment Agreement between the
Company and James L. Berntsen, dated
September 1, 1996. (1)
10.14 Employment Agreement between the
Company and Kevin A. Hainley, dated
January 1, 1997. (1)
10.15 Distributorship Agreement with the L.L.
Knickerbocker Company, Inc., dated April
4, 1997. (1)
10.16 Amended and Restated License Agreement
with Insta-Heat, Inc, effective September 30,
1995. (2)
10.17 The Company's 1996 Omnibus Stock Plan.
(1)
10.18 1996 Omnibus Stock Plan Form of Incentive
Stock Option Agreement. (1)
10.19 1996 Omnibus Stock Plan Form of
Nonqualified Stock Option Agreement. (1)
10.20 1996 Omnibus Stock Plan Form of Restricted
Stock Purchase Agreement. (1)
10.21 Form of Option Agreement with Advisory
Board Members listed on attached schedule.
(1)
10.22 Option Agreement with David A. Fisher,
dated January 6, 1997. (1)
<PAGE>
10.23 Form of Warrant between the Company and
the lenders identified on the attached
schedule. (1)
10.24 Form of Employee Proprietary Information
Agreements. (2)
10.25 Stock Purchase Agreement dated May 30,
1997, between the Company and the Danna
Trust. (1)
10.26 Stock Purchase Agreement dated September
23, 1997, between the Company and C. James
Moore. (1)
10.27 Stock Purchase Agreement dated September
24, 1997, between the Company and Scott
and Susan Moore. (1)
10.28 Evaluation Agreement dated May 23, 1997,
between the Company and Nestle USA,
Inc. (1)
10.29 Leases for the Company's facilities at 12625
and 12675 Danielson Court, Suites 110 and
401, dated February 8, 1996, as amended. (2)
10.30 Lease for the Company's proposed facility
to be constructed dated August 7, 1997. (2)
10.31 Stock Purchase Agreement dated October 27,
1997, between the Company and Tony
Orlina. (2)
10.32 Stock Purchase Agreement dated October 27,
1997, between the Company and Stephen A.
Shields. (2)
10.33 Form of Stock Purchase Agreements dated
October 27, 1997, between the Company and the
Selling Security Holders. (2)
10.34 Form of Warrant between the Company and the
Selling Security Holders. (2)
11.1 Computation of net loss per share. (1)
23.1 Consent of Fisher Thurber LLP (contained
in their opinion filed as Exhibit 5). (2)
23.2 Consent of KPMG Peat Marwick LLP,
Independent Public Accountants. (1)
24.1 Form of Power of Attorney (see page II-8).
27 Financial Data Schedule.
- ---------------------
(1) Filed herewith
(2) To be filed by amendment
<PAGE>
[LETTERHEAD]
I, BILL JONES, Secretary of State of California, hereby certify:
That the annexed transcript has been compared with the corporate record on
file in this office, of which it purports to be a copy, and that same is full,
true and correct.
IN WITNESS WHEREOF, I execute
this certificate and affix the Great
Seal of the State of California this
Mar 24, 1997
------------------------------------
[SEAL]
/s/ Bill Jones
Secretary of State
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
ONTRO, INC.
A CALIFORNIA CORPORATION
James Scudder and James Berntsen certify that:
1. They are the President and the Secretary, respectively, of Ontro,
Inc., a California corporation (the "corporation").
2. The articles of incorporation of the corporation are herein amended
and restated to read as follows:
ARTICLE I
The name of the corporation is "ONTRO, INC."
ARTICLE II
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business, or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
Section 1. CLASSES OF STOCK. The corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock"and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is Twenty Million (20,000,000) shares of Common Stock and Five Million
(5,000,000) shares of Preferred Stock.
Section 2. POWERS, PREFERENCES AND RIGHTS AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS OF PREFERRED STOCK. The Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is hereby authorized
to fix or alter from time to time the designation, powers, preferences, and
rights of the shares of each such series and the qualifications, limitations, or
restrictions thereof, including without limitation the dividend rights, dividend
rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions),
1
<PAGE>
redemption price or prices, and the liquidation preferences of any wholly
unissued series of Preferred Stock, and to establish from time to time the
number of shares constituting any such series and the designation thereof, or
any of them (a "Preferred Stock Designation"), and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
ARTICLE IV
Section 1. LIABILITY OF DIRECTORS. The liability of the directors of
the corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
Section 2. INDEMNITY OF DIRECTORS, OFFICERS AND AGENTS. The corporation
is authorized to indemnify the directors and officers of the corporation to the
fullest extent permissible under California law. The corporation is authorized
to provide indemnification of agents (as defined in Section 317 of the
California Corporations Code) through bylaw provisions, agreements with agents,
vote of shareholders, or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in Section
204 of the California Corporations Code with respect to actions for breach of
duty to the corporation and its shareholders.
Section 3. REPEAL OR MODIFICATION. Any repeal or modification of the
foregoing provisions of this Article IV shall be prospective and shall not
adversely affect any right of indemnification or liability of a director,
officer or agent of the corporation relating to acts or omissions occurring
prior to such repeal or modification.
ARTICLE V
Newly created directorships resulting from any increase in the authorized
number of directors may, unless the Board of Directors determines by resolution
that any such newly created directorship shall be filled by the shareholders, be
filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office until such
director's successor shall have been elected and qualified.
ARTICLE VI
No action shall be taken by the shareholders of the corporation except at
an annual or special meeting of shareholders called in accordance with the
Bylaws, and no action shall be taken by the shareholders by written consent.
2
<PAGE>
ARTICLE VII
Advance notice of shareholder nominations for the election of directors and
of business to be brought by shareholders before any meeting of the shareholders
of the corporation shall be given in the manner provided in the Bylaws of the
corporation.
ARTICLE VIII
The election of directors by the shareholders shall not be by cumulative
voting. This Article VIII shall become effective only when the corporation
becomes a "listed corporation" within the meaning of the California Corporations
Code Section 301.5(d).
ARTICLE IX
Special meetings of the shareholders of the corporation may be called at
any time by the Board of Directors, the Chairman of the Board, the president of
the corporation, or by the holders of shares entitled to cast not less than 10%
of the votes at a meeting of shareholders, and may not be called by any other
person or persons.
ARTICLE X
The Board shall be divided as nearly equal in number as possible into two
classes, designated Class I and Class II. Additional directorships resulting
from an increase in number of directors shall be apportioned among the classes
as equally as possible. The initial term of office of directors of Class I
shall expire at the first regularly scheduled meeting of shareholders held after
the corporation becomes a listed corporation within the meaning of California
Corporations Code Section 301.5(d) ("listed corporation"), and that of Class II
shall expire at the second regularly scheduled meeting of shareholders occurring
after the corporation becomes a listed corporation; and in all cases as to each
director, until his or her successor shall be elected and shall qualify, or
until his or her earlier resignation, removal from office, death or incapacity.
After the initial term of the directors of each class, at each subsequent annual
meeting of shareholders the number of directors equal to the number of Directors
of the class whose term expires at the time of such meeting (or, if less, the
number of directors properly nominated and qualified for election) shall be
elected to hold office until the second succeeding annual meeting of
shareholders after their election. This Article X shall become effective only
when the corporation becomes a "listed corporation" within the meaning of
California Corporations Code Section 301.5(d).
3
<PAGE>
ARTICLE XI
Section 1. SHAREHOLDER VOTE REQUIRED FOR BUSINESS COMBINATIONS.
(a) SHAREHOLDER VOTE. In addition to any affirmative vote
required by law or by the articles of incorporation or by any Preferred Stock
Designation, and except as otherwise expressly provided in Section 2 of this
Article XI, the following actions shall require the affirmative vote of the
holders of at least 66 2/3% of the voting power of all of the then outstanding
shares of capital stock of the corporation entitled to vote generally in the
election of directors (the"Voting Stock"), voting together as a single class.
Such affirmative vote shall be required, notwithstanding any other provisions of
the articles of incorporation or any provision of law or of any agreement with
any national securities exchange or otherwise which might otherwise permit a
lesser vote or no vote with respect to:
(i) any merger or consolidation of the corporation or any
Subsidiary (as hereinafter defined ) with (A) any Interested Shareholder (as
hereinafter defined) or (B) any other corporation (whether or not itself an
Interested Shareholder) which is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of transactions) to or with
any Interested Shareholder or any Affiliate of any Interested Shareholder of any
assets of the corporation or any subsidiary having an aggregate Fair Market
Value (as hereinafter defined) equal to or greater than 15% of the corporation's
assets as set forth on the corporation's most recent audited consolidated
financial statements; or
(iii) the issuance or transfer by the corporation or any
Subsidiary (in one transaction or a series of transactions) of any securities of
the corporation or any Subsidiary to any Interested Shareholder or any Affiliate
of any Interested Shareholder in exchange for cash, securities, or other
property (or a combination thereof) having an aggregate Fair Market Value equal
to or greater than 15% of the corporation's assets as set forth on the
corporation's most recent audited consolidated financial statements; or
(iv) any reclassification of securities (including any
reverse stock split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its subsidiaries or any other
transaction (whether or not with or into or otherwise involving any Interested
Shareholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the corporation or any subsidiary which is
Beneficially Owned (as hereinafter defined) by any Interested Shareholder or any
Affiliate of any Interested Shareholder.
(b) DEFINITION OF BUSINESS COMBINATION. The term "Business
Combination" as used in this Article XI shall mean any transaction which is
referred to in any one or more of subparagraphs (i) through (iv) of paragraph
(a) of this Section 1.
4
<PAGE>
Section 2. EXCEPTIONS TO SHAREHOLDER VOTE REQUIREMENT.
The provisions of Section 1 of this Article XI shall not be applicable
to any particular Business Combination, and such Business Combination shall
require only such affirmative vote as is required by law and any other provision
of the articles of incorporation and any Preferred Stock Designation, if, in the
case of a Business Combination that does not involve any cash or other
consideration being received by the shareholders of the corporation, solely in
their respective capacities as shareholders of the corporation, the condition
specified in the following paragraph (a) is met, or in the case of any other
Business Combination, the conditions specified in either of the following
paragraph (a) or paragraph (b) are met:
(a) The Business Combination shall have been approved by a majority
of the Continuing Directors (as hereinafter defined); provided, however, that
this condition shall not be capable of satisfaction unless there are at least
two Continuing Directors.
(b) All of the following conditions shall have been met:
(i) The consideration to be received by holders of shares of a
particular class (or series) of outstanding capital stock of the corporation
(including Common Stock and other than Excluded Preferred Stock (as hereinafter
defined) shall be in cash or in the same form as the Interested Shareholder or
any of its Affiliates has previously paid for shares of such class (or series)
of capital stock. If the Interested Shareholder or any of its Affiliates have
paid for shares of any class (or series) of capital stock with varying forms of
consideration, the form of consideration to be received per share by holders of
shares of such class (or series) of capital stock shall be either cash or the
form used to acquire the largest number of shares of such class (or series) of
capital stock previously acquired by the Interested Shareholder.
(ii) The aggregate amount of (x) the cash and (y) the Fair
Market Value, as of the date (the "Consummation Date") of the consummation of
the Business Combination, of the consideration other than cash to be received
per share by holders of Common Stock in such Business Combination shall be at
least equal to the higher of the following (in each case appropriately adjusted
in the event of any stock dividend, stock split, combination of shares, or
similar event):
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Shareholder
or any of its Affiliates for any shares of Common Stock
acquired by them within the two-year period immediately
prior to the date of the first public announcement of the
proposal for the Business Combination (the "Announcement
Date") or in any transaction in which the Interested
Shareholder became an Interested Shareholder, whichever is
higher, plus interest compounded annually from the first
date on which the Interested
5
<PAGE>
Shareholder became an Interested Shareholder (the "Determination
Date") through the Consummation Date at the publicly announced
reference rate of interest of Bank of America, N.T. & S.A. (or
such other major bank headquartered in the State of California as
may be selected by the Continuing Directors) from time to time in
effect in the City of San Francisco less the aggregate amount of
any cash dividends paid, and the Fair Market Value of any
dividends paid in other than cash, on each share of Common Stock
from the Determination Date through the Consummation Date in an
amount up to but not exceeding the amount of interest so payable
per share of Common Stock; and
(B) The Fair Market Value per share of Common Stock on the
Announcement Date or the Determination Date, whichever is
higher.
(iii) The aggregate amount of (x) the cash and (y) the Fair
Market Value, as of the Consummation Date, of the consideration other than cash
to be received per share by holders of shares of any class (or series), other
than Common Stock or Excluded Preferred Stock, of outstanding Voting Stock shall
be at least equal to the highest of the following (in each case appropriately
adjusted in the event of any stock dividend, stock split, combination of shares
or similar event), it being intended that the requirements of this paragraph
(b)(iii) shall be required to be met with respect to every such class (or
series) of outstanding voting Stock, whether or not the Interested Shareholder
or any of its Affiliates has previously acquired any shares of a particular
class (or series) of Voting Stock.
(A) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Shareholder or any of
its Affiliates for any shares of such class (or series) of
Voting Stock acquired by them within the two-year period
immediately prior to the Announcement Date or in any
transaction in which it became an Interested Shareholder,
whichever is higher, plus interest compounded annually from
the Determination Date through the Consummation Date at the
publicly announced reference rate of interest of Bank of
America, N.T. & S.A. (or such other major bank headquartered
in the State of California as may be selected by the
Continuing Directors) from time to time in effect in the
City of San Francisco less the aggregate amount of any cash
dividends paid, and the Fair Market Value of any dividends
paid in other than cash, on each share of such class (or
series) of Voting Stock from the Determination Date through
the Consummation Date in an amount up to but not exceeding
the amount of interest so payable per share of such class
(or series) of Voting Stock;
6
<PAGE>
(B) the Fair Market Value per share of such class (or
series) of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher; and
(C) The highest preferential amount per share, if any, to
which the holders of shares of such class (or series of
Voting Stock would be entitled in the event of any voluntary
or involuntary liquidation, dissolution, or winding up of
the corporation.
(iv) After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business Combination, (x)
except as approved by a majority of the Continuing Directors, there shall have
been no failure to declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on any outstanding Preferred
Stock; (y) there shall have been (A) (no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock)), except as approved by a majority of the
continuing Directors, and (B) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has the effect
of reducing the number of outstanding shares of the Common Stock, unless the
failure so to increase such annual rate is approved by a majority of the
Continuing Directors, and (z) neither such Interested Shareholder nor any of its
Affiliates shall have become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction which results in such Interested
Shareholder becoming an Interested Shareholder; provided, however, that no
approval by Continuing Directors shall satisfy the requirements of this
subparagraph (iv) unless at the time of such approval there are at least two
Continuing Directors.
(v) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder and any of its Affiliates shall not
have received the benefit, directly or indirectly (except proportionately,
solely in such Interested Shareholder's or Affiliate's capacity as shareholder
of the corporation), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages provided by the
corporation, whether in anticipation of or in connection with such Business
Combination or otherwise.
(vi) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to all shareholders of the corporation at least 30
days prior to the consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant to such Act,
rules, regulations, or subsequent provisions).
7
<PAGE>
(vii) Such Interested Shareholder shall have supplied the
corporation with such information as shall have been requested pursuant to
Section 4 of this Article XI within the time period set forth therein.,
Section 3. DEFINITIONS.
For the purposes of this Article XI:
(a) A "Person" means any individual, limited partnership, general
partnership, corporation or other firm or entity.
(b) "Interested Shareholder" means any person (other than the
corporation or any Subsidiary) who or which:
(i) Is the Beneficial Owner (as hereinafter defined), directly
or indirectly, of 15% or more of the voting power of the then outstanding Voting
Stock; or
(ii) Is an Affiliate of the corporation and at any time within
the two-year period immediately prior to the date in question was the Beneficial
Owner, directly or indirectly, of 15% or more of the voting power of the then
outstanding Voting Stock; or
(iii) Is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period immediately
prior to the date in question Beneficially Owned by an Interested Shareholder,
if such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering within the
meaning of the Securities Act of 1933, as amended.
(c) A person shall be "Beneficial Owner" of or shall "Beneficially
Own" any Voting Stock;
(i) Which such person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns, directly or indirectly, within the
meaning of Rule 13-3 under the 1934 Act as in effect on the adoption date of the
articles of incorporation; or
(ii) which such person or any of its Affiliates or Associates
has (A) the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (B) the right to vote pursuant to any
agreement, arrangement or understanding (but shall not be deemed to be the
beneficial owner of any shares of Voting Stock solely by reason of a revocable
proxy granted for a particular meeting of shareholders, pursuant to a public
solicitation of proxies for such meeting, and with respect to which shares
neither such person nor any such Affiliate or Associate is otherwise deemed the
beneficial owner; or
8
<PAGE>
(iii) Which is beneficially owned, directly or indirectly, within
the meaning of Rule 13d-3 under the 1934 Act as in effect on the adoption date
of the articles of incorporation, by any other person with which such person or
any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (other than solely
by reason of a revocable proxy as described in subparagraph (ii) of this
paragraph (c), or disposing of any shares of Voting Stock; provided, however,
that in case of any employee stock ownership or similar plan of the corporation
or of any Subsidiary in which the beneficiaries thereof possess the right to
vote any shares of the Voting Stock held by such plan, no such plan nor any
trustee with respect thereto (nor any Affiliate of such trustee), solely by
reason of such capacity of such trustee, shall be deemed for any purposes hereof
to Beneficially own any shares of Voting Stock held under any such plan.
(d) For the purposes of determining whether a person is an Interested
Shareholder pursuant to paragraph (b) of this Section 3, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed Beneficially
Owned through application of paragraph (c) of this Section 3 but shall not
include any other unissued shares of Voting Stock which may be issuable pursuant
to any agreement, arrangement or understanding, or upon exercise of conversion
right, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the 1934 Act as in effect on the
adoption date of the articles of incorporation.
(f) "Subsidiary" means any corporation of which a majority of the
outstanding shares of any class of equity security is owned, directly or
indirectly, by the corporation; provided, however, that for the purposes of the
definition of Interested Shareholder set forth in paragraph (b) of this Section
3, the term "Subsidiary" shall mean only a corporation of which a majority of
the outstanding shares of each class of equity security is owned, directly or
indirectly, by the corporation.
(g) "Continuing Director" means a member of the Board of Directors of
the corporation who is not an Interested Shareholder or affiliated with an
Interested Shareholder.
(h) "Fair Market Value" means: (i) in the case of stock the highest
closing sale price during the 30-day period immediately preceding date in
question of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape,
on the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the 1934 Act on which such stock is listed, or, if such stock is not listed on
any such exchange, the highest closing sale price quotation with respect to a
share of such stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc., Automated Quotations
System or any system then in use, or if no such quotations are available, the
fair market value on the date in question of a share of such stock as determined
by the Board of Directors in accordance with Section 4 of this Article XI; and
(ii) in the case of property other than cash or stock the fair market value of
9
<PAGE>
such property on the date in question as determined by the Board of Directors in
accordance with Section 4 of this Article XI.
(i) In the event of any Business Combination in which the corporation
survives, the phrase "consideration other than cash to be received" as used in
paragraphs (b)(ii) and (b)(iii) of Section 2 of this Article XI shall include
the shares of Common Stock and/or the shares of any other class (or series) of
outstanding Voting Stock retained by the holders of such shares.
(j) "Whole Board" means the total number of directors which this
corporation would have if there were no vacancies.
(k) "Excluded Preferred Stock" means any series of Preferred Stock
with respect to which the Preferred Stock Designation creating such series
expressly provides that the provisions of this Article XI shall not apply.
Section 4. BOARD ENFORCEMENT.
(a) COMPLIANCE. A majority of the Whole Board but only if a
majority of the Whole Board shall then consist of Continuing Directors or if a
majority of the Whole Board shall not then consist of Continuing Directors, a
majority of the then Continuing Directors, shall have the power and duty to
determine, on the basis of information known to them after reasonable inquiry,
all facts necessary to determine compliance with this Article XI, including,
without limitation, (i) whether a person is an Interested Shareholder, (ii) the
number of shares of Voting Stock Beneficially Owned by any person, (iii) whether
a person is an affiliate or Associate of another, (iv) whether the applicable
conditions set forth in paragraph (b) of Section 2 have been met with respect to
any Business Combination, (v) the Fair Market Value of stock or other property
in accordance with paragraph (h) of Section 3, and (vi) whether the assets which
are the subject of any Business Combination referred to in paragraph (a)(iii) of
Section 1 has an aggregate Fair Market Value equal to or greater than 15% of the
corporation's assets as set forth on the corporation's most recent audited
consolidated financial statements.
(b) DEMAND AS TO INTERESTED SHAREHOLDER. A majority of the Whole
Board shall have the right to demand, but only if a majority of the Whole Board
shall then consist of Continuing Directors, or if a majority of the Whole Board
shall not then consist of Continuing Directors, a majority of the then
Continuing Directors shall have the right to demand, that any person who it is
reasonably believed is an Interested Shareholder (or holds of record shares of
Voting Stock Beneficially Owned by any Interested Shareholder) supply this
corporation with complete information as to (i) the record owner(s) of all
shares Beneficially Owned by such person who it is reasonably believed is an
Interested Shareholder, (ii) the number of and class or series of shares
Beneficially Owned by such person who it is reasonably believed is an Interested
Shareholder and held of record by each such record owner and the number(s) of
the stock certificate(s) evidencing such shares, and (iii) any other factual
matter relating to the applicability or effect of this Article XI as may be
reasonably requested of such person, and such person shall furnish such
information within 10 days after receipt of such demand.
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(c) FIDUCIARY OBLIGATION OF INTERESTED SHAREHOLDER. Nothing
contained in this Article XI shall be construed to relieve any Interested
Shareholder from any fiduciary obligation imposed by law.
ARTICLE XII
Section 1. AMENDMENT OR RESCISSION OF ARTICLES. The corporation reserves
the right to appeal, alter, amend, or rescind any provision contained in the
articles of incorporation, in the manner now or hereafter prescribed by statute,
except as provided in Section 2 of this Article XII, and all rights conferred on
shareholders herein are granted subject to this reservation.
Section 2. SUPERMAJORITY VOTING REQUIREMENTS. Notwithstanding any other
provision of the articles of incorporation or any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative
vote of the holders of any particular class or series of the Voting Stock
required by law, the articles of incorporation or any Preferred Stock
Designation, the affirmative vote of the holders of at least 66 2/3% of the
voting power of all of the then outstanding shares of the Voting Stock, voting
together as a single class, shall be required to alter, amend, or repeal Article
III, Article IV, Article V, Article VI, Article VII, Article VIII, Article IX,
Article X, Article XI, or this Article XII.
3. The foregoing amendment and restatement of articles of incorporation
has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of articles of incorporation
has been duly approved by the required vote of shareholders in accordance with
Sections 902 and 903 of the Corporations Code. As of the time shareholder
approval for these restated articles was obtained, the total number of
outstanding Common shares of the Corporation was 96,975. No other shares were
outstanding. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was 66 2/3% of the
Common Stock voting as a separate class.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Dated February 28, 1997, at Poway, California.
/s/ James A. Scudder /s/ James L. Berntsen
- ------------------------------ ---------------------------------
James A. Scudder, President James L. Berntsen, Secretary
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AMENDED AND RESTATED
BYLAWS
OF
ONTRO, INC.
ARTICLE I
OFFICES
SECTION 1 - PRINCIPAL OFFICES. The board of directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside this state, and the corporation has one or more business offices
in this state, the board of directors shall fix and designate a principal
business office in the State of California.
SECTION 2 - OTHER OFFICES. The board of directors may at any time
establish branch or subordinate offices at any place or places where the
corporation is qualified to do business.
ARTICLE II
MEETING OF SHAREHOLDERS
SECTION 1 - PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place within or outside the State of California designated by the board of
directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
SECTION 2 - ANNUAL MEETINGS OF SHAREHOLDERS.
(a) The annual meeting of shareholders shall be held each year on a date
and at a time designated by the board of directors. At each annual meeting
directors shall be elected and any other proper business may be transacted.
(b) At an annual meeting of the shareholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the board of directors, (B) otherwise properly brought before the meeting by
or at the direction of the board of directors, or (C) otherwise properly brought
before the meeting by a shareholder. For business to be properly brought before
an annual meeting by a shareholder, the shareholder must have given timely
notice thereof in writing to the secretary of the corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal
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executive offices of the corporation not less than one hundred twenty (120)
calendar days in advance of the date specified in the corporation's proxy
statement released to shareholders in connection with the previous year's annual
meeting of shareholders; provided, however, that in the event no annual meeting
was held in the previous year or the date of the annual meeting has been changed
by more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the shareholder to be timely must be
so received a reasonable time before the solicitation is made. A shareholder's
notice to the secretary shall set forth as to each matter the shareholder
proposed to bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the corporation's books, of the shareholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the shareholder, (iv) any material interest of the
shareholder in such business and (v) any other information that is required to
be provided by the shareholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a
proponent to a shareholder proposal. Notwithstanding the foregoing, in order to
include information with respect to a shareholder proposal in the proxy
statement and form of proxy for a shareholder's meeting, shareholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the corporation
may be made at a meeting of shareholders by or at the direction of the board of
directors or by any shareholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the board of directors, shall be made pursuant to timely notice
in writing to the secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 2. Timely notice shall also be given of any
shareholder's intention to cumulate votes in the election of directors at a
meeting if cumulative voting is available. Such shareholder's notice shall set
forth (i) as to each person, if any, whom the shareholder proposes to nominate
for election or reelection as a director: (A) the name, age, business address,
and residence address of such person, (B) the principal occupation or employment
of such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the shareholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
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director if elected; and (ii) as to such shareholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section 2
and, if cumulative voting is available to such shareholder, whether such
shareholder intends to request cumulative voting in the election of directors at
the meeting. At the request of the board of directors, any person nominated by
shareholder for election as a director shall furnish to the Secretary of the
corporation that information required to be set forth in the shareholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in this paragraph (c). The chairman of the
meeting shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
SECTION 3 - SPECIAL MEETING. A special meeting of the shareholders may be
called at any time by the board of directors, or by the chairman of the board,
or by the president, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than ten percent (10%) of the votes at that
meeting, and by no other person.
SECTION 4 - NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date, and hour of the
meeting and (a) in the case of a special meeting, the general nature of the
business to be transacted, or (b) in the case of the annual meeting, those
matters which the board of directors, at the time of giving the notice, intends
to present for action by the shareholders. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
whom, at the time of the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (a) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (b) an
amendment of the Articles of Incorporation, pursuant to Section 902 of that
Code, (c) a reorganization of the corporation, pursuant to Section 1201 of that
Code, (d) a voluntary dissolution of the corporation, pursuant to Section 1900
of that Code, or (e) a distribution in dissolution other than in accordance with
the rights of outstanding preferred shares, pursuant to Section 2007 of that
Code, the notice shall also state the general nature of that proposal.
SECTION 5 - MANNER OF GIVING NOTICE, AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the
corporation's principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office is located.
Notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by
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telegraph or other means of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices or reports shall be deemed to have been duly given without
further mailing if these shall be available to the shareholder on written demand
of the shareholder at the principal executive office of the corporation for a
period of one year from the date of giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary,
or any transfer agent of the corporation giving the notice, and shall be filed
and maintained in the minute book of the corporation.
SECTION 6 - QUORUM. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business. The shareholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
SECTION 7 - ADJOURNED MEETING; NOTICE. Any shareholders' meeting, annual
or special, whether or not a quorum is present, may be adjourned from time to
time by the vote of the majority of the shares represented at that meeting,
either in person or by proxy, but in the absence of a quorum, no other business
may be transacted at that meeting, except as provided in Section 6 of this
Article II.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at a meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is fixed, or unless the
adjournment is for more than forty-five (45) days from the date set for the
original meeting, in which cases the board of directors shall set a new record
date. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Section 4 and 5 of this Article II. At any adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting.
SECTION 8 - VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section II
of this Article II, subject to the provisions of Sections 702 to 704, inclusive
of the California General Corporation Law (relating to voting shares held by a
fiduciary, in the name of a corporation or in joint ownership). The
shareholders' vote may be by voice vote or by ballot: provided, however, that
any election for directors must be by ballot if demanded by any shareholder
before the voting has begun. On any matter other than elections of directors,
any shareholder may vote part of the shares in favor of the
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proposal and refrain from voting the remaining shares or vote them against the
proposal but if the shareholder fails to specify the number of shares which the
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares that the shareholder
is entitled to vote. If a quorum is present, the affirmative vote of the
majority of the shares represented at the meeting and entitled to vote on any
matter (other than the election of directors) shall be the act of the
shareholders, unless the vote of a greater number or voting by classes is
required by California General Corporation Law or by the articles of
incorporation.
Prior to the Record Date (as defined below), at a shareholders' meeting at
which directors are to be elected, no shareholder shall be entitled to cumulate
votes (i.e., cast for any one or more candidates a number of votes greater than
the number of the shareholder's shares) unless the candidates' names have been
placed in nomination prior to commencement of the voting and a shareholder has
given notice prior to commencement of the voting of the shareholder's intention
to cumulate votes. If any shareholder has given such a notice, then every
shareholder entitled to vote may cumulate votes for candidates in nomination and
give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which that shareholder's shares are
entitled, or distribute the shareholder's votes on the same principle among any
or all of the candidates, as the shareholder thinks fit. The candidates
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected.
The election of directors by the shareholders shall not be by cumulative
voting. This paragraph shall become effective only when the corporation becomes
a "listed corporation" within the meaning of Section 301.5 of the California
General Corporation Law (the "Record Date").
SECTION 9 - WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be valid as though had at a meeting
duly held after regular call and notice, if a quorum be present either in person
or by proxy, and if either before or after the meeting, each person entitled to
vote, who was not present in person or by proxy, signs a written waiver of
notice or a consent to a holding of the meeting, or an approval of minutes. The
waiver of notice or consent need not specify either the business to be
transacted or the purpose of any annual or special meeting of shareholders
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 4 of this Article II,
the waiver of notice or consent shall state the general nature of this proposal.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the meeting.
SECTION 10 - SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. No
action shall be
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taken by the shareholders of the corporation except at an annual or special
meeting of the shareholders called in accordance with these Bylaws, and no
action shall be taken by the shareholders by written consent.
SECTION 11 - RECORD DATE FOR SHAREHOLDER NOTICE AND VOTING. For purposed
of determining the shareholders entitled to notice of or to vote at any meeting,
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days nor less than ten (10) days before the date of any
such meeting, and in this event only shareholders of record on the date so fixed
are entitled to notice and to vote, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date,
except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date, the record date
for determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held.
SECTION 12 - PROXIES. Every person entitled to vote for directors or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (a)
revoked by the person executing it before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy or (b) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Section 705(e) and 705(f) of the California General Corporations Law.
SECTION 13 - INSPECTORS OF ELECTION. Before any meeting of shareholders,
the board of directors may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may, and on
the request of any shareholder or shareholder's proxy shall, appoint inspectors
of election at the meeting. The number of inspectors shall be either one (1) or
three (3). If inspectors are appointed at a meeting on the request of one or
more shareholders or proxies, the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (1) or three (3)
inspectors are to be appointed. If any person appointed as inspector fails to
appear or fails or refuses to act, the chairman of the meeting may, and upon the
request of any shareholder or a shareholder's proxy shall, appoint a person to
fill that vacancy.
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These inspectors shall: (a) determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum, and the authenticity, validity, and effect or proxies; (b) receive
votes, ballots or consents; (c) hear and determine all challenges and questions
in any way arising in connection with the right to vote; (d) count and tabulate
all votes or consents; (e) determine when the polls shall close; (f) determine
the result; and (g) do any other acts that may be proper to conduct the election
or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
SECTION 1 - POWERS. Subject to the provisions of the California General
Corporation Law and any limitations in the articles of incorporation and these
Bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
SECTION 2 - NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number
of directors shall be five (5) until the corporation becomes a "listed
corporation" within the meaning of Section 301.5(d) of the California
Corporations Code, at which time the authorized number of directors shall be not
less than five (5) and not more than seven (7) with the exact number to be fixed
by the board of directors until changed by amendment of the articles of
incorporation or by a bylaw amending this Section 2 duly adopted by the vote of
holders of a majority of the outstanding shares entitled to vote, provided that
a proposal to reduce the authorized number of the minimum number of directors
below five (5) cannot be adopted if the votes cast against its adoption at a
meeting are equal to more than 16 2/3 percent of the outstanding share entitled
to vote.
The board of directors shall be divided as nearly equal in number as
possible into two classes, designated Class I and Class II. Additional
directorships resulting from an increase in number of directors shall be
apportioned between the classes as equally as possible. The initial term of
office of directors of Class I shall expire at the first regularly scheduled
meeting of shareholders held after the corporation becomes a "listed
corporation" within the meaning of California Corporations Code Section 301.5(d)
and that of Class II shall expire at the second regularly scheduled meeting of
shareholders occurring after the corporation becomes a listed corporation, and
in all cases as to each director, until his or her successor shall be elected
and shall qualify, or until his or her earlier resignation, removal from office,
death or incapacity. After the initial term of the directors of each class, at
each subsequent annual meeting of the shareholders the number of directors equal
to the number of directors of the class whose term expires at the time of such
meeting (or, if less, the number of directors properly nominated and qualified
for election) shall be elected to hold office until the second succeeding annual
meeting of shareholders after the election. This paragraph shall
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become effective only when the corporation becomes a "listed corporation" within
the meaning of California Corporations Code Section 301.5(d).
SECTION 3 - VACANCIES. Any vacancies on the board of directors resulting
from death, resignation, disqualification, removal or other causes shall be
filled by either (a) the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote; or (b) by the affirmative vote of a
majority of the remaining directors then in office, even though less than a
quorum of the board of directors.
Newly created directorships resulting from any increase in the number of
directors shall, unless the board of directors determines by resolution that any
such newly created directorship shall be filled by the shareholders, be filled
only by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the board of directors. Any director elected in
accordance with the preceding sentence shall hold office until such director's
successor shall have been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist
in the event of the death, resignation or removal of any director, or if the
board of directors by resolution declares vacant the office of a director who
has been declared of unsound mind by an order of court or convicted of a felony,
or if the authorized number of directors is increased, or if the shareholders
fail, at any meeting of shareholders at which any director or directors are
elected, to elect the number of directors to be voted for at that meeting.
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
SECTION 4 - PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular meetings
of the board of directors may be held at any place within or outside of the
State of California that has been designated from time to time by resolution of
the board. In the absence of such a designation, regular meetings shall be held
at the principal executive office of the corporation. Special meetings of the
board shall be held at any place within or outside the State of California that
has been designated in the notice of the meeting or, if not stated in the notice
or there is no notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or similar
communication equipment, so long as all directors participating in the meeting
can hear one another, and all such directors shall be deemed to be present in
person at the meeting.
SECTION 5 - ANNUAL MEETING. Immediately following each annual meeting of
shareholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired
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election of officers and the transaction of other business. Notice of this
meeting shall not be required.
SECTION 6 - OTHER REGULAR MEETING. Other regular meetings of the board of
directors shall be held without call at such time as shall from time to time be
fixed by the board of directors. Such regular meetings may be held without
notice.
SECTION 7 - SPECIAL MEETINGS. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairman of the
board or the president or any vice president or secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. In case the notice is mailed,
it shall be deposited in the United States mail at least four (4) days before
the time of the holding of the meeting. In case the notice is delivered
personally or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours before the
time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the corporation.
SECTION 8 - QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 10 of this Article III. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the board of directors, subject to
the provisions of Section 310 of the California General Corporations Law (as to
approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 of that Code (as to
appointment of committees) and Section 317(e) of that Code (as to
indemnification of directors). A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of directors,
if any action taken is approved by at least a majority of the required quorum
for that meeting.
SECTION 9 - WAIVER OF NOTICE. The transaction of any meeting of the board
of directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting or an
approval of the minutes. The waiver of notice or consent need not specify the
purpose of the meeting. All such waivers, consents, and approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
Notice of a meeting shall also be deemed given to any director who attends the
meeting without protesting, before or at its commencement, the lack of notice to
that director.
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SECTION 10 - ADJOURNMENT. A majority of the directors present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
SECTION 11 - NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four (24) hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting, in the manner specified
in Section 7 of this Article III, to the directors who were not present at the
time of the adjournment.
SECTION 12 - ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. Such written consent or
consents shall be filed with the minutes of the proceedings of the board.
SECTION 13 - FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. This Section 13 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee or otherwise, and receiving compensation for those services.
ARTICLE IV
COMMITTEES
SECTION 1 - COMMITTEES OF DIRECTORS. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
service at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any committee, to the extent provided
in the resolution of the board, shall have all the authority of the board,
except with respect to:
(a) the approval of any action which, under the California General
Corporation Law, also requires shareholders' approval or approval of the
outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the board
or any committee;
(d) the amendment or repeal of bylaws or the adoption of new bylaws;
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(e) the amendment or repeal of any resolution of the board of directors
which by it express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the board of
directors; or
(g) the appointment of any other committees of the board of directors or
the members of these committees.
SECTION 2 - MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, and specifically, Sections 4 (place
of meetings), 6 (regular meetings), 7 (special meetings and notice), 8 (quorum),
9 (waiver of notice), 10 (adjournment), 11 (notice of adjournment), and 12
(action without meeting) with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members, except that the time of regular meetings of committees may be
determined either by resolution of the board of directors or by resolution of
the committee; special meetings of committees may also be called by resolution
of the board of directors; and notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
SECTION 1 - OFFICERS. The officers of the corporation shall be a
president, a secretary and a chief financial officer. The corporation may also
have, at the discretion of the board of directors, a chairman of the board, one
or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers and such other officers as may be appointed in accordance
with the provisions of Section of this Article V. Any number of offices may be
held by the same person.
SECTION 2 - ELECTION OF OFFICERS. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article V, shall be chosen by the board of directors, and
each shall serve at the pleasure of the board, subject to the rights, if any, of
an officer under any contract of employment.
SECTION 3 - SUBORDINATE OFFICERS. The board of directors may appoint, and
may empower the president to appoint, such other officers as the business of the
corporation may require, each of who shall hold office for such period, have
such authority and perform such duties as are provided in the bylaws or as the
board of directors may from time to time determine.
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SECTION 4 - REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if
any, of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the board of directors, at any regular or
special meeting of the board, or, except in case of an officer chosen by the
board of directors, by an officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
SECTION 5 - VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these bylaws for regular appointments to that
office.
SECTION 6 - CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer be elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the board of directors or prescribed by the
bylaws. If there is no president, the chairman of the board shall in addition
be the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
SECTION 7 - PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the board of directors to the chairman of the board, if there be
such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and the officers of
the corporation. He shall preside at all meetings of the shareholders and, in
the absence of the chairman of the board, or if there be none, at all meetings
of the board of directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the board of directors
or the bylaws.
SECTION 8 - VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors or, if not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or the bylaws, and the president or the chairman of the
board.
SECTION 9 - SECRETARY. The secretary shall keep or cause to be kept at the
principal executive office or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and shareholders, with the time and place of holding,
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whether regular or special, and, if special, how authorized, the notice given,
the names of those present at directors' meetings or committee meetings, the
number of shares present or represented at shareholders' meetings and the
proceedings.
The secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, as
determined by resolution of the board of directors, a share register, or a
duplicate share register, showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same and the number and date of cancellation of
every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required by the bylaws or by law
to be given and he shall keep the seal of the corporation if one be adopted, in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by the bylaws.
SECTION 10 - CHIEF FINANCIAL OFFICER. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have other powers and perform such other duties as may be
prescribed by the board of directors or the bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS
EMPLOYEES AND OTHER AGENTS
The corporation shall have power to indemnify any person who is or was an
agent of the corporation as provided in Section 317 of the California General
Corporation Law. The indemnification provided by this Section shall not be
deemed exclusive of any rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent such
additional rights to indemnification are authorized in the articles of
incorporation of the corporation. The rights to indemnify hereunder
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shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of the person.
Expenses incurred by a director of the corporation in defending a civil or
criminal action, suit or proceeding by reason of the fact that he is or was a
director of the corporation (or was serving at the corporation's request as a
director or officer of another corporation) shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized by relevant sections of the California General
Corporation Law.
ARTICLE VII
RECORDS AND REPORTS
SECTION 1 - MAINTENANCE AND INSPECTION OF SHARE REGISTER. The corporation
shall keep at its principal executive office, or at the offices of its transfer
agent or registrar, if either be appointed and as determined by resolution of
the board of directors, a record of its shareholders, giving the names and
addresses of all shareholders and the number of classes of shares held by each
shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (a) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours on five (5) days prior
written demand on the corporation, and (b) obtain from the transfer agent of the
corporation, on written demand and on the tender of such, shareholders' names
and addresses who are entitled to vote for the election of directors, and their
shareholdings as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
This list shall be made available to any shareholder by the transfer agent on or
before the later of five (5) days after the demand is received or the date
specified in the demand as the date as of which the list is to be compiled. The
record of shareholders shall also be open to inspection on the written demand of
any shareholder or holder of a voting trust certificate, at any time during
usual business hours, for a purpose reasonably related to the holder's interests
as a shareholder or as the holder of a voting trust certificate. Any inspection
and copying under this Section 1 may be made in person or by an agent or
attorney for the shareholder or holder of a voting trust certificate making the
demand.
SECTION 2 - MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall
keep at its principal executive office, or if its principal executive office is
not in the State of California, at its principal business office in this state,
the original or a copy of the bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
California and the corporation has no
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principal business office in this state, the Secretary shall, upon the written
request of any shareholder, furnish to that shareholder a copy of the bylaws as
amended to date.
SECTION 3 - MAINTENANCE AND INSPECTION OF OTHER CORPORATION RECORDS. The
accounting books and records and minutes of proceedings of the shareholders and
the board of directors and any committee or committees of the board of directors
shall be kept at such place or places designated by the board of directors, or,
in the absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form. The minutes and accounting books and records
shall be open to inspection upon the written demand of any shareholder or holder
of a voting trust certificate, at any reasonable time during usual business
hours, for a purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. The inspection may
be made in person or by an agent or attorney, and shall include the right to
copy and make extracts. These rights of inspection shall extend to the records
of each subsidiary corporation of the corporation.
SECTION 4 - INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts of documents.
SECTION 5 - ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California General Corporation
Law is expressly dispensed with, but nothing herein shall be interpreted as
prohibiting the board of directors from issuing annual or other periodic reports
to the shareholders of the corporation as they consider appropriate.
SECTION 6 - FINANCIAL STATEMENTS. A copy of any annual financial statement
and any income statement of the corporation for each quarterly period of each
fiscal year, and any accompanying balance sheet of the corporation as of the end
of each such period, that has been prepared by the corporation shall be kept on
file in the principal executive office of the corporation for twelve (12) months
and each such statement shall be exhibited at all reasonable times to any
shareholder demanding an examination of any such statement or a copy shall be
mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month, or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and a balance
sheet of the corporation as of the end of that period, the chief financial
officer shall cause that statement to be prepared, if not already prepared, and
shall deliver personally or mail that statement or statements to the person
making the request within thirty (30) days after the receipt of the request. If
the corporation has not sent to the shareholders its annual report for the last
fiscal year, this report shall
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likewise be delivered or mailed to the shareholder or shareholders within sixty
(60) days after the request.
The corporation shall also, on the written request of any shareholder, mail
to the shareholder a copy of the last annual, semi-annual or quarterly income
statement which it has prepared, and a balance sheet as of the end of that
period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
SECTION 7 - ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation
shall, by the end of the calendar month of the anniversary date of its
incorporation of each year, file with the Secretary of State of the State of
California, on the prescribed form, a statement setting forth the authorized
number of directors, the names and complete business or resident addresses of
all incumbent directors, the names and complete business or residence addresses
of the chief executive officer, secretary and chief financial officer, the
street address of its principal executive office, the street address of its
principal office or principal business office in this state, and the general
type of business constituting the principal business activity of the
corporation, together with a designation of the agent of the corporation for the
purpose of service of process, all in compliance with Section 1502 of the
California General Corporation Law.
ARTICLE VIII
GENERAL CORPORATE MATTERS
SECTION 1 - RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For
purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, the board of
directors may fix, in advance, a record date, which shall not be more than sixty
(60) days before any such action, and in that case only shareholders of record
on the date so fixed are entitled to receive the dividend, distribution or
allotment, or rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date so fixed, except as otherwise provided in the California General
Corporation Law.
If the board of directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
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SECTION 2 - CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts
or other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation, shall be signed or endorsed
by such person or persons and in such manner as from time to time shall be
determined by resolution of the board of directors.
SECTION 3 - CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED. The board
of directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and this authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
SECTION 4 - CERTIFICATE FOR SHARES. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the board of directors
may authorize the issuance of certificates or shares as partly paid provided
that these certificate shall state the amount of consideration to be paid for
them and the amount paid. All certificates shall be signed in the name of the
corporation by the chairman of the board or vice chairman of the board or the
president or vice president and by the chief financial officer or an assistant
treasurer or the secretary of any assistant secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all
of the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed on a certificate shall have ceased to be that officer, transfer agent or
registrar before that certificate is issued, it may be issued by the corporation
with the same effect as if that person were an officer, transfer agent or
registrar at the date of issue.
SECTION 5 - LOST CERTIFICATES. Except as provided in this Section 5, no
new certificates for shares shall be issued to replace an old certificate unless
the latter is surrendered to the corporation and canceled at the same time. The
board of directors may, in case any share certificate or certificate for any
other security is lost, stolen or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the board may require,
including provision for indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
SECTION 6 - REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman
of the board, the president or any vice president, or any other person
authorized by resolution of the board of directors or by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority granted to these
officers to vote or represent on behalf of the corporation any and all shares
held by the corporation in any other corporation or corporations may be
exercised by any of these officers in person or by any person authorized to do
so by a proxy duly executed by these officers.
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SECTION 7 - CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provision, rules of construction and definitions in the
California General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
SECTION 1 - AMENDMENT BY SHAREHOLDERS.
(a) New bylaws may be adopted or these bylaws may be amended or repealed
by the vote of holders of a majority of the outstanding shares entitled to vote;
provided, however, that if the articles of incorporation of the corporation set
forth the number of authorized directors of the corporation, the authorized
number of directors may be changed only by an amendment of the articles of
incorporation.
(b) Notwithstanding any other provisions of these bylaws or any provision
of law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series of the
Voting Stock (as the term is defined in the articles of incorporation) required
by law, the articles of incorporation or any Preferred Stock Designation (as the
term is defined in the articles of incorporation), the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal this paragraph
(b) or Section 2 or Section 8 or Section 10 of Article II or Section 2 or
Section 3 of Article II or Article X of these bylaws.
SECTION 2 - POWER OF DIRECTORS. Subject to the right of shareholders as
provided in Section 1 of this Article IX to adopt, amend or repeal bylaws,
bylaws may be adopted, amended or repealed by the board of directors, provided,
however, that a bylaw or amendment thereof changing the authorized number of
directors may be adopted, amended or repealed by the board of directors only for
the purpose of fixing the exact number of directors within the limits specified
in the articles of incorporation or in Section 2 of Article II of these bylaws.
ARTICLE X
LOANS OF OFFICERS AND OTHERS
If the corporation has outstanding shares held of record by 100 or more
persons on the date of approval by the board of directors, the corporation may
make loans of money or property to, or
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guarantee the obligations of, any officer of the corporation or its parent or
any subsidiary, whether or not a director of the corporation or its parent or
any subsidiary, or adopt an employee benefit plan or plans authorizing such
loans or guaranties, upon the approval of the board of directors alone, by a
vote sufficient without counting the vote of any interested director or
directors, if the board of directors determines that such a loan or guaranty or
plan may reasonably be expected to benefit the corporation.
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INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of the 10th day of
January, 1997, by and between ONTRO, INC., a California corporation (the
"Company") and JAMES L. BERNTSEN, ("Indemnitee"), an officer and director of the
Company.
WHEREAS, the Company and Indemnitee recognize the increasing difficulty in
obtaining advisors', directors', officers', or key employees' liability
insurance, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance; and
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation subjecting advisors, officers, directors and
key employees to expensive litigation risks at the same time as the availability
and coverage of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate given the present circumstances, and Indemnitee and other advisors,
officers, directors and key employees of the Company may not be willing to serve
as officers, directors or key employees without additional protection; and
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers, directors,
advisors and key employees of the Company and to indemnify its officers,
directors, advisors and key employees so as to provide them with the maximum
protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other
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than an action by or in the right of the Company) by reason of the fact that
Indemnitee is or was an advisor, consultant, director, officer, employee or
agent of the Company or any subsidiary of the Company, by reason of any action
or inaction on the part of Indemnitee while an officer, director, advisor or key
employee or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, advisor, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee reasonably believed to be
in or not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that Indemnitee's
conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company or any subsidiary of the Company to procure a judgment in
its favor by reason of the fact that Indemnitee is or was an advisor,
consultant, director, officer, employee or agent of the Company or any
subsidiary of the Company, by reason of any action or inaction on the part of
Indemnitee while an advisor, consultant, officer, director or key employee or by
reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) and, to the fullest extent permitted by law, amounts
paid in settlement in each case to the extent actually and reasonably incurred
by Indemnitee in connection with the defense or settlement of such action or
suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company and its
shareholders and except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company and its shareholders unless and only to the extent that
the appropriate court in the State of California or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for expenses, and then
only to the extent to which the appropriate court in the State of California or
such other court shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Subsections (a) and (b) of this Section 1 or the
defense of any claim, issue or matter therein, Indemnitee shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
Indemnitee in connection therewith.
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2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referenced in
Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any
such action or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to
Indemnitee within forty-five (45) days following delivery of a written request
therefor, together with evidence of such expenses incurred, by Indemnitee to the
Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer at Ontro, Inc., 12675 Danielson Court, Suite 401, Poway, CA 92064 (or
such other address as the Company shall designate in writing to Indemnitee).
Notice shall be deemed received on the third business day after the date
postmarked if sent by domestic certified or registered mail, properly addressed;
otherwise notice shall be deemed received when such notice shall actually be
received by the Company. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
3. PROCEDURE. Any indemnification and advances provided for in Section 1
and Section 2 shall be made not later than forty-five (45) days after receipt of
the written request of Indemnitee. If a claim under this Agreement, under any
statute, or under any provision of the Company's Articles of Incorporation or
Bylaws providing for indemnification, is not paid in full by the Company within
forty-five (45) days after a written request for payment thereof has first been
received by the Company, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount of the claim
and, subject to Section 13 of this Agreement, Indemnitee shall also be entitled
to be paid for the expenses (including attorneys' fees) of bringing such action.
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in connection with any action, suit or
proceeding in advance of its final disposition) that Indemnitee has not met the
standard of conduct which make it permissible under applicable law for the
Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Subsection 2(a) unless and
until such defense may be finally adjudicated by court order or judgment from
which no further right of appeal exists. It is the parties' intention that if
the Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholder) to have made a determination that indemnification of Indemnitee
is proper in the circumstances because Indemnitee has met the applicable
standard of conduct required
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by applicable law, nor an actual determination by the Company (including its
Board of Directors, any committee or subgroup of the Board of Directors,
independent legal counsel, or its stockholders) that Indemnitee has not met such
applicable standard of conduct, shall create a presumption that Indemnitee has
or has not met the applicable standard of conduct.
(a) NOTICE TO INSURERS. If, at the time of the receipt of a notice
of a claim pursuant to Section 2(b) hereof, the Company has director, officer,
advisor and key employee liability insurance in effect, the Company shall give
prompt notice of the commencement of such proceeding to the insurers in
accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of
such proceeding in accordance with the terms of such policies.
(b) SELECTION OF COUNSEL. In the event the Company shall be
obligated under Section 2(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, shall be entitled to assume the defense of such
proceeding, with counsel approved by Indemnitee, which approval will not be
unreasonably withheld, upon the delivery to Indemnitee of written notice of its
election to do so. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee with respect to the same proceeding, provided that
(i) Indemnitee shall have the right to employ his counsel in any such proceeding
at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee and its counsel
shall have reasonably concluded that there may be a conflict of interest between
the Company and Indemnitee in the conduct of any such defense or (C) the Company
shall not, in fact, have employed counsel to assume the defense proceeding, then
the fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NON-EXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement,
the Company hereby agrees to indemnify Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Articles of
Incorporation, the Company's Bylaws or by statute. In the event of any change,
after the date of this Agreement, in any applicable law, statute, or rule which
expands the right of a California corporation to indemnify a member of its board
of directors, an officer, or key employee, such changes shall be ipso facto,
within the purview of Indemnitee's rights and the Company's obligations under
this Agreement. In the event of any change in any applicable law, statute, or
rule which narrows the right of a California corporation to indemnify a member
of its board of directors or an officer, such changes, to the extent not
otherwise required by such law, statute or rule to be applied to this Agreement
shall have no effect on this Agreement or the parties' rights and obligations
hereunder.
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(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which an Indemnitee may be
entitled under the Company's Articles of Incorporation, its Bylaws, any
agreement, any vote of the stockholders or disinterested Directors, the
California Corporations Code, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such
office. The indemnification provided for in this Agreement, shall continue as
to Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though he may have ceased to serve in such capacity at the time of
any action, suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgment, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and the Indemnitee
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its advisors, directors, officers and
key employees under this Agreement or otherwise. For example, the Company and
Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC")
has taken the position that indemnification is not permissible for liabilities
arising under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company may be required in the future to undertake with
the SEC to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy to
indemnify Indemnitee.
7. ADVISORS', DIRECTORS', OFFICERS' AND KEY EMPLOYEES' LIABILITY
INSURANCE. The Company shall, from time to time, make the good faith
determination whether or not it is practicable for the Company to obtain and
maintain a policy or policies of insurance with reputable insurance companies
providing the directors, officers, advisors and key employees with coverage for
losses from wrongful acts, or to ensure the Company's performance of its
indemnification obligations under this Agreement. Among other considerations,
the Company will weigh the costs of obtaining such insurance coverage against
the protection afforded by such coverage. In all policies of directors',
officers', advisors' and key employees' liability insurance, Indemnitee shall be
named as an insured in such a manner as to provide Indemnitee the same rights
and benefits as are accorded to the most favorably insured of the Company's
directors, if Indemnitee is a director; or of the Company's officers, advisors
or key employees, if Indemnitee is not a director of the Company but is an
officer, advisor, or key employee. Notwithstanding the foregoing, the Company
shall have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if the
premium costs for such insurance are disproportionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions so
as to
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provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a parent or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) EXCLUDED ACTS. To indemnify Indemnitee for any acts or omissions
or transactions from which a director, officer, advisor, key employee or agent
may not be relieved of liability under the California Corporations Code; or
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 317 of the California Corporations Code, but such indemnification or
advancement or expenses may be provided by the Company in specific cases if the
Board of Directors has approved the initiation of such suit; or
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company; or
(e) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
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10. EFFECTIVENESS OF AGREEMENT.
To the extent that the indemnification permitted under the terms of certain
provisions of this Agreement exceeds the scope of the indemnification provided
for in the California General Corporation Law, such provisions shall not be
effective unless and until the Company's Articles of Incorporation authorize
such additional rights of indemnification. In all other respects, the balance
of this Agreement shall be effective as of the date set forth on the first page
and may apply to acts or omissions of Indemnitee which occurred prior to such
date if Indemnitee was an officer, director, employee or other agent of the
Company, or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, at the time such act or omission occurred.
11. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger so that if Indemnitee is or was an advisor, director,
officer, employee or agent of such constituent corporation, or is or was serving
at the request of such constituent corporation as an advisor, director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, Indemnitee shall stand in the same position under the
provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and reference to "serving at the request of the Company" shall include any
service as an advisor, director, officer, employee or agent of the Company which
imposes duties on, or involves services by, such advisor, director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, Indemnitee shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Agreement.
12. COUNTERPARTS AND AMENDMENT. This Agreement may be executed in
counterparts, each of which shall constitute an original. This Agreement may
only be amended in writing signed by both parties.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
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14. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
15. NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressed, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
16. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed in accordance with the laws of the State of California, as applied to
contracts between California residents entered into and to be performed entirely
within California.
17. VENUE. Venue for all purposes in connection with any legal action or
proceeding which arises out of or relates to this Agreement shall be in San
Diego, California. If appropriate courts are not available in San Diego,
California, venue shall be in Orange County, California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above.
ONTRO, INC.
a California corporation
By: /s/ James A. Scudder
-------------------------------
James A. Scudder, President
AGREED TO AND ACCEPTED:
INDEMNITEE:
/s/ James L. Berntsen
- --------------------------
JAMES L. BERNTSEN
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VOTING TRUST AGREEMENT
In consideration of their mutual promises, the parties named below enter
into this Voting Trust Agreement ("Agreement") for the purpose of concentrating
the vote of the shares represented under this Agreement into a clear and
definite policy of management under the discretion of the Voting Trustee.
SECTION 1. PARTIES AND EFFECTIVE DATE
Section 1.01. PARTIES. The parties to this Agreement are:
(a) Manhattan West, Inc., a California corporation, who shall become
registered holder of Voting Trust Certificates in the form attached hereto as
Exhibit A, hereafter called "Certificate Holders."
(b) The following Voting Trustee, hereafter called "Trustee": James A.
Scudder.
(c) Self-Heating Container Corporation of California, a California
corporation, hereafter called the "Company."
Section 1.02. EFFECTIVE DATE. This Agreement shall become effective
upon the signing of this Agreement by the shareholders of the Company described
in Section 1.01(a) herein and upon the signing of this Agreement by the other
parties hereto. If this Agreement is not executed by the parties hereto or by
any of them on or before December 1, 1996, this Agreement shall, for all
purposes, be deemed null and void.
SECTION 2. TRUSTEE AND REGISTRAR
Section 2.01. NUMBER AND TERM OF TRUSTEE. There shall be one (1) Trustee
of this trust unless this Agreement is amended to provide for additional
Trustees. The first Trustee shall be the person named above, and his successor
shall be appointed as hereinafter provided. In the absence of his removal,
resignation, or death, the Trustee shall serve for the entire term of this
trust.
Section 2.02. DEATH OF TRUSTEE. The rights and duties of the Trustee
shall terminate upon his death, and no interest in any of the property owned or
held by the trust nor any of the rights or duties of the Trustee may be
transferred by will, devise, succession, or in any manner except as provided
herein. The heirs, administrators, and executors of the Trustee shall, however,
have the right and duty to convey any property held by the Trustee to the
successor Trustee.
Section 2.03. RESIGNATION. The Trustee and any successor Trustee may
resign at any time by giving written notice of resignation to the registered
Certificate Holders and to the Company.
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Section 2.04. SUCCESSOR TRUSTEE. If the Trustee should resign, die, or
fail to act as Trustee, James L. Berntsen shall be the successor Trustee. If
for any reason Mr. Berntsen shall not be able to act as Trustee, the Trustee
shall be the Chief Executive Officer of the Company.
Section 2.05. DUTIES AND QUALIFICATION OF TRUSTEE. The Trustee shall
receive and hold certificates of shares of the Company delivered to the Trustee
under this Agreement, and execute and issue Voting Trust Certificates in the
name of the Trustee, and transfer such share certificates, and effect the
exchange of share certificates for Voting Trust Certificates as and when herein
provided, and the Trustee may perform any other functions hereunder.
SECTION 3. DEPOSIT AND TRANSFER OF
SHARES--ISSUANCE AND TRANSFER OF
VOTING TRUST CERTIFICATES
Section 3.01. DEPOSIT OF SHARES. Upon execution of this Agreement, the
Certificate Holders shall deposit with the Trustee certificates for all shares
of the Company owned by them. All such certificates shall be endorsed in blank
or to the Trustee and shall be accompanied by such instruments of transfer as to
enable the Trustee to cause such certificates to be transferred to the name of
the Trustee.
Section 3.02. TRANSFER OF SHARES TO TRUSTEE. All certificates for shares
of the Company delivered to the Trustee shall be surrendered by the Trustee to
the Company and canceled. New share certificates shall be issued in the name of
the Trustee. The new share certificates shall state that they are issued
pursuant to this Agreement, and in the entry of ownership of the shares by the
Trustee in the stock transfer records of the Company, that fact shall also be
noted.
Section 3.03. TRANSFER OF SHARES TO SUCCESSOR TRUSTEE. Notwithstanding
any changes in the Trustee, the certificates for shares standing in the name of
the Trustee may be endorsed and transferred by any successor Trustee or Trustees
with the same effect as if endorsed and transferred by the Trustee who has
ceased to act. The Trustee is authorized and empowered to cause any further
transfer of said shares to be made which may be necessary through the occurrence
of any change of persons holding the office of Trustee hereunder.
Section 3.04. NO SALE OF SHARES. Notwithstanding the provisions of
Section 3.01, the Trustee shall have no authority to sell or otherwise dispose
of or encumber any of the stock deposited pursuant to the provisions of this
Agreement.
Section 3.05. VOTING TRUST CERTIFICATE. On receipt by the Trustee of the
share certificates and transfer of the same into the name of the Trustee, the
Trustee shall hold the certificates subject to the terms of this Agreement, and
the Trustee shall thereupon issue and deliver to the surrendering Certificate
Holder Voting Trust Certificates, representing the Certificate Holders'
beneficial interest in the trust. The Voting Trust Certificates shall be in
substantially the form of Exhibit A attached hereto.
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Section 3.06. TRANSFER OF VOTING TRUST CERTIFICATES. The Voting Trust
Certificates shall be transferable only as provided in the Voting Trust
Certificates and this Agreement, and upon payment of any charges in effect at
the time of transfer. All transfers shall be recorded in the certificate record
book as defined in Section 6.02 herein, and any transfer made of any Voting
Trust Certificate shall vest in the transferee all rights of the transferor and
shall subject the transferee to the same limitations as those imposed on the
transferor by the terms of the Voting Trust Certificate so transferred and by
this Agreement, and upon such transfer the Trustee shall deliver a Voting Trust
Certificate or Certificates to the transferee for the number of shares
represented by the Voting Trust Certificate so transferred.
Section 3.07. PROOF OF OWNERSHIP. The Trustee shall not be required to
recognize any transfer of a Voting Trust Certificate not made in accordance with
the provisions hereof unless the person or persons claiming such ownership shall
have produced indicia of title satisfactory to the Trustee and shall have
deposited with the Trustee indemnity satisfactory to him.
Section 3.08. HOLDER OF CERTIFICATE AS OWNER. The Trustee may treat the
registered holder, for the time being, of each Voting Trust Certificate (or when
presented duly endorsed in blank for transfer, the bearer thereof) as the
absolute owner and holder thereof, and of all the rights and interests
represented thereby for all purposes whatsoever, and the Trustee shall not be
bound or affected by any notice to the contrary.
Section 3.9. REPLACEMENT OF CERTIFICATES. If a Voting Trust Certificate
shall be lost, stolen, mutilated, or destroyed, the Trustee, in his reasonable
discretion, may issue a duplicate of such Certificate upon receipt of evidence
of such fact satisfactory to him, indemnity satisfactory to him, and the
existing Voting Trust Certificate, if mutilated.
SECTION 4. VOTING AND ACTION BY TRUSTEE
Section 4.01. VOTING OF SHARES. So long as the Trustee shall hold shares
deposited pursuant to the provisions of this Agreement, he shall possess and in
his unrestricted discretion shall be entitled to exercise in person or by his
nominees, agents, attorneys-in-fact or proxies, all rights and powers of
absolute owners and holders of such shares, including the full and unqualified
right to vote, assent or consent with respect thereto and to take part in and
consent to any corporate or shareholders' action of any kind whatsoever, and to
receive dividends and distributions on said shares. No other person shall have
any voting rights in respect to said shares so long as this Agreement is in
effect and such shares are registered in the names of the Trustee. The right of
the Trustee to vote, assent, or consent shall include the right to vote at any
election of directors and in favor of or in opposition to any resolution or
proposed dissolution and liquidation, merger, or consolidation of the Company,
or a sale of all or substantially all of its assets, or the issuance or creation
of additional of its securities, or any action of any character whatsoever which
may be presented at any meeting or require the consent of shareholders of the
Company.
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Section 4.02. VOTING IN INTEREST OF COMPANY. In voting shares of stock
or in doing any act regarding the control or management of the Company or its
affairs, as holder of stock deposited hereunder, the Trustee shall exercise his
best judgment in the interest of the Company, but the Trustee shall assume no
responsibility regarding management or regarding any action taken by him or
taken by the Company in pursuance of his consent thereto as such shareholders or
in pursuance of his vote so cast.
Section 4.03. TRUSTEE'S RELATIONSHIP WITH COMPANY. The Trustee, his
employees or agents, and any firm or corporation of which he may be a member,
agent, or employee, and any corporation, trust, or association of which he may
be a trustee, stockholder, director, officer, agent, or employee may contract
with or be or become pecuniarily interested, directly or indirectly, in any
matter or transaction to which the Company or any subsidiary or controlled or
affiliated corporation may be a party or in which it may be concerned, as fully
and freely as though such Trustee were not a Trustee hereunder. The Trustee is
an officer and director of the Company and may continue to act as a director and
officer of the Company or of any such subsidiary or controlled or affiliated
corporation.
Section 4.04. COMPENSATION OF TRUSTEE. The Trustee shall serve without
compensation. However, nothing shall disqualify the Trustee from receiving
compensation for services rendered to the Company.
Section 4.05. EXPENSES. The Trustee is expressly authorized to incur and
pay such reasonable expenses and charges, to employ and pay such agents,
attorneys, and counsel, and to incur and pay such other charges and expenses as
he may reasonably deem necessary and proper for administering this Agreement.
Each Certificate Holder severally agrees to reimburse and indemnify the Trustee
in proportion to such Certificate Holder's beneficial interest in the trust, for
and against any and all such claims, expenses, and liabilities incurred by him,
or asserted against him, in connection with or growing out of this Agreement or
the discharge of his duties hereunder. Any such claims, expenses, or
liabilities not so paid by the Certificate Holders may be deducted from
dividends or other distributions to them, or may be made a charge payable as a
condition to the delivery of shares in exchange for Voting Trust Certificates as
provided herein, and the Trustee shall be entitled to a lien therefor upon the
shares, funds, or other property in his possession.
Section 4.06. TRUSTEE'S LIABILITY. The Trustee shall not be liable in
any event for the acts or defaults of any successor Trustee or for acts or
defaults of any employee, agent, proxy, or attorney-in-fact of any Trustee. The
Trustee shall always be protected and free from liability in acting upon any
notice, request, consent, certificate, declaration, telegram, radiogram,
guaranty, affidavit, or other paper or document, or signature believed by him to
be genuine and to have been signed by the proper party or parties, or by the
party or parties purporting to have signed the same. The Trustee shall not be
liable for any error of judgment nor for any act done or omitted, nor for any
mistake of fact or law, nor for anything which he may do or refrain from doing
in good faith, nor shall the Trustee have any accountability hereunder, except
for his own gross negligence. The Trustee may seek the advice of legal counsel,
and any action under this Agreement taken or suffered in good faith by him in
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accordance with the opinion of such counsel shall be conclusive upon the parties
hereto, and the Trustee shall be fully protected and be subject to no liability
in respect thereof. No Trustee shall be required to provide a bond or other
security for the performance of the duties of Trustee under this Agreement.
SECTION 5. DIVIDEND, DISTRIBUTION, AND
SUBSCRIPTION RIGHTS OF CERTIFICATE
HOLDERS
Section 5.01. CASH DIVIDENDS. The registered Certificate Holders shall
be entitled, until the termination of this Agreement as hereinafter provided, to
receive from time to time payments equal to the amount of cash dividends, if
any, collected or received by the Trustee or his successor upon the number of
shares in respect of which such Voting Trust Certificates were issued, less the
deductions provided for in Section 5.05. Such payments shall be made as soon as
practicable after the receipt of such dividends, to the Certificate Holders
registered as such at the close of business on the record date determined
pursuant to the provisions of Section 5.06. In lieu of receiving cash dividends
and paying such dividends to the Certificate Holders, the Trustee may instruct
the Company in writing to pay such dividends directly to the Certificate
Holders. Upon giving such instructions to the Company, all liability of the
Trustee with respect to such dividends shall cease until the instructions are
revoked. The Trustee may at any time revoke such instructions, and by written
notice to the Company, direct it to make dividend payments to the Trustee.
Section 5.02. SHARE DIVIDENDS. In case the Trustee shall receive, as a
dividend or other distribution upon any shares of stock held by him under this
Agreement, any additional shares of the Company, the Trustee shall hold the same
subject to this Agreement for the benefit of the Certificate Holder, and said
shares shall be and become subject to all of the terms and conditions hereof to
the same extent as if originally deposited hereunder. The Trustee may, in his
discretion, issue Voting Trust Certificates in respect of such shares to the
Certificate Holders of record at the close of business on the record date
determined pursuant to the provisions of Section 5.06.
Section 5.03. DISTRIBUTIONS ON LIQUIDATION. In the event of the
dissolution or total or partial liquidation of the Company, whether voluntary or
involuntary, the Trustee shall receive the moneys, securities, rights, or
property to which the Certificate Holders as shareholders of the Company are
entitled, and shall distribute the same among the Certificate Holders in
proportion to their interests, as shown by the books of the Trustee.
Section 5.04. OTHER DISTRIBUTIONS TO SHAREHOLDERS. If at any time during
the continuation of this Agreement the Trustee shall receive or collect any
moneys through a distribution by the Company to its shareholders, other than in
payment of cash dividends, or shall receive any property (other than shares of
stock of the Company) through a distribution by the Company to its shareholders,
the Trustee shall distribute the same to the Certificate Holders registered as
such at the close of business on the record date determined pursuant to the
provisions of Section 5.06; provided that the Trustee may withhold therefrom the
deductions provided for in Section 5.05.
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Section 5.05. DEDUCTIONS FOR DISTRIBUTIONS. There shall be deducted and
withheld from every distribution of every kind under this Agreement any taxes,
assessments, or other charges that may be required by any present or future law
to be deducted or withheld, and expense and charges incurred pursuant to Section
4.05 hereof, to the extent that such compensation, expense, and charges incurred
pursuant to Section 4.05 hereof remain unpaid or unreimbursed.
Section 5.06. RECORD DATE FOR DISTRIBUTIONS. The Trustee may, if he
deems it advisable, fix a date not exceeding twenty (20) days preceding any date
for the payment or distribution of dividends or for the distribution of assets
or rights as a record date for the determination of the Certificate Holders
entitled to receive such payment or distribution, and the Certificate Holders of
record on such date shall be exclusively entitled to participate in such
payments or distributions. In any case in which the Trustee shall fail to fix
such a record date, the date three (3) days prior to the date of payment of
distribution of dividends or the distribution of assets or rights shall
constitute the record date for the determination of the Certificate Holders
entitled to receive such payment or distribution.
Section 5.07. SUBSCRIPTION RIGHTS. In case any securities of the Company
shall be offered for subscription to the holders of stock held by the Trustee
under this Agreement, the Trustee, promptly upon receipt of notice of such
offer, shall mail a copy thereof to the Certificate Holders of record. Upon
receipt by the Trustee at least ten (10) days prior to the last date fixed by
the Company for subscription, of a request from the registered Certificate
Holders to subscribe in their behalf, accompanied by the sum of money required
to be paid for such securities, the Trustee shall make such subscription and
payment on behalf of the Certificate Holders, and upon receiving from the
Company the certificates for the securities so subscribed for, shall issue to
such Certificate Holders a Voting Trust Certificate in respect thereof if the
same be shares, or if the same be securities other than voting stock, then the
Trustee shall deliver the same to the Certificate Holders.
SECTION 6. BOOKS AND RECORDS
Section 6.01. RECORD OF SHARES. It shall be the duty of the Trustee to
maintain a record of all share certificates of the Company which are transferred
to the Trustee, indicating the name in which the stock was held, the date of
issuance of the stock, the class and series of the stock, the number of shares,
and the number of the certificate or certificates representing those shares.
The Trustee shall also maintain a record of the date on which any such share
certificates were received by him, and the date on which the same were delivered
to the Company for transfer to the Trustee, and shall obtain a receipt for any
such certificates so delivered. The Trustee shall receive and hold the new
share certificates issued by the Company in the name of the Trustee and shall
maintain a record indicating the date of issuance of such certificates, the date
of receipt of such certificates, and the place in which such certificates are
held by him.
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Section 6.02. RECORD OF TRUST CERTIFICATES. The Trustee shall maintain a
record showing the names and addresses of the Certificate Holders. The record
shall show the number of Voting Trust Certificates held by each person and the
total number of Voting Trust Certificates so held. The record shall show the
dates on which the Voting Trust Certificates were issued, canceled, transferred,
or replaced. The record shall be known as the certificate record book and shall
be open to inspection by any of the parties to this Agreement or their
successors at any reasonable time. The first Certificate Holders to appear in
the certificate record book shall be the parties to this Agreement to whom
Voting Trust Certificates are to be issued. The record shall show any
subsequent transfer, assignment, pledge, attachment, execution, and any other
matter affecting the title to such certificates which come to the attention of
the Trustee. Any documents, including Voting Trust Certificates, which are
canceled, purporting to affect the title of the Voting Trust Certificates, shall
also be kept in the certificate record book, together with a sample copy of the
Voting Trust Certificate. The certificate record book may be closed from time
to time by the Trustee for a period not to exceed five (5) days. Notice of such
closing shall be given to all parties to this Agreement at least ten (10) days
prior to such closing. The closing of the book shall not affect the right to
inspection. Upon the closing of the book, the Certificate Holders shown therein
at the close of business on the last day the book was open shall, for all
purposes, be the Certificate Holders during the entire period during which the
book is closed.
Section 6.03. BOOK OF ACCOUNTS. The Trustee or his agent shall maintain a
book of accounts. In addition to such other matters as the Trustee may insert
in such record, the record shall show all sums of money received by the Trustee,
all disbursements made by the Trustee, and all obligations incurred by the
Trustee which are unpaid. Information concerning the above accounts shall be
posted at least monthly.
Section 6.04. OTHER RECORDS. The Trustee shall maintain such other books
and records and shall perform the duties required of him to be performed
elsewhere in this Agreement and as are reasonably necessary to accomplish the
purposes of this Agreement.
Section 6.05. INSPECTION OF RECORDS. The books and records of this Trust
shall be open to inspection by any of the parties to this Agreement or their
successors at any reasonable time. The inspection shall be made at the office
of the Trustee and shall include the right to make copies of the books and
records; provided, however, that any such activity must be conducted with
reasonable notice first given to the Trustee. In the event of a dispute, the
matter shall be referred to the Trustee for his decision as to the
reasonableness of the request for inspection and copying.
SECTION 7. TERM OF TRUST
Section 7.01. IRREVOCABILITY OF TRUST. Except as otherwise provided in
this Agreement, the Trust created by this Agreement is hereby expressly declared
to be irrevocable.
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<PAGE>
Section 7.02. TERMINATION. This Agreement shall terminate five (5) years
after the date hereof or upon any later date to which its term is extended,
without notice by or to, or action on the part of, the Trustee or any other
parties hereto unless such term is extended as provided in Section 7.03. This
Agreement may be terminated at an earlier date by an instrument or instruments
in writing executed by the Trustee.
Section 7.03. EXTENSION OF TERM. The prescribed term of this Agreement
may be extended, provided within the two (2) year period prior to the expiration
date hereof, one or more Certificate Holders, by written agreement, with the
written consent of the Trustee, may extend the duration hereof as to such
Certificate Holders' shares only, for an additional period not exceeding ten
(10) years from the expiration date then in effect. In the event of such
extension, the Trustee, prior to the expiration as hereinabove provided, as
originally fixed or as theretofore extended, as the case may be, shall file in
the principal executive office of the Company a copy of an agreement extending
the expiration date of this Agreement, and thereupon the duration of this
agreement shall be extended for the period fixed by such extension agreement;
provided, however, that no such extension agreement shall affect the rights or
obligations of persons not parties thereto.
Section 7.04. RETURN OF SHARE CERTIFICATES AFTER TERMINATION. Within
thirty (30) days after the termination of this Agreement, the Trustee shall
deliver to the Certificate Holders of record Voting Trust Certificates,
representing the number of shares in respect of which such Voting Trust
Certificates were issued, upon the surrender of such Voting Trust Certificates
properly endorsed and upon payment by the persons entitled to receive such share
certificates of a sum sufficient to cover any governmental charge on the
transfer or delivery of such certificates.
Section 7.05. FINAL ACCOUNTING. Within thirty (30) days after
termination of this Agreement, the Trustees shall render a final accounting to
the Certificate Holders and to the Company and shall distribute any funds or
other assets held by them to the parties entitled thereto.
SECTION 8. MISCELLANEOUS
Section 8.01. PLACE OF PERFORMANCE. This Agreement is made, executed,
and entered into at San Diego, California, and it is mutually agreed that the
performance of all parts of this contract shall be made at San Diego,
California.
Section 8.02. GOVERNING LAW AND VENUE. This Agreement is intended by the
parties to be governed and construed in accordance with the laws of the State of
California. Venue for any action brought regarding the provision of this
Agreement shall be brought in the County of San Diego.
Section 8.03. SEVERABILITY OF PROVISIONS. This Agreement shall not be
severable or divisible in any way, but it is specifically agreed that should any
provision herein be or become invalid, that such invalidity shall not affect the
validity of the remainder of the Agreement.
8
<PAGE>
Section 8.04. CONSTRUCTION BY TRUSTEE. The Trustee is authorized and
empowered to construe this Agreement, and his reasonable construction made in
good faith shall be conclusive and binding upon the Certificate Holder and upon
all parties hereto.
Section 8.05. DEFINITIONS. Except as specifically provided herein, the
use of the words "Trustee," "Certificate Holder, " "shareholder," and other
similar words, for the purpose of this Agreement shall be deemed to mean their
successors, heirs, administrators, executors, assigns, and other persons
standing in the place of the party referred to whenever appropriate. The term
"Trustee" as used in this Agreement and in the Voting Trust Certificates shall
apply to the Trustee named in this Agreement and to any additional Trustees
appointed, and to their successors. Pronouns of one gender shall be deemed to
refer to other genders, and the singular shall refer to the plural, and the
plural shall refer to the singular when appropriate. No inference shall be
drawn from the use of one gender or the singular or plural other than as
indicated above.
Section 8.06. MERGER OR CONSOLIDATION. In the event that the Company
shall merge into or consolidate with another corporation or corporations, or in
the event that all or substantially all of the assets of the Company are
transferred to another corporation, the shares of which are issued to
shareholders of the Company in connection with such transfer, then the term
"Company" shall be construed to include such successor corporation, and the
Trustee shall receive and hold under this Agreement any shares of such successor
corporation received by him on account of their ownership, as Trustee of shares
held by them hereunder prior to such merger, consolidation, or transfer. Voting
Trust Certificates issued and outstanding under this Agreement at the time of
such merger, consolidation, or transfer may remain outstanding, but the Trustees
may, in their discretion, substitute therefor new Voting Trust Certificates in
appropriate form.
Section 8.07. NOTICE TO TRUSTEE. Any notice to be given to the Trustee
hereunder shall be sufficiently given if mailed to the Trustee at Self-Heating
Container Corporation of California, 12675 Danielson Court, Suite 401, Poway,
California 92064, or at such other address as the Trustee may from time to time
designate by written notice given to the Certificate Holders.
Section 8.08. NOTICE TO CERTIFICATE HOLDERS. Any notice to be given to
the Certificate Holders shall be sufficiently given if mailed, postage prepaid,
to the registered Certificate Holder of such Voting Trust Certificate at the
address of such registered Certificate Holder appearing on the certificate book
to be maintained by the Trustee. Every notice so given shall be effective
whether or not received, and such notice shall for all purposes be deemed to
have been given on the date of mailing thereof.
Section 8.09. NOTICE AND REPORTS FROM COMPANY TO CERTIFICATE HOLDERS.
The Company agrees (i) to mail to each Certificate Holder, not less than thirty
(30) days before each annual meeting of shareholders, the annual report of the
Company, if required to be provided; and (ii) to mail to each Certificate Holder
notice of each annual and special meeting of shareholders in the same manner and
9
<PAGE>
same time as if the Certificate Holder were a shareholder; and (iii) to keep the
books and records of the Company open at all reasonable times to the inspection
of all Certificate Holders.
Section 8.10. EXECUTION OF COUNTERPARTS. This Agreement shall be prepared
in multiple copies and forwarded to each of the parties hereto for execution.
The Agreement will become effective when the Trustee receives a copy or copies
of the Agreement executed by the parties hereto in the names as they appear at
the end of this Agreement. All of the signatures may be affixed to one copy or
to separate copies, and when all such copies are received and signed by all the
parties hereto, they shall constitute one Agreement which is not otherwise
separable or divisible. The Trustee shall keep all of such signed copies and
shall conform one copy to show all of the signatures and the dates thereof and
shall mail a copy of such conformed copy to each of the parties hereto within
thirty (30) days after the receipt by him of the last signed copy, and shall
cause one such conformed copy to be filed in the office of the secretary of the
Company.
Section 8.11. AMENDMENT OF AGREEMENT. If at any time the Trustee deems
it advisable to amend this Agreement, he shall submit such amendment to the
Certificate Holders of the then outstanding Voting Trust Certificates for their
approval at a special meeting of such Certificate Holders which shall be called
for that purpose. Notice of the time and place of such meeting shall be given
in the manner provided in Section 8.07 and shall contain a copy of the proposed
amendment. If, at such meeting or any adjournment thereof, the proposed
amendment shall be approved by the affirmative vote of a majority of the
Certificate Holders, the proposed amendment so approved shall become a part of
this Agreement as if originally incorporated herein.
Section 8.12. ADVICE OF COUNSEL. Each of the parties agrees and
represents that he has been represented by his own counsel with regard to the
execution of this Agreement or that, if acting without counsel, he has had
adequate opportunity and has been encouraged to take the advice of his own
counsel prior to the execution of this Agreement.
In Witness Hereof, the parties have duly executed this Agreement on the
first date set forth below.
CERTIFICATE HOLDERS
Number of Date of
Shares Signing
Manhattan West, Inc.
By: /s/ David Bahr 12-18 , 1996
--------------------- ------- -------------
David Bahr, President
TRUSTEE:
/s/ James A. Scudder 12-20 , 1996
--------------------- ------- -------------
James A. Scudder
10
<PAGE>
COMPANY:
Self-Heating Container Corporation of California
By: /s/ James L. Berntsen 12-18 , 1996
----------------------- -------------
James L. Berntsen
Executive Vice President
11
<PAGE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is made effective as of July 15,
1996, by and between Self-Heating Container Corporation of California, a
California corporation ("SHC"), and Manhattan West Inc., a California
corporation ("MWI" or "Consultant").
1. SERVICES OF CONSULTANT
Consultant shall locate and identify, evaluate and introduce pre-qualified
parties interested in licensing, sub-licensing, financing or joint venturing the
development or further development of technology owned or licensed by SHC.
Consultant shall also identify, locate, evaluate and introduce pre-qualified
potential distributors of the products produced or marketed by SHC. Consultant
shall assist SHC in negotiating the terms and conditions of any such licensing,
development or distribution agreements, and shall provide advice to management
regarding employment of personnel involved therein as well as matters involving
similar acquisition, finance and merger opportunities.
2. TERM OF CONSULTING AGREEMENT
Subject to Section 6 hereof, Consultant shall provide the services provided
for herein for a period of thirty (30) months from the date hereof. The parties
may choose to extend this agreement by mutual written consent.
3. COMPENSATION OF CONSULTANT
3.1 In consideration for the services to be performed by Consultant
hereunder, SHC shall pay MWI a combination of cash and stock options as follows:
(i) beginning on August 15, 1996, SHC shall pay MWI cash compensation in the
amount of Fifteen Thousand Dollars ($15,000) per month, which amount shall be
reduced to Five Thousand Dollars ($5,000) per month commencing with the payment
due on May 15, 1996, and all of which payment shall be subject to the deferred
amounts set forth in Section 3.1.1 herein ("Cash Compensation"); and (ii) issue
Consultant an option to purchase common stock of SHC (the "Option
Compensation"), more fully described in Section 3.1.2 hereinbelow.
3.1.1 DEFERRED PORTION OF CASH COMPENSATION. The parties agree
that $3,500 per month of the Cash Compensation shall be deferred until such time
as SHC has received gross proceeds of not less than Three Million Two Hundred
Thousand Dollars ($3,200,000) from the successful completion of an initial
public offering of SHC securities. Upon SHC's receipt of said gross proceeds of
the initial public offering, the deferred portion of the Cash Compensation shall
immediately become due and payable to MWI.
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3.1.2 OPTION COMPENSATION. The terms of the Option shall permit
Consultant to purchase 19,340 shares of the common stock of SHC, pursuant to the
terms and conditions of an Option Agreement ("Option Agreement") substantially
in the form attached hereto as Exhibit "A" and incorporated herein by this
reference. The Option shall be personal to Consultant and shall not be sold,
assigned, transferred, pledged, hypothecated, nor shall any interest be granted
therein, except as otherwise set forth in the Option Agreement, or agreed to in
writing by SHC.
4. CONFIDENTIAL INFORMATION
Consultant acknowledges the engagement of Consultant by SHC and the nature
of Consultant's services to SHC are confidential, and in performing the services
referenced herein Consultant shall have access to information from SHC which
both parties acknowledge is the proprietary confidential and trade secret
information of SHC, has significant value to SHC, and may constitute a
foundation upon which the business plans of SHC are based. Such information may
include by way of illustration and without limitation, financial manufacturing
and marketing data, techniques, processes, formulas, developmental or
experimental work, work in process, methods, other trade secrets (including,
without limitation, customer lists and lists of customer sources), and any other
secret or confidential information relating to the products, services,
customers, sales, or business affairs of SHC or its affiliates ("Confidential
Information"). During the term of this Agreement and at all times thereafter
Consultant shall take all acts reasonably required to maintain as confidential
and shall not disclose any Confidential Information and shall not disclose any
Confidential Information to any other person. Upon termination of this
Agreement, Consultant shall deliver to SHC all documents, records, notebooks,
work papers, and all similar material containing any information regarding SHC
or its business, whether prepared by Consultant, SHC, or anyone else.
5 RELATIONSHIP OF PARTIES
Consultant enters into this Agreement as, and shall continue to be, an
independent contractor. Under no circumstances shall Consultant look to SHC as
its employer, nor as a partner, agent, or principal. Consultant and its
employees or agents shall not be entitled to any benefits accorded to SHC's
employees, including, without limitation workers' compensation, disability
insurance, vacation or sick pay. Consultant shall be responsible for providing,
at its expense and in its name, all personnel and equipment necessary to provide
the services, as well as any licenses and permits usual or necessary for
providing the services referenced herein. Consultant shall pay, when and as
due, any and all federal, state, local, and other taxes due as a result of
Consultant's compensation hereunder, including estimated taxes, and shall
provide to SHC, upon its reasonable request, with proof of said payments.
Consultant hereby agrees to defend and indemnify SHC for any claims, losses,
costs, fees, liabilities, damages, or injuries threatened or suffered by SHC
which arise out of Consultant's breach of this Section 5.
2
<PAGE>
6. TERMINATION OF AGREEMENT
This Agreement may be terminated by SHC at any time, at its sole
discretion.
7. NOTICES
All notices and other communications required or permitted under this
Agreement shall be validly given, made, or served if in writing, and delivered
personally or sent by registered mail to:
SHC Container Corporation of California
12675 Danielson Court, Suite 401
Poway, CA 92064
Attn: James A. Scudder
with a copy to:
Fisher Thurber LLP
4225 Executive Square, Suite 1600
La Jolla, CA 92037
Attention: David A. Fisher
Manhattan West Inc.
626 Santa Monica Blvd., Suite 55
Santa Monica, CA 90401
Attn: Matthew Bahr
or at any other address as a party may from time to time designate by
notice to the other party given in compliance with this section.
8. ATTORNEY FEES
In the event of any litigation between the parties to declare or enforce
any provision of this Agreement, the prevailing party or parties shall be
entitled to recover from the losing party or parties, in addition to any other
recovery and costs, reasonable attorney fees incurred in such litigation, in
both the trial and in all appellate courts.
9. GOVERNING LAW AND VENUE
This Agreement shall be governed by and construed in accordance with the
laws of the State of California. Venue for any action to be brought regarding
this Agreement shall be San Diego County.
3
<PAGE>
10. TITLES AND CAPTIONS
All section titles or captions contained in this Agreement are for
convenience only and shall not be deemed part of the context nor affect the
interpretation of this Agreement.
11. PRONOUNS AND PLURALS
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular, or plural as the identity of the person
or persons may require.
12. ENTIRE AGREEMENT
This Agreement and the agreements regarding the payment of fees contain
the entire understanding between and among the parties and supersedes any prior
understandings and agreements among them respecting the subject matter of this
Agreement.
13. AGREEMENT BINDING
This Agreement shall be binding upon the heirs, executors,
administrators, successors and assigns of the parties hereto.
14. ARBITRATION
If at any time during the term of this Agreement any dispute, difference,
or disagreement shall arise upon or in respect of the Agreement and the meaning
and construction hereof, every such dispute, difference, and disagreement shall
be referred to a single arbiter agreed upon by the parties, or if no single
arbiter can be agreed upon, an arbiter or arbiters shall be selected in
accordance with the rules of the American Arbitration Association in San Diego,
California, and such dispute, difference, or disagreement shall be settled by
arbitration in accordance with the then prevailing commercial rules of the
American Arbitration Association and arbitrated in San Diego, California, and
judgment upon the award rendered by the arbiter may be entered in any court
having jurisdiction thereof.
15. FURTHER ACTION
The parties hereto shall execute and deliver all documents, provide all
information, and take or forbear from all such action as may be necessary or
appropriate to achieve the purposes of the Agreement.
16. COUNTERPARTS
This Agreement may be executed in several counterparts, and all so
executed shall constitute one Agreement, binding on all the parties hereto even
though all the parties are not signatories to the original or the same
counterpart.
4
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17. PARTIES IN INTEREST
Nothing herein shall be construed to be to the benefit of any third
party, nor is it intended that any provision shall be for the benefit of any
third party.
18. PRESUMPTION
This Agreement or any section thereof shall not be construed against any
party due to the fact that said Agreement or any section thereof was drafted by
said party.
19. SAVINGS CLAUSE
If any provision of this Agreement, or the application of such provision
to any person or circumstance, shall be held invalid, the remainder of this
Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held invalid, shall not be affected thereby.
20. INDEMNIFICATION
Each party shall hold the other harmless and shall defend and indemnify the
other and each of their past, present, and future directors, officers,
shareholders, employees, attorneys, agents, and other affiliates from and
against any loss, liability, damage, or expense, including without limitation,
reasonable attorney fees that are directly or indirectly suffered or incurred
at any time by one party, or any of such officers, directors, shareholders,
employees, attorneys, agents, or other affiliates and that arises directly or
indirectly out of or by virtue of, or directly or indirectly connected with, any
breach or failure of the other party of the representations, warranties, or
covenants contained in this Agreement or in connection with providing the
consulting services referenced herein.
Self-Heating Container Corporation of California
a California corporation
By: /s/ James A. Scudder Date: 7-20-96
---------------------------------- ---------------------
James A. Scudder
Title: President
Manhattan West, Inc.
a California corporation
By: /s/ David Bahr Date: 7-15-96
---------------------------------- ---------------------
David Bahr
Title: President
5
<PAGE>
EXHIBIT A
OPTION AGREEMENT
<PAGE>
This letter of AGREEMENT is made between Self-Heating Container Corporation of
California ("SHC") and L. Lawrence Potomac ("Contractor") effective this 5th day
of August, 1996, for the purpose of setting forth the exclusive terms and
conditions by which SHC will acquire Contractor's services.
In consideration of the mutual obligations specified in this Agreement, and any
compensation paid to the Contractor for services, the parties agree to the
following:
1. SERVICES TO BE PROVIDED UNDER THIS AGREEMENT: General financial consulting
services pertaining to accounting, budgeting, strategic planning, bridge
financing, public offering of stock and warrants, and financial reporting.
Contractor may interface with corporate accountants, attorneys and underwriters,
and assist with the recruiting of a Chief Financial Officer. Contractor shall
be available to serve on SHC's informal board of advisors.
Contractor may temporarily act as and be referred to as SHC's "Controller" until
the CFO is hired, nevertheless, both parties agree that the full extent of
Contractor's authority is to suggest actions to management. Contractor shall
not be an officer of the corporation and is specifically not empowered to bind
SHC. SHC shall indemnify Contractor for any claims from third parties which
arise from the performance of services under this Agreement.
2. PAYMENT OF SERVICES: A monthly retainer of $1,000 shall be paid to the
Contractor upon receipt of invoices from Financial Insight Corporation (an
affiliate of the Contractor). Reasonable expenses related to the Contractor's
fulfillment of the obligations covered under this Agreement shall also be billed
to SHC and included in the Contractor's invoices. In addition, the Contractor
shall receive as soon as practical after the signing of this Agreement fully
vested, non-expiring options for the purchase of 59,400 shares of stock of SHC.
These options shall have an exercise price of $.01 per share.
3. TERM OF CONTRACT: The Agreement shall terminate on July 31, 1998.
4. GENERAL: This Agreement may not be waived, modified, amended or assigned
unless mutually agreed in writing by both parties. This Agreement shall be
governed by the laws of California.
IN WITNESS HEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.
SELF-HEATING CONTAINER CORPORATION OF CALIFORNIA
By: Date:
------------------------------------ ------------------------
James A. Scudder
President
Date:
- --------------------------------------- ------------------------
L. Lawrence Potomac
Contractor
<PAGE>
James A. Scudder, CEO
Insta-Heat
12675 Danielson Ct., #401
Poway, CA 92064 Fax: 619-486-7204
Pages: 1
Jim:
Nice meeting with you and your colleagues last Wednesday.
Your single use chemical heat exchanger package is very interesting, and I can
see great marketing opportunities.
1. The "Thermos" hot/cold will probably enjoy excellent marketing acceptance -
if it is designed to meet the consumers packaging idiosyncrasies. It is
reasonable to postulate that we have the know how to design this line for
optimum consumer acceptance.
2. The key to success, especially this single use packaging is cost! I would
like to develop alternative packaging philosophies, materials, optimized
actuator principles on more economical material, manufacturing and on line
assembly methods.
3. Since you are not familiar with our capabilities, I propose we work in one
month check point steps to give you the opportunity to critique and direct
future development.
4. I suggest a month retainer of $10,000 in order to go "full speed" to meet
your hardware show deadline.
5. It is understood that all work will be held in confidence and all rights,
title and interest developed during this retainer will be assigned to Insta-
Heat.
6. We can start on this project as soon as we have your approval, direction,
and the first retainer.
Looking forward to working with you.
Tor Petterson
<PAGE>
D. Scott Thorogood
815 Woodside Lane
Encinitas CA 92024
619-944-4258
Mr. James A, Scudder
President
Self Heating Container Corporation
12675 Danielson Court, Suite 401
San Diego, CA 92064
Dear Jim:
This letter of AGREEMENT is made between Self Heating Container Corporation
("SHC") and, Scott Thorogood ("Contractor"), effective the 1st day of July,
1996, for the purpose of setting forth the exclusive terms and conditions by
which SHC will acquire Contractor's services.
In consideration of the mutual obligations specified in this Agreement, and any
compensation paid to the Contractor for services, the parties agree to the
following:
1. Work and payment: A monthly retainer of $7,500 shall be paid to the
Contractor upon receipt of the Contractors invoices subsequent to the
completion 'of SHC's Series (B) financing (L.L. Knickerbocker). Reasonable
expenses related to the Contractors fulfillment of the obligations covered
under this Agreement shall also be billed to SHC and included in the
Contractors invoices. These expenses shall be paid upon receipt. In
addition, contractor shall be issued, as of the effective date of this
Agreement, a fully vested and non-transferable warrant to purchase 250,900
shares of Common Stock of SHC Corporation for $.001 per share. This warrant
shall be exercisable in whole or in part at any time and from time to time
during the warrant term (which shall be for the five year period commencing
with the date of its issuance), and will include customary provisions for
adjustments in the number of shares purchasable thereunder and the exercise
price to reflect stock splits, stock dividends, reverse stock splits, and
other similar corporate changes. The 250,900 shares represent 5% of the
founders stock (171,700) of 3,434,000 shares and 2% of the employee/advisor
shares (79,200) of 3,960,000 shares.
2. Term of Contract: The Agreement shall terminate on August 31, 1997.
3. Services to be provided under this Agreement: General management consulting
services
<PAGE>
pertaining to corporate structure, finance, marketing, strategic alliances
and other matters relating to establishing an Infrastructure for the growth
of SHC.
4. General: This Agreement may not be waived, modified, amended or assigned
unless mutually agreed In writing by both parties. This Agreement shall be
governed by the laws of California.
IN WITNESS HEREOF, the parties hereto have executed this Agreement as of the
date first set forth above,
SELF HEATING CONTAINER CORPORATION
By: Date: By: Date:
------------------- ---------- ------------------- ----------
James A. Scudder Scott Thorogood
President
<PAGE>
AMENDMENT TO LETTER AGREEMENT
EFFECTIVE JULY 1, 1996
This AMENDED AGREEMENT supersedes the letter of Agreement made between
Self-Heating Container Corporation ("SHC") and Trinalta Group, LLC
("Contractor") effective July 1, 1996, and is made between Ontro, Inc.
(formerly known as SHC) and Contractor and is made effective September 1, 1997.
The amended terms and conditions of the Amended Agreement are as follows:
TERM OF CONTRACT: The Amended Agreement is made effective September 1, 1997
and shall terminate on August 31, 1998.
All other terms and conditions remain in full force and effect.
IN WITNESS HEREOF, the parties hereto have executed the Amended Agreement as of
7-14-, 1997.
- -----
ONTRO, INC. CONSULTANT
- --------------------------- ----------------------------
James A. Scudder, President D.Scott Thorogood
Date: 7-14-97 Date: 7-14-97
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 15th day
of July, 1996 by and between SELF-HEATING CONTAINER CORPORATION OF CALIFORNIA, a
California corporation (the "Company"), and MANHATTAN WEST, INC., a California
corporation ("MWI" or "Purchaser").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF COMMON STOCK. Subject to the terms and
conditions of this Agreement, Purchaser agrees, to acquire at the Closing and
the Company agrees to sell and issue to Purchaser Five Thousand Eighty-Nine
(5,089) shares of the Company's Common Stock (the "Common Stock") for the
purchase price of Nineteen Dollars and 65/100 ($19.65) per share for a total
purchase price of One Hundred Thousand Dollars ($100,000.00). Subject to the
terms and conditions of this Agreement, Purchaser agrees to acquire at the
Closing and the Company agrees to issue at the Closing that number of shares of
Common Stock set forth above.
1.2 CLOSING. The purchase and sale of the Common Stock shall take
place at the offices of the Company, at 10:00 a.m., on July 15, 1996, or at such
other time and place as the Company and Purchaser mutually agree upon, verbally
or in writing (which time and place are designated as the "Closing"). At the
Closing the Company shall deliver to Purchaser a certificate representing the
Common Stock which Purchaser is purchasing against delivery to the Company by
Purchaser of the purchase price by confirmed wire transfer or certified funds.
The Certificate(s) shall be in the name of Purchaser.
2. REPRESENTATIONS AND WARRANTIES OF PURCHASER. This Agreement is made
with Purchaser in reliance upon the following representation and warranties to
the Company by the Purchaser:
2.1 AUTHORIZATION. This Agreement constitutes Purchaser's valid
and legally binding obligation, enforceable in accordance with its terms.
2.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Common Stock to be
received by Purchaser will be acquired for investment for Purchaser's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Purchaser has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, Purchaser further represents that Purchaser does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Common Stock.
2.3 DISCLOSURE OF INFORMATION. Purchaser believes it has received
all the information it considers necessary or appropriate for deciding whether
to acquire the Common Stock. Purchaser
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further represents that it has had an opportunity to ask questions and receive
answers for the Company regarding the Company, its business and the terms and
conditions of the offering of the Common Stock.
2.4 DEVELOPMENT STAGE COMPANY. The undersigned recognizes the
Company is a development stage Company, that it has an accumulated deficit and a
working capital deficit, has not generated any revenue from operations and is
not expected to generate any revenue from operations for some time and perhaps
for years, and that proposed development expenditures are expected to result in
substantial and increasing losses over at least the next several years, and
possibly much longer. Investment in the Company involves substantial risk, and
the undersigned should not purchase the Common Stock unless it can afford the
complete loss of its investment. The undersigned has taken full cognizance of
and understands all of the risk factors related to the receipt of the Common
Stock.
2.5 CONFIDENTIALITY. Purchaser hereby represents, warrants and
covenants that it's officers, directors, shareholders or affiliates shall
maintain in confidence, and shall not use or disclose without the prior written
consent of the Company, any information identified as confidential that is
furnished to Purchaser by the Company in connection with this Agreement. This
obligation of confidentiality shall not apply, however, to any information (a)
in the public domain through no unauthorized act or failure to act by Purchaser,
or (b) lawfully disclosed to Purchaser by a third party who possessed such
information without any obligation of confidentiality. Purchaser further
covenants that it shall return to the Company all tangible materials containing
such information upon request by the Company.
2.6 INVESTMENT EXPERIENCE. Purchaser is an investor in securities
of companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk and complete loss of its investment and
has such knowledge and experience in financial or business matters that
Purchaser is capable of evaluating the merits and risks of the investment in the
Common Stock.
2.7 ADVICE OF PROFESSIONALS. The undersigned has carefully
considered and has been advised by the Company to have any material provided by
anyone regarding the Company, including but not limited to this Stock Purchase
Agreement, related documents and the acquisition of the Common Stock reviewed by
legal counsel prior to acquisition, and to discuss with professional tax and
financial advisers the suitability of Purchaser's acquisition of the Common
Stock for Purchaser's particular tax and financial situation, and it has
determined the Common Stock is a suitable investment. The Company specifically
disclaims any representations regarding the legal, tax, or financial
consequences of the purchase, other than the representation this is a high risk
transaction.
2.8 FINANCIAL STATUS. All information which the undersigned has
provided to the Company concerning the undersigned and its financial position is
correct as of the date set forth therein, and if there should be any change in
such information prior to Purchaser's acceptance as a shareholder of the
Company, the undersigned will immediately provide such information to the
Company and will promptly send confirmation of such information to the Company.
2.9 AUTHORITY. If this Stock Purchase Agreement is executed and
delivered on behalf of a partnership, corporation, trust, estate or other
entity, (i) the undersigned's execution, delivery and performance of and under
this Stock Purchase Agreement, and all documents ancillary hereto, and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized, and the undersigned is duly authorized (a) to execute and deliver
this Stock Purchase Agreement and all other
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instruments executed and delivered on behalf of such partnership, corporation,
trust, estate or other entity, in connection with the issuance in its name of
the Common Stock; and (b) to acquire and hold the Common Stock, (ii) such entity
has not been formed for the specific purpose of acquiring the Common Stock; and
(iii) when executed and delivered by the Company, will constitute such
partnership's, corporation's, trust's, estate's or other entity's legal, valid
and binding obligation enforceable against it in accordance with its terms.
2.10 RESTRICTED SECURITIES. Purchaser understands that the shares
of Common Stock it is acquiring are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), only in certain limited circumstances. In this connection Purchaser
represents that it is familiar with Securities and Exchange Commission ("SEC")
Rule 144, as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act.
2.11 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, Purchaser further agrees not to
make any disposition of all or any portion of the Common Stock unless and until:
(a) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(b) (i) Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition and (ii) if
reasonably requested by the Company, Purchaser shall have the furnished the
Company with an opinion of counsel in a form satisfactory to Company or its
counsel in their sole discretion, that such disposition will not require
registration of such shares under the Securities Act.
2.12 LEGENDS. It is understood that the certificates evidencing the
Common Stock may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT."
(b) Any legend required by the laws of the State of
California or other jurisdiction, including any legend required by the
California Department of Corporations and section 417 and 418 of the California
Corporations Code.
2.13 ACCREDITED OR FOREIGN PURCHASER. Purchaser is an accredited
investor as defined in Code of Federal Regulations Section 230.501(a)(Regulation
D), as amended, under the Securities Act.
2.14 REMOVAL OF LEGENDS; FURTHER COVENANTS.
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(a) Any legend endorsed on a certificate pursuant to
Section 2.12 hereof shall be removed (i) if the Common Stock represented by such
certificate shall have been effectively registered under the Securities Act or
otherwise lawfully sold in a public transaction, (ii) if the Common Stock may be
transferred in compliance with Rule 144(k) promulgated under the Securities Act,
or (iii) if Purchaser shall have provided the Company with an opinion of
counsel, in form and substance acceptable to the Company and its counsel in
their sole discretion and from attorneys reasonably acceptable to the Company
and its counsel, stating that a public sale, transfer or assignment of the
Common Stock may be made without registration.
(b) Any legend endorsed upon a certificate pursuant to
Section 2.12 hereof shall be removed if the Company receives an order of the
appropriate state authority authorizing such removal or if Purchaser provides
the Company with an opinion of counsel, in form and substance acceptable to the
Company and its counsel in their sole discretion and from attorneys reasonably
acceptable to the Company and its counsel, stating that such state legend may be
removed.
(c) Purchaser further covenants that Purchaser will not
transfer the Common Stock, in violation of the Securities Act, the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), or the rules of the
Commission promulgated thereunder, including Rule 144 under the Securities Act.
Further, Purchaser agrees that, prior to the closing of the Company's initial
public offering, Purchaser will not transfer any of the Common Stock in a public
offering without the Company's prior consent, even if Purchaser is otherwise
permitted to transfer them pursuant to Rule 144(k).
2.15 NO REPRESENTATIONS REGARDING FUTURE RESULTS. It never has been
represented, guaranteed or warranted by any broker, the Company, any of the
officers, directors, shareholders, partners, employees, legal counsel, auditor
or agents of the Company or its advisors, or any other persons, whether
expressly or by implication, that the past performance or experience of the
management of the Company, or of any other person, will in any way indicate the
future results of the ownership of the Common Stock or of the Company's
activities.
2.16 ACKNOWLEDGEMENT. The undersigned acknowledges he understands
the meaning and legal consequences of the representations and warranties
contained in this Agreement, and the undersigned hereby agrees the Company and
each officer, director, employee, agent, legal counsel and controlling person
thereof, past, present or future, may rely on each such representation and
warranty.
2.17 NON TRANSFERABILITY. Neither this Stock Purchase Agreement, nor
any of your interests herein, shall be assignable or transferable by the
undersigned in whole or in part except by operation of law.
2.18 NO ADVERTISEMENT. The undersigned is not purchasing the Common
Stock as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or presented at any seminar, or any
solicitation of a subscription by a person not previously known to the
undersigned.
2.19 EXPERIENCE OF PURCHASER. The undersigned and/or it's purchaser
representative currently have such knowledge and experience in finance, tax,
securities, investments and other business matters so as to be able to protect
the undersigned's interests in connection with the purchase of the Common Stock,
and the undersigned's investment in the Company hereunder is not material when
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compared to his total financial capacity.
2.20 SURVIVAL. The foregoing representations and warranties shall be
true and accurate as of the date of the acceptance hereof by the Company and
shall survive the execution and delivery of this Stock Purchase Agreement and
the issuance of the Common Stock thereafter.
2.21 INDEMNIFICATION. The undersigned shall indemnify and hold
harmless the Company and/or any of its officers, employees, directors or control
persons of any such entity who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of or
arising from any actual or alleged misrepresentation or misstatement of facts or
omission to represent or state facts made by the undersigned to the Company
concerning itself or its financial position in connection with the offering,
sale or issuance of the Common Stock to the undersigned which is not remedied by
timely notice to the Company as provided above, against losses, liabilities and
expenses for which the Company or any of its respective officers, employees,
agents, directors, legal counsel or control persons of any such entity which
have not otherwise been reimbursed (including attorneys' fees, judgments, fines
and amounts paid in settlement) as actually and reasonably incurred by such
person or entity in connection with such action, suit or proceeding.
2.22 DUE EXECUTION. The undersigned agrees to execute this Stock
Purchase Agreement in full and acknowledges the receipt and acceptance by the
Company of such stock purchase agreement shall be a condition precedent to the
issuance of the Common Stock.
3. CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SHARES OF COMMON
STOCK WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
COMMON STOCK OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF COMMON STOCK IS
EXEMPT FROM QUALIFICATION BY SECTIONS 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
4. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to Purchaser under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by Purchaser:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in Section 2 hereof shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
4.2 PAYMENT OF PURCHASE PRICE. The purchase price specified in
Section 1.1 shall have been delivered to the Company.
4.3 CALIFORNIA QUALIFICATION. The offer and sale to Purchaser of
the Common Stock shall be exempt from qualification under the California
Corporate Securities Law of 1968, as amended.
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of this Agreement shall be interpreted as if such provision were so excluded and
shall be enforceable in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SELF-HEATING CONTAINER
CORPORATION OF CALIFORNIA
a California corporation
By:
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James A. Scudder, President
PURCHASER:
MANHATTAN WEST, INC.
a California corporation
By:
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David Bahr, President
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OPTION AGREEMENT
SELF-HEATING CONTAINER CORPORATION OF CALIFORNIA
a California corporation
MANHATTAN WEST, INC.
a California corporation
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OPTION AGREEMENT
This OPTION AGREEMENT ("Agreement"), is entered into and effective as of
July 15, 1996, ("Execution Date") by and between Self-Heating Container
Corporation of California, a California corporation ("SHC"or the "Company"), and
Manhattan West, Inc., a California corporation ("MWI").
ARTICLE 1
1. OPTION AGREEMENT
1.1 GRANT OF OPTION. Execution of this Agreement by both parties and
payment of the purchase price of the option shall create a binding agreement
whereby SHC shall grant MWI an option (the "Option") to purchase Nineteen
Thousand Three Hundred Forty (19,340) common shares of SHC (the "Shares") for
the total aggregate price of One Hundred Dollars ($100.00) ("Option Exercise
Price"), on the terms and conditions stated herein. MWI has no obligation to
exercise the Option.
1.2 OPTION PURCHASE CONSIDERATION. As consideration for the granting
of the Option described herein, MWI shall enter into a consulting agreement
with SHC of even date hereof ("Consulting Agreement"), and has paid to SHC the
sum of Ten Dollars ($10.00) the receipt and sufficiency of which is hereby
acknowledged by SHC.
1.3 TERM OF OPTION. The term of the Option ("Option Term") shall
commence on the Execution Date and unless the Option is exercised, it shall
expire at 5:00 p.m. Pacific Time eighteen (18) months from the Execution Date
("Option Exercise Deadline").
1.4 TERMINATION OF OPTION. If MWI fails to timely exercise the Option
as provided for in Section 2.1 herein before the Option Exercise Deadline, the
Option granted herein shall immediately terminate, and this Agreement shall have
no further force or effect.
ARTICLE 2
2. CONDITIONS PRECEDENT TO EXERCISE AND RIGHTS OF MWI
2.1 CONDITIONS PRECEDENT TO EXERCISE OF OPTION. The right of MWI to
exercise the Option and acquire any of the Shares is subject to the occurrence
of the following conditions precedent prior to or on the Option Exercise
Deadline:
1) Receipt by SHC of gross proceeds of not less than Three
Million Two Hundred Thousand Dollars ($3,200,000.00) from the successful
completion of an initial public offering of SHC securities pursuant to a firm
commitment underwriting upon such terms and conditions and with an underwriter
which are all reasonably acceptable to SHC in its sole discretion; and
1.4 2) Delivery to SHC by MWI of written notice of exercise of
the Option; and
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3) Payment to SHC by MWI of the Option Exercise Price of One
Cent per share ($193.40); and
4) Execution of such other documents in connection with the
exercise of the Option and issuance of the Shares as may be requested by SHC in
its reasonable discretion.
2.2 RIGHTS OF MWI. Prior to exercise of the Option, MWI shall not, by
virtue hereof, be entitled to any rights as a shareholder of SHC, either at law
or in equity. The rights of MWI are limited to those expressed in this Option
Agreement and are not enforceable against SHC except to the extent set forth
herein.
ARTICLE 3
3. REPRESENTATIONS AND WARRANTIES OF MWI
3.1 REPRESENTATIONS AND WARRANTIES OF MWI. MWI hereby represents and
warrants to, and agrees with, SHC as follows:
(a) This Option is being acquired for its own account, for
investment purposes only and not with a view to the resale or distribution of
any part thereof. MWI has no present intention of selling, granting any
participation in, or otherwise distributing the Option. MWI by reason of its
business or financial experience, or the business or financial experience of its
professional advisors who are unaffiliated with and not compensated by SHC, and
has the capacity to protect its own interests in connection with entering into
the Consulting Agreement and acquisition of the Option. MWI will not sell,
hypothecate or otherwise transfer the Option except in accordance with
applicable federal and state securities laws.
(b) Prior to its decision to enter into this Option Agreement,
MWI has been furnished with and has carefully reviewed all information regarding
SHC deemed material by MWI. In determining whether to enter into the Consulting
Agreement and acquire this Option, MWI has relied upon its own judgment and that
of its independent advisors.
(c) Prior to MWI entering into the Consulting Agreement and the
acquisition of the Option by MWI, SHC has made available to MWI all documents
and information that MWI has requested relating to SHC, and MWI has asked and
has received satisfactory answers to all questions MWI has relating to SHC.
(d) MWI recognizes SHC is a development stage company, that it
has an accumulated deficit and a working capital deficit, has not generated any
revenue from operations and is not expected to generate any revenue from
operations for some time and perhaps for years, and that proposed development
expenditures may result in substantial and increasing losses over at least the
next year, and possibly much longer. MWI understands investment in SHC
involves substantial risk, and MWI has entered into the Consulting Agreement and
acquired this Option understanding this level of risk, and MWI can afford the
complete loss of its investment.
(e) MWI has carefully considered all documentation and
information provided by SHC, including but not limited to this Option Agreement
and all related documents. SHC specifically disclaims any representations
regarding the legal, tax, or financial consequences of entering into the
Consulting Agreement, and acquisition of and the exercise of this Option, other
than the representation this is a high risk transaction.
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(f) All information which MWI has provided to SHC concerning MWI
and its business and investment experience, and its financial circumstances is
correct as of the date set forth therein, and if there should be any material
adverse change in such information prior to exercise of the Option, MWI will
immediately provide such information to SHC in writing and will promptly send
confirmation of such information to SHC.
(g) MWI's execution, delivery and performance of and under the
Consulting Agreement and this Option Agreement and all documents ancillary
hereto, and the consummation of the transactions contemplated hereby and thereby
have been duly authorized, and MWI is duly authorized to perform the services
referenced in the Consulting Agreement, and to execute and deliver this Option
Agreement and all other instruments executed and delivered on behalf of MWI in
connection with the issuance in its name of this Option. MWI has not been formed
for the specific purpose of acquiring the Option.
(h) MWI is an "Accredited Investor" as that term is defined in
Code Federal Regulations Section 230.501(a) (Regulation D) promulgated pursuant
to the Securities Act of 1933 (the "Securities Act").
(i) It never has been represented, guaranteed or warranted by any
broker, SHC, any of the officers, directors, shareholders, partners, employees
or agents of SHC or its advisors, or any other persons, whether expressly or by
implication, that the past performance or experience of the management of SHC,
or of any other person, in any way indicates the future results of the ownership
of the Option or of SHC's activities.
(j) MWI acknowledges it understands the meaning and legal
consequences of the representations and warranties contained in this Agreement,
and MWI hereby agrees SHC and each incorporator, officer, director, employee,
agent, legal counsel and controlling person thereof, past, present or future,
may rely on each such representations and warranties.
(k) Neither this Option nor any of MWI's interests herein shall
be assignable or transferable by MWI in whole or in part except by operation of
law.
(l) MWI is not purchasing the Option as a result of or subsequent
to any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
presented at any seminar, or any solicitation of a subscription by a person not
previously known to MWI.
(m) MWI's investment in this Option is not material when compared
to its total financial capacity.
(n) The foregoing representations and warranties shall be true
and accurate as of the date of the acceptance hereof by SHC and shall survive
the execution and delivery of this Option Agreement, the exercise of the Option,
and the issuance of the Shares.
(o) MWI shall indemnify and hold harmless SHC and/or any of its
officers, employees, directors, counsel, or control persons of any such entity
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of or arising from any actual or
alleged misrepresentation or misstatement of facts or omission to represent or
state facts made by MWI to SHC concerning itself or its
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financial position in connection with the Option Agreement, which is not
remedied by timely notice to SHC as provided above, against losses, liabilities
and expenses for which SHC or any of its respective officers, employees, agents,
directors, legal counsel or control persons of any such entity which have not
otherwise been reimbursed (including attorneys' fees, judgments, fines and
amounts paid in settlement) as actually and reasonably incurred by such person
or entity in connection with such action, suit or proceeding.
(p) MWI agrees to provide SHC with payment in full by certified
funds or wire transfer for the Option Exercise Price, written notice of exercise
of the Option, and acknowledges the receipt and acceptance by SHC of such
documentation shall be a condition precedent to the exercise of the option and
the issuance of the shares of SHC.
(q) MWI understands the Option and the Shares are characterized
as "restricted securities" under the federal securities laws inasmuch as they
are being acquired from SHC in a transaction not involving a public offering,
and under such laws and applicable regulations such securities may be resold
without registration under the Securities Act only in certain limited
circumstances. In this connection, MWI acknowledges it is familiar with the
Securities and Exchange Commission ("SEC") Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
(r) Without in any way limiting the representations set forth
above, MWI further agrees not to make any disposition of all or any portion of
the Option or the Shares unless and until:
(i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition, and such disposition is
made in accordance with such registration statement; or
(ii) (a) MWI shall have notified SHC of the proposed
disposition and shall have furnished SHC with a detailed statement of the
circumstances surrounding the proposed disposition; and (b) MWI shall have
furnished SHC with an opinion of counsel, reasonably satisfactory to SHC and its
counsel, that such disposition will not require registration of such Option
and/or Shares under the Securities Act.
(s) It is understood the certificates evidencing the Shares may
bear one or all of the following legends:
(i) "These securities have not been registered under the
Securities Act. They may not be sold, offered for sale, pledged or hypothecated
in the absence of a registration statement in effect with respect to the
securities under the Securities Act or an opinion of counsel satisfactory to the
Company and its counsel that such registration is not required.
(ii) Any legend required by the laws of the State of
California or other jurisdiction, including any legend required by the
California Department of Corporations and Section 418 of the California
Corporations Code.
(t) Any legend endorsed on a certificate pursuant to Section (s)
hereof shall be removed (i) if the Option and/or Shares represented by such
certificate shall have been effectively registered under the Securities Act and
any applicable state securities laws, or otherwise have been lawfully sold in a
public transaction; (ii) if the Option and/or Shares may be transferred in
compliance with Rule 144(k) promulgated under the Securities Act; or (iii) if
MWI shall have provided SHC with an opinion
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of counsel, in form and substance acceptable to SHC and its counsel from
attorneys reasonably acceptable to SHC and its counsel, stating a public sale,
transfer, or assignment of the Option and/or Shares may be made without such
registration.
Any legend endorsed upon a certificate pursuant to Section
(s) hereof shall be removed if SHC receives an order of the appropriate state
authority authorizing such removal or if MWI provides SHC with an opinion of
counsel, in form and substance acceptable to SHC and its counsel and from
attorneys reasonably acceptable to SHC and its counsel, stating that such
state legend may be removed.
MWI further covenants it will not transfer the Option and/or
Shares in violation of the Securities Act, the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), or the rules of the Commission
promulgated thereunder, including Rule 144 under the Securities Act. Further,
MWI agrees MWI will not transfer any of the Option and/or Shares in a public
offering without SHC's prior consent, even if MWI is otherwise permitted to
transfer them pursuant to Rule 144(k), and MWI agrees to execute a lock-up
agreement with the Company and any underwriter on terms requested by the Company
or the Underwriter in connection with a public offering of SHC securities
agreeing not to sell, assign, or transfer the Option and/or Shares except in
accordance with the lock-up agreement.
ARTICLE 4
4. COVENANTS REGARDING THE OPTION AND THE SHARES
4.1 ANTI-DILUTION PROVISIONS. The number and kind of securities
purchasable upon the exercise of this Option shall be subject to adjustment from
time to time as follows:
(a) In case SHC shall (i) pay a dividend or make a distribution
on the outstanding common shares payable in common shares; (ii) subdivide the
outstanding common shares into a greater number of shares; (iii) combine the
outstanding common shares into a lesser number of shares; or (iv) issue by
reclassification of the common shares any common shares of SHC, MWI shall
thereafter be entitled, upon exercise, to receive the number and kind of shares
which, if this Option had been exercised immediately prior to the happening of
such event, MWI would have owned upon such exercise and been entitled to receive
upon such dividend, distribution, subdivision, combination, or reclassification.
Such adjustment shall become effective on the day next following the record date
of such dividend or distribution or the day upon which such subdivision,
combination, or reclassification shall become effective.
(b) In case SHC shall consolidate or merge into or with another
corporation, or in case SHC shall sell or convey to any other person or persons
all or substantially all the property of SHC, MWI or its assigns shall
thereafter be entitled, upon exercise, to receive the kind and amount of shares,
other securities, cash, and property receivable upon such consolidation, merger,
sale, or conveyance by a holder of the number of common shares which might have
been purchased upon exercise of this Option immediately prior to such
consolidation, merger, sale, or conveyance, and shall have no other conversion
rights. In any such event, effective provisions shall be made, in the
certificate or articles of incorporation of the resulting or surviving
corporation, in any contracts of sale and conveyance, or otherwise so that, so
far as appropriate and as nearly as reasonably may be, the provisions set forth
herein for the protection of the rights of MWI as the holder of this Option
shall thereafter be made applicable.
(c) No adjustment in the number of common shares which may be
purchased upon exercise of this Option shall be required unless such adjustment
would require an increase or decrease of
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more than 1/25 of a share in the number of shares of the common shares which may
be so purchased; provided, however, that any adjustment which by reason of this
Section 4 is not required to be made shall be carried forward cumulatively and
taken into account in any subsequent calculation. All calculations under this
Section 4 shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
(d) In the event that at any time, as a result of an adjustment
made pursuant to this Section 4, MWI shall become entitled to receive upon
exercise of this Option cash, property, or securities other than shares, then
references to shares in this Section 4 shall be deemed to apply, so far as
appropriate and as nearly as may be, to such cash, property, or other
securities.
(e) Irrespective of any adjustments in the number or kind of
shares purchasable upon exercise of this Option, the form of Options theretofore
or thereafter issued may continue to express the same price and number and kind
of shares as are stated in this Option.
4.2 OFFICER'S CERTIFICATE. Whenever the number or kind of securities
purchasable upon exercise of this Option shall be adjusted as required by the
provisions of Section 4, SHC shall forthwith file with its Secretary or
Assistant Secretary at its principal office and with its stock transfer agent,
if any, an officer's certificate showing the adjusted number of kind of
securities purchasable upon exercise of this Option determined as herein
provided and setting forth in reasonable detail such facts as shall be necessary
to show the reason for and the manner of computing such adjustments. Each such
officer's certificate shall be made available at all reasonable times for
inspection by MWI, and SHC shall forthwith, after each such adjustment, mail by
certified mail a copy of such certificate to MWI.
4.3 SURVIVAL OF WARRANTIES. The representations and warranties given
by MWI in Article 3 and all obligations hereunder to be performed on or before
the Option Exercise Deadline, shall survive the Execution Date.
4.4 RESERVATION AND STATUS OF SHARES. SHC hereby agrees that at all
times up to the Option Exercise Deadline, there shall be reserved for issuance
and delivery upon exercise of this Option such number of its common shares as
shall be required for issuance and delivery upon exercise of this Option, and
that such shares, when issued in accordance with the terms of this Option, shall
be validly issued, fully paid, and non-assessable.
4.5 LOSS OF OPTION. Upon receipt by SHC of evidence satisfactory to it
of the loss, theft, destruction, or mutilation of this Option, and (in the case
of loss, theft, or destruction) of reasonably satisfactory indemnification and
(in the case of mutilation) upon surrender and cancellation of this Option, SHC
will execute and deliver a new Option, which shall constitute an additional
contractual obligation on the part of SHC, wither or not this Option so lost,
destroyed, stolen, or mutilated shall be at any time enforceable by anyone.
ARTICLE 5
5. GENERAL PROVISIONS
5.1 NOTICE. Notice to either party shall be in writing and either
personally delivered or sent by certified mail, postage prepaid, return receipt
requested, addressed to the party to be notified at the address specified
herein. Any such notice shall be deemed received on the date of personal
delivery to the party (or such party's authorized representative) or two (2)
business days after deposit with United Parcel Service, Federal Express, DHL, or
any other recognized United States overnight carrier.
-6-
<PAGE>
SHC'S ADDRESS FOR NOTICE: MWI'S ADDRESS FOR NOTICE:
James A. Scudder Manhattan West, Inc.
SELF-HEATING CONTAINER CORPORATION 1649 Appian Way, Suite 103
12675 Danielson Court, Suite 701 Santa Monica, CA 90401
Poway, CA 92064 Attn: Matthew F. Bahr
Facsimile (619) 486-7209
With a copy to:
Fisher Thurber LLP
4225 Executive Square, Suite 1600
La Jolla, CA 92037
Attn: David A. Fisher
Either party may change its address for notice by delivering written notice to
the other party as provided herein.
5.2 HEADINGS. The captions and paragraph headings used in this
Agreement are inserted for convenience of reference only and are not intended to
define, limit or affect the interpretation or construction of any term or
provision hereof.
5.3 GENDER, NUMBER. As used herein, the singular shall include the
plural and the masculine shall include the feminine, wherever the context so
requires.
5.4 EXHIBITS. All exhibits referred to herein are attached hereto and
incorporated by reference.
5.5 COUNTERPARTS. This Option Purchase Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
5.6 ENTIRE AGREEMENT. This Agreement, together with all exhibits
attached hereto and other agreements expressly referred to herein, constitutes
the entire agreement between the parties with respect to the purchase of the
Option and the underlying common stock. All prior or contemporaneous
agreements, understandings, representations, warranties and statements, oral or
written, are superseded.
5.7 NO OTHER INDUCEMENT. The making, execution and delivery of this
Agreement by the parties hereto has been induced by no representations,
statements, warranties or agreements other than those expressed herein.
5.8 MODIFICATION, WAIVER. No modification, waiver, amendment or
discharge of this Agreement shall be valid unless the same is in writing and
signed by both MWI and SHC.
5.9 SEVERABILITY. If any term, provision, covenant or condition of
this Option Purchase Agreement and Option Agreement is held to be invalid, void
or otherwise unenforceable to any extent by any court of competent jurisdiction,
the remainder of this Agreement shall not be affected thereby, and each term,
provision, covenant or condition of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
-7-
<PAGE>
5.10 TIME. Time is of the essence of this Agreement.
5.11 GOVERNING LAW AND VENUE. This Agreement shall be governed,
construed and enforced in accordance with the laws of the State of California.
Any litigation which may be initiated by either party in connection with this
Agreement shall take place in the appropriate court located in San Diego County,
California.
5.12 FURTHER ASSURANCES. The parties agree to take such further action
and execute such documents and instruments as may reasonably be required in
order to more effectively carry out the terms of this Agreement and the
intentions of the parties.
5.13 ATTORNEYS' FEES. If either party commences legal proceedings for
any relief against the other party arising out of this Agreement, the successful
or prevailing party (including a party who receives substantially the relief
sought, whether by voluntary compliance, settlement, dismissal, summary
judgment, judgment or otherwise) shall be entitled to recover from the other
party its legal costs and expenses, including, but not limited to, reasonable
attorneys' fees, expert witness fees and disbursements as determined by the
court.
5.14 PRESUMPTION. This Agreement or any section hereof shall not be
construed against any party due to the fact that said Agreement or any section
hereof was drafted by said party.
5.15 FINDERS FEES. Each party hereby represents that it is unaware of
any finders fees or commissions which are or might become due in connection with
this Option Agreement and the Option Purchase Agreement. Each party agrees to
indemnify, hold harmless and defend the other party from and against any
obligation or liability to pay any such commission or compensation arising from
the act or agreement of the indemnifying party.
IN WITNESS THEREOF, the parties have executed this Agreement as reflected by
their following signatures:
SELF-HEATING CONTAINER CORPORATION OF
CALIFORNIA
A CALIFORNIA CORPORATION
BY: /s/ James A. Scudder
---------------------------------
JAMES A. SCUDDER
TITLE: PRESIDENT
MANHATTAN WEST, INC.
A CALIFORNIA CORPORATION
BY: /s/ David F. Bahr
---------------------------------
DAVID BAHR
TITLE: PRESIDENT
-8-
<PAGE>
AGREEMENT OF PURCHASE AND SALE
OF THE CAPITAL STOCK OF
SELF-HEATING CONTAINER
CORPORATION OF CALIFORNIA,
a California corporation
as ISSUER
BY
THE L. L. KNICKERBOCKER CO., INC.
a California corporation,
as BUYER;
DATED September 17, 1996
<PAGE>
TABLE OF CONTENTS
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SUBJECT MATTER OF AND CONSIDERATION FOR SALE. . . . . . . . . . . . . . . 1
1.1 Transfer of Shares.. . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Consideration for Shares.. . . . . . . . . . . . . . . . . . . . . 2
2. PAYMENT OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . 2
3. CLOSING AND CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. REPRESENTATIONS AND WARRANTIES OF SHC . . . . . . . . . . . . . . . . . . 2
4.1 Validity of Agreement, etc.. . . . . . . . . . . . . . . . . . . . 2
4.2 Ownership of Issuer . . . . . . . . . . . . . . . . . . . . . . . 3
4.3 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . 3
4.4 Capitalization of the Issuer. . . . . . . . . . . . . . . . . . . 3
4.5 Subsidiaries and Affiliates . . . . . . . . . . . . . . . . . . . 3
4.6 Financial Condition Of Issuer . . . . . . . . . . . . . . . . . . 3
4.7 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.8 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . 4
4.9 Title to Properties; Encumbrances. . . . . . . . . . . . . . . . . 5
4.10 Patents, Copyrights, Inventions, Trade Secrets, etc. . . . . . . . 5
4.11 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . 5
4.12 Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . 7
4.13 Corporate Records. . . . . . . . . . . . . . . . . . . . . . . . . 7
4.14 Material Misstatements or Omissions. . . . . . . . . . . . . . . . 7
4.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.16 Permits and Other Operating Rights . . . . . . . . . . . . . . . . 7
4.17 Business Generally . . . . . . . . . . . . . . . . . . . . . . . . 8
4.18 Distribution Agreement . . . . . . . . . . . . . . . . . . . . . . 8
4.19 Nature of Representations and Warranties . . . . . . . . . . . . . 8
5. BUYER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 8
5.1 Validity of Agreement, etc . . . . . . . . . . . . . . . . . . . . 8
5.2 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capitalization of the Buyer. . . . . . . . . . . . . . . . . . . . 9
5.4 Subsidiaries and Affiliates . . . . . . . . . . . . . . . . . . . 9
5.5 Financial Condition Of Buyer.. . . . . . . . . . . . . . . . . . . 9
5.6 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.7 Absence of Certain Changes.. . . . . . . . . . . . . . . . . . . . 9
i
<PAGE>
5.8 Title to Properties; Encumbrances. . . . . . . . . . . . . . . . .11
5.9 Patents, Copyrights, Inventions, Trade Secrets, etc. . . . . . . .11
5.10 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . .11
5.11 Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . .12
5.12 Corporate Records. . . . . . . . . . . . . . . . . . . . . . . . .12
5.13 Material Misstatements or Omissions. . . . . . . . . . . . . . . .13
5.14 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
5.15 Permits and Other Operating Rights.. . . . . . . . . . . . . . . .13
5.16 Business Generally.. . . . . . . . . . . . . . . . . . . . . . . .13
5.17 Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
5.18 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
5.19 Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
5.20 No Public Market . . . . . . . . . . . . . . . . . . . . . . . . .14
5.21 Access to Data.. . . . . . . . . . . . . . . . . . . . . . . . . .14
5.22 Distribution Agreement.. . . . . . . . . . . . . . . . . . . . . .14
5.23 Nature of Representations and Warranties . . . . . . . . . . . . .14
6. ISSUER'S PRE-CLOSING COVENANTS AND AGREEMENTS . . . . . . . . . . . . . .15
6.1 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . .15
6.1.1 Regular Course of Business. . . . . . . . . . . . . . . .15
6.1.2 Amendments. . . . . . . . . . . . . . . . . . . . . . . .15
6.1.3 Capital Changes; Dividends; Redemptions; Dilution . . . .15
6.1.4 Antidilution Rights . . . . . . . . . . . . . . . . . . .15
6.1.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . .17
6.1.6 Organization. . . . . . . . . . . . . . . . . . . . . . .17
6.1.7 Certain Changes . . . . . . . . . . . . . . . . . . . . .17
6.1.8 Access. . . . . . . . . . . . . . . . . . . . . . . . . .18
6.1.9 Obligation to Update Disclosure Schedules . . . . . . . .18
7. BUYER'S PRE-CLOSING COVENANTS AND AGREEMENTS. . . . . . . . . . . . . . .18
7.1 Access.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
7.2 Obligation to Update Disclosure Schedules. . . . . . . . . . . . .18
8. CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . . . . . . . . . . . . .19
8.1 Conditions Precedent to Obligations of Buyer . . . . . . . . . . .19
8.1.1 Correctness of Representations and Warranties . . . . . .19
8.1.2 Performance of Covenants and Agreements . . . . . . . . .19
8.1.3 Corporate Records . . . . . . . . . . . . . . . . . . . .19
8.1.4 Corporate Approval. . . . . . . . . . . . . . . . . . . .19
8.1.5 Appointment of Officers and Directors . . . . . . . . . .19
8.1.6 No Government Proceeding or Litigation. . . . . . . . . .19
8.1.7 Material Change . . . . . . . . . . . . . . . . . . . . .19
8.1.8 Officers' Certificate.. . . . . . . . . . . . . . . . . .19
ii
<PAGE>
8.1.9 Opinions of Counsel . . . . . . . . . . . . . . . . . . .20
8.2 Conditions Precedent to Obligations of Issuer. . . . . . . . . . .20
8.2.1 Correctness of Representations and Warranties . . . . . .20
8.2.2 Performance of Covenants and Agreements . . . . . . . . .21
8.2.3 Corporate Records . . . . . . . . . . . . . . . . . . . .21
8.2.4 Corporate Approval. . . . . . . . . . . . . . . . . . . .21
8.2.5 No Government Proceeding or Litigation. . . . . . . . . .21
8.2.6 Material Change . . . . . . . . . . . . . . . . . . . . .21
8.2.7 Officers' Certificate . . . . . . . . . . . . . . . . . .21
8.2.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . .21
9. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
9.1 Indemnification by Issuer. . . . . . . . . . . . . . . . . . . . .22
9.2 Indemnification by Buyer.. . . . . . . . . . . . . . . . . . . . .22
9.3 Notice and Opportunity to Defend.. . . . . . . . . . . . . . . . .22
9.4 Indemnification Not a Waiver.. . . . . . . . . . . . . . . . . . .23
10. RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
10.1 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . .23
10.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
10.3 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
10.4 Recovery of Fees and Costs.. . . . . . . . . . . . . . . . . . . .25
10.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . .25
10.6 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . .25
10.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . .25
10.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . .25
10.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . .25
10.10 Waiver of Compliance . . . . . . . . . . . . . . . . . . . . . . .26
10.11 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
10.12 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
10.13 Governing Law Venue. . . . . . . . . . . . . . . . . . . . . . . .26
10.14 Third Parties. . . . . . . . . . . . . . . . . . . . . . . . . . .26
10.15 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . .26
10.15.1 No Strict Construction. . . . . . . . . . . . . . . . . .26
10.15.2 Independent Significance. . . . . . . . . . . . . . . . .26
iii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT OF PURCHASE AND SALE ("Agreement") is made and entered into
effective as of September 17, 1996, by and among The L. L. Knickerbocker Co.,
Inc., a California corporation ( "LLK" or "Buyer"), and Self-Heating Container
Corporation of California, a California corporation ("SHC" or the "Issuer").
RECITALS
A. The stockholders appearing in the schedule attached hereto as
Exhibit "A" (collectively the "Stockholders") own of record 52,850 common shares
of the Issuer in the amounts appearing in Exhibit A. The shares owned of
record by the Stockholders represent all of the issued and outstanding stock of
the Issuer;
B. Insta-Heat, Inc., a California corporation ("IHI") an affiliate of
SHC, owns certain patents which have been licensed to SHC;
C. LLK desires to acquire 30,536 shares of the capital stock of SHC,
representing 25% of the outstanding stock in the Issuer (the "Shares");
D. LLK and the Issuer intend to enter into an exclusive distribution
agreement granting LLK certain rights to distribute products produced pursuant
to the patents held by IHI and licensed to SHC;
E. LLK and the Issuers entered into a letter of intent on July 12, 1996
regarding the subject matter of this Agreement. This letter of intent is
attached hereto as Exhibit "B."
F. The facts recited as Paragraphs A - E, inclusive, are expressly made
a part hereof and incorporated herein for all purposes as covenants to this
agreement and are binding upon the parties hereto as covenants.
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
promises, agreements, representations and warranties herein contained, the
parties hereto agree as follows:
1. SUBJECT MATTER OF AND CONSIDERATION FOR SALE.
1.1 TRANSFER OF SHARES. Upon the terms and subject to all of the
conditions contained herein and upon the performance by each of the parties
hereto of their obligations hereunder, the Issuer hereby agrees to issue,
sell, assign, transfer and deliver the Shares to Buyer, on and as of the Closing
Date (as hereinafter defined), by delivering to Buyer at the Closing
certificates representing the Shares, duly issued by the Issuer.
1
<PAGE>
1.2 CONSIDERATION FOR SHARES. As consideration for Buyer's purchase
of the Shares and upon and subject to all of the terms and conditions herein
and upon the performance by each of the parties hereto of their obligations
hereunder, Buyer agrees to pay to the Issuer, in the manner described in
Sections 2.1, 2.2, and 2.3, an aggregate purchase price for the Shares of Six
Hundred Thousand Dollars ($600,000.00) ("Purchase Price").
2. PAYMENT OF CONSIDERATION.
The Purchase Price shall be paid at the Closing, by Buyer delivering to SHC
by wire transfer according to the instructions of SHC the sum of Six Hundred
Thousand Dollars ($600,000.00) in full payment of the amount of the Purchase
Price.
3. CLOSING AND CLOSING DATE
3.1 TIME AND PLACE. Subject to the provisions of Section 8 hereof,
the Closing ("Closing") of the transactions contemplated by this Agreement shall
take place at the offices of counsel to SHC at 5:00 P.M. on September 17, 1996
("Closing" or "Closing Date"), or at such later date, time and place as may be
hereafter agreed upon in writing by the parties.
4. REPRESENTATIONS AND WARRANTIES OF SHC.
SHC represents and warrants the following, the truth and accuracy of each
of which shall constitute a condition precedent to the obligations of Buyer
hereunder:
4.1 VALIDITY OF AGREEMENT, ETC. This Agreement is, or will be at the
Closing, valid and binding upon Issuer and is, or will be at the Closing,
enforceable in accordance with its respective terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, or other laws
affecting generally the enforcement of creditors' rights and except to the
extent that courts may award money damages rather than specific performance of
contractual provisions.
Neither the execution and delivery of this Agreement by the Issuer nor the
consummation of the transactions contemplated hereby, nor any action of the
Issuer contemplated by this Agreement, will violate any provision of the
Articles of Incorporation or By-Laws of the Issuer, nor will such actions
violate or be in conflict with or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or cause the
acceleration of the maturity of, any debt or obligation pursuant to, or result
in the creation or imposition of any security interest, lien, or other
encumbrance upon any property or assets of the Issuer under any agreement or
commitment to which the Issuer is a party, or by which the Issuer is bound, or
to which the property of the Issuer is subject, or violate any statute or law or
any judgment, decree, order, regulation, or rule of any court or governmental
authority.
2
<PAGE>
4.2 OWNERSHIP OF ISSUER. The Stockholders are the sole owners of
record of all of the issued and outstanding shares of the Issuer's capital
stock. Except as set forth in Exhibit E, there are no outstanding
subscriptions, options, rights, warrants, convertible securities, or other
agreements, commitments, or rights obligating the Issuer to issue any shares of
stock to any person or firm, nor obligating the Stockholders, or any of them, to
transfer any shares to any person or firm.
4.3 CORPORATE ORGANIZATION. The Issuer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
California and qualified to do business in the State of California and has full
corporate power and authority to carry on its business as it is now being
conducted and to own the properties and assets it now owns; is not, and the
nature of Issuer's activities do not require it to be, qualified to do business
as a foreign corporation in any other jurisdiction. The copies of the
Certificate of Incorporation and By-Laws of the Issuer previously delivered to
Buyer are complete and correct copies of such instruments as presently in
effect.
4.4 CAPITALIZATION OF THE ISSUER. As of the date of this Agreement,
the authorized capital stock of the Issuer consists of 100,000 shares of common
stock; of which 59,850 shares of common stock are issued and outstanding. All
issued and outstanding shares of common stock of the Issuer are validly issued,
fully paid, and nonassessable; there are no preemptive rights applicable to any
common stock of the Issuer, and all outstanding securities of the Issuer have
been offered, sold, and delivered by the Issuer in compliance with all
applicable federal and state laws.
4.5 SUBSIDIARIES AND AFFILIATES. The Issuer has no subsidiaries
nor any equity interest in any other corporation, partnership, or business.
4.6 FINANCIAL CONDITION OF ISSUER. Exhibit F contains true,
complete, and correct copies of the Issuer's Statements of Financial Condition
("Balance Sheet") as of June 30, 1996 ("Balance Sheet Date") and its statements
of income and Statement of Cash Flows for the 6 months ended June 30, 1996, are
hereinafter collectively referred to as the "Issuer's Financial Statements."
The Issuer's Financial Statements are: (i) statements prepared from the books
and records of the Issuer by its independent certified public accountants; (ii)
prepared substantially in accordance with the same accounting methods,
practices, and principles utilized in connection with the preparation of prior
financial statements issued by the Issuer; (iii) set forth fairly and completely
the financial position and the results of operations of the Issuer at the
relevant dates thereof and for the period(s) covered thereby; (iv) contain and
reflect all necessary material adjustments for a fair and complete presentation
of the Issuer's financial position and the results of operations for the period
covered by the Issuer's Financial Statements; (v) reflect all material
liabilities, realized or unrealized, contingent or not contingent, to which the
Issuer is liable, except for liabilities and obligations incurred in the
ordinary course of business consistent with past practice since the Balance
Sheet Date; and (vi) the reserves reflected in the Issuer's Financial Statements
are in the opinion of management adequate, appropriate and reasonable.
3
<PAGE>
4.7 TAXES. The Issuer has duly filed when due all tax reports and
returns required to be filed and has duly paid all taxes, assessments,
penalties, interest, and other charges due or claimed to be due from it by
federal, state, local, or foreign taxing authorities (including, without
limitation, those due in respect of the properties, income, franchises,
licenses, sales, or payrolls of the Issuer), and Issuer shall have no further
liability for any such tax, assessment, penalty, or interest.
4.8 ABSENCE OF CERTAIN CHANGES. Except as and to the extent set
forth in the Issuer's Financial Statements or notes thereto, or in a written
disclosure schedule delivered to either party prior to Closing ("Disclosure
Schedule"), since the Balance Sheet Date the Issuer has not:
(a) Suffered any material adverse change in, or the occurrence of any
events which, individually or in the aggregate have had a material adverse
effect on its working capital, financial condition, assets, liabilities
(absolute, accrued, contingent or otherwise), reserves, business, or operations;
(b) Incurred any liabilities or obligations (absolute, accrued,
contingent, or otherwise), except items incurred in the ordinary course of
business and consistent with past practice, or increased, or experienced any
material change in any assumptions underlying or methods of calculating any bad
debt, contingency, or other reserves;
(c) Paid, discharged, or satisfied any material claim, liability, or
obligation (absolute, accrued, contingent, or otherwise) other than the payment,
discharge, or satisfaction in the ordinary course of business and consistent
with past practice;
(d) Permitted or allowed any of its material property or assets (real,
personal, or mixed, tangible or intangible) to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction, or charge of any
kind, except for liens for current taxes not yet due;
(e) Sold, transferred, or otherwise disposed of any of its material
properties or assets (real, personal, or mixed, tangible or intangible), except
in the ordinary course of business and consistent with past practice;
(f) Disposed of or permitted to lapse any rights to the use of any
patent, trademark, trade name, or copyright, or disposed of or disclosed to any
person, any trade secret, formula, process, or know-how not theretofore a matter
of public knowledge;
(g) Granted any increase in the compensation of officers or employees
(including any such increase pursuant to any bonus, pension, profit-sharing, or
other plan or commitment) or any material increase in the compensation payable
or to become payable to any officer or employee from the day following the
Balance Sheet Date through the Closing Date, and no such increase is required by
agreement or understanding except for employee salary increases in the ordinary
course of business and in accordance with past practice;
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(h) Paid, loaned, or advanced any amount to, or sold, transferred, or
leased any properties or assets (real, personal, or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of its
officers or directors or any affiliate, family member, or associate of any of
its officers or directors;
(i) Suffered any loss, damage, destruction, or other casualty materially
and adversely affecting any of the properties, assets, or business of the Issuer
(whether or not covered by insurance);
(j) Borrowed or agreed to borrow any material amount of funds or
incurred or assumed or become subject to, whether directly or by way of
guarantee or otherwise, any material obligation or liability, except obligations
and liabilities incurred in the ordinary course of business and consistent with
past practice;
(k) Licensed, sold, transferred, pledged, modified, disclosed, disposed
of, or permitted to lapse any rights to the use of the name of the Issuer or any
fictitious firm name used by the Issuer;
(l) Entered into any transaction with the Stockholders, or any of them,
their relatives, related trusts or related business entities;
(m) Entered into any other transaction, contract, or commitment other
than in the ordinary course of business; and
(n) Agreed, whether in writing or otherwise, to take any action
described in this section.
4.9 TITLE TO PROPERTIES; ENCUMBRANCES. The Issuer has good, valid,
and marketable title to all the properties and assets which each purports to own
(real, personal, and mixed, tangible and intangible), including without
limitation, all the properties and assets reflected in the Balance Sheet except
for property sold since the Balance Sheet Date in the ordinary course of
business and consistent with past practice.
4.10 PATENTS, COPYRIGHTS, INVENTIONS, TRADE SECRETS, ETC. The Issuer
has good and valid title to, or otherwise possesses adequate and exclusive
rights to use, all patents, copyrights, inventions, trade secrets, and other
proprietary information necessary to permit the Issuer to conduct its business
in the same manner as its business has been conducted prior to the date hereof.
4.11 COMPLIANCE WITH LAW. The operations of the Issuer have been
conducted in substantial accordance with all applicable laws, regulations, and
other requirements of all national governmental authorities and of all states,
municipalities, and other political subdivisions and agencies thereof having
jurisdiction over the Issuer, including but not limited to, all laws,
regulations, and requirements relating to antitrust, environmental protection
and conservation, pollution, equal employment and anti-discrimination acts,
consumer protection, currency exchange,
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health, occupational safety, pension, securities, and trading-with-the-enemy
matters. The Issuer has not received any notification of any asserted present
or past failure by the Issuer to comply with such laws, rules, or regulations.
The Issuer has filed when due all reports required to be filed with any
governmental, regulatory, or administrative agency and has obtained all permits,
licenses, certificates, registrations, qualifications, and other authorizations
which are required to be obtained by the Issuer under federal, state, and local
laws relating to pollution or protection of the environment, including laws
relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or hazardous or toxic materials or wastes into ambient
air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes. The Issuer is in substantial compliance with all terms and
conditions of the required permits, licenses, and authorizations and is also in
substantial compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
contained in those laws relating to pollution or protection of the environment
or contained in any regulation, code, plan, order, decree, judgment, notice, or
demand letter issued, entered, promulgated, or approved thereunder. Except as
set forth in the Disclosure Schedule, the Issuer has not engaged in any
activities that could cause any material violation of any federal, state, or
local laws, ordinances, rules, or regulations relating to air or water
pollution, toxic waste, or other environmental protection or relating to
occupational health or safety or Hazardous Materials (as defined below)
applicable to its properties, assets, the real estate which it now occupies, or
any real estate which it has previously occupied. The Issuer has no material
liability, contingent or otherwise, with respect to the contamination with toxic
waste or Hazardous Materials of premises it now occupies or has previously
occupied, which contamination occurred during a time that such premises were
occupied by a previous tenant, whether the contamination occurred from the
activities conducted by the previous tenant, from contamination flow from other
properties, or otherwise. As used herein, the term "Hazardous Materials" shall
mean any explosives, radioactive materials, hazardous wastes (including, without
limitation, asbestos and asbestos containing materials), hazardous or toxic
substances, or related materials defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended (42 U.S.C. Section
9601), et. seq.), the Hazardous Materials Transportation Act as amended (49
U.S.C. Section 1801, et. seq.), the Resource Conservation and Recovery Act of
1976 as amended (42 U.S.C. Section 6901, et. seq.), and in the regulations
adopted and publications promulgated pursuant thereto, or any other federal,
state, or local environmental laws, ordinances, rules, or regulations.
The Issuer is not aware of, nor has the Issuer received notice of, any
past, present, or future events, conditions, circumstances, activities,
practices, incidents, actions, or plans which may interfere with or prevent
continued compliance, or which may give rise to any common law or legal
liability, or otherwise form the basis of any claim, action, suit, proceeding,
hearing, or investigation based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or the
emission, discharge, release, or threatened release into the environment of any
pollutant, contaminant, or hazardous or toxic material or waste.
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4.12 UNDISCLOSED LIABILITIES. The Issuer is not obligated for, nor
are any of the Issuer's assets subject to, any liabilities (whether absolute,
accrued, or contingent and whether due or to become due) other than liabilities
arising in the ordinary course of business since the Balance Sheet Date.
4.13 CORPORATE RECORDS. Except as set forth in the Disclosure
Schedule, the corporate minute books of the Issuer contain a complete and
accurate record of all actions taken or required to be taken by the Board of
Directors and shareholders of the Issuer, and the stock transfer records, books
of account, financial records, and correspondence of the Issuer has been kept in
the usual course of business and are complete insofar as they relate to the
business of the Issuer from inception to the date of this Agreement and will be
complete insofar as they relate to the business of the Issuer from the inception
of each to the Closing Date. The financial books and records of the Issuer have
been maintained consistently and, to the best of the Issuer's knowledge, in
accordance with sound business practices.
4.14 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties by the Issuer contained in this Agreement or in any document,
statement, or certificate furnished or to be furnished to Buyer in connection
with the transactions contemplated hereby, contain, or will contain on the
Closing Date, any statement of a material fact known to be untrue, or omit, or
will omit on the Closing Date, any material known fact necessary to make the
statements of fact contained therein not misleading.
4.15 LITIGATION. There are no actions, suits, or proceedings pending
or threatened involving the Issuer or affecting its business, nor are there any
claims of third parties made or threatened against the Issuer.
The Issuer is not subject to any judgment, order, or decree entered in any
lawsuit or proceeding which may have an adverse effect on its business practices
or on its ability to acquire any property or conduct its business in any area.
No consent of any person is necessary to the consummation of the
transactions contemplated hereby, including, without limitation, consents from
parties to loans, contracts, leases, or other agreements and consents from
governmental agencies, whether federal, state, or local.
4.16 PERMITS AND OTHER OPERATING RIGHTS. The Issuer has received the
consent of all third persons required to permit it to operate its business in
the manner in which it presently is being conducted and possesses all necessary
permits and other authorizations from third persons, including without
limitation, federal, foreign, state, and local governmental authorities
presently required by applicable provisions of law, including statutes,
regulations, and existing judicial decisions, and by the property and contract
rights of third persons, the absence of which would have a material adverse
effect upon the business or properties of the Issuer.
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4.17 BUSINESS GENERALLY. There have been no events or transactions or
information which has come to the attention of the Issuer which, as they relate
directly to the business and assets of the Issuer, could reasonably be expected
to have a material adverse effect on the profitability of the business and
operations of the Issuer.
4.18 DISTRIBUTION AGREEMENT. The Issuer hereby agrees to enter into a
Distribution Agreement substantially on the terms set forth in the Letter of
Intent appearing in Exhibit "B". Issuer agrees to negotiate in good faith with
the Buyer in order to agree on all other terms of and to preparation of and to
execute a formal license or distribution agreement by and between the Issuer and
the Buyer.
4.19 NATURE OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by the Issuer in Sections 4.6 through 4.12 herein are made
to the best of its knowledge, without any independent duty to investigate.
5. BUYER'S REPRESENTATIONS AND WARRANTIES.
The Buyer represents and warrants the following, the truth and accuracy of
each of which shall constitute a condition precedent to the obligations of the
Issuer hereunder:
5.1 VALIDITY OF AGREEMENT, ETC. This Agreement is, or will be at the
Closing, valid and binding upon Buyer and is, or will be at the Closing,
enforceable in accordance with its respective terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, or other laws
affecting generally the enforcement of creditors' rights and except to the
extent that courts may award money damages rather than specific performance of
contractual provisions.
Neither the execution and delivery of this Agreement by Buyer nor the
consummation of the transactions contemplated hereby, nor any action of the
Buyer contemplated by this Agreement, will violate any provision of the Articles
of Incorporation or By-Laws of the Buyer, nor will such actions violate or be in
conflict with, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or cause the acceleration of the
maturity of any debt or obligation pursuant to, or result in the creation or
imposition of any security interest, lien, or other encumbrance upon any
property or assets of the Buyer under any agreement or commitment to which the
Buyer is a party or by which the Buyer is bound, or to which the property of the
Buyer is subject, or violate any statute or law or any judgment, decree, order,
regulation, or rule of any court or governmental authority.
5.2 CORPORATE ORGANIZATION. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and qualified to do business in the State of California and has full
corporate power and authority to carry on its business as it is now being
conducted and to own the properties and assets it now owns; is not, and the
nature of Buyer's activities do not require it to be, qualified to do business
as a foreign corporation in any
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other jurisdiction. The copies of the Certificate of Incorporation and By-Laws
of the Buyer previously delivered to the Issuer are complete and correct copies
of such instruments as presently in effect.
5.3 CAPITALIZATION OF THE BUYER. As of the date of this Agreement,
the authorized capital stock of the Buyer consists of 100,000,000 shares of
common stock; of which 13,752,285 shares of common stock are issued and
outstanding. All issued and outstanding shares of common stock of the Buyer are
validly issued, fully paid, and nonassessable; there are no preemptive rights
applicable to any securities of the Buyer, and all outstanding securities of the
Buyer have been offered, sold, and delivered by the Buyer in compliance with all
applicable federal and state laws.
5.4 SUBSIDIARIES AND AFFILIATES. Except as set forth in the
schedule previously delivered to the Issuer by the Buyer (the "Buyer's
Disclosure Schedule") the Buyer has no subsidiaries nor any equity interest in
any other corporation, partnership, or business.
5.5 FINANCIAL CONDITION OF BUYER. Exhibit E contains a true,
complete, and correct copy of the Buyer's Annual Report on Form 10-KSB as filed
with the United States Securities and Exchange Commission (the "SEC") including
Buyer's Statements of Financial Condition ("Balance Sheet") as of December 31,
1995 ("Balance Sheet Date") and its statements of income and Statement of Cash
Flows for the twelve months ended December 31, 1995, hereinafter collectively
referred to as the "Buyer's Financial Statements." The Buyer's Financial
Statements are: (i) statements prepared from the books and records of the Buyer
and audited by its independent certified public accountants; (ii) prepared
substantially in accordance with the same accounting methods, practices, and
principles utilized in connection with the preparation of the last three annual
prior financial statements issued by the Buyer; (iii) set forth fairly and
completely the financial position and the results of operations of the Buyer at
the relevant dates thereof and for the period covered thereby, (iv) contains and
reflects all necessary material adjustments for a fair and complete presentation
of the Buyer's financial position and the results of operations for the periods
covered by the Buyer's Financial Statement; (v) contain and reflect all
material liabilities, realized or unrealized, contingent or not contingent, to
which the Buyer is liable, except for liabilities and obligations incurred in
the ordinary course of business consistent with past practice since the balance
sheet date; and (vi) the reserves reflected in the Buyer's Financial Statement
are in the opinion of management adequate, appropriate, and reasonable.
5.6 TAXES. The Buyer has duly filed when due all tax reports and
returns required to be filed and has duly paid all taxes, assessments,
penalties, interest, and other charges due or claimed to be due from it by
federal, state, local, or foreign taxing authorities (including, without
limitation, those due in respect of the properties, income, franchises,
licenses, sales or payrolls of the Buyer), and Buyer shall have no further
liability for any such tax, assessment, penalty, or interest.
5.7 ABSENCE OF CERTAIN CHANGES. Except as and to the extent set
forth in the Buyer's Financial Statements or notes thereto or in the Buyer's
Disclosure Schedule, since the Balance Sheet Date, Buyer has not:
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(a) Suffered any material adverse change in, or the occurrence of any
events which, individually or in the aggregate, have had a material adverse
effect on, its working capital, financial condition, assets, liabilities
(absolute, accrued, contingent or otherwise), reserves, or business operations;
(b) Incurred any material liabilities or obligations (absolute, accrued,
contingent or otherwise), except items incurred in the ordinary course of
business and consistent with past practice, or increased or experienced any
material change in any assumptions underlying or methods of calculating any bad
debt, contingency, or other reserves;
(c) Paid, discharged, or satisfied any material claim, liability, or
obligation (absolute, accrued, contingent, or otherwise) other than the payment,
discharge, or satisfaction in the ordinary course of business and consistent
with past practice;
(d) Permitted or allowed any of its material property or assets (real,
personal, or mixed, tangible or intangible) to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction, or charge of any
kind, except for liens for current taxes not yet due;
(e) Sold, transferred, or otherwise disposed of any of its material
properties or assets (real, personal, or mixed, tangible or intangible), except
in the ordinary course of business and consistent with past practice;
(f) Disposed of or permitted to lapse any rights to the use of any
material patent, trademark, trade name, or copyright, or disposed of or
disclosed to any person any trade secret, formula, process, or know-how not
theretofore a matter of public knowledge;
(g) Granted any increase in the compensation of officers or employees
(including any such increase pursuant to any bonus, pension, profit-sharing, or
other plan or commitment) or any material increase in the compensation payable
or to become payable to any officer or employee from the day following the
Balance Sheet Date through the Closing Date, and no such increase is required by
agreement or understanding except for employee salary increases in the ordinary
course of business and in accordance with past practice;
(h) Paid, loaned, or advanced any amount to, or sold, transferred, or
leased any properties or assets (real, personal, or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of its
officers or directors or any affiliate, family member, or associate of any of
its officers or directors;
(i) Suffered any loss, damage, destruction, or other casualty materially
and adversely affecting any of the properties, assets, or business of the Buyer
(whether or not covered by insurance);
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(j) Borrowed or agreed to borrow any material amount of funds or
incurred or assumed or become subject to, whether directly or by way of
guarantee or otherwise, any material obligation or liability, except obligations
and liabilities incurred in the ordinary course of business and consistent with
past practice;
(k) Licensed, sold, transferred, pledged, modified, disclosed, disposed
of, or permitted to lapse any rights to the use of the name of the Issuer or any
fictitious firm name used by the Buyer;
(l) Entered into any other transaction, contract, or commitment other
than in the ordinary course of business; and
(m) Agreed, whether in writing or otherwise, to take any action
described in this section.
5.8 TITLE TO PROPERTIES; ENCUMBRANCES. The Buyer has good, valid,
and marketable title to all the properties and assets which it purports to own
(real, personal, and mixed, tangible and intangible), including without
limitation, all the properties and assets reflected in the Balance Sheet except
for property sold since the Balance Sheet Date in the ordinary course of
business and consistent with past practice.
5.9 PATENTS, COPYRIGHTS, INVENTIONS, TRADE SECRETS, ETC. The Buyer
has good and valid title to or otherwise possesses adequate and exclusive rights
to use, all patents, copyrights, inventions, trade secrets, and other
proprietary information necessary to permit the Buyer to conduct its business in
the same manner as its business has been conducted prior to the date hereof.
5.10 COMPLIANCE WITH LAW. The operations of the Buyer have been
conducted in substantial accordance with all applicable laws, regulations, and
other requirements of all national governmental authorities, and of all states,
municipalities, and other political subdivisions and agencies thereof, having
jurisdiction over the Buyer, including, but not limited to, all laws,
regulations, and requirements relating to antitrust, environmental protection
and conservation, pollution, equal employment and anti-discrimination acts,
consumer protection, currency exchange, health, occupational safety, pension,
securities, and trading-with-the-enemy matters. The Buyer has not received any
notification of any asserted present or past failure by the Buyer to comply with
such laws, rules, or regulations.
The Buyer has filed when due all reports required to be filed with any
governmental, regulatory, or administrative agency and has obtained all permits,
licenses, certificates, registrations, qualifications, and other authorizations
which are required to be obtained by the Buyer under federal, state, and local
laws relating to pollution or protection of the environment, including laws
relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or hazardous or toxic materials or wastes into ambient
air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes. The Buyer is in substantial compliance with all terms and
conditions of the required permits, licenses, and
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authorizations, and is also in substantial compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables contained in those laws relating to
pollution or protection of the environment or contained in any regulation, code,
plan, order, decree, judgment, notice, or demand letter issued, entered,
promulgated, or approved thereunder. Except as set forth in the Buyer's
Disclosure Schedule, the Buyer has not engaged in any activities that could
cause any material violation of any federal, state, or local laws, ordinances,
rules, or regulations relating to air or water pollution, toxic waste, or other
environmental protection or relating to occupational health or safety or
Hazardous Materials (as defined below) applicable to its properties, assets, the
real estate which it now occupies nor, or any real estate which it has
previously occupied. The Buyer has no material liability, contingent or
otherwise, with respect to the contamination with toxic waste or Hazardous
Materials of premises it now occupies or has previously occupied, which
contamination occurred during a time that such premises were occupied by a
previous tenant, whether the contamination occurred from the activities
conducted by the previous tenant, from contamination flow from other properties,
or otherwise. As used herein, the term "Hazardous Materials" shall mean any
explosives, radioactive materials, hazardous wastes (including, without
limitation, asbestos and asbestos containing materials), hazardous or toxic
substances, or related materials defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section
9601), et. seq.), the Hazardous Materials Transportation Act, as amended (49
U.S.C. Section 1801, et. seq.), the Resource Conservation and Recovery Act of
1976, as amended (42 U.S.C. Section 6901, et. seq.), and in the regulations
adopted and publications promulgated pursuant thereto, or any other federal,
state, or local environmental laws, ordinances, rules, or regulations.
The Buyer is not aware of, nor has the Buyer received notice of, any past,
present, or future events, conditions, circumstances, activities, practices,
incidents, actions, or plans which may interfere with or prevent continued
compliance, or which may give rise to any common law or legal liability, or
otherwise form the basis of any claim, action, suit, proceeding, hearing, or
investigation, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling, or the emission,
discharge, release, or threatened release into the environment, of any
pollutant, contaminant, or hazardous or toxic material or waste.
5.11 UNDISCLOSED LIABILITIES. The Buyer is not obligated for, nor are
any of the Buyer's assets subject to, any liabilities (whether absolute, accrued
or contingent and whether due or to become due) other than liabilities arising
in the ordinary course of business since the Balance Sheet Date, none of which
liabilities individually or in the aggregate is materially adverse when
comparing the condition of the Buyer as of the Balance Sheet Date with the date
of this Agreement.
5.12 CORPORATE RECORDS. Except as set forth in the Buyer's Disclosure
Schedule, the corporate minute books of the Buyer contain a complete and
accurate record of all actions taken or required to be taken by the Board of
Directors and shareholders of the Buyer, and the stock transfer records, books
of account, financial records, and correspondence of the Buyer have been kept in
the usual course of business and are complete insofar as they relate to the
business of the Buyer from the inception of each to the date of this Agreement,
and will be complete insofar as they relate to the
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business of the Buyer from the inception of each to the Closing Date. The
financial books and records of the Buyer have been maintained consistently and,
to the best of the Buyer's knowledge, in accordance with sound business
practices.
5.13 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties by the Buyer contained in this Agreement or in any document,
statement, or certificate furnished or to be furnished to the Issuer in
connection with the transactions contemplated hereby, contain, or will contain
on the Closing Date, any statement of a material fact known to be untrue, or
omit, or will omit on the Closing Date, any material known fact necessary to
make the statements of fact contained therein not misleading.
5.14 LITIGATION. Except as set forth in the Buyer's Disclosure
Schedule, there are no actions, suits, or proceedings pending or threatened
involving the Buyer or affecting its business, nor are there any claims of
third parties made or threatened against the Buyer.
The Buyer is not subject to any judgment, order, or decree entered in any
lawsuit or proceeding which may have an adverse effect on its business
practices, or on the ability of it to acquire any property or conduct its
business in any area.
No consent of any person is necessary to the consummation of the
transactions contemplated hereby, including, without limitation, consents from
parties to loans, contracts, leases, or other agreements and consents from
governmental agencies, whether federal, state, or local.
5.15 PERMITS AND OTHER OPERATING RIGHTS. The Buyer has received the
consent of all third persons required to permit it to operate its business in
the manner in which it presently is being conducted, and possesses all necessary
permits and other authorizations from third persons, including without
limitation, federal, foreign, state, and local governmental authorities,
presently required by applicable provisions of law, including statutes,
regulations, and existing judicial decisions, and by the property and contract
rights of third persons, the absence of which would have a material adverse
effect upon the business or properties of the Buyer.
5.16 BUSINESS GENERALLY. There have been no events or transactions,
or information which has come to the attention of the Buyer which, as they
relate directly to the business and assets of the Buyer, could reasonably be
expected to have a material adverse effect on the profitability of the business
and operations of the Buyer.
5.17 EXPERIENCE. Buyer is an accredited investor as defined by Rule
501(a) of the Securities Act of 1933 ("Securities Act") and has a net worth in
excess of five million dollars ($5,000,000), and has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Issuer so that it is capable of evaluating the merits
and risks of its investment in the Issuer and has the capacity to protect its
own interests.
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5.18 INVESTMENT. Buyer is acquiring the Shares for investment for its
own account, not as a nominee or agent, and not with the view to, or for resale
in connection with, any distribution thereof. It understands that the Shares
have not been and will not be registered under the Securities Act by reason of
specific exemptions from the registration provisions of the Securities Act and
California law, the availability of which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of such Buyer's
representations as expressed herein and in the Subscription Agreement.
5.19 RULE 144. Buyer acknowledges that the Shares must be held
indefinitely unless subsequently registered under the Securities Act and
applicable state law, or unless an exemption from such registration is
available. Buyer is aware of the provisions of Rule 144 promulgated under the
Securities Act which permit limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including among
other things, the existence of a public market for the Shares, the availability
of certain current public information about the Issuer, the resale occurring not
less than two years after a party has purchased and paid for the security to be
sold, the sale being effected through a "broker's transaction" or in
transactions directly with a "market maker," and the number of shares being sold
during any three-month period not exceeding specific limitations.
5.20 NO PUBLIC MARKET. Buyer understands that no public market now
exists for any of the securities issued by the Issuer and that the Issuer has
made no assurances that a public market will ever exist for the Shares.
5.21 ACCESS TO DATA. Buyer has had an opportunity to discuss the
Issuer's business, management, and financial affairs with the Issuer's
management and has had the opportunity to review the Issuer's facilities,
business plan, and 1995 and 1996 year-end financial statements. It has also had
an opportunity to ask questions of officers of the Issuer, which questions were
answered to its satisfaction. It understands that such discussions, as well as
any written information issued by the Issuer, including the business plan, were
intended to describe certain aspects of the Issuer's business and prospects but
were not a thorough or exhaustive description.
5.22 DISTRIBUTION AGREEMENT. The Buyer hereby agrees to enter into a
Distribution Agreement substantially on the terms set forth in the Letter of
Intent appearing in Exhibit "B". The Buyer agrees to negotiate in good faith
with the Issuer to agree on all other terms of and to preparation of and to
execute a definitive license or distribution agreement by and between the Buyer
and the Issuer.
5.23 NATURE OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by the Buyer in Sections 5.5 through 5.11 are made to the
best of its knowledge, without any independent duty to investigate.
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6. ISSUER'S PRE-CLOSING COVENANTS AND AGREEMENTS
The Issuer hereby affords Buyer the following affirmative and negative
covenants, thereby agreeing to do or not to do, as the case may be, the
following, the fulfillment of each of which (except for those covenants which
survive or are required to be performed subsequent to the Closing) shall
constitute a condition precedent to the obligations of Buyer hereunder:
6.1 BEST EFFORTS. Pending the Closing and except as disclosed in
Exhibit C or the Disclosure Schedule or otherwise expressly consented to or
approved by Buyer in writing, the Issuer hereby covenants and agrees that it
will use its best efforts in order that:
6.1.1 REGULAR COURSE OF BUSINESS. The Issuer will carry on its
business diligently and substantially in the same manner as heretofore
conducted. The Issuer shall not engage in any transaction or activity, enter
into any agreement, or make any commitment, except in the ordinary course of
business and consistent with past practice.
6.1.2 AMENDMENTS. No change or amendment shall be made in the Articles
of Incorporation or Bylaws of the Issuer.
6.1.3 CAPITAL CHANGES; DIVIDENDS; REDEMPTIONS; DILUTION. The Issuer
will not, except as disclosed in Exhibit C or the Disclosure Schedule, before
the Closing, issue or sell any shares of capital stock or other securities,
acquire directly or indirectly by redemption or otherwise, any such capital
stock, reclassify or split up any such capital stock, declare or pay any
dividends thereon in cash, securities, or other property, or make any other
distribution with respect thereto, or grant or enter into any options, warrants,
calls, or commitments of any kind with respect thereto.
6.1.4 ANTIDILUTION RIGHTS.
6.1.4.1 ADJUSTMENT TO PURCHASE PRICE; ISSUANCE OF ADDITIONAL
SHARES. If after the Closing, the Issuer is involved in the sale of additional
stock (as defined below in Section 6.1.4.3) in a transaction or series of
transactions (an "Equity Financing"), and in connection with such Equity
Financing the Issuer issues any additional stock for a consideration per share
determined as provided for below, of less than the price per share paid by the
Buyer herein (subject to adjustment for stock dividends, splits and
combinations), then the Issuer shall promptly, but not less than ten (10) days
following the closing of such Equity Financing, issue and deliver certificates
to the Buyer, representing that number of duly and validly issued, fully paid,
and non assessable shares of common stock of the Issuer (the "Antidilution
Stock") that would be required to cause the Purchase Price divided by the sum of
the Antidilution Stock and the Shares to be equal to the Purchase Price of the
additional stock issued for less than the price per share paid by the Buyer
herein.
Notwithstanding the provisions of this Section 6.1.4.1, such Antidilution
Rights shall not apply if the issuance of the additional stock is approved by
the unanimous vote of the Issuer's Board of Directors.
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6.1.4.2 DETERMINATION OF CONSIDERATION PER SHARE OF ADDITIONAL
STOCK. The consideration per share of additional stock issued by the Issuer in
an Equity Financing shall be determined as follows:
6.1.4.2.1 In the case of the issuance of common stock
for cash, the consideration shall be deemed to be the amount of cash received by
the Issuer therefor before deducting any reasonable and customary discounts,
commissions or other related expenses allowed, paid or incurred by the Issuer
for any underwriting or otherwise in connection with the issuance and sale
thereof.
6.1.4.2.2 In the case of the issuance of common stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined in good
faith by the Board of Directors, irrespective of any accounting treatment.
6.1.4.2.3 In the case of the issuance of options to
purchase or rights to subscribe for common stock, securities by their terms
convertible into or exchangeable for common stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 6.1.4.
6.1.4.2.3.1 In the case of options or rights to
acquire common stock, the consideration shall be deemed to be the consideration
(determined in the manner provided in Sections 6.1.4.2.1 and 6.1.4.2.2), if any,
received by the Issuer upon the issuance of such options or rights, plus the
exercise price provided in such options or rights for the common stock covered
thereby.
6.1.4.2.3.2 In the case of: (a) securities which are
convertible or exchangeable for common stock; or (b) options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
consideration shall be deemed to be the consideration, if any, received by the
Issuer for any such securities and related options or rights, plus the
additional consideration, if any to be received by the Issuer, upon the
conversion or exchange of such securities or the exercise of any related options
or rights, calculated on a common equivalent basis (the consideration in each
case to be determined in the manner provided in Sections 6.2.1 and 6.2.2).
6.1.4.3 DEFINITION OF ADDITIONAL STOCK. For purposes of this
Section 6, "Additional Stock" shall mean any shares of common stock issued (or
deemed to have been issued pursuant to Section 6.1.4.2) by the Issuer other
than:
6.1.4.3.1 Shares of common stock (or related options)
issuable or issued to employees, consultants, or directors of the Issuer
pursuant to a stock option plan or agreement or restructured stock plan or
agreement existing as of the Closing or subsequently approved by the unanimous
vote of the Board of Directors of the Issuer;
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6.1.4.3.2 Shares of common stock issued or issuable
upon exercise of options or warrants outstanding as of the Closing;
6.1.4.3.3 Shares of common stock issued pursuant to
this Agreement;
6.1.5 SUBSIDIARIES. The Issuer will not organize any new subsidiary,
acquire any capital stock or other equity securities of any corporation, or
acquire any equity or ownership interest in any business.
6.1.6 ORGANIZATION. The Issuer shall use its best efforts to preserve
its corporate existence and business organization intact and to preserve its
relationships with licensors, suppliers, distributors, customers and others
having business relations with it.
6.1.7 CERTAIN CHANGES. The Issuer will not:
(a) Borrow or agree to borrow any funds or incur, or assume or become
subject to, whether directly or by way of guarantee or otherwise, any material
obligation or liability (absolute or contingent), except obligations and
liabilities incurred in the ordinary course of business and consistent with past
practice;
(b) Pay, discharge or satisfy any material claim, liability, or
obligation (absolute, accrued, contingent, or otherwise), other than the
payment, discharge, or satisfaction in the ordinary course of business and
consistent with past practice of liabilities or obligations reflected or
reserved against in the Balance Sheet or incurred in the ordinary course of
business and consistent with past practice since the date of the Balance Sheet;
(c) Prepay any material obligation having a fixed maturity of more than
ninety (90) days from the date such obligation was issued or incurred;
(d) Permit or allow any of its material property or assets (real,
personal, or mixed, tangible or intangible) to be subjected to any mortgage,
pledge, lien, or encumbrance;
(e) Write down the value of any material inventory or write off as
uncollectible any notes or accounts receivable, except for immaterial write-
downs and write-offs in the ordinary course of business and consistent with past
practice;
(f) Cancel any material debts or waive any claims or rights of
substantial value or sell, transfer, or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and consistent
with past practice;
(g) Dispose of or permit to lapse any rights to the use of any patent,
trademark, trade name, or copyright, or dispose of or disclose to any person any
trade secret, formula, process, or know-how not theretofore a matter of public
knowledge;
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(h) Pay, loan, or advance any amount to, or sell, transfer, or lease any
properties or assets to, or enter into any agreement or arrangement with, any of
its officers or directors or any affiliate of any of its officers or directors;
(i) Grant or extend any power of attorney; act as guarantor, surety,
consigner, endorser, co-maker, indemnitor, or otherwise in respect of the
obligation of any person, corporation, partnership, joint venture, association,
organization, or other entity; or
(j) Agree, whether in writing or otherwise, to do any of the foregoing.
6.1.8 ACCESS. The Issuer shall provide Buyer, Buyer's attorneys,
accountants, and other representatives full and complete access to all financial
statements, business plans, and other information which can be reasonably
provided to Buyer relating to the securities to be sold to the Buyer pursuant
hereto.
6.1.9 OBLIGATION TO UPDATE DISCLOSURE SCHEDULES. The Issuer shall
promptly disclose to the Buyer in writing any facts or circumstances arising
after the date hereof that would have been required to be reflected on any of
the exhibits if such facts or circumstances had existed as of the date hereof.
No disclosure made by the Issuer pursuant to this Section 6.1.8 shall be deemed
to supplement or amend any of the Disclosure Schedules for purposes of
determining the accuracy of any of the representations and warranties of the
Issuer set forth herein or for purposes of determining compliance with any of
the conditions set forth herein.
7. BUYER'S PRE-CLOSING COVENANTS AND AGREEMENTS
The Buyer hereby affords the Issuer the following affirmative and negative
covenants, thereby agreeing to do or not to do, as the case may be, the
following, the fulfillment of each of which (except for those covenants which
survive or are required to be performed subsequent to the Closing) shall
constitute a condition precedent to the obligations of the Issuer hereunder:
7.1 ACCESS. The Buyer shall provide Issuer, Issuer' attorneys,
accountants, and other representatives full and complete access to all 10-Ks,
10-Qs, and Exchange Act reports and filings and Registration Statements relating
to the securities to be provided to the Issuer pursuant hereto.
7.2 OBLIGATION TO UPDATE DISCLOSURE SCHEDULES. The Buyer shall
promptly disclose to the Issuer in writing any facts or circumstances arising
after the date hereof that would have been required to be reflected on any of
the exhibits if such facts or circumstances had existed as of the date hereof.
No disclosure made by the Buyer pursuant to this Section 7.2 shall be deemed to
supplement or amend any of the Disclosure Schedules for purposes of determining
the accuracy of any of the representations and warranties of the Buyer set forth
herein or for purposes of determining compliance with any of the conditions set
forth herein.
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8. CONDITIONS PRECEDENT TO CLOSING.
8.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The Closing shall
not take place unless all of the following conditions have been fulfilled
before or are fulfilled at the Closing (any of which may be waived by Buyer in
whole or in part):
8.1.1 CORRECTNESS OF REPRESENTATIONS AND WARRANTIES. There shall be no
representation or warranty of the Issuer contained in this Agreement or in any
exhibit attached hereto which is untrue or inaccurate to any material extent.
8.1.2 PERFORMANCE OF COVENANTS AND AGREEMENTS. There shall be no
covenant or agreement of the Issuer contained in this Agreement and required to
be performed before the Closing which has been breached to any material extent.
8.1.3 CORPORATE RECORDS. The Issuer shall have made available for
inspection to the Buyer the stock book, stock ledger, minute books of the
Issuer, and those contracts and agreements described in this Agreement.
8.1.4 CORPORATE APPROVAL. The execution and delivery of this Agreement
by Buyer, and the performance of its covenants and obligations under it,
including the issuance of Warrants, shall have been duly authorized by all
necessary corporation action, and Issuer shall have received copies of all
resolutions pertaining to that authorization, certified by the secretary of the
Issuer.
8.1.5 APPOINTMENT OF OFFICERS AND DIRECTORS. The Issuer shall have
delivered to Buyer written resolutions for the Issuer, certified by its
secretary, appointing Mr. Louis L. Knickerbocker as a Director of the Issuer and
authorizing the execution and delivery of this agreement, and the performance of
its covenants and obligations.
8.1.6 NO GOVERNMENT PROCEEDING OR LITIGATION. No suit, action,
investigation, inquiry, or other proceeding by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened which (a) questions the validity or legality of the transactions
contemplated hereby, (b) in the sole and exclusive judgment of Buyer materially
impairs the Issuer's ability to exercise control over or manage the business and
affairs of the Issuer after the Closing, or (c) in the sole and exclusive
judgment of Buyer might have a material adverse effect on the business or
financial condition of the Issuer.
8.1.7 MATERIAL CHANGE. From the date of the Balance Sheet to the
Closing Date, the Issuer shall not have suffered any material adverse change in
its business, financial condition, working capital, assets, liabilities
(absolute, accrued, contingent or otherwise), reserves, or operations.
8.1.8 OFFICERS' CERTIFICATE. The Issuer shall have delivered to Buyer
a certificate, signed by the President and the Secretary of the Issuer and dated
as of the closing Date, to the effect that (i) the representations and
warranties of the Issuer set forth in this Agreement were true and correct in
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all material respects on the date of this Agreement and are true and correct in
all material respects on the date of this Agreement and are true and correct in
all material respects on the Closing date as though such representations and
warranties were made as of the Closing Date, and (ii) the Issuer has duly
complied with and performed, in all material respects, all agreements,
covenants, and obligations required by this Agreement to be complied with or
performed by the Issuer on or before the Closing Date.
8.1.9 OPINIONS OF COUNSEL. The Issuer shall have delivered to the
Buyer a written opinion of its counsel, dated as of the Closing Date, in form
and substance satisfactory to Buyer and its counsel, to the effect that:
(a) Issuer is a corporation duly organized, validly existing, and in
good standing under the laws of the State of California and has all requisite
corporate power to perform its obligations under this Agreement;
(b) All corporate proceedings required by law or by the provisions of
this Agreement to be taken by Issuer on or before the Closing Date in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly and validly taken;
(c) Issuer has the corporate power and authority to sell the common
stock of the Issuer for the consideration set forth herein;
(d) Every consent, approval, authorization, or order of any court or
governmental agency or body that is required for the consummation by Issuer of
the transactions contemplated by this Agreement has been obtained and will be in
effect on the Closing Date;
(e) The consummation of the transaction contemplated by this Agreement
does not violate or contravene any of the provisions of any charter, bylaw, or
resolution of Issuer or of any indenture, agreement, judgment, or order to which
Issuer is a party or by which Issuer is bound. In rendering its opinion,
counsel for Issuer may rely on certificates of governmental authorities and on
opinions of associate counsel.
8.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF ISSUER. The Closing shall
not take place unless all of the following conditions have been fulfilled
before, or are fulfilled at the Closing (any of which may be waived by the
Issuer in whole or in part):
8.2.1 CORRECTNESS OF REPRESENTATIONS AND WARRANTIES. There shall be no
representation or warranty of the Buyer contained in this Agreement or in any
exhibit attached hereto which is untrue or inaccurate to any material extent.
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8.2.2 PERFORMANCE OF COVENANTS AND AGREEMENTS. There shall be no
covenant or agreement of the Buyer contained in this Agreement and required to
be performed before the Closing which has been breached to any material extent.
8.2.3 CORPORATE RECORDS. The Buyer shall have made available for
inspection to the Issuer the stock book, stock ledger, minute books, transfer
agent's records, and those contracts and agreements described in this Agreement.
8.2.4 CORPORATE APPROVAL. The execution and delivery of this Agreement
by Buyer, and the performance of its covenants and obligations under it,
including the issuance of Warrants, shall have been duly authorized by all
necessary corporate action, and Issuer shall have received copies of all
resolutions pertaining to that authorization, certified by the Secretary of the
Buyer.
8.2.5 NO GOVERNMENT PROCEEDING OR LITIGATION. No suit, action,
investigation, inquiry, or other proceeding by any governmental body or other
person or legal or administrative proceeding shall have been instituted or
threatened which (a) questions the validity or legality of the transactions
contemplated hereby, (b) in the sole and exclusive judgment of the Issuer
materially impairs the Buyer's ability to exercise control over or manage the
business and affairs of the Buyer after the Closing, or (c) in the sole and
exclusive judgment of the Issuer might have a material adverse effect on the
business or financial condition of the Buyer.
8.2.6 MATERIAL CHANGE. From the Balance Sheet Date to the Closing
Date, the Buyer shall not have suffered any material adverse change in its
business, financial condition, working capital, assets, liabilities (absolute,
accrued, contingent or otherwise), reserves, or operations.
8.2.7 OFFICERS' CERTIFICATE. The Buyer shall have delivered to the
Issuer a certificate, signed by the President and the Secretary of the Buyer and
dated as of the Closing Date, to the effect that (i) the representations and
warranties of the Buyer set forth in this Agreement were true and correct in all
material respects on the date of this Agreement and are true and correct in all
material respects on the Closing Date as though such representations and
warranties were made as of the Closing Date, and (ii) the Buyer has duly
complied with and performed, in all material respects, all agreements,
covenants, and obligations required by this Agreement to be complied with or
performed by the Buyer on or before the Closing Date.
8.2.8 OPINION OF COUNSEL. The Buyer shall have delivered to the Issuer
a written opinion of its counsel, dated as of the Closing Date, in form and
substance satisfactory to Issuer and its counsel, to the effect that:
(a) Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of California and has all requisite
corporate power to perform its obligations under this Agreement;
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(b) All corporate proceedings required by law or by the provisions of
this Agreement to be taken by Buyer on or before the Closing Date in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly and validly taken;
(c) Every consent, approval, authorization, or order of any court or
governmental agency or body that is required for the consummation by Buyer of
the transactions contemplated by this Agreement has been obtained and will be in
effect on the Closing Date;
(d) The consummation of the transaction contemplated by this Agreement
does not violate or contravene any of the provisions of any charter, bylaw, or
resolution of Buyer or of any indenture, agreement, judgment, or order to which
Buyer is a party or by which Buyer is bound. In rendering its opinion, counsel
for Buyer may rely on certificates of governmental authorities and on opinions
of associate counsel.
9. INDEMNIFICATION
9.1 INDEMNIFICATION BY ISSUER. The Issuer shall hold harmless and
indemnify Buyer and each of Buyer's past, present, and future directors,
officers, shareholders, employees, attorneys, agents, and other affiliates from
and against any loss, liability, damage, or expense, including without
limitation reasonable attorney fees, that is directly or indirectly suffered or
incurred at any time by Buyer or any of such directors, officers, shareholders,
employees, attorneys, agents or other affiliates and that arises directly or
indirectly out of or by virtue of, or is directly or indirectly connected with,
the breach or inaccuracy of any of the representations and warranties of the
Issuer or the failure of the Issuer to perform any of its covenants or
obligations contained in this Agreement (including the Disclosure Schedules) or
in any instrument or other document delivered hereunder or in connection
herewith.
9.2 INDEMNIFICATION BY BUYER. Buyer shall hold harmless and
indemnify the Issuer and each of Issuer's past, present and future directors,
officers, shareholders, employees, attorneys, agents and other affiliates of the
Issuer from and against any loss, liability, damage, or expense, including
without limitation reasonable attorney fees, that is directly or indirectly
suffered or incurred at any time by the Issuer or any of such directors,
officers, shareholders, employees, attorneys, agents or other affiliates and
that arises directly or indirectly out of or by virtue of, or is directly or
indirectly connected with, the breach or inaccuracy of any of the
representations and warranties of Buyer or the failure of Buyer to perform any
of its covenants or obligations contained in this Agreement, including the
Buyer's Disclosure Schedule, or in any instrument or other document delivered
hereunder or in connection herewith.
9.3 NOTICE AND OPPORTUNITY TO DEFEND. If any legal proceeding is
initiated, or any claim or demand is made, against any person with respect to
which such person (the "Indemnified Party") may make a claim against any party
hereto (the "Indemnifying Party") pursuant to this Section 9, then the
Indemnified Party shall give prompt written notice of such legal proceeding,
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claim, or demand to the Indemnifying Party. The Indemnifying Party shall, at
its own expense and with its own counsel, defend or settle such legal
proceeding, claim or demand; provided, however, that: (i) the Indemnifying Party
shall keep the Indemnified Party informed of all material developments and
events relating to such legal proceeding, claim or demand; (ii) the Indemnified
Party shall have the right to participate, at its own expense, in the defense of
such legal proceeding, claim or demand and shall cooperate as reasonably
requested by the Indemnifying Party in the defense thereof; and (iii) the
Indemnifying Party shall not settle such legal proceeding, claim or demand
without the prior written consent of the Indemnified Party, which consent shall
not be unreasonably withheld.
9.4 INDEMNIFICATION NOT A WAIVER. A person's right to
indemnification pursuant to this Section 9 shall not be deemed to be such
person's exclusive remedy in connection with or arising from the breach or
inaccuracy of any of the representations and warranties of the Indemnifying
Party or the failure of the Indemnifying Party to perform any of its covenants
or obligations contained in this Agreement (including the Disclosure Schedules)
or in any instrument or other document delivered hereunder or in connection
herewith; and the exercise by any person of his right to demand and receive such
indemnification shall not be deemed to prejudice, or to operate as a waiver of,
any remedy to which such person may be entitled at law or equity.
10. RELATED MATTERS.
10.1 CONFIDENTIALITY. Each party hereto will hold and will cause its
consultants and advisors to hold in strict confidence prior to the Closing Date,
unless compelled to disclose by judicial or administrative process or, in the
opinion of its counsel by other requirements of law, all documents and
information concerning the other party furnished it by such other party or its
representatives in connection with the transactions contemplated by this
Agreement (except to the extent that such information can be shown to have been:
(i) previously known by the party to which it was furnished; (ii) in the public
domain through no fault of the party to which it was furnished; or (iii) later
lawfully acquired from other sources by the party to which it was furnished),
and each party will not release or disclose such information to any other
person, except its auditors, attorneys, financial advisors, bankers, and other
consultants and advisors in connection with this Agreement.
10.2 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) if personally delivered, (ii) if mailed, five (5) business days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid, addressed to the intended recipient as set forth
below, (iii) if given by telex or telecopier, once such notice or other
communication is transmitted to the telex or telecopier number specified below
and the appropriate answer back or telephonic confirmation is received, provided
that such notice or other communication is promptly thereafter mailed in
accordance with the provisions of clause (ii) above, or (iv) if sent through an
overnight delivery service in circumstances to which such service guarantees
next day delivery, the day following being so sent:
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If to Buyer:
Louis L. Knickerbocker
The L. L. Knickerbocker Co., Inc.
30055 Comercio
Rancho Santa Margarita, CA 92688
Facsimile (714) 858-0339
Copy to:
William R. Black, Esq.
29 Summitcrest
Dove Canyon, California 92679
Facsimile (714) 888-7700
If to the Issuer:
James Scudder
Self-Heating Container Corporation of America
12675 Danielson Court, Suite 401
Poway, California 92064
Facsimile (619) 486-7204
Copy to:
Fisher Thurber LLP
4225 Executive Square, Suite 1600
La Jolla, California 92037-1483
Facsimile (619) 535-1616
Attention: David A. Fisher
Any party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
10.3 ARBITRATION. The parties hereby agree to submit all
controversies, claims and matters of difference arising as a result of this
Agreement and the transactions contemplated hereby to arbitration through
Judicial Arbitration and Mediation Services ("JAMS") according to the rules and
practices of JAMS governing commercial arbitration from time to time in force.
Such arbitration shall be conducted in San Diego County, California. This
submission and agreement to arbitrate shall
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be specifically enforceable. The parties agree to abide by all awards
rendered in such proceedings. Such awards shall be final and binding on all
parties to the extent, and in the manner, provided by California statute.
Such awards shall not be subject to appeal. All such awards may be filed with
the Clerk of the San Diego County Superior Court as a basis of judgment and
of the issuance of execution for its collection and, at the election of the
party making such filing, with the clerk of one or more other courts, state
or federal, having jurisdiction over the party against whom such an award is
rendered or the property of said party.
10.4 RECOVERY OF FEES AND COSTS. If any legal action or arbitration
proceeding is brought for the enforcement of this Agreement or because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement or documents executed and delivered pursuant
hereto, the successful or prevailing party or parties shall be entitled to
recover reasonable attorneys' and experts' fees and other costs incurred in that
proceeding, in addition to any other relief to which it or they may be entitled.
10.5 ENTIRE AGREEMENT. This Agreement represents the entire agreement
of the parties hereto with respect to the subject matter hereof, superseding all
prior agreements, understandings, discussions, negotiations, representations,
and commitments of any kind. This Agreement may not be amended or
supplemented, nor may any rights hereunder be waived, except in a writing signed
by each of the parties affected thereby.
10.6 SECTION HEADINGS. The section headings in this Agreement are
included for convenience only and are not a part of this Agreement and shall not
be used in construing it.
10.7 SEVERABILITY. In the event that any provision or any part of any
provision of this Agreement is held to be illegal, invalid, or unenforceable in
any jurisdiction, as to such jurisdiction such illegality, invalidity, or
unenforceability shall not affect the validity or enforceability of any other
provision or part hereof. Any such illegality, invalidity, or unenforceability
shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by law, the parties hereby waive any
provision of law that renders any provision illegal, invalid, or unenforceable
in any respect. In addition, in the event of any such illegality, invalidity
or unenforceability, the parties agree that it is their intention and agreement
that such provision which is held or determined to be illegal, invalid, or
unenforceable as written in any jurisdiction, shall nonetheless be in force and
binding to the fullest extent permitted by the law of the jurisdiction as though
such provision had been written in such a manner and to such an extent as to be
enforceable under the circumstances.
10.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.9 FURTHER ASSURANCES. Each party hereto shall execute and deliver
such instruments and take such other actions as the other party or parties, as
the case may be, may reasonably require in order to carry out the intent of this
Agreement.
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10.10 WAIVER OF COMPLIANCE. Any failure of the Issuer on the one hand,
or the Buyer on the other, to comply with any obligation, agreement, or
condition herein may be expressly waived in writing by the party having the
right to insist upon performance of such obligation, agreement, or condition;
but such waiver or failure to insist upon strict compliance with such
obligation, agreement, or condition shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure.
10.11 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties,
except by operation of law.
10.12 PUBLICITY. Neither the Issuer nor the Buyer shall make or issue,
or cause to be made or issued, any announcement or written statement concerning
this Agreement or the transactions contemplated hereby for dissemination to the
general public prior to the Closing Date without the prior consent of the other
party, which shall not be unreasonably withheld. This provision shall not apply,
however, to any announcements or written statement required to be made by law or
the regulations of any federal or state governmental agency or any stock
exchange, except that the party required to make such announcement shall consult
with the other party concerning the timing and content of such announcement
before such announcement is made.
10.13 GOVERNING LAW VENUE. This Agreement and the legal relations
among the parties hereto shall be governed by and construed in accordance with
the laws of the State of California, and the venue for any actions or claims in
connection herewith shall be San Diego County, California.
10.14 THIRD PARTIES. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason of
this Agreement.
10.15 CONSTRUCTION:
10.15.1 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be applied
against either party. Whenever required by the context, any gender shall
include any other gender, the singular shall include the plural, and the plural
shall include the singular. The words "herein", "hereof ", "hereunder", and
words of similar import, shall refer to the Agreement as a whole and not to a
particular section.
10.15.2 INDEPENDENT SIGNIFICANCE. The parties hereto intend that
each representation, warranty, and covenant contained herein shall have
independent significance. If any party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
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exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) that the party
has not breached, shall not detract from or mitigate the fact that the party is
in breach of the first representation, warranty, or covenant.
IN WITNESS WHEREOF, the parties have duly executed Agreement as of the first
date above mentioned.
THE L. L. KNICKERBOCKER CO., INC.
By: /s/ Louis Knickerbocker Date: 9-17-96
----------------------------------- ----------------------
Louis Knickerbocker, President
SELF-HEATING CONTAINER CORPORATION OF CALIFORNIA.
By: /s/ James Scudder Date: 9-17-96
---------------------------------- ----------------------
James Scudder, President
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LOAN AGREEMENT
This loan agreement ("Agreement") is entered into as of March 21, 1997, by
and between ONTRO, INC. a California corporation (referred to herein as
"Borrower" or the "Company"), and EARL SHANNON, (referred to herein as
"Lender"). Borrower and Lender agree as follows:
1. LOAN. Lender hereby lends to Borrower the sum of $110,000.00, (the
"Loan").
1.1 NOTE. The Loan shall be evidenced by a promissory note (the
"Note") (a copy of which is attached as Exhibit "A") executed by Borrower, dated
as of the date the Loan is made, providing for the payment of the principal
amount plus interest at the rate of ten percent (10%) per annum, compounded
annually, and computed on the basis of a 365-day year and actual days elapsed,
payable on the earlier to occur of: (i) the fifth business day after Borrowers
completion of the initial public offering of its common stock; or (ii) on the
date twenty-four (24) months from the date of the Note ("Maturity Date") at
which time all then unpaid principal and accrued interest shall be due and
payable.
1.2 WARRANT. Borrower shall as additional interest grant Lender a
Warrant to purchase twenty thousand (20,000) shares of Borrower's common stock
for every One Hundred Ten Thousand Dollars ($110,000) loaned to the Borrower by
the Lender pursuant to this Agreement (the "Warrant"). The exercise price of the
Warrant shall be One Dollar ($1.00) per share. The Warrant shall be exercisable
by the Lender at any time during the later to occur of: (i) Twenty-Four (24)
months from the date of the Note; or (ii) Thirty (30) days after the date there
is no longer any amount remaining due from the Borrower to the Lender pursuant
to this Agreement. The Warrant shall be substantially in the form of Exhibit
"B", attached hereto and incorporated herein. The Borrower shall reserve from
its authorized and unissued common stock the number of shares underlying the
Warrant.
2. CONDITIONS PRECEDENT TO LENDER'S OBLIGATIONS. Lender's obligation to
disburse the Loan is subject to the condition that, on the date of disbursement
("Closing Date"), there shall have been delivered to Lender, in form and
substance satisfactory to Lender and its counsel:
2.1 AUTHORIZATION TO BORROW. A copy of a resolution or resolutions,
in form and substance satisfactory to Lender, passed by the board of directors
of Borrower, authorizing the borrowing provided for in this Agreement, and the
execution, delivery, and performance of this Agreement and the Note or other
instrument or agreement required under this Agreement;
2.2 NOTE. The Note substantially in the form attached hereto as
Exhibit "A", executed by the President of the Borrower.
2.3 AUTHORIZATION OF WARRANT. A copy of a resolution or
resolutions, in form and substance satisfactory to Lender, passed by the board
of directors of Borrower, authorizing the grant of and delivery to the Lender of
the Warrant and reserving the shares of common stock of the
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Borrower thereunder.
2.4 WARRANT. The Wan-ant substantially in the form as attached
hereto as Exhibit "B", executed by the President of the Borrower.
2.5 INCUMBENCY CERTIFICATE. A certificate, signed by the Secretary
or an Assistant Secretary of Borrower and dated the Closing Date, certifying the
incumbency of the person or persons authorized to execute and deliver on behalf
of Borrower this Agreement and the Warrant and the Note or other instrument or
agreement required under this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents and
warrants that:
3.1 ORGANIZATION. Borrower is a corporation duly organized and
existing under the laws of the State of California with its principal place of
business at 12675 Danielson Court, Suite 401, Poway, California 92064. It has
the power to own its property and to carry on its business as it is now being
conducted. It is duly qualified and authorized to do business and is in good
standing in every state, country, or other jurisdiction in which the nature of
its business and properties makes such qualification necessary;
3.2 SUBSIDIARIES AND AFFILIATES. Borrower does not own or control,
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation, association, partnership, business, trust or other entity;
3.3 AUTHORITY. Borrower has full power and authority (corporate and
other) to borrow the sums provided for in this Agreement to execute and deliver
this Agreement, to issue the Warrant, the Note and any other instrument or
agreement required under this Agreement, and to perform and observe the terms
and provisions of this Agreement and of all such other instruments and
agreements;
3.4 CORPORATE ACTION. All corporate action by Borrower, its
directors or stockholders, necessary for the authorization, execution, delivery,
and performance of this Agreement, issuance of the Warrant and the Note and any
other instrument or agreement required under this Agreement has been duly taken;
3.5 INCUMBENCY AND AUTHORITY OF SIGNATOR'S. The officers of
Borrower executing this Agreement, the Warrant, the Note and any other
instrument or agreement required under this Agreement are duly and properly in
office and fully authorized to execute them;
3.6 DUE AND VALID EXECUTION. This Agreement has been duly
authorized, executed, and delivered by Borrower, and is a legal, valid, and
binding agreement of Borrower, enforceable against Borrower in accordance with
its terms and the Warrant and the Note and any other instrument or agreement
required under this Agreement has been so authorized and, when
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executed and delivered, will be similarly valid, binding, and enforceable;
3.7 RESERVED SHARES. There are sufficient authorized shares of
common stock available for the Warrant to be exercised and such shares of common
stock underlying the Warrant have been reserved on the books of the Borrower.
3.8 NO VIOLATION. There is no charter, bylaw, or capital stock
provision of Borrower, and no provision of any indenture or agreement, written
or oral, to which Borrower is a party or under which Borrower is obligated, nor
is there any statute, rule, or regulation, or any judgment, decree, or order of
any court or agency binding on Borrower which would be contravened by the
execution and delivery of this Agreement, the Warrant, the Note or any other
instrument or agreement required under this Agreement, or by the performance of
any provision, condition, covenant, or other term of this Agreement, the
Warrant, the Note or any such other instrument or agreement;
3.9 LITIGATION PENDING. There is no litigation, tax claim,
proceeding or dispute pending, or, to the knowledge of Borrower, threatened,
against or affecting Borrower or its property, the adverse determination of
which might affect Borrower's financial condition or operations or impair
Borrower's ability to perform its obligations under this Agreement or under the
Warrant, the Note or any other instrument or agreement required by this
Agreement;
3.10 EVENTS OF DEFAULT. No event has occurred and is continuing or
would result from the making of the Loan which would constitute an Event of
Default as defined herein or which, on the lapse of time or notice or both,
would become such an Event of Default;
3.11 All financial statements, as well as all other information, and
data furnished by Borrower to Lender are correct, and accurately and fairly
represent the financial condition and results of operations of Borrower as of
that date. Since that date there has been no material adverse change in
Borrower's financial condition or results of operations sufficient to impact
Borrower's ability to repay the Loan in accordance with the terms of this
Agreement. Borrower has no contingent obligations, liabilities for taxes, or
other outstanding financial obligations which are material in the aggregate,
except as disclosed in such statements, information, and data;
4. REPRESENTATIONS AND WARRANTIES OF LENDER. This Agreement is made with
Lender in reliance upon Lender's representation and warranties to the Company,
which by Lender's execution of this Agreement Lender hereby confirms, that:
4.1 AUTHORIZATION. This Agreement constitutes Lender's valid and
legally binding obligation, enforceable in accordance with its terms.
4.2 INVESTMENT INTENT. The Note and Warrant to be received by
Lender will be acquired for investment for Lender's or his designee's, own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Lender has no present
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intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, Lender further represents that Lender
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Note or the Warrant or any common stock underlying
the Warrant.
4.3 DISCLOSURE OF INFORMATION. Lender believes he/she/they have
received all the information he/she/they consider necessary or appropriate for
deciding whether to make the Loan, acquire the Note and the Warrant. Lender
further represents that he/she/they have had an opportunity to ask questions and
receive answers from officers of the Company regarding the Company, its business
and the terms and conditions of the Note and the Warrant.
4.4 CONFIDENTIALITY. Lender hereby represents, warrants and
covenants that he/she/they shall maintain in confidence, and shall not use or
disclose without the prior written consent of the Company, any information
identified as confidential that is furnished to him/her/them by the Company in
connection with this Agreement. This obligation of confidentiality shall not
apply, however, to any information (a) in the public domain through no
unauthorized act or failure to act by Lender, or (b) lawfully disclosed to
Lender by a third party who possessed such information without any obligation of
confidentiality. Lender further covenants that he/she/they shall return to the
Company all tangible materials containing such information upon request by the
Company.
4.5 INVESTMENT EXPERIENCE. Lender is a lender and investor in notes
and securities of companies in the development stage and acknowledges
he/she/they are able to fend for themselves, can bear the economic risk and
complete loss of his/her/their investment and has such knowledge and experience
in financial or business matters that he/she/they are capable of evaluating the
merits and risks of the investment in the Note and the Warrant.
4.6 RESTRICTED SECURITIES. Lender understands the Note, the Warrant
and the shares underlying the Warrant he/she/they are acquiring are
characterized as "restricted securities" under the federal securities laws in as
much as they are being acquired from the Company in a transaction not involving
a public offering and that under such laws and applicable regulations such
securities may not be resold without registration under the Securities Act of
1933, as amended (the "Securities Act"), except in certain limited
circumstances. In this connection Lender represents that he/she/they are
familiar with Securities and Exchange Commission ("SEC") Rule 144, as presently
in effect, and understand the resale limitations imposed thereby and by the
Securities Act.
4.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, Lender further agrees not to make any
disposition of all or any portion of the Note, the Warrant or the shares
underlying the Warrant unless and until:
4.7.1 There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
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4.7.2 Lender shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition and (ii) if reasonably
requested by the Company, Lender shall have furnished the Company with an
opinion of counsel, that such disposition will not require registration of such
shares under the Securities Act.
4.8 LEGENDS. It is understood the Note, the Warrant, or a
certificate for the Corporation's common stock evidencing the shares
underlying the Warrant ("Certificate") may bear one or more of the following
legends:
"These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged or hypothecated in
the absence of a registration statement in effect with respect to the
securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to
Rule 144 of such Act."
4.8.1 Any legend required by the laws of the State of
California or other jurisdiction, including any legend required by the
California Department of Corporations and Sections 417 and 418 of the California
Corporations Code.
4.9 ACCREDITED INVESTOR. Lender is an "accredited investor" as that
term is defined in CFR Section 230. 501(a) (Regulation D), as amended, of the
SEC under the Securities Act.
4.10 REMOVAL OF LEGENDS; FURTHER COVENANTS.
4.10.1 Any legend placed on the Note, the Warrant or a
Certificate pursuant to Section 4.8 hereof shall be removed (i) if the Note, the
Warrant or the shares represented by such Certificates shall have been
effectively registered under the Securities Act or otherwise lawfully sold in a
public transaction, (ii) if the shares may be transferred in compliance with
Rule 144(k) promulgated under the Securities Act, or (iii) if Lender shall have
provided the Company with an opinion of counsel, in form and substance
acceptable to the Company and its counsel and from attorneys reasonably
acceptable to the Company and its counsel, stating that a public sale, transfer
or assignment of the Note, the Warrant or the shares underlying the Warrant may
be made without registration.
4.10.2 Any legend placed on the Note or a Certificate pursuant
to Section 4.8.2 hereof shall be removed if the Company receives an order of the
appropriate state authority authorizing such removal or if Lender provides the
Company with an opinion of counsel, in form and substance acceptable to the
Company and its counsel and from attorneys reasonably acceptable to the Company
and its counsel, stating that such state legend may be removed.
4.10.3 Lender further covenants that Lender will not transfer
the Note or the
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Warrant, in violation of the Securities Act, the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), or the rules of the Commission
promulgated thereunder, including Rule 144 under the Securities Act. Further,
Lender agrees that, prior to the closing of the Company's initial public
offering, Lender will not transfer the Note, the Warrant or any shares
underlying the Warrant without the Company's prior consent, even if Lender is
otherwise permitted to transfer them pursuant to this Agreement and all
applicable law.
4.11. CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE NOTE AND
THE WARRANT WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH NOTE AND THE WARRANT OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF NOTE OR THE WARRANT IS EXEMPT FROM QUALIFICATION BY SECTIONS 25100, 25102 OR
25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS
AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
5. BORROWER'S AFFIRMATIVE COVENANTS. Borrower covenants and agrees that
until the full and final payment of all indebtedness incurred under this
Agreement has been made, it will, unless Lender waives compliance in writing:
5.1 USE OF PROCEEDS. Use the proceeds of the Loan in connection
with the further financing of its operations and for general working capital;
5.2 PAYMENT. Repay principal of and interest on the Loan according
to the terms of this Agreement and the terms of the Note evidencing the Loan;
5.3 NOTICE. Promptly give written notice to Lender of:
5.3.1 all litigation affecting Borrower when the amount
claimed is $1,000,000 or more;
5.3.2 any substantial dispute which may exist between
Borrower and any governmental regulatory body or law enforcement authority;
5.3.3 any labor controversy resulting in or threatening to
result in a strike against Borrower;
5.3.4 any proposal by any public authority to acquire
Borrower's assets or business or to engage in activities competitive with
Borrower;
5.3.5 any Event of Default or any event which, on a lapse of
time or notice
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or both, would become an Event of Default; and
5.3.6 any other matter that has resulted or might result in a
material adverse change in Borrower's financial condition or operations;
5.4 DOCUMENTS. Deliver to Lender, in form and detail satisfactory
to Lender, and in the number of copies Lender may reasonably request:
5.4.1 as soon as available but no later than, seventy-five
(75) days after the close of each fiscal year of Borrower, a complete copy of
its audit report, which shall include at least its balance sheet as of the close
of such year, and its income statement, reconciliation of capital accounts, and
statement of sources and uses of funds for that year, certified by an
independent public accountant selected by Borrower and satisfactory to Lender.
The certificate shall not be qualified or limited because of restricted or
limited examination by that accountant of any material portion of Borrower's
records;
5.4.2 such other statement or statements, lists of property
and accounts, budgets, forecasts or reports regarding Borrower as Lender may
reasonably request;
5.5 MAINTENANCE. Maintain and preserve its corporate existence and
all rights, privileges, and franchises now enjoyed, conduct its business in an
orderly, efficient, and customary manner, keep all its properties in good
working order and condition, and from time to time make all needed repairs to,
and renewals or replacements of, its properties so that the efficiency of those
properties shall be fully maintained and preserved;
5.6 OBLIGATIONS. Pay all obligations, including tax claims, at
maturity, unless the obligation to make such payment or payments is in good
faith being disputed or is being contested by appropriate proceedings with
due diligence;
5.7 INSURANCE. Maintain and keep in force in adequate amounts fire
(including use and occupancy), public liability, property damage, and workers'
compensation insurance;
5.8 BOOKS AND RECORDS. Maintain adequate books, accounts, and
records and prepare all financial statements required under this Agreement in
accordance with generally accepted accounting principles and practices
consistently applied, and in compliance with the regulations of any governmental
regulatory body having jurisdiction over them; and permit employees or agents of
Lender at any reasonable time to inspect Borrower's properties, and to examine
or audit Borrower's books, accounts, and records and make copies and memoranda
of them;
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5.9 SALES PROCEEDS. Apply the proceeds of sales of its fixed or
capital assets in excess of a cumulative total of $500,000 at Lender's option,
to:
5.9.1 the most remote principal installments of the Loan;
5.9.2 replacement of the assets sold;
5.9.3 a reserve for future purchase of fixed or capital
assets; or
5.9.4 working capital purposes;
6. BORROWER'S NEGATIVE COVENANTS. Borrower covenants and agrees that
until full and final payment of all indebtedness incurred under this Agreement
has been made, it will not, without the prior written consent of Lender:
6.1 DIVIDENDS. Declare or pay any dividends on any of its shares
except dividends payable in Borrower's capital stock;
6.2 REDEMPTIONS. Purchase, redeem, or otherwise acquire for value,
any of its shares, or create any sinking fund in relation to any of its shares,
except as part of restricted compensation or similar awards or issuances to
employees or consultants;
6.3 LIQUIDATION OR DISSOLUTION. Liquidate or dissolve, or enter
into any consolidation, merger, pool, joint venture, syndicate, or other
combination, or sell, lease, or dispose of its business or assets as a whole or
such part as in the reasonable opinion of Lender constitutes a substantial
portion of its business or assets;
6.4 FURTHER INDEBTEDNESS. Except as provided in this Agreement,
create or incur any indebtedness for borrowed money which would be senior in
repayment to the Loan, or become liable as a surety, guarantor, accommodation
endorser, or otherwise, for or on the obligation of any other person, firm, or
corporation which would provide a priority of repayment to the Loan; provided,
however, that this section shall not prohibit:
6.4.1 the acquisition of equipment, goods, supplies, or
merchandise on normal credit;
6.4.2 the execution of bonds, undertakings, or contracts in
the usual course of Borrower's business; or
6.4.3 the endorsement of negotiable instruments received in
the usual course of Borrower's business;
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6.5 ENCUMBRANCES. Create, assume, or suffer to exist any mortgage,
encumbrance, or other lien (including a lien of attachment, judgment, or
execution), or security interest (including the interest of a conditional seller
of goods), securing a charge or obligation, on or of any of its property, real
or personal, whether now owned or hereafter acquired, except:
6.5.1 lien or charge for current tax, assessment, or other
govern. mental charge, which is not delinquent or remains payable without any
Penalty, or the validity of which is contested in good faith by appropriate
Proceedings on stay of execution of the enforcement of the lien or charge;
6.5.2 deposits or pledges to secure (i) statutory
obligations, (ii) surety or appeal bonds, (iii) bonds for release of attachment
stay of execution, or injunction, or (iv) performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or leases, or for
purposes of like general nature in the ordinary course of Borrower's business;
6.5.3 purchase-money security interests in personal property
acquired after the date of this Agreement when the obligation secured does not
exceed one hundred percent (100%) of the cost of the property purchased;
6.6 ASSET DISPOSITIONS. Dispose of any of its assets except for
full, fair, and reasonable consideration, or enter into any sale and leaseback
agreement covering any of its fixed or capital assets, or dispose of its assets
as a whole or such part of its assets except in the regular course of conducting
its business;
7. EVENTS OF DEFAULT. Regardless of the terms of any note issued under
this Agreement the occurrence of any of the events set out below ("Events of
Default") shall at the option of Lender, make all interest and principal
remaining on the Loan immediately due and payable, without notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor,
or other notices or demands of any kind, except as specified in this Agreement:
7.1 PAYMENTS Borrower shall fail to pay, within 10 days after the
date when due, any installment of interest or principal in accordance with the
terms of this Agreement or of the Note evidencing the Loan;
7.2 REPRESENTATIONS AND WARRANTIES. Any representation or warranty
by Borrower in this Agreement or in any agreement, instrument, or certificate
executed under this Agreement or in connection with any transaction contemplated
by this Agreement shall prove to have been false or misleading in any material
respect when made;
7.3 LIENS. An involuntary lien or liens in the aggregate sum of
$500,000 or more, of any kind, shall attach to the assets or property of
Borrower, except for taxes due but not in default, or for taxes that are being
contested; provided, however, that no lien shall be considered for the purpose
of this section if:
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7.3.1 such lien is removed without expenditure of funds by
Borrower other than the costs of appropriate proceedings; or
7.3.2 Borrower, in the reasonable opinion of its counsel, has
the right to and is diligently proceeding to have such lien removed without
unreasonable expenditure of funds by Borrower other than the costs of
appropriate proceedings, and such opinion of counsel is furnished to Lender
within ten days after written request for it;
7.4 JUDGMENTS. A judgment or judgments shall be entered against
Borrower in the aggregate amount of $500,000 or more on a claim or claims not
covered by insurance; provided, however, that no judgment shall be considered
for the purpose of this section if:
7.4.1 such judgment is vacated without unreasonable
expenditure of funds by Borrower other than the costs of appropriate
proceedings; or
7.4.2 Borrower, in the opinion of its counsel, has the right
to and is diligently proceeding to have such judgment vacated without
unreasonable expenditure of funds by Borrower other than the costs of
appropriate proceedings, and such opinion of counsel is furnished to Lender
within ten days after written request for it;
7.5 BANKRUPTCY. Borrower shall file any petition or action for
relief under any Bankruptcy, arrangement, reorganization, insolvency, or
moratorium law, or any other law or laws for the relief of or relating to
debtors, or shall, with respect to any involuntary petition or action for relief
under such law or laws, consent or fail to timely object to the relief requested
in such petition;
7.6 INVOLUNTARY BANKRUPTCY. An involuntary petition shall be filed
under any bankruptcy statute against Borrower, or a receiver, trustee,
custodian, or similar officer of the court shall be appointed to take possession
of all or any substantial part of Borrower's properties, unless such petition or
appointment is dismissed or withdrawn or ceases to be in effect within 90 days
from the date of the filing or appointment;
7.7 OTHER DEFAULT. Any material default shall occur under any other
agreement pertaining to the borrowing of money or the advance of credit to which
Borrower may be a party as borrower, if that default gives to the holder of the
obligation concerned the right to accelerate the indebtedness;
7.8 BREACH. Borrower shall breach or default under any term,
condition, provision, representation, or warranty in this Agreement if that
breach or default shall continue for ten days after its occurrence, or, if
Lender has received notice of the breach or default within that ten-day period,
after notice of the breach or default to Borrower from Lender, whichever is
later.
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8. MISCELLANEOUS.
8.1 NOTICES. Any communications between the parties or notices
provided for in this Agreement may be given by mailing them, first class,
postage prepaid, to Lender at:
Earl Shannon
P.O. Box 811361
Boca Raton, FL 33481-1361
and to Borrower at:
Ontro, Inc.
12675 Danielson Court, Suite 401
Poway, Ca. 92064
Attn: James A. Scudder
with a copy to:
Fisher Thurber, LLP
4225 Executive Square, Suite 1600
La Jolla, CA. 92037-1483
Attn: David A. Fisher
or to such other address as either party may indicate to the other in writing
after the date of this Agreement.
8.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the parties and their respective successors and assigns;
provided, however, that Borrower shall not assign this Agreement or any of the
rights, duties, or obligations of Borrower under this Agreement without the
prior written consent of Lender.
8.3 DELAY AND WAIVERS. No delay or omission to exercise any right,
power, or remedy accruing to Lender on any breach or default of Borrower under
this Agreement shall impair any such right, power, or remedy of Lender, nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence in such breach or default, or waiver of or acquiescence in any
similar breach or default occurring later; nor shall any waiver of any single
breach or default be considered a waiver of any other prior or subsequent breach
or default. Any waiver, permit, consent, or approval of any kind by Lender of
any breach or default under this Agreement, or any waiver by Lender of any
provision or condition of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in that writing. All
remedies, either under this Agreement or by law or otherwise afforded to
Lender, shall be cumulative and not alternative.
8.4 ATTORNEYS FEES. In the event of any legal action or suit in
relation to this Agreement or any note or other instrument or agreement required
under this Agreement, or in the event that Lender incurs any legal expense in
protecting its rights under this Agreement or under any security agreement in
any legal proceeding, Borrower, in addition to all other sums which Borrower may
be called on to pay, will pay to Lender the amount of such legal expense and
will, if Lender
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prevails in such action, pay to Lender a reasonable sum for its attorney's fees
and all other costs and expenses.
8.5 SEVERABILITY. In the event any sentence or paragraph of this
Agreement is declared void by a court of competent jurisdiction, said sentence
or paragraph shall be deemed severed from the remainder of this Agreement, and
the balance of this Agreement shall remain in effect.
8.6. TITLES, CAPTIONS AND PARAGRAPH HEADINGS. Paragraph and
subparagraph titles and captions contained in this Agreement are inserted only
as a matter of convenience for reference. Such titles, captions, and paragraph
headings in no way define, limit, extend or describe the scope of this Agreement
or the intent of any provisions hereof.
8.7 NUMBER AND GENDER. Whenever a singular number is used in this
Agreement or where required by context, the same shall include plural. Masculine
gender shall include feminine and neuter genders and the word "person" shall
include corporation, firm, partnership, or other forms of association.
8.8. ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement between all parties herein and supersedes all prior Agreements and
understandings, oral or written, between the parties hereto with respect to
the subject matter hereof, and shall not be modified or amended except in
writing, executed by all parties herein.
8.9. COUNTERPARTS. This Agreement may be executed in several
counterparts, and as so executed shall constitute an Agreement, binding to all
parties herein.
8.10 NON-WAIVER. No delay or omission on the part of any party
herein in exercising any rights or remedies herein shall operate as a waiver of
such rights or remedies. No waiver of any default shall constitute a waiver of
any other default whether of the same or any other covenant or condition. No
waiver, benefit, privilege or service voluntarily given or performed by any
party herein shall give the other parties any contractual right by custom,
estoppel or otherwise. Any waiver by any party herein must be executed in
writing, expressly specifying the subject and extent of the waiver.
8.11 GOVERNING LAW AND VENUE. This Agreement and all amendments
thereto shall be governed, construed, and enforced in accordance with the laws
of the State of California, and venue for any legal action arising out of this
Agreement shall be in San Diego County, California.
12
<PAGE>
8.12. LEGAL REPRESENTATION. The law firm of Fisher Thurber LLP has
prepared this Agreement solely on behalf of the Borrower based on instructions
received. The Lender has been advised to seek and obtain separate legal counsel
with respect to the preparation and execution of this Agreement, and he/she has
had an opportunity to do so, has access to qualified independent counsel and has
sought and obtained such advice and counsel to the extent desired.
8.13 CONSTRUCTION. This Agreement has been negotiated between the
parties and their advisors, and shall not be construed against the party
preparing it, but shall be construed as if all parties jointly prepared this
Agreement and any uncertainty and ambiguity shall not be interpreted against any
one party.
8.14 NO OTHER INDUCEMENT. The making, execution and delivery of this
Agreement by the parties hereto has been induced by no representations,
statements, warranties or agreements other than those expressed herein.
8.15 CONFLICTS. In the event of any inconsistency in the terms of
the Note or the Warrant and this Loan Agreement, the terms and conditions of the
Loan Agreement shall control.
IN WITNESS WHEREOF, the parties to this Agreement have executed this Loan
Agreement by their duly authorized officers effective as of the day and year
first above written.
BORROWER:
ONTRO, INC.
a California corporation
By: /s/ JAMES A. SCUDDER
-------------------------------------
James A. Scudder, President
LENDER:
/s/ EARL SHANNON
----------------------------------------
Earl Shannon
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
13
<PAGE>
EXHIBIT A
NOTE
<PAGE>
PROMISSORY NOTE
$110,000.00 POWAY, CALIFORNIA MARCH 21, 1997
ONTRO, INC., a California corporation (the "Company" or "Borrower"), for
value received, hereby promises to pay to EARL SHANNON ("Lender"), on the
Maturity Date (as hereinafter defined), the principal amount of One Hundred Ten
Thousand Dollars ($110,000.00) and to pay interest (computed on the basis of a
365-day year and actual days elapsed) on the principal amount from time to time
remaining unpaid hereon at the rate of Ten Percent (10%) per annum, compounded
annually, from the date hereof until the Maturity Date. All sums due pursuant to
this Note shall be due and payable on the earlier to occur of: (i) the fifth
business day after the Company's completion of an initial public offering of its
common stock; or (ii) the date which is twenty-four (24) months from the date of
this Note (the "Maturity Date.") Both the principal hereof and any accrued but
unpaid interest hereon are due on the Maturity Date, payable at the principal
office of the Company in Poway, California in currency of the United States of
America which at the time of payment shall be legal tender for payment of public
and private debts.
This Note is made pursuant to a Loan Agreement of even date herewith. All
capitalized terms not otherwise defined herein shall have the meaning attributed
to them in the Loan Agreement. In the event of any inconsistencies or conflicts
between the terms and conditions of this Note and the Loan Agreement, the terms
and conditions of the Loan Agreement shall control.
The unpaid principal amount of this Note, together with accrued interest
hereon, and any other sum due or to become due hereunder, shall, at the election
of the Lender hereof, mature and become immediately due and payable without
presentment or demand for payment, dishonor or notice of dishonor, protest or
notice of protest or other formality, all of which are hereby expressly waived,
upon the happening of any one or more of the Events of Default as defined in the
Loan Agreement.
The Borrower hereby consents to renewals and extensions of time before or
after the maturity hereof, and agrees that no failure on the part of the Lender
to exercise any power, right or privilege hereunder, or to insist upon prompt
compliance with the terms hereof, shall constitute a waiver thereof.
<PAGE>
Borrower promises to pay costs of collection, including attorney's fees,
whether or not suit is filed, upon the non-performance by Borrower of any
obligation arising out of this Note.
The Lender shall not be deemed, by any act of omission or commission, to
have waived any of their rights or remedies hereunder unless such waiver is in
writing and signed by the Lender, and then only to the extent specifically set
forth in writing. A waiver with reference to one event shall not be construed
and continuing or as a bar to or waiver of any right or remedy as to a
subsequent event. No delay or omission of the Lender to exercise any right,
whether before or after an event of default or a default thereunder, shall
impair any such right or shall be construed to be a waiver of any right or
default, and the acceptance at any time by the Lender of any past due amounts
shall not be deemed to be a waiver of the right to require prompt payment when
due of any other amounts then or thereafter due and payable.
The remedies of the Lender in this Note or at law or in equity, shall be
cumulative and concurrent, and may be pursued singly, successively or together
at the sole discretion of the Lender, and may be exercised as often as occasion
therefor shall occur; and the failure to exercise any such right or remedy shall
in no event be construed as a waiver or release thereof.
Lender shall not become or be deemed a partner or joint venturer with the
Borrower by reason of any provisions of this Note.
If any amount of principal or interest on or in respect of this Note
becomes due and payable on any date which is not a Business Day, such amount
shall be payable on the next preceding Business Day. "Business Day" means any
day other than a Saturday, Sunday, statutory holiday or other day on which banks
in the State of California are required by law to close or are customarily
closed.
If any of the provisions of this Note or the application thereof to any
persons or circumstances shall, to any extent, be held to be invalid or
unenforceable, the remainder of this Note by the application of such provision
or provisions to persons or circumstances other than those as for whom or of
which it is held invalid or unenforceable shall not be affected thereby, and
every provision of this Note shall be valid and enforceable to the fullest
extent permitted by law.
The terms of this Note shall apply to, inure to the benefit of, and bind
all parties hereto, their heirs, legatees, devisees, administrators, executors,
successors and assigns.
Time is of the essence of this Note and the performance of all provisions
hereof.
This Note is registered on the books of the Company and is transferable
only by surrender thereof at the principal office of the Company duly endorsed
or accompanied by a written instrument of transfer duly executed by the
registered Lender of this Note or its attorney duly authorized in writing.
Payment of or on account of principal and interest on this Note shall be made
only to or upon the order in writing of the registered Lender.
<PAGE>
This Note and said Loan Agreement is governed by and construed in
accordance with the laws of the State of California.
BORROWER:
ONTRO, INC.
a California corporation
By: /s/ James A. Scudder
--------------------------------
James A. Scudder, President
THE SECURITIES REPRESENTED IN PART BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 NOR REGISTERED NOR QUALIFIED UNDER ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED
AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND
REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL, SUCH
QUALIFICATION AND REGISTRATION IS NOT REQUIRED. ANY TRANSFER OF THE SECURITIES
REPRESENTED BY THIS NOTE IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND
CONDITIONS WHICH ARE SET FORTH IN THE LOAN AGREEMENT.
<PAGE>
EXHIBIT B
WARRANT
<PAGE>
NEITHER THIS WARRANT NOR THE WARRANT SHARES HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THE CORPORATION WILL NOT TRANSFER THIS WARRANT OR THE
WARRANT SHARES UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION COVERING SUCH
WARRANT OR SUCH WARRANT SHARES, AS THE CASE MAY BE, UNDER THE SECURITIES ACT OF
1933 AND APPLICABLE STATES SECURITIES LAWS, (ii) IT FIRST RECEIVES A LETTER FROM
AN ATTORNEY, ACCEPTABLE TO THE BOARD OF DIRECTORS AND ITS AGENTS, STATING THAT
IN THE OPINION OF THE ATTORNEY THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933 AND UNDER ALL APPLICABLE STATE SECURITIES LAWS,
OR (iii) THE TRANSFER IS MADE PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF
1933.
ONTRO, INC.
No. W-009 Warrant to Subscribe for
20,000 Shares of Common Stock
COMMON STOCK PURCHASE WARRANT
March 21, 1997
NOT TRANSFERABLE OR EXERCISABLE
EXCEPT UPON CONDITIONS HEREIN SPECIFIED
---------------------------
THIS CERTIFIES that, for value received, EARL SHANNON ("Holder") is
entitled to subscribe for and purchase from ONTRO, INC., a California
corporation (hereinafter called the "Corporation"), Twenty Thousand (20,000)
shares of Common Stock, (the "Common Stock"), of the Corporation (such shares
to be subject to adjustment in accordance with Section 3 hereof, hereinafter
sometimes called the ("Warrant Shares") at an exercise price of One Dollar
($1.00) per share (the "Exercise Price"), at any time or from time to time
during the Exercise Period (as defined in Section 1 hereof).
Section 1. EXERCISE OF WARRANT.
(a) The rights represented by this Warrant may be exercised by the
holder hereof, in whole at any time or in part from time to time during the
Exercise Period, but not as to a fractional share of Common Stock, by the
surrender of this Warrant (properly endorsed) at the office of the
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<PAGE>
Corporation, at 12675 Danielson Court, Suite 401, Poway, CA 92064 (or at such
other agency or office of the Corporation in the United States of America as the
Corporation may designate by notice in writing to the holder hereof at the
address of such holder appearing on the books of the Corporation), and by
payment to the Corporation of the Exercise Price in cash or by certified or
official bank check in United States Dollars for each share being purchased.
(b) In the event of any exercise of the rights represented by this
Warrant, (i) a certificate or certificates for the shares of Common Stock so
purchased, registered in the name of the person entitled to receive the same,
shall be mailed to the Holder within a reasonable time after the rights
represented by this Warrant shall have been so exercised; provided, however,
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any such
certificate in a name other than that of the registered Holder thereof, and the
Corporation shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Corporation the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid; and (ii) unless
this Warrant has expired, a new Warrant representing the number of shares
(except a remaining fractional share), if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the Holder
hereof within such time. The person in whose name any certificate for shares of
Common Stock is issued upon exercise of this Warrant, shall for all purposes be
deemed to have become the Holder of record of such shares on the date on which
this Warrant was surrendered and payment of the Exercise Price was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Corporation are closed, such person shall be deemed to have become the
Holder of record of such shares at the close of business on the next succeeding
date on which the stock transfer books are open. The issuance of any shares of
Common Stock pursuant to the terms of this Warrant shall at all times be subject
to compliance with all requirements of the Securities Act of 1933, as amended,
and with all applicable foreign and state securities and blue sky laws then in
effect.
(c) As used herein, the following terms shall have the following
meanings:
(i) "CLOSING PRICE" on any Trading Day shall mean the reported
last sales price of a share of Common Stock, regular way, on such Trading Day,
or in case no sale takes place on such Trading Day, the average of the last
reported closing bid and asked prices, regular way, in each case on the
principal national securities exchange on which the Common Stock is then listed
or admitted to trading or, if the Common Stock is not then listed or admitted to
trading on any national securities exchange, the highest closing sales price or,
if no sale takes place on such Trading Day, the average of the closing bid and
asked prices of a share of Common Stock in the over-the-counter market as shown
on NASDAQ or, if the Common Stock is not then quoted in such system, as reported
on the OTC Bulletin Board or as published by the National Quotation Bureau,
Incorporated or any similar successor organization, and in either case as
reported by any member firm of the New York Stock Exchange selected by the
Corporation.
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<PAGE>
(ii) "EXERCISE PERIOD" shall mean the period beginning on the
date hereof and ending on the 24th monthly anniversary of the date hereof,
subject to earlier termination in accordance with the following provisions. If,
at any time after the date hereof, the Closing Price of the Corporation's Common
Stock exceeds $8.00 per share for any 20 out of any 30 consecutive Trading Days,
the Corporation may, upon giving written notice to the Holders of the Warrants,
no later than 10 days after the end of any such 30-day period, notify the
Holders of outstanding Warrants that the Exercise Period will terminate on a
date specified by the Corporation in such notice which shall not be earlier than
the 45th day after the end of such 30-day period. Notwithstanding the foregoing
sentence, the Corporation will not be permitted to accelerate the termination of
the Exercise Period as set forth above unless the Corporation has an effective
registration statement covering all of the Warrant Shares at the time the
Corporation provides notice of the acceleration of the termination of the
Exercise Period and the Corporation has reason to believe, and in good faith
does believe, such registration statement shall remain in effect throughout the
Exercise Period, as accelerated.
The Corporation shall: (A) take all action reasonably
necessary to keep such registration statement effective for a period of not less
than six months after the termination of the accelerated exercise period,
including, without limitation the filing of all such amendments and supplements
as may be necessary to keep such registration statement effective; and (B) use
its best efforts to register or qualify the Warrant Shares covered by the
aforesaid registration statement under the securities or blue sky laws of such
jurisdiction as any Holders of the Warrants and Warrant Shares shall reasonably
request (provided, the Company shall not be required to consent to general
service of process for all purposes of any jurisdiction where it is not then
qualified) and do any and all other acts or things which may be reasonably
necessary or advisable to enable such seller to consummate the public sale or
other disposition in such jurisdictions of such securities.
(iii) "TRADING DAY" shall mean any day on which the principal
national securities exchange or over-the-counter market in which the Common
Stock is traded is open for business and in which there is no restriction on
trading in the Common Stock.
SECTION 2. COVENANTS AS TO COMMON STOCK. The Corporation covenants and
agrees all Warrant Shares will, upon issuance, be validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. The Corporation further covenants and agrees the Corporation will
at all times have authorized and reserved, free from preemptive rights, a
sufficient number of shares of its common stock to provide for the exercise of
the rights represented by this Warrant. If and so long as the Common Stock
issuable upon the exercise of this Warrant is listed on any national securities
exchange, the Corporation will, if permitted by the rules of such exchange, list
and keep listed on such exchange, upon official notice of issuance, all of the
Warrant Shares.
Section 3. TRANSFER.
(a) SECURITIES LAWS. Neither this Warrant nor the Warrant Shares have
been registered under the Securities Act of 1933. The Corporation will not
transfer this Warrant or the Warrant
B-3
<PAGE>
Shares unless (i) there is an effective registration covering such Warrant or
such shares, as the case may be, under the Securities Act of 1933 and applicable
states securities laws, (ii) it first receives a letter from an attorney,
acceptable to the Corporation's board of directors or its agents, stating that
in the opinion of the attorney the proposed transfer is exempt from registration
under the Securities Act of 1933 and under all applicable state securities laws,
or (iii) the transfer is made pursuant to Rule 144 under the Securities Act of
1933.
(b) COMPLIANCE WITH BLUE SKY LAW. The Corporation will be able to
issue the Warrant Shares upon exercise of the Warrant only if there is a then
current Offering Memorandum or registration statement available for and
distributed to the Warrant Holders relating to such Common Stock, and only if
such Warrant and Common Stock is qualified for sale or exempt from qualification
under applicable state securities laws of the jurisdiction in which the Holders
of the Warrants reside. The Corporation reserves the right in its sole
discretion to determine not to apply for exemptions or to register such Common
Stock in any jurisdiction where the time and expense do not justify the costs of
such exemption filing or registration. The Warrants may be deprived of any value
in the event the Corporation does not satisfy or the Corporation chooses not to
satisfy any such requirements. Although it is the present intention of the
Corporation to satisfy such requirements, there can be no assurance the
Corporation will be able to do so; provided, however, the Corporation will not
be permitted to accelerate the termination of the Exercise Period of these
Warrants unless such acceleration is accomplished in full compliance with
Section 1(c)(ii) hereof.
(c) INVESTMENT REPRESENTATIONS. The Holder of the Warrant agrees and
acknowledges the Warrant is being purchased for his own account, for investment
purposes only, that he either has a prior personal or business relationship with
the officers, directors or controlling persons, or by reason of his business or
financial experience, or the business or financial experience of he and his
professional advisors who are unaffiliated with and not compensated by the
Corporation, could be reasonably assumed to have the capacity to protect his own
interests in connection with the purchase of and the exercise of the Warrants,
and not for the account of any other person, and not with a view to
distribution, assignment or resale to others or to fractionalization in whole or
in part, and the Holder further represents, warrants and agrees as follows: no
other person has or will have a direct or indirect beneficial interest in this
Warrant and the Holder will not sell, hypothecate or otherwise transfer his
Warrant except in accordance with the Act and applicable state securities laws
or unless, in the opinion of counsel for the Holder acceptable to the
Corporation, an exemption from the registration requirements of the Act and such
state laws is available.
(d) CONDITIONS TO TRANSFER. Prior to any such proposed transfer, and
as a condition thereto, if such transfer is not made pursuant to an effective
registration statement under the Securities Act, the Holder will, if requested
by the Corporation, deliver to the Corporation (i) an investment covenant signed
by the proposed transferee, (ii) an agreement by such transferee that the
restrictive investment legend set forth above be placed on the certificate or
certificates representing the securities acquired by such transferee, (iii) an
agreement by such transferee that the Corporation may place a "stop transfer
order" with its transfer agent or registrar, and (iv) an
B-4
<PAGE>
agreement by the transferee to indemnify the Corporation to the same extent as
set forth in the next succeeding paragraph.
(e) INDEMNITY. The Holder acknowledges the Holder understands the
meaning and legal consequences of this Section, and the Holder hereby agrees to
indemnify and hold harmless the Corporation, its representatives and each
officer, director, agent, and legal counsel thereof from and against any and all
loss, damage or liability (including all attorneys' fees and costs incurred in
enforcing this indemnity provision) due to or arising out of (a) the inaccuracy
of any representation or the breach of any warranty of the Holder contained in,
or any other breach of, this Warrant, (b) any transfer of any of this Warrant or
the Warrant Shares in violation of the Securities Act of 1933, the Securities
Exchange Act of 1934, as amended, or the rules and regulations promulgated under
either of such acts, (c) any transfer of this Warrant or any of the Warrant
Shares not in accordance with this Warrant or (d) any untrue statement or
omission to state any material fact in connection with the investment
representations or with respect to the facts and representations supplied by the
Holder to counsel to the Corporation upon which its opinion as to a proposed
transfer shall have been based.
(f) HOLDBACK PERIOD AND TRANSFER. Except as specifically restricted
hereby, this Warrant and the Warrant Shares issued may be transferred by the
Holder in whole or in part at any time or from time to time. In the event the
Corporation publicly offers shares of its Common Stock, the Warrant Shares may
not be sold from the date of the Corporation's initial public offering of
securities for the period set forth in any agreement between the Company and any
underwriter or managing broker of such public offering. Upon surrender of this
Warrant certificate to the Corporation or at the office of its stock transfer
agent, if any, with the Assignment Form annexed hereto duly executed and funds
sufficient to pay any transfer tax, and upon compliance with the foregoing
provisions, the Corporation shall, without charge, execute and deliver a new
Warrant certificate in the name of the assignee named in such instrument of
assignment, and this Warrant certificate shall promptly be canceled. Any
assignment, transfer, pledge, hypothecation or other disposition of this Warrant
attempted contrary to the provisions of this Warrant, or any levy of execution,
attachment or other process attempted upon this Warrant, shall be null and void
and without effect.
Section 4. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Corporation, either at law or
in equity, and the rights of the Holder are limited to those expressed in this
Warrant.
Section 5. ANTI-DILUTION PROVISIONS.
(a) STOCK SPLITS; DIVIDENDS, ETC.
(i) If the Corporation shall at any time after the date hereof
subdivide its outstanding shares of Common Stock (or other securities at the
time receivable upon the exercise of the Warrant) by recapitalization,
reclassification or split-up thereof, or if the Corporation shall declare a
stock dividend or distribute shares of Common Stock to its stockholders, the
number of shares
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<PAGE>
of Common Stock subject to this Warrant immediately prior to such subdivision
shall be proportionately increased, and if the Corporation shall at any time
combine the outstanding shares of Common Stock by recapitalization,
reclassification or combination thereof, the number of shares of Common Stock
subject to this Warrant immediately prior to such combination shall be
proportionately decreased. Any such adjustment and adjustment to the Exercise
Price pursuant to this Section shall be effective at the close of business on
the effective date of such subdivision or combination or if any adjustment is
the result of a stock dividend or distribution then the effective date for such
adjustment based thereon shall be the record date therefor.
(ii) Whenever the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted, as provided in this Section, the
Exercise Price shall be adjusted to the nearest cent by multiplying such
Exercise Price immediately prior to such adjustment by a fraction (x) the
numerator of which shall be the number of shares of Common Stock purchasable
upon the exercise immediately prior to such adjustment, and (y) the denominator
of which shall be the number of shares of Common Stock so purchasable
immediately thereafter.
(b) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER. ETC. In case
of any reorganization of the Corporation (or any other corporation, the
securities of which are at the time receivable on the exercise of this Warrant)
after the date hereof, or in case after such date the Corporation (or any such
other corporation) shall consolidate with or merge into another corporation or
convey all or substantially all of its assets to another corporation, then, and
in each such case, the Holder of this Warrant upon the exercise as provided in
Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the securities and property receivable upon the exercise of this Warrant prior
to such consummation, the securities or property to which such Holder would have
been entitled upon such consummation if such Holder had exercised this Warrant
immediately prior thereto; in each such case, the terms of this Warrant shall be
applicable to the securities or property received upon the exercise of this
Warrant after such consummation.
(c) CERTIFICATE AS TO ADJUSTMENTS. In each case of an adjustment in
the number of shares of Common Stock receivable on the exercise of this Warrant,
the Corporation at its expense shall promptly compute such adjustment in
accordance with the terms of the Warrant and prepare a certificate executed by
an officer of the Corporation setting forth such adjustment and showing the
facts upon which such adjustment is based. The Corporation shall forthwith mail
a copy of each such certificate to each Holder.
(d) NOTICES OF RECORD DATE, ETC. In case:
(i) the Corporation shall take a record of the holders of its
Common Stock (or other securities at the time receivable upon the exercise of
the Warrant) for the purpose of entitling them to receive any dividend (other
than a cash dividend at the same rate as the rate of the last cash dividend
theretofore paid) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other securities,
or to receive any other right; or
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<PAGE>
(ii) of any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation, then, and in each such case, the Corporation
shall mail or cause to be mailed to each Holder a notice specifying, as the case
may be, (A) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (B) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any, to be fixed, as to which the
holders of record of Common Stock (or such other securities at the time
receivable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other securities) for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be
mailed at least twenty (20) days prior to the date therein specified, and this
Warrant may be exercised prior to said date during the term of the Warrant.
(e) THRESHOLD FOR ADJUSTMENTS. Anything in this Section to the
contrary notwithstanding, the Corporation shall not be required to give effect
to any adjustment until the cumulative resulting adjustment in the Exercise
Price pursuant to this Section shall have required a change of the Exercise
Price by at least $.20, but when the cumulative net effect of more than one
adjustment so determined shall be to change the Exercise Price by at least $.40,
such full change in the Exercise Price shall thereupon be given effect. No
adjustment shall be made by reason of the issuance of shares upon conversion
rights, stock issuance rights or similar rights currently outstanding or any
change in the number of treasury shares held by the Corporation.
Section 6. LEGEND AND STOP TRANSFER ORDERS. Unless the Warrant Shares
have been registered under the Securities Act, upon exercise of any of this
Warrant and the issuance of any of the Warrant Shares, the Corporation shall
instruct its transfer agent, if any, to enter stop transfer orders with respect
to such shares, and all certificates representing shares of Warrant Shares shall
bear on the face thereof substantially the following legend:
This certificate has not been registered under the Securities Act
of 1933. The Corporation will not transfer this certificate unless
(i) there is an effective registration covering the shares
represented by this certificate under the Securities Act of 1933
and all applicable state securities laws, (ii) it first receives a
letter from an attorney, acceptable to the board of directors or
its agents, stating that in the opinion of the attorney the
proposed transfer is exempt from registration under the Securities
Act of 1933 and under all applicable state securities laws, (iii)
the transfer is made pursuant to Rule 144 under the Securities Act
of 1933.
Section 7. OFFICER'S CERTIFICATE. Whenever the number or kind of
securities purchasable upon exercise of this Warrant or the Exercise Price shall
be adjusted as required by the provisions hereof, the Corporation shall
forthwith file with its Secretary or Assistant Secretary at its principal office
and with its stock transfer agent, if any, an officer's certificate showing the
adjusted number
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<PAGE>
of kind of securities purchasable upon exercise of this Warrant and the adjusted
Exercise Price determined as herein provided and setting forth in reasonable
detail such facts as shall be necessary to show the reason for and the manner of
computing such adjustments. Each such officer's certificate shall be made
available at all reasonable times for inspection by the Holder and the
Corporation shall, forthwith after each such adjustment, mail by certified mail
a copy of such certificate to the Holder.
Section 8. TRANSFER OF WARRANT. Subject to Section 3 hereof, this
Warrant and all rights hereunder are transferable in whole (or in part), at the
agency of office of the Corporation referred to in Section 1 hereof by the
Holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant properly endorsed. Each taker and Holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant, when endorsed, in
blank, shall be deemed negotiable, and, when so endorsed the Holder hereof may
be treated by the Corporation and all other persons dealing with this Warrant as
the absolute owner hereof for all purposes and as the person entitled to
exercise the rights represented by this Warrant, or to the transfer hereof on
the books of the Corporation, any notice to the contrary notwithstanding; but
until each transfer on such books, the Corporation may treat the registered
Holder hereof as the owner hereof for all purposes.
Section 9. ELIMINATION OF FRACTIONAL INTERESTS. The Corporation shall not
be required to issue stock certificates representing fractions of shares of
Common Stock, nor shall it be required to issue script or pay cash in lieu of
fractional interests, it being the intent of the parties that all fractional
interests shall be eliminated.
Section 10. EXCHANGE OF WARRANT. Subject to the limitations set forth
herein this Warrant is exchangeable, upon the surrender hereof by the Holder
hereof at the office or agency of the Corporation designated in Section 1
hereof, for a new Warrant of like tenor representing the right to subscribe for
and purchase the number of Warrant Shares which may be subscribed for and
purchased hereunder.
Section 11. NOTICES TO WARRANT HOLDERS. Nothing contained in this Warrant
shall be construed as conferring upon the Holder hereof the right to vote or to
consent to or receive notice as a shareholder in respect of any meetings of
shareholders for the election of Directors or any other matter, or as having any
rights whatsoever as a shareholder of the Corporation. If, however, at any time
prior to the expiration of the Warrant and prior to its exercise, any of the
following events shall occur:
(a) The Corporation shall offer to all of the holders of its Common
Stock any additional shares of stock of the Corporation or securities
convertible into or exchangeable for shares of stock of the Corporation, or any
option, right or warrant to subscribe therefor; or
(b) A dissolution, liquidation or winding up of the Corporation (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety (whether
by merger, consolidation or sale of assets) shall be proposed;
B-8
<PAGE>
then, in any one or more of said events, the Corporation shall give written
notice of such events at least fifteen (15) days prior to the date fixed as a
record date or the date of closing the transfer books for the determination of
the shareholders entitled to such convertible or exchangeable securities or
subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the issuance of any convertible or exchangeable securities,
or subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
Section 12. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. Upon surrender
by the Holder of this Warrant to the Corporation, the Corporation at its expense
will issue in exchange therefor, and deliver to such Holder, a new Warrant. Upon
receipt of evidence satisfactory to the Corporation of the loss, theft,
destruction or mutilation of this Warrant, and in the case of any such loss,
theft or destruction, upon delivery by such Holder of an indemnity agreement or
security satisfactory to the Corporation, and in case of any such mutilation,
upon surrender and cancellation of this Warrant, the Corporation, upon
reimbursement of all reasonable expenses incident thereto, will issue and
deliver to such Holder a new Warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant delivered to such Holder in
accordance with this Section 12 shall bear the same securities legends as the
Warrant which it replaced.
Section 13. GOVERNING LAW. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of California applicable to
contracts made therein.
Section 14. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder of this Warrant, to the address of
such Holder as shown on the books of the Corporation; or
(b) If the Corporation, at 12675 Danielson Court, Suite 401,
Poway, Ca. 92064 Attn: James A. Scudder.
Section 15. SUCCESSORS. All the covenants, agreements, representations and
warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
Section 16. HEADINGS. The Article and Section headings in this Warrant are
inserted for purposes of convenience only and shall have no substantive effect.
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IN WITNESS WHEREOF, ONTRO, INC. has caused this Warrant to be executed by a
duly authorized officer under its corporate seal and to be dated as of the date
first above written.
ONTRO, INC.
a California corporation
By: /s/ James A. Scudder
-------------------------------
James A. Scudder, President
[CORPORATE SEAL]
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FORM OF ASSIGNMENT
[To be signed only upon transfer of the Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto__________________, all of the rights represented by the within Warrant to
purchasc___________ shares of Common Stock of ONTRO, INC. to which the within
Warrant relates, and appoints _______________________, Attorney to transfer such
rights on the books of ONTRO, INC. with full power of substitution in the
premises.
Dated:
- ------------------------- -------------------------
(Signature)
-------------------------
-------------------------
(Address)
Signed in the presence of:
- -----------------------------------
Name:
------------------------------
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FORM OF EXERCISE
[To be signed only upon exercise of the Warrant]
THE UNDERSIGNED, the Holder of the within Warrant, hereby irrevocably
elects to purchase________________ shares of Common Stock of ONTRO, INC. and
herewith tenders payment of $__________ in full payment of the exercise price
for such shares, and requests that the certificates for such shares be issued
in the name of, and delivered to, ________________________whose address
is ______________________________________________________________
Dated:
- ------------------------- -------------------------
(Signature)
-------------------------
-------------------------
(Address)
B-12
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LOAN AGREEMENT
This loan agreement ("Agreement") is entered into as of February 24, 1997,
by and between ONTRO, INC. a California corporation (referred to herein as
"Borrower" or the "Company"), and 4D ENTERPRISES, INC., a California
corporation (referred to herein as "Lender"). Borrower and Lender agree as
follows:
1. LOAN. Lender hereby lends to Borrower the sum of Fifty-Five Thousand
Dollars ($55,000.00), (the "Loan").
1.1 NOTE. The Loan shall be evidenced by a convertible promissory
note (the "Note") (a copy of which is attached as Exhibit "A") executed by
Borrower, dated as of the date the Loan is made, providing for (A) the payment
of the principal amount plus interest at the rate of ten percent (10%) per
annum, compounded annually, and computed on the basis of a 365-day year and
actual days elapsed, payable on the earlier to occur of: (i) the fifth business
day after Borrowers completion of the initial public offering of its common
stock; or (ii) two (2) years from the date of this Note ("Maturity Date") at
which time all then unpaid principal and accrued interest shall be due and
payable; or (B) the conversion of some or all amounts due pursuant to the Note
into shares of the Borrower's common stock at the election of the Borrower, as
more particularly described hereinbelow.
1.2 WARRANT. Borrower shall as additional interest grant Lender a
Warrant to purchase ten thousand (10,000) shares of Borrower's common stock for
every Fifty-Five Thousand Dollars ($55,000) loaned to the Borrower by the Lender
pursuant to this Agreement (the "Warrant"). The exercise price of the Warrant
shall be One Dollar ($1.00) per share. The Warrant shall be exercisable by the
Lender at any time during the later to occur of: (i) Twenty-Four (24) months
from the date of the Note; or (ii) Thirty (30) days after the date there is no
longer any amount remaining due from the Borrower to the Lender or the
conversion of this Note pursuant to this Agreement. The Warrant shall be
substantially in the form of Exhibit "B", attached hereto and incorporated
herein. The Borrower shall reserve from its authorized and unissued common
stock the number of shares underlying the Warrant.
2. BORROWER'S NOTE CONVERSION RIGHTS. The Company and Lender agree the
Company shall have the right, in it's sole and absolute discretion, to convert
the amounts due pursuant to this Note into shares of Ontro, Inc. common stock on
or before the fifth business day after the completion of the Company's initial
public offering of its common stock. Upon the Company's election to convert
some or all of this Note, the number of shares of Ontro, Inc. common stock this
Note shall be converted into shall be determined by dividing the total amount of
principal and accrued interest due pursuant to this Note on the date of
conversion by the
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Conversion Price (as hereinafter defined).
2.1 CONVERSION PRICE. The Conversion Price shall be fifty percent
(50%) of the initial public offering price for the Company's common stock per
share. No rights regarding conversion or lack thereof shall inure to Lender or
the Company in the event the Company's initial public offering does not take
place or the Company elects not to convert.
2.2 MANNER OF CONVERSION. The Company may convert this Note,
provided the Company satisfies the following conditions:
2.2.1 Written notice is provided to Lender evidencing the
Company's election to convert the amounts due under this Note, and such notice
is sent via facsimile transmission or written notice on or before the fifth
business day after the Company's completion of its initial public offering.
Such conversion shall be deemed to have been effected immediately prior to the
close of business on the day on which such conversion request shall have been
received. Upon the date conversion is effected the rights of Lender to receive
principal and interest pursuant to this Note shall cease, and Lender shall be
treated for all purposes as the record shareholder of such securities as are to
be issued to Lender in conversion of this Note.
2.2.2 The Company delivers to Lender certificates or other
instruments evidencing ownership by Lender of the number of shares of the
Company's common stock this Note may be converted into as provided in paragraph
(a) hereinabove. No fractional securities will be issued in connection with any
conversion under this Note, but in lieu of such fractional securities, the
Company shall make a cash refund therefor equal in amount to the product of the
applicable fraction multiplied by the Conversion Price.
2.2.3 Upon receipt by Lender of the certificates referenced
in paragraph 2.2.2 hereinabove, this Convertible Promissory Note shall be deemed
cancelled and paid in full. In the event the Company elects to convert only a
portion of the principal and interest due pursuant to the Note, the Company
shall deliver the certificates evidencing the number of shares such amounts were
converted into, along with payment for the balance due.
2.3 CONVERTED SHARES SUBJECT TO LOCK UP. The shares of the
Company's common stock issued to Lender in conversion of the Note shall be
subject to a lock-up agreement, wherein the holder of such shares agrees not to
sell, assign or transfer the shares for a specific period. The holder of the
converted shares agrees to sign a Lock-Up Agreement with terms no more
restrictive than the Lock-Up Agreements entered into by shareholders of the
Company who are officers, directors or five percent (5%) shareholders of the
Company.
2.4 RESTRICTED SHARES UPON CONVERSION. The shares of the Company's
common stock issued to Lender in conversion of the Note shall be "restricted
securities" as defined in Sections 5.6 and shall be subject to the limitations
and legend conditons as set forth in Sections 5.7 through 5.10 hereinbelow.
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2.5 The Company will at all times during the period this Note is
convertible, reserve and keep available the number of common shares as shall be
issuable upon the conversion of this Note.
3. CONDITIONS PRECEDENT TO LENDER'S OBLIGATIONS. Lender's obligation to
disburse the Loan is subject to the condition that, on the date of disbursement
("Closing Date"), there shall have been delivered to Lender, in form and
substance satisfactory to Lender and its counsel:
3.1 AUTHORIZATION TO BORROW. A copy of a resolution or resolutions,
in form and substance satisfactory to Lender, passed by the board of directors
of Borrower, authorizing the borrowing provided for in this Agreement, and the
execution, delivery, and performance of this Agreement and the Note or other
instrument or agreement required under this Agreement;
3.2 NOTE. The Note substantially in the form attached hereto as
Exhibit "A", executed by the President of the Borrower.
3.3 AUTHORIZATION OF WARRANT. A copy of a resolution or
resolutions, in form and substance satisfactory to Lender, passed by the board
of directors of Borrower, authorizing the grant of and delivery to the Lender
of the Warrant and reserving the shares of common stock of the Borrower
thereunder.
3.4 WARRANT. The Warrant substantially in the form as attached
hereto as Exhibit "B", executed by a duly authorized officer of the Borrower.
3.5 INCUMBENCY CERTIFICATE. A certificate, signed by the Secretary
or an Assistant Secretary of Borrower and dated the Closing Date, certifying the
incumbency of the person or persons authorized to execute and deliver on behalf
of Borrower this Agreement and the Warrant and the Note or other instrument or
agreement required under this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents and
warrants that:
4.1 ORGANIZATION. Borrower is a corporation duly organized and
existing under the laws of the State of California with its principal place of
business at 12675 Danielson Court, Suite 401, Poway, California 92064. It has
the power to own its property and to carry on its business as it is now being
conducted. It is duly qualified and authorized to do business and is in good
standing in every state, country, or other jurisdiction in which the nature of
its business and properties makes such qualification necessary;
4.2 SUBSIDIARIES AND AFFILIATES. Borrower does not own or control,
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation, association, partnership, business, trust or other entity;
3
<PAGE>
4.3 AUTHORITY. Borrower has full power and authority (corporate and
other) to borrow the sums provided for in this Agreement, to execute and deliver
this Agreement, to issue the Warrant, the Note and any other instrument or
agreement required under this Agreement, and to perform and observe the terms
and provisions of this Agreement and of all such other instruments and
agreements;
4.4 CORPORATE ACTION. All corporate action by Borrower, its
directors or stockholders, necessary for the authorization, execution, delivery,
and performance of this Agreement, issuance of the Warrant, and the Note and
any other instrument or agreement required under this Agreement has been duly
taken;
4.5 INCUMBENCY AND AUTHORITY OF SIGNATOR'S. The officers of
Borrower executing this Agreement, the Warrant, the Note and any other
instrument or agreement required under this Agreement are duly and properly in
office and fully authorized to execute them;
4.6 DUE AND VALID EXECUTION. This Agreement has been duly
authorized, executed, and delivered by Borrower, and is a legal, valid, and
binding agreement of Borrower, enforceable against Borrower in accordance with
its terms and the Warrant and the Note and any other instrument or agreement
required under this Agreement has been so authorized and, when executed and
delivered, will be similarly valid, binding, and enforceable;
4.7 RESERVED SHARES. There are sufficient authorized shares of
common stock available for the conversion of the Note and/or the Warrant to be
exercised and such shares of common stock to be issued in conversion of the Note
and such shares underlying the Warrant have been reserved on the books of the
Borrower.
4.8 NO VIOLATION. There is no charter, bylaw, or capital stock
provision of Borrower, and no provision of any indenture or agreement, written
or oral, to which Borrower is a party or under which Borrower is obligated, nor
is there any statute, rule, or regulation, or any judgment, decree, or order of
any court or agency binding on Borrower which would be contravened by the
execution and delivery of this Agreement, the Warrant, the Note or any other
instrument or agreement required under this Agreement, or by the performance of
any provision, condition, covenant, or other term of this Agreement, the
Warrant, the Note or any such other instrument or agreement;
4.9 LITIGATION PENDING. There is no litigation, tax claim,
proceeding or dispute pending, or, to the knowledge of Borrower, threatened,
against or affecting Borrower or its property, the adverse determination of
which might affect Borrower's financial condition or operations or impair
Borrower's ability to perform its obligations under this Agreement or under the
Warrant, the Note or any other instrument or agreement required by this
Agreement;
4.10 EVENTS OF DEFAULT. No event has occurred and is continuing or
would result from the making of the Loan which would constitute an Event of
Default as defined herein or which, on the lapse of time or notice or both,
would become such an Event of Default;
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<PAGE>
4.11 FINANCIAL STATEMENTS. All financial statements, as well as all
other information, and data furnished by Borrower to Lender are correct, and
accurately and fairly represent the financial condition and results of
operations of Borrower as of that date. Since that date there has been no
material adverse change in Borrower's financial condition or results of
operations sufficient to impact Borrower's ability to repay the Loan in
accordance with the terms of this Agreement. Borrower has no contingent
obligations, liabilities for taxes, or other outstanding financial obligations
which are material in the aggregate, except as disclosed in such statements,
information, and data;
5. REPRESENTATIONS AND WARRANTIES OF LENDER. This Agreement is made with
Lender in reliance upon Lender's representation and warranties to the Company,
which by Lender's execution of this Agreement Lender hereby confirms, that:
5.1 AUTHORIZATION. This Agreement constitutes Lender's valid and
legally binding obligation, enforceable in accordance with its terms.
5.2 INVESTMENT INTENT. The Note and Warrant to be received by
Lender will be acquired for investment for Lender's or his designee's, own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Lender has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, Lender further represents that Lender does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to the Note or the Warrant or any common stock underlying the Warrant.
5.3 DISCLOSURE OF INFORMATION. Lender believes he/she/they have
received all the information he/she/they consider necessary or appropriate for
deciding whether to make the Loan, acquire the Note and the Warrant. Lender
further represents that he/she/they have had an opportunity to ask questions and
receive answers from officers of the Company regarding the Company, its
business and the terms and conditions of the Note and the Warrant.
5.4 CONFIDENTIALITY. Lender hereby represents, warrants and
covenants that he/she/they shall maintain in confidence, and shall not use or
disclose without the prior written consent of the Company, any information
identified as confidential that is furnished to him/her/them by the Company in
connection with this Agreement. This obligation of confidentiality shall not
apply, however, to any information (a) in the public domain through no
unauthorized act or failure to act by Lender, or (b) lawfully disclosed to
Lender by a third party who possessed such information without any obligation of
confidentiality. Lender further covenants that he/she/they shall return to the
Company all tangible materials containing such information upon request by the
Company.
5.5 INVESTMENT EXPERIENCE. Lender is a lender and investor in notes
and securities of companies in the development stage and acknowledges
he/she/they are able to fend for
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themselves, can bear the economic risk and complete loss of his/her/their
investment and has such knowledge and experience in financial or business
matters that he/she/they are capable of evaluating the merits and risks of the
investment in the Note and the Warrant.
5.6 RESTRICTED SECURITIES. Lender understands the Note, the shares
resulting from the conversion of the Note, the Warrant and the shares underlying
the Warrant he/she/they are acquiring are characterized as "restricted
securities" under the federal securities laws in as much as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may not be
resold without registration under the Securities Act of 1933, as amended (the
"Securities Act"), except in certain limited circumstances. In this connection
Lender represents that he/she/they are familiar with Securities and Exchange
Commission ("SEC") Rule 144, as presently in effect, and understand the resale
limitations imposed thereby and by the Securities Act.
5.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, Lender further agrees not to make any
disposition of all or any portion of the Note, the shares resulting from the
conversion of the Note, the Warrant or the shares underlying the Warrant unless
and until:
5.7.1 There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
5.7.2 (i) Lender shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition and (ii) if
reasonably requested by the Company, Lender shall have furnished the Company
with an opinion of counsel, that such disposition will not require registration
of such shares under the Securities Act.
5.8 LEGENDS.
5.8.1 It is understood the Note, the certificate representing
the shares resulting from the conversion of the Note, the Warrant, or a
certificate for the Corporation's common stock evidencing the shares underlying
the Warrant ("Certificate") may bear one or more of the following legends:
"These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for
sale, pledged or hypothecated in the absence of a
registration statement in effect with respect to the
securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not
required or unless sold pursuant to Rule 144 of such Act."
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5.8.2 Any legend required by the laws of the State of
California or other jurisdiction, including any legend required by the
California Department of Corporations and Sections 417 and 418 of the California
Corporations Code.
5.9 ACCREDITED INVESTOR. Lender is an "accredited investor" as that
term is defined in CFR Section 230. 501(a) (Regulation D), as amended, of the
SEC under the Securities Act.
5.10 REMOVAL OF LEGENDS; FURTHER COVENANTS.
5.10.1 Any legend placed on the Note, the Warrant or a
Certificate pursuant to Section 5.8 hereof shall be removed (i) if the Note, the
Warrant or the shares represented by such Certificates shall have been
effectively registered under the Securities Act or otherwise lawfully sold in a
public transaction, (ii) if the shares may be transferred in compliance with
Rule 144(k) promulgated under the Securities Act, or (iii) if Lender shall have
provided the Company with an opinion of counsel, in form and substance
acceptable to the Company and its counsel and from attorneys reasonably
acceptable to the Company and its counsel, stating that a public sale, transfer
or assignment of the Note, the Warrant or the shares underlying the Warrant may
be made without registration.
5.10.2 Any legend placed on the Note or a Certificate pursuant
to Section 5.8 hereof shall be removed if the Company receives an order of the
appropriate state authority authorizing such removal or if Lender provides the
Company with an opinion of counsel, in form and substance acceptable to the
Company and its counsel and from attorneys reasonably acceptable to the Company
and its counsel, stating that such state legend may be removed.
5.10.3 Lender further covenants that Lender will not transfer
the Note or the Warrant, in violation of the Securities Act, the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), or the rules of the
Commission promulgated thereunder, including Rule 144 under the Securities Act.
Further, Lender agrees that, prior to the closing of the Company's initial
public offering, Lender will not transfer the Note, the Warrant or any shares
underlying the Warrant without the Company's prior consent, even if Lender is
otherwise permitted to transfer them pursuant to this Agreement and all
applicable law.
5.11. CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE NOTE AND
THE WARRANT WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH NOTE AND THE WARRANT OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF NOTE OR THE WARRANT IS EXEMPT FROM QUALIFICATION BY SECTIONS 25100, 25102 OR
25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS
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AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
6. BORROWER'S AFFIRMATIVE COVENANTS. Borrower covenants and agrees that
until the full and final payment of all indebtedness incurred under this
Agreement has been made, it will, unless Lender waives compliance in writing:
6.1 USE OF PROCEEDS. Use the proceeds of the Loan in connection
with the further financing of its operations and for general working capital;
6.2 PAYMENT. Repay principal of and interest on the Loan according
to the terms of this Agreement and the terms of the Note evidencing the Loan;
6.3 NOTICE. Promptly give written notice to Lender of:
6.3.1 All litigation affecting Borrower when the amount
claimed is $1,000,000 or more;
6.3.2 Any substantial dispute which may exist between
Borrower and any governmental regulatory body or law enforcement authority;
6.3.3 Any labor controversy resulting in or threatening to
result in a strike against Borrower;
6.3.4 Any proposal by any public authority to acquire
Borrower's assets or business or to engage in activities competitive with
Borrower;
6.3.5 Any Event of Default or any event which, on a lapse of
time or notice or both, would become an Event of Default; and
6.3.6 Any other matter that has resulted or might result in a
material adverse change in Borrower's financial condition or operations;
6.4 DOCUMENTS. Deliver to Lender, in form and detail satisfactory
to Lender, and in the number of copies Lender may reasonably request:
6.4.1 As soon as available but no later than, seventy-five
(75) days after the close of each fiscal year of Borrower, a complete copy of
its audit report, which shall include at least its balance sheet as of the close
of such year, and its income statement, reconciliation of capital accounts, and
statement of cash flows for that year, certified by an independent public
accountant selected by Borrower and satisfactory to Lender. The certificate
shall not be qualified or limited because of restricted or limited examination
by that accountant of any material portion of Borrower's records;
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6.4.2 Such other statement or statements, lists of property
and accounts, budgets, forecasts or reports regarding Borrower as Lender may
reasonably request;
6.5 MAINTENANCE. Maintain and preserve its corporate existence and
all rights, privileges, and franchises now enjoyed, conduct its business in an
orderly, efficient, and customary manner, keep all its properties in good
working order and condition, and from time to time make all needed repairs to,
and renewals or replacements of, its properties so that the efficiency of those
properties shall be fully maintained and preserved;
6.6 OBLIGATIONS. Pay all obligations, including tax claims, at
maturity, unless the obligation to make such payment or payments is in good
faith being disputed or is being contested by appropriate proceedings with due
diligence;
6.7 INSURANCE. Maintain and keep in force in adequate amounts fire
(including use and occupancy), public liability, property damage, and workers'
compensation insurance;
6.8 BOOKS AND RECORDS. Maintain adequate books, accounts, and
records and prepare all financial statements required under this Agreement in
accordance with generally accepted accounting principles and practices
consistently applied, and in compliance with the regulations of any governmental
regulatory body having jurisdiction over them; and permit employees or agents of
Lender at any reasonable time to inspect Borrower's properties, and to examine
or audit Borrower's books, accounts, and records and make copies and memoranda
of them;
6.9 SALES PROCEEDS. Apply the proceeds of sales of its fixed or
capital assets in excess of a cumulative total of $500,000 at Lender's option,
to:
6.9.1 the most remote principal installments of the Loan;
6.9.2 replacement of the assets sold;
6.9.3 a reserve for future purchase of fixed or capital
assets; or
6.9.4 working capital purposes;
7. BORROWER'S NEGATIVE COVENANTS. Borrower covenants and agrees
that until full and final payment of all indebtedness incurred under this
Agreement has been made, it will not, without the prior written consent of
Lender:
7.1 DIVIDENDS. Declare or pay any dividends on any of its shares
except dividends payable in Borrower's capital stock;
7.2 REDEMPTIONS. Purchase, redeem, or otherwise acquire for value,
any of its shares, or create any sinking fund in relation to any of its shares,
except as part of restricted
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compensation or similar awards or issuances to employees or consultants;
7.3 LIQUIDATION OR DISSOLUTION. Liquidate or dissolve, or enter
into any consolidation, merger, pool, joint venture, syndicate, or other
combination, or sell, lease, or dispose of its business or assets as a whole or
such part as in the reasonable opinion of Lender constitutes a substantial
portion of its business or assets;
7.4 FURTHER INDEBTEDNESS. Except as provided in this Agreement,
create or incur any indebtedness for borrowed money which would be senior in
repayment to the Loan, or become liable as a surety, guarantor, accommodation
endorser, or otherwise, for or on the obligation of any other person, firm, or
corporation which would provide a priority of repayment to the Loan; provided,
however, that this section shall not prohibit:
7.4.1 The acquisition of equipment, goods, supplies, or
merchandise on normal credit;
7.4.2 The execution of bonds, undertakings, or contracts in
the usual course of Borrower's business; or
7.4.3 The endorsement of negotiable instruments received in
the usual course of Borrower's business;
7.5 ENCUMBRANCES. Create, assume, or suffer to exist any mortgage,
encumbrance, or other lien (including a lien of attachment, judgment, or
execution), or security interest (including the interest of a conditional seller
of goods), securing a charge or obligation, on or of any of its property, real
or personal, whether now owned or hereafter acquired, except:
7.5.1 Any lien or charge for current tax, assessment, or
other governmental charge, which is not delinquent or remains payable without
any Penalty, or the validity of which is contested in good faith by appropriate
Proceedings on stay of execution of the enforcement of the lien or charge;
7.5.2 Deposits or pledges to secure (i) statutory
obligations, (ii) surety or appeal bonds, (iii) bonds for release of attachment,
stay of execution, or injunction, or (iv) performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or leases, or for
purposes of like general nature in the ordinary course of Borrower's business;
7.5.3 Purchase-money security interests in personal property
acquired after the date of this Agreement when the obligation secured does not
exceed one hundred percent (100%) of the cost of the property purchased;
7.6 ASSET DISPOSITIONS. Dispose of any of its assets except for
full, fair, and reasonable consideration, or enter into any sale and leaseback
agreement covering any of its fixed
10
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or capital assets, or dispose of its assets as a whole or such part of its
assets except in the regular course of conducting its business.
8. EVENTS OF DEFAULT. Regardless of the terms of any note issued under
this Agreement, the occurrence of any of the events set out below ("Events of
Default") shall at the option of Lender, make all interest and principal
remaining on the Loan immediately due and payable, without notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor,
or other notices or demands of any kind, except as specified in this Agreement:
8.1 Payments Borrower shall fail to pay, within 10 days after the
date when due, any installment of interest or principal in accordance with the
terms of this Agreement or of the Note evidencing the Loan;
8.2 Representations and Warranties. Any representation or warranty
by Borrower in this Agreement or in any agreement, instrument, or certificate
executed under this Agreement or in connection with any transaction contemplated
by this Agreement shall prove to have been false or misleading in any material
respect when made;
8.3 LIENS. An involuntary lien or liens in the aggregate sum of
$500,000 or more, of any kind, shall attach to the assets or property of
Borrower, except for taxes due but not in default, or for taxes that are being
contested; provided, however, that no lien shall be considered for the purpose
of this section if:
8.3.1 Such lien is removed without expenditure of funds by
Borrower other than the costs of appropriate proceedings; or
8.3.2 Borrower, in the reasonable opinion of its counsel,
has the right to and is diligently proceeding to have such lien removed without
unreasonable expenditure of funds by Borrower other than the costs of
appropriate proceedings, and such opinion of counsel is furnished to Lender
within ten days after written request for it;
8.4 JUDGMENTS. A judgment or judgments shall be entered against
Borrower in the aggregate amount of $500,000 or more on a claim or claims not
covered by insurance; provided, however, that no judgment shall be considered
for the purpose of this section if:
8.4.1 Such judgment is vacated without unreasonable
expenditure of funds by Borrower other than the costs of appropriate
proceedings; or
8.4.2 Borrower, in the opinion of its counsel, has the right
to and is diligently proceeding to have such judgment vacated without
unreasonable expenditure of funds by Borrower other than the costs of
appropriate proceedings, and such opinion of counsel is furnished to Lender
within ten days after written request for it;
11
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8.5 BANKRUPTCY. Borrower shall file any petition or action for
relief under any Bankruptcy, arrangement, reorganization, insolvency, or
moratorium law, or any other law or laws for the relief of or relating to
debtors, or shall, with respect to any involuntary petition or action for relief
under such law or laws, consent or fail to timely object to the relief requested
in such petition;
8.6 INVOLUNTARY BANKRUPTCY. An involuntary petition shall be filed
under any bankruptcy statute against Borrower, or a receiver, trustee,
custodian, or similar officer of the court shall be appointed to take possession
of all or any substantial part of Borrower's properties, unless such petition or
appointment is dismissed or withdrawn or ceases to be in effect within 90 days
from the date of the filing or appointment;
8.7 OTHER DEFAULT. Any material default shall occur under any other
agreement pertaining to the borrowing of money or the advance of credit to which
Borrower may be a party as borrower, if that default gives to the holder of the
obligation concerned the right to accelerate the indebtedness;
8.8 BREACH. Borrower shall breach or default under any term,
condition, provision, representation, or warranty in this Agreement if that
breach or default shall continue for ten days after its occurrence, or, if
Lender has received notice of the breach or default within that ten-day period,
after notice of the breach or default to Borrower from Lender, whichever is
later.
9. MISCELLANEOUS.
9.1 NOTICES. Any communications between the parties or notices
provided for in this Agreement may be given by mailing them, first class,
postage prepaid:
to Lender at:
4D Enterprises, Inc.
10510 El Comal Drive
San Diego, CA 92124
Attn: Ron Dixon
and to Borrower at:
Ontro, Inc.
12675 Danielson Court, Suite 401
Poway, Ca. 92064
Attn: James A. Scudder
12
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with a copy to:
Fisher Thurber LLP
4225 Executive Square, Suite 1600
La Jolla, CA. 92037-1483
Attn: David A. Fisher
or to such other address as either party may indicate to the other in writing
after the date of this Agreement.
9.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the parties and their respective successors and assigns;
provided, however, that Borrower shall not assign this Agreement or any of the
rights, duties, or obligations of Borrower under this Agreement without the
prior written consent of Lender.
9.3 DELAY AND WAIVERS. No delay or omission to exercise any right,
power, or remedy accruing to Lender on any breach or default of Borrower under
this Agreement shall impair any such right, power, or remedy of Lender, nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence in such breach or default, or waiver of or acquiescence in any
similar breach or default occurring later; nor shall any waiver of any single
breach or default be considered a waiver of any other prior or subsequent breach
or default. Any waiver, permit, consent, or approval of any kind by Lender of
any breach or default under this Agreement, or any waiver by Lender of any
provision or condition of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in that writing. All
remedies, either under this Agreement or by law or otherwise afforded to Lender,
shall be cumulative and not alternative.
9.4 ATTORNEYS FEES. In the event of any legal action or suit in
relation to this Agreement or any note or other instrument or agreement required
under this Agreement, or in the event that Lender incurs any legal expense in
protecting its rights under this Agreement or under any security agreement in
any legal proceeding, Borrower, in addition to all other sums which Borrower may
be called on to pay, will pay to Lender the amount of such legal expense and
will, if Lender prevails in such action, pay to Lender a reasonable sum for its
attorney's fees and all other costs and expenses.
9.5 SEVERABILITY. In the event any sentence or paragraph of this
Agreement is declared void by a court of competent jurisdiction, said sentence
or paragraph shall be deemed severed from the remainder of this Agreement, and
the balance of this Agreement shall remain in effect.
9.6. TITLES, CAPTIONS AND PARAGRAPH HEADINGS. Paragraph and
subparagraph titles and captions contained in this Agreement are inserted only
as a matter of convenience for reference. Such titles, captions, and paragraph
headings in no way define, limit, extend or describe the scope of this Agreement
or the intent of any provisions hereof.
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9.7 NUMBER AND GENDER. Whenever a singular number is used in this
Agreement or where required by context, the same shall include plural.
Masculine gender shall include feminine and neuter genders and the word "person"
shall include corporation, firm, partnership, or other forms of association.
9.8. ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement between all parties herein and supersedes all prior Agreements and
understandings, oral or written, between the parties hereto with respect to the
subject matter hereof, and shall not be modified or amended except in writing,
executed by all parties herein.
9.9. COUNTERPARTS. This Agreement may be executed in several
counterparts, and as so executed shall constitute an Agreement, binding to all
parties herein.
9.10 NON-WAIVER. No delay or omission on the part of any party
herein in exercising any rights or remedies herein shall operate as a waiver of
such rights or remedies. No waiver of any default shall constitute a waiver of
any other default, whether of the same or any other covenant or condition. No
waiver, benefit, privilege or service voluntarily given or performed by any
party herein shall give the other parties any contractual right by custom,
estoppel or otherwise. Any waiver by any party herein must be executed in
writing, expressly specifying the subject and extent of the waiver.
9.11 GOVERNING LAW AND VENUE. This Agreement and all amendments
thereto shall be governed, construed, and enforced in accordance with the laws
of the State of California, and venue for any legal action arising out of this
Agreement shall be in San Diego County, California.
9.12 LEGAL REPRESENTATION. The law firm of Fisher Thurber LLP has
prepared this Agreement solely on behalf of the Borrower based on instructions
received. The Lender has been advised to seek and obtain separate legal
counsel with respect to the preparation and execution of this Agreement, and
he/she has had an opportunity to do so, has access to qualified independent
counsel and has sought and obtained such advice and counsel to the extent
desired.
9.13 CONSTRUCTION. This Agreement has been negotiated between the
parties and their advisors, and shall not be construed against the party
preparing it, but shall be construed as if all parties jointly prepared this
Agreement and any uncertainty and ambiguity shall not be interpreted against any
one party.
9.14 NO OTHER INDUCEMENT. The making, execution and delivery of this
Agreement by the parties hereto has been induced by no representations,
statements, warranties or agreements other than those expressed herein.
9.15 DISPUTES. In the event of an inconsistency arising between the
terms of the Note or the Warrant and this Loan Agreement, the terms of the Loan
Agreement shall control.
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IN WITNESS WHEREOF, the parties to this Agreement have executed this loan
Agreement by their duly authorized officers effective as of the day and year
first above written.
BORROWER:
ONTRO, INC.
a California corporation
By:
--------------------------------------
James L. Berntsen, Secretary
LENDER:
4D ENTERPRISES, INC.
a California corporation
By:
--------------------------------------
Ron Dixon, President
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EXHIBIT A
NOTE
<PAGE>
EXHIBIT B
WARRANT
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of January 1,
1997, between Ontro, Inc., a California corporation, (hereinafter sometimes
referred to as "Ontro" or the "Corporation") and Allan C. Mayer, Jr.
("Employee").
1. TERM OF EMPLOYMENT
Ontro hereby employs Employee and Employee hereby accepts employment with
Ontro for the period beginning on January 1, 1997 and terminating on December
31, 1997. As used herein, the phrase "employment term" refers to the entire
period of employment of Employee by Ontro hereunder, whether for the period
provided above, or whether terminated earlier as hereinafter provided, or
extended by mutual agreement of Ontro and Employee.
2. DUTIES OF EMPLOYEE
2.01 GENERAL DUTIES. Employee shall serve as the Vice President of
Marketing for Ontro. Notwithstanding the foregoing, the precise services of
Employee may be specified or changed from time to time at the discretion of the
Board of Directors of Ontro.
2.02 SPECIFIC DUTIES. Employee shall serve as the Vice President of
Marketing for the Company. The responsibilities of the Vice President of
Marketing shall be the selection of target markets and customers for the
Company's products, to open communications with potential clients and focus on
matters of how to most effectively and efficiently market Ontro's products and
services with both new and existing customers. Employee shall render to the
President and Directors, whenever they request it, an account of all his
transactions as Vice President of Marketing, and shall have other powers and
perform such other duties as may be prescribed by the Board of Directors or the
Bylaws. Notwithstanding the foregoing, the precise services of Employee may be
reasonably specified or reasonably changed from time to time at the discretion
of the Board of Directors of the Company.
2.03 TIME DEVOTED TO ONTRO'S BUSINESS. Employee shall devote such
time and attention to the business of Ontro during the term of this Agreement as
is required to fulfill the duties and services required of Employee pursuant to
Sections 2.01 and 2.02 above. It is the understanding of Employer and intent of
Employee that such duties and services shall require a majority of Employee's
productive time, ability and attention. It is the further understanding and
intent of Employer and Employee that Employee shall also render services of a
business, commercial, or professional nature to other persons or organizations,
from time to time or on a continuous basis, directly or indirectly, for
compensation or otherwise ("Other Employment"). As of the effective date
hereof, Employee represents that he has advised Employer of the nature of the
business and his duties in connection with all Other Employment. In the event
that Employee undertakes additional
<PAGE>
Other Employment, prior to the commencement of such Other Employment, Employee
shall notify management of Employer of such Other Employment, setting forth the
identity and nature of the business involved in the Other Employment, his duties
in connection therewith. Other Employment shall not involve a business which is
in competition with that of Employer; and Other Employment shall not hinder or
interfere with Employee's fulfillment of his duties as set forth in Sections
2.01 and 2.02 above. In the event that Employer objects to such Other
Employment, it shall notify Employee, in writing, of such objection within 10
days following receipt of Employee's notice of the proposed Other Employment.
Failure of Employer to object, in writing, to the proposed Other Employment
within such 10 day period shall be deemed approval of such Other Employment.
Upon Employee's receipt of any written objection by Employer to the proposed
Other Employment, Employee and Employer undertake and agree to use their best
efforts to meet, confer and negotiate a mutually acceptable agreement concerning
the proposed Other Employment. In the event Employee and Employer are
unsuccessful in reaching such mutually acceptable agreement within 30 days
following Employee's receipt of Employer's objection described above, this
Agreement shall be immediately terminable at the written election of Employer,
notwithstanding any other provision contained herein. Notwithstanding the
foregoing, this paragraph shall not be construed as preventing Employee from
investing his assets in such other manner as will not require anything other
than incidental services on the part of Employee in the operation of the affairs
of any entity in which the investments are made.
2.04 UNIQUENESS OF EMPLOYEE'S SERVICES. Employee hereby agrees the
services to be performed by him under the terms of this Agreement are of
special, unique, unusual, extraordinary, and intellectual character which gives
them a peculiar value, the loss of which cannot be reasonably or adequately
compensated by monetary damages in an action at law. Employee therefore
expressly agrees that Ontro, in addition to any other rights or remedies which
Ontro may possess, shall be entitled to injunctive and other equitable relief to
prevent a breach of this Agreement by Employee.
2.05 LOYAL AND CONSCIENTIOUS PERFORMANCE OF DUTIES. Employee agrees,
to the best of his ability and experience, he will at all times loyally and
conscientiously perform all of the duties and obligations either expressly or
implicitly required of him by the terms of this Agreement.
3. COMPENSATION OF EMPLOYEE
3.01 BASE SALARY. As compensation for services hereunder, Ontro shall
pay Mr. Mayer a salary of eight thousand dollars ($8,000) per month, until such
time as the Corporation has completed an initial public offering of its
securities and has received a minimum of $3.2 million in proceeds therefrom, and
Mr. Mayer's relocation to San Diego. Upon the occurrence of (i) Mr. Mayer's
relocation of his principal residence to San Diego County; and (ii) the
completion of said initial public offering, Mr. Mayer's monthly salary shall
increase to ten thousand dollars ($10,000) per month for the duration of the
term hereof, commencing on the first day of the calendar month following the
satisfaction of the conditions set forth in (i) and (ii) above and continuing
throughout the remainder of the term hereof.
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3.02 SALARY CONTINUATION DURING DISABILITY. If Employee for any
reason whatsoever becomes permanently disabled, so that he is unable to perform
his duties hereunder, Ontro agrees to pay Employee his annual salary, payable in
the same manner for the remainder of the employment term less any amounts
received by Employee under any employer, group disability, or similar insurance
plan provided by Ontro.
3.03 VACATION PAY. Employee shall be entitled to a vacation of two
(2) weeks at full pay for each twelve (12) months of employment. Employee shall
be entitled to additional vacation of up to four (4) weeks without pay. The
time or times for all vacation shall be proposed by Employee and approved in
advance by the Chief Executive Officer.
3.04 PAID SICK LEAVE. Employee, shall be entitled to six (6) days
sick leave with full pay for each twelve (12) months of employment. Such sick
leave may not be accumulated beyond the calendar year in which it is granted.
3.05 ADDITIONAL BONUSES. Nothing herein shall imply any limitation
on the authority of the Board of Directors to authorize any additional bonus(es)
which in their discretion they deem reasonable.
4. EMPLOYEE BENEFITS
MEDICAL, DENTAL INSURANCE COVERAGE. Ontro agrees to include Employee
in any hospital, surgical, medical and dental benefit plan adopted by Ontro for
other employees, and to include Employee in all additional medical and dental
benefit plans provided to other executives of the Corporation. Ontro further
agrees to provide reimbursement for such other medical or dental expenses
incurred by Mr. Mayer as are approved by the Board of Directors.
5. BUSINESS EXPENSES
5.01 BUSINESS EXPENSES. Ontro will promptly reimburse Employee for
business expenses reasonably incurred by Employee in connection with the
business of Ontro, provided that:
(1) Each such expenditure is of a nature qualifying it as a
allowable deduction from gross income in the determination of taxable income on
the federal and state income tax returns of Ontro; and
(2) Employee furnishes to Ontro adequate records and other
documentary evidence required by federal and state statutes and regulations
issued by the appropriate taxing authorities where the substantiation of each
such expenditure as an income tax deduction is required.
3
<PAGE>
6. TERMINATION OF EMPLOYMENT
6.01 TERMINATION BY ONTRO FOR CAUSE. If Employee willfully breaches
or habitually neglects the duties which he is required to perform under the
terms of this Agreement, Ontro may at its option terminate this Agreement by
giving written notice of termination to Employee without prejudice to any other
remedy to which Ontro may be entitled either at law, in equity, and/or pursuant
to this Agreement.
6.02 EFFECT OF ONTRO'S MERGER, TRANSFER OF ASSETS, OR DISSOLUTION.
Upon the event of any of the following, these special provisions of this
Paragraph 6.02 shall apply:
(1) Merger or consolidation where Ontro is not the consolidated
or surviving corporation;
(2) Transfer of all or substantially all of the assets of Ontro,
or
(3) Voluntary or involuntary dissolution of Ontro.
In the event of any such merger or consolidation, transfer of assets, or
dissolution of Ontro, Employee at his sole option, and at any time may elect one
of the following provisions:
(a) Continued employment by Ontro, and/or the surviving or
resulting corporation, said successor to be bound by all the provisions of this
Agreement;
(b) Voluntary termination of this Agreement and payment to
Employee as severance pay or liquidated damages, or both, a lump sum payment
("Severance Payment") equal to one hundred percent (100%) of the Employee's
average annual Base Salary or such greater amount as the Board of Directors
determines from time to time pursuant to terms which may not be revoked or
reduced thereafter. However, the total of any payment pursuant to this Section
6.02 shall be limited to the extent necessary, in the opinion of legal counsel
acceptable to Employee and Ontro, to avoid the payment of an "excess parachute"
payment within the meaning of Internal Revenue Code Section 280 G or any similar
successor provision.
The Severance Payment shall be made not later than the fifth (5th) day
following the effective date of the events specified in Section 6.02 (1-3)
herein; provided, however, that if the amount of such payments cannot be finally
determined on or before such date, Ontro shall pay to Employee on such date a
good faith estimate of the minimum amount of such payments, and shall pay the
remainder of such payments (together with interest at the rate provided in
Internal Revenue Code Section 1274(b)(2)(B) of the Code), as soon as the amount
thereof can be determined, but in no event later than the thirtieth (30th) day
after the applicable termination date. In the event the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by Ontro payable on the fifth (5th) day after
receipt by Employee of a written demand for payment from Ontro (together with
interest calculated as above).
4
<PAGE>
6.03 DAMAGES FOR BREACH OF AGREEMENT. In the event of the breach of
this Agreement by either Ontro or Employee resulting in damages to the other
party, that party may recover from the party breaching the Agreement any and all
damages that may be sustained.
6.04 OPTION TO TERMINATE IF EMPLOYEE PERMANENTLY DISABLED. If
Employee becomes permanently disabled for a continuous period of six (6) months
or more because of sickness, physical or mental disability, or any other reason,
so that it reasonably appears he will be unable to complete his duties under
this Agreement, at that time, Ontro shall then have the option to immediately
terminate this Agreement by giving written notice of the termination to
Employee.
7. COVENANT NOT TO COMPETE
7.01 SCOPE OF COVENANT. Employee agrees that he shall not, either
directly or indirectly, carry on, participate, or engage in, either as employee,
employer, principal, agent, consultant, owner, part-owner, co-venturer, officer,
director, shareholder, partner, manager, operator, financier, employee,
salesman, or in any other individual or representative or participating
capacity, with any business which is a competitor of Ontro at any time during
the term of this Agreement or for a period of two (2) years after the
termination of this Agreement.
7.02 INTERPRETATION. SHOULD ANY PORTION OR PROVISION OF THIS
COVENANT NOT TO COMPETE BE FOUND BY A COURT OF COMPETENT JURISDICTION TO BE
OVERLY BROAD, IT IS THE EXPRESS INTENT OF THE PARTIES HERETO THAT SUCH
PROVISIONS SHALL NEVERTHELESS BE ENFORCED TO THE MAXIMUM EXTENT PERMITTED BY LAW
AND SHALL GOVERN AND APPLY TO AS MUCH GEOGRAPHICAL AREA AND/OR TIME DURATION,
NOT TO EXCEED THAT WHICH IS SET FORTH ABOVE, AS POSSIBLE.
7.03 CONSIDERATION. Employee hereby acknowledges that the
consideration set forth herein shall fully support this Covenant.
7.04 REMEDIES. The remedy at law for breach of this Covenant being
inadequate, Ontro shall be entitled, in addition to such other remedies as it
may have, to temporary or injunctive relief for any breach or threatened breach
hereof without proof of actual damages that have been or may have been caused to
it by such breach.
7.05 BREACH. This Covenant shall be deemed to be part of this
Agreement, and a breach of this Covenant shall be deemed to be a breach of this
Agreement and all of its attendant obligations, undertakings, and promises.
8. CONFIDENTIALITY PROVISION
8.01 PROPRIETARY INFORMATION DEFINED. The following terms shall have
the meanings respectively set forth for them below:
5
<PAGE>
(a) "Proprietary Information" shall mean any and all inventions,
research, designs, products, financing sources, processes, formulae, know-how,
customer lists, customer requirements information, trade secrets and/or other
non-public information or data comprising or related to the business of Company
as the same is carried on from time to time;
(b) "Proprietary Rights" shall mean all trademarks, patents,
copyrights, rights of creators and/or similar rights and privileges, whether
domestic or foreign, statutory or at common law, filed or not filed, perfected
or unperfected, or otherwise, relating to any Proprietary Information;
(c) "Proprietary Proceeds" shall mean all proceeds and products
of any Proprietary Information and/or Proprietary Rights; and
(d) "Proprietary Assets" shall mean Proprietary Information
and/or Proprietary Rights and/or Proprietary Proceeds, considered collectively
or separately.
8.02 ACKNOWLEDGMENT OF ONTRO'S PROPRIETARY INFORMATION. Employee
agrees and acknowledges that any and all Proprietary Information (together with
all Proprietary Rights and/or Proprietary Proceeds relating thereto) wholly or
partially created, developed or further developed, perfected and/or completed by
Employee, acting alone or jointly with others at any time during Employee's
employment with Ontro, shall immediately upon creation, completion and/or
development become or have become, and shall at all times thereafter remain, the
sole and exclusive property of Ontro.
8.03 ONTRO'S PROPERTY. Employee specifically agrees and acknowledges
that (a) any and all Proprietary Assets, however, whenever and from whomever
acquired by Ontro, are and shall at all times remain the sole and exclusive
property of Ontro, (b) Employee shall not use, possess, disclose, transfer
and/or otherwise deal with any such Proprietary Assets at any time during his
employment with Ontro other than specifically within the scope of his employment
and in furtherance of the business and affairs of Ontro, and (c) Employee shall
not use, possess, disclose, transfer and/or otherwise deal with any Proprietary
Assets at any time after the termination of his employment with Ontro under any
circumstances whatsoever.
8.04 EMPLOYEE'S DUTIES. Employee agrees that he shall, both
throughout the term of his employment with Ontro and at any and all times
following the termination thereof, execute and deliver all such further
instruments and documents, and do and perform all such further acts and things,
as may be necessary or helpful and/or as may be reasonably requested by Ontro in
furtherance of the purposes and intent of this Agreement. By way of illustration
and not by way of limitation of the foregoing, Employee specifically agrees that
he shall:
(a) immediately communicate and thoroughly describe to Ontro in
writing any and all such Proprietary Information as is described in Section 8.01
above;
6
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(b) promptly execute and deliver all such instruments or
agreements of assignment and/or transfer as Ontro may from time to time request
to carry out the purposes and intent of Section 8.01 above;
(c) assist Ontro, at such times and in such manner as Ontro may
request, in connection with Ontro's efforts to secure, apply for, renew or
otherwise perfect Proprietary Rights with respect to any and all Proprietary
Information; and
(d) upon the termination of his employment with Ontro,
immediately deliver to Ontro any and all written recorded or other physical
evidence of any and all Proprietary Assets in his possession or under his
control;
PROVIDED, that in consideration of the foregoing, Ontro agrees that all
reasonable costs and expenses incurred by Employee, including reasonable
compensation for his time (except if Employee is otherwise being compensated as
a consultant) in complying with the provisions of this Section 8 shall be for
Ontro's account.
8.05 DISCLOSURE OF INFORMATION. Employee will not, during the
employment term or after, disclose or use any Proprietary Information or permit
disclosure to any person, firm, corporation, association or other entity if such
disclosure would be detrimental to Ontro.
8.06 EMPLOYEE REPRESENTATION. Employee represents and covenants that
he is not presently and will not hereafter become a party to any contract or
agreement which contravenes any of the terms, provisions, purposes or intent of
this Agreement.
8.07 SURVIVAL. It is specifically understood and agreed by both such
parties that this Agreement shall survive Employee's employment with Ontro
and/or the making and/or termination of any contract or agreement with respect
thereto.
8.08 REMEDIES. The parties hereto mutually acknowledge that the
representations, warranties, covenants and other agreements of Employee
contained in this Agreement are of special and unique importance to Ontro and
are not readily susceptible to dollar valuation. As such, in the event of the
actual or potential breach of any of such representations, warranties, covenants
or other agreements, the parties hereto specifically agree that Ontro, in
addition to any and all other rights and remedies available to it, shall be
entitled to injunctive and/or other equitable relief in furtherance of the
enforcement thereof.
9. GENERAL PROVISIONS
9.01 NOTICES. Any notices to be given hereunder by each party to the
other may be effected by personal delivery in writing or by mail, registered or
certified, postage prepaid with return receipt requested. Notices delivered
personally shall be deemed communicated as of actual receipt; mailed notices
shall be deemed communicated as of two (2) days after mailing.
7
<PAGE>
9.02 TERMINATION/VIOLATION OF OTHER AGREEMENTS. Any previous written
or oral Employment Agreements between Ontro and Employee are hereby terminated.
Ontro hereby warrants to Employee that the execution of this Agreement will not
violate any outstanding agreements or covenants to which Ontro is a party.
Further, Ontro hereby warrants that the execution of this Agreement and the
performance of its terms hereunder do not violate any provisions of the By-Laws
of Ontro.
9.03 APPLICABLE LAW. This Agreement shall be construed under the laws
of the State of California and may not be altered or modified except by an
agreement in writing, signed by both parties.
9.04 ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs, and necessary disbursements in
addition to any other relief to which he may be entitled.
9.05 ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Employee by Ontro and contains all of the covenants and
agreements between the parties with respect to such employment in any manner
whatsoever.
9.06 PARTIAL INVALIDITY. If any provision of this Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
9.07 MERGER OR CONSOLIDATION. Ontro hereby agrees that it shall not
merge or consolidate into or with or sell substantially all its assets to any
firm, entity, company or person until such other firm, entity, company or person
expressly agrees, in writing, to assume and discharge the duties and obligations
of the Ontro under this Agreement. This Agreement shall be binding upon the
parties hereto, their successors, beneficiaries, heirs and personal
representatives.
9.08 AMENDMENTS AND WAIVERS. This Agreement shall not be varied,
altered, waived, modified, changed or in any way amended in any of its parts
except by an instrument in writing, executed by the parties hereto, or by their
legal representatives. A waiver by either party of any of the terms of this
Agreement in any instance shall not be deemed or construed to be a waiver of
such term or condition for the future or of any subsequent breach thereof.
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Executed at Poway, California.
EMPLOYER:
ONTRO, INC.
a California corporation
By: /s/ James A. Scudder
----------------------------------------
James A. Scudder, President
EMPLOYEE:
/s/ Allan C. Mayer, Jr.
-------------------------------------------
Allan C. Mayer, Jr.
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EMPLOYMENT AGREEMENT
This Agreement, by and between SELF-HEATING CONTAINER CORPORATION OF
CALIFORNIA, a California corporation, ("EMPLOYER"), located at 12675 Danielson
Court, Suite 401, Poway, California 92064, and JAMES A. SCUDDER of 11944 Thomas
Hayes Lane, San Diego, California 92126 ("EMPLOYEE"), is as follows:
ARTICLE 1. TERM OF EMPLOYMENT
Section 1.01. EMPLOYER hereby employs EMPLOYEE and EMPLOYEE hereby accepts
employment with EMPLOYER for a term of three (3) years, commencing September 1,
1996 and terminating on August 31, 1999.
Section 1.02. As used herein, the phrase "employment term" refers to the
entire period of employment of EMPLOYEE by EMPLOYER hereunder, whether for the
periods provided above or whether terminated earlier as hereinafter provided or
extended by mutual agreement between EMPLOYER and EMPLOYEE.
ARTICLE 2. DUTIES AND OBLIGATIONS OF EMPLOYEE
GENERAL DUTIES
Section 2.01. EMPLOYEE shall serve as President and Chief Executive
Officer of SELF-HEATING CONTAINER CORPORATION OF CALIFORNIA. In his capacity as
President and Chief Executive Officer, EMPLOYEE shall do and perform all
services, acts, or things necessary or advisable to manage and conduct the
business of EMPLOYER, including the hiring and firing of all employees other
than the officers of EMPLOYER, subject at all times to the policies set by
EMPLOYER'S Board of Directors, and to the consent of the Board when required.
EMPLOYEE shall be responsible for overseeing all aspects of the business of
EMPLOYER including, but not limited to, day-to-day operations, research and
development, sales and marketing, financial, manufacturing, production and
distribution.
DEVOTION TO EMPLOYER'S BUSINESS
Section 2.02. EMPLOYEE shall devote his entire productive time, ability,
and attention to the business of EMPLOYER during the term of this Agreement.
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COMPETITIVE ACTIVITIES
Section 2.03. During the term of this Agreement, EMPLOYEE shall not,
directly or indirectly, either as an employee, consultant, agent, principal,
partner, owner, stockholder, corporate officer, director, or in any other
individual or representative capacity, acquire, hold, retain, engage or
participate in any business that is similar in nature to the business of
EMPLOYER or that is in competition in any manner whatsoever with the business of
EMPLOYER. Nothing in this Agreement, however, shall restrict EMPLOYEE from
working for or on behalf of Insta-Heat, Inc. or from having any dealings
whatsoever with Insta-Heat, Inc. EMPLOYEE shall not be in violation of this
Agreement by his participation in the business of Insta-Heat, Inc. as an
employee, agent, consultant, officer, director or shareholder.
ARTICLE 3. OBLIGATIONS OF EMPLOYER
GENERAL DESCRIPTION
Section 3.01. EMPLOYER shall provide EMPLOYEE with compensation,
incentives, benefits, and business expense reimbursement specified elsewhere in
this Agreement.
OFFICE AND STAFF
Section 3.02. EMPLOYER shall provide EMPLOYEE with an adequate working
environment with personnel and equipment required to perform tasks EMPLOYEE is
required to perform, such as, but not limited to, secretarial and other
assistance, a private office, office equipment, supplies and other facilities
and services suitable to EMPLOYEE's position.
ARTICLE 4. COMPENSATION OF EMPLOYEE
ANNUAL SALARY
Section 4.01. (a) As compensation for the services to be performed
hereunder, EMPLOYEE shall receive a base salary of $8,000.00 per month, payable
once a month, on or before the 5th day of each month, which base salary shall be
automatically increased by five percent (5%) on September 1, 1997, and be
increased by an additional five percent (5%) on September 1, 1998.
(b) In the event EMPLOYER engages in an initial public
offering, at the conclusion of said public offering, EMPLOYEE's base salary
shall be increased from $8,000.00 per month to $12,000.00 per month, which base
salary of $12,000 per month shall be automatically increased by five percent
(5%) on September 1, 1997, and be increased by an additional five percent (5%)
on September 1, 1998.
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(c) The salary set forth herein will not cause EMPLOYER to be
restricted to paying the amount of compensation set forth above, and if at a
later time the Board of Directors determines that the minimum salary should be
increased or bonuses should be given to EMPLOYEE, this Agreement shall not be
seen as any impediment to any such activity or action.
SALARY CONTINUATION DURING DISABILITY
Section 4.02. If EMPLOYEE for any reason whatsoever becomes disabled such
that he is unable to perform the duties prescribed herein, EMPLOYER shall
continue to pay EMPLOYEE's full salary for a period of at least 120 days. If,
after said 120-day period, EMPLOYEE is still unable to perform the duties
prescribed herein, then in that event, EMPLOYER may terminate this Employment
Agreement ("Agreement").
ARTICLE 5. EMPLOYEE INCENTIVES
Section 5.01. EMPLOYEE shall be entitled to any and all EMPLOYEE
incentives that the Board of Directors from time to time may authorize for its
employees.
ARTICLE 6. EMPLOYEE BENEFITS
ANNUAL VACATION
Section 6.01. EMPLOYEE shall be entitled to 15 days vacation time per
year, to accrue pro rata as of the commencement of the Agreement. EMPLOYEE
shall also be entitled to not less than 6 national holidays per year.
ILLNESS
Section 6.02. EMPLOYEE shall be entitled to 5 sick days per year with full
pay.
OTHER BENEFITS
Section 6.03 (a) EMPLOYEE shall be entitled to any and all employee
Benefits, including but not limited to death, health, dental, and vision
benefits, that the Board of Directors from time to time may authorize for its
employees.
(b) EMPLOYER agrees to obtain a key man term life insurance
policy on EMPLOYEE in the face amount of Two Million Dollars. EMPLOYER shall
pay in a timely manner all premiums on said policy. EMPLOYEE has the sole right
to designate a beneficiary for One Million Dollars of said policy. EMPLOYER, or
its designee, shall be the beneficiary for the remaining One Million Dollars on
said policy. EMPLOYER is the owner of the entire Two Million Dollar policy and
entitled to all rights relating thereto.
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EMPLOYEE authorizes EMPLOYER to take all actions necessary to obtain
and maintain said policy, to be the owner thereof, and to pay One Million
Dollars of the proceeds therefrom to the beneficiary designated by EMPLOYEE and
to pay the remaining One Million Dollars in proceeds therefrom to EMPLOYER.
EMPLOYER authorizes EMPLOYEE to name a beneficiary for One Million Dollars of
said policy. The term of said policy shall be equal to the term of this
Agreement.
ARTICLE 7. BUSINESS EXPENSES
REIMBURSEMENT OF BUSINESS EXPENSES
Section 7.01. EMPLOYER shall promptly reimburse EMPLOYEE for all
reasonable business expenses incurred by EMPLOYEE in connection with the
business of EMPLOYER. Each such expenditure is reimbursable only if EMPLOYEE
furnishes EMPLOYER adequate records and other documentary evidence required by
federal and state statutes and regulations issued by the appropriate taxing
authorities for the substantiation of each such expenditure as an income tax
deduction.
Section 7.02. It is understood that EMPLOYEE, from time to time, will be
required to spend time at industry and marketing-type conventions and that these
expenses will also be reimbursed by EMPLOYER.
ARTICLE 8. TERMINATION OF EMPLOYMENT
TERMINATION FOR CAUSE
Section 8.01. (a) EMPLOYER reserves the right to terminate this agreement
immediately for cause upon commission of one of the following acts by EMPLOYEE:
(i) gross neglect of duties of EMPLOYEE; (ii) theft by EMPLOYEE from EMPLOYER;
(iii) misuse of EMPLOYER's funds for personal gain; and/or (iv) conviction of a
felony.
(b) EMPLOYER also reserves the right to terminate
EMPLOYEE's employment for cause in the event EMPLOYEE wilfully breaches or
habitually neglects the duties which he is required to perform under the terms
of this Agreement, or in any other way materially breaches this Agreement;
provided, however, that any such termination will only occur following written
notice to EMPLOYEE of the reasons or reason for such termination, supported by a
statement of relevant facts and followed by EMPLOYEE's failure to cure such
wilful breach or habitual neglect of duties or any material breach of this
Agreement within thirty (30) days of receipt of such notice.
(c) EMPLOYER is not obligated to pay EMPLOYEE any severance
pay upon termination for cause as specified in Section 8.01.(a) and 8.01.(b).
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TERMINATION WITHOUT CAUSE
Section 8.02. (a) This Agreement shall be terminated upon the death of
EMPLOYEE. EMPLOYEE is not entitled to receive any death benefits, unless prior
to the date of death of EMPLOYEE the Board of Directors has determined that
death benefits are to be paid to the officers of EMPLOYER.
(b) EMPLOYER reserves the right to terminate this Agreement
in the event EMPLOYEE becomes disabled, subject to the restrictions set forth in
Section 4.02.
(c) EMPLOYEE reserves the right to terminate this Agreement
at any time upon written notice to EMPLOYER of such intention. EMPLOYER is not
obligated to pay EMPLOYEE any sum, other than amounts that may have accrued,
upon his voluntary termination of this Agreement.
PAYMENT ON TERMINATION
Section 8.03. (a) If at any time during the term of this Agreement, or if
in the three (3)-year period following either a (i) merger or consolidation
where EMPLOYER is not the consolidated or surviving corporation, or (ii)
transfer of all or substantially all of the assets of EMPLOYER, or (iii)
voluntary or involuntary dissolution of EMPLOYER, or (iv) change in the
composition of a majority of the Board of Directors of the Company;
(collectively (i) through (iv) are referred to as a "Change in Control"), then
following such Change in Control, EMPLOYEE, at his sole option and at any time,
may elect one of the following provisions:
(1) Continued employment by EMPLOYER and/or the surviving or
resulting corporation, said successor to be bound by all the provisions of this
Agreement;
(2) Voluntary termination of this Agreement and payment to EMPLOYEE
as severance pay or liquidated damages, or both, of a lump sum payment
("Severance Payment") equal to two hundred ninety-nine percent (299%) of the
EMPLOYEE's average annual base salary and all bonuses received for the five
(5)-year period immediately preceding the Severance Payment, or such greater
amount as a disinterested Board of Directors, or the compensation committee, if
formed, shall provide from time to time pursuant to terms which may not be
revoked or reduced thereafter. However, the total of any payment pursuant to
this Section 8.03(a) shall be limited to the extent necessary, in the opinion of
legal counsel acceptable to EMPLOYEE and EMPLOYER, to avoid the payment of an
"excess parachute" payment within the meaning of Internal Revenue Code Section
280 G or any similar successor provision.
The Severance Payment shall be made not later than the fifth (5th) day
following the effective date of the events specified in Section 8.03(a) (i) -
(iv) herein; provided, however, that if the amount of such payments cannot be
finally determined on or before such date, EMPLOYER shall pay to EMPLOYEE on
such date a good faith estimate of the minimum amount of such
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payments, and shall pay the remainder of such payments (together with interest
at the rate provided in Internal Revenue Code Section 1274(b)(2)(B) of the Code)
as soon as the amount thereof can be determined, but in no event later than the
thirtieth (30th) day after the applicable termination date. In the event the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by EMPLOYER payable on the
fifth (5th) day after receipt by EMPLOYEE of a written demand for payment from
EMPLOYER (together with interest calculated as above).
(b) In addition, for a two-year period following termination,
EMPLOYER shall continue to include EMPLOYEE in all of its health, dental,
vision, life insurance and other benefit programs in place at the time of
termination. Upon a dismissal other than for cause as stated in Section 8.01(a)
which does not involve a Change in Control, EMPLOYEE shall receive a Severance
Payment equal to 2.99 times his average annual base salary and bonuses during
the preceding five (5) years; provided, however, such payment shall be limited
to the extent necessary to avoid the payment of an "excess parachute" payment as
defined above.
(c) If EMPLOYEE is terminated without cause during the last two
years of this Agreement, EMPLOYER will not be required to pay EMPLOYEE the
salary due for the full two-year period, but will only be required to pay
EMPLOYEE the balance of the salary that is due under the term of this Agreement.
In addition, if EMPLOYEE is terminated without cause during the last two years
of this Agreement, EMPLOYER will not be required to include EMPLOYEE in its
benefit programs during the full two-year period, but will only be required to
include EMPLOYEE in its benefit programs for the balance of the term of this
Agreement.
ARTICLE 9. COVENANT NOT TO COMPETE/TRADE SECRETS
Section 9.01. (a) During the term of this Agreement, EMPLOYEE shall not,
directly or indirectly, either as an employee, consultant, agent, principal,
partner, stockholder, corporate officer, director, or in any other individual or
representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of EMPLOYER. Nothing in
this Agreement, however, shall restrict EMPLOYEE from working for or on behalf
of Insta-Heat, Inc. or from having any dealings whatsoever with Insta-Heat, Inc.
EMPLOYEE shall not be in violation of this Agreement by his participation in the
business of Insta-Heat, Inc. as an employee, agent, consultant, officer,
director or shareholder.
(b) The term referred to in Section 9.01.(a) shall include: (i)
the actual employment period of EMPLOYEE; (ii) the time within which EMPLOYEE is
still being paid if EMPLOYEE is terminated without cause; and (iii) a one year
period if EMPLOYEE quits voluntarily.
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TRADE SECRETS/CONFIDENTIAL INFORMATION
Section 9.02. (a) The parties acknowledge and agree that during the term
of this Agreement and in the course of the discharge of his duties hereunder,
EMPLOYEE shall have access to and become acquainted with information concerning
the operation and processes of EMPLOYER that is owned by EMPLOYER and regularly
used in the operation of EMPLOYER'S business and that such information
constitutes EMPLOYER's trade secrets.
(b) EMPLOYEE specifically agrees that he shall not misuse,
misappropriate, or disclose any such trade secrets, directly or indirectly, to
any other person or use them in any way, either during the term of this
Agreement or at any other time thereafter, except as is required in the course
of his employment hereunder. EMPLOYEE agrees not to engage in any unfair
competition with EMPLOYER, either during the term of this Agreement or at any
other time thereafter.
(c) "Confidential information" shall mean information
identified as proprietary relating to the described product concept, specific
product design and its variations, know-how information relating to product
fabrication/assembly, and other information which is disclosed to EMPLOYEE by
EMPLOYER, its affiliates or agents either directly or indirectly, in writing or
by drawings or the product itself, or in any other related way, including
knowledge of EMPLOYEE obtained in EMPLOYEE'S capacities as inventor, owner,
and/or employee of EMPLOYER. It is expressly understood that Confidential
Information extends to the concept of the identified product.
(d) Confidential Information shall not include information
which is public knowledge and not covered under patents or other rights EMPLOYER
may own.
(e) EMPLOYEE shall not disclose Confidential Information
received hereunder to any third party not under a binder of secrecy from
EMPLOYER.
(f) EMPLOYEE agrees not to make any commercial or any other
use of Confidential Information received hereunder, except as may be provided
for under a separate agreement by EMPLOYER.
(g) EMPLOYEE agrees the Confidential Information received
hereunder shall be treated in such a way, taking reasonable steps to ensure the
proprietary nature of this information and to protect this information from loss
or theft, and that EMPLOYEE expressly agrees not to publish or disclose this
information to anyone other than those identified herein, and that any
disclosure will only be to those employees or advisors needed to evaluate and
use it for the purposes noted above. EMPLOYEE will notify all employees,
visitors, associates, or anyone who is given access to such information, of its
confidential nature and the existence and importance of this Agreement.
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(h) This confidential disclosure clause shall not be
construed to grant EMPLOYEE any license or other rights except as provided
herein.
ARTICLE 10. GENERAL PROVISIONS
NOTICES
Section 9.01. Any notices to be given hereunder by either party to the
other shall be in writing and may be transmitted by personal delivery or by
mail, registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addressees appearing in
the introductory paragraph of this Agreement, but each party may change that
address by written notice in accordance with this section. Notices delivered
personally shall be deemed communicated as of the date of actual receipt; mailed
notices shall be deemed communicated as of the date of mailing.
ATTORNEYS' FEES AND COSTS
Section 9.02. If any legal action is necessary to enforce or interpret the
terms of this agreement, the prevailing party shall be entitled to reasonable
attorneys' fees and costs.
ENTIRE AGREEMENT
Section 9.03. This Agreement supersedes any and all other agreements,
either oral or in writing, between the parties hereto with respect to the
employment of EMPLOYEE by EMPLOYER and contains all of the covenants and
agreements between the parties with respect
to that employment in any manner whatsoever.
MODIFICATIONS
Section 9.05. Any modification of this Agreement will be effective only if
it is in writing and signed by the party to be charged.
EFFECT OF WAIVER
Section 9.06. The failure of either party to insist on strict compliance
with any of the terms, covenants, or conditions of this agreement by the other
party shall not be deemed a waiver of that term, covenant, or condition, nor
shall any waiver or relinquishment of any right or power at any one time or
times be deemed a waiver or relinquishment of that right or power for all or any
other times.
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PARTIAL INVALIDITY
Section 9.07. If any provision in this Agreement is held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalidated in any way.
LAW GOVERNING AGREEMENT
Section 9.08. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
Dated: 9-1-96 EMPLOYER:
--------------------
SELF-HEATING CONTAINER CORPORATION
OF CALIFORNIA
BY: /s/ James L. Berntsen
---------------------------------------------
JAMES L. BERNTSEN, EXECUTIVE VICE PRESIDENT
EMPLOYEE:
/s/ James A. Scudder
--------------------------------------------
JAMES A. SCUDDER
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EMPLOYMENT AGREEMENT
This Agreement, by and between SELF-HEATING CONTAINER CORPORATION OF
CALIFORNIA, a California corporation, ("EMPLOYER"), located at 12675 Danielson
Court, Suite 401, Poway, California 92064, and JAMES L. BERNTSEN of 18369
Chablis Road, Ramona, California 92065 ("EMPLOYEE"), is as follows:
ARTICLE 1. TERM OF EMPLOYMENT
Section 1.01. EMPLOYER hereby employs EMPLOYEE and EMPLOYEE hereby
accepts employment with EMPLOYER for a term of three (3) years, commencing
September 1, 1996 and terminating on August 31, 1999.
Section 1.02. As used herein, the phrase "employment term" refers to the
entire period of employment of EMPLOYEE by EMPLOYER hereunder, whether for the
periods provided above or whether terminated earlier as hereinafter provided or
extended by mutual agreement between EMPLOYER and EMPLOYEE.
ARTICLE 2. DUTIES AND OBLIGATIONS OF EMPLOYEE
GENERAL DUTIES
Section 2.01. EMPLOYEE shall serve as Executive Vice President of SELF-
HEATING CONTAINER CORPORATION OF CALIFORNIA. In his capacity as Executive Vice
President, EMPLOYEE shall do and perform all services, acts, or things necessary
or advisable to manage and conduct the business of EMPLOYER, including the
hiring and firing of all employees other than the officers of EMPLOYER, subject
at all times to the policies set by EMPLOYER'S Board of Directors, and to the
consent of the Board when required.
EMPLOYEE shall be responsible for overseeing all aspects of the business of
EMPLOYER including, but not limited to, day-to-day operations, research and
development, sales and marketing, financial, manufacturing, production and
distribution.
DEVOTION TO EMPLOYER'S BUSINESS
Section 2.02. EMPLOYEE shall devote his entire productive time, ability,
and attention to the business of EMPLOYER during the term of this Agreement.
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COMPETITIVE ACTIVITIES
Section 2.03. During the term of this Agreement, EMPLOYEE shall not,
directly or indirectly, either as an employee, consultant, agent, principal,
partner, owner, stockholder, corporate officer, director, or in any other
individual or representative capacity, acquire, hold, retain, engage or
participate in any business that is similar in nature to the business of
EMPLOYER or that is in competition in any manner whatsoever with the business of
EMPLOYER. Nothing in this Agreement, however, shall restrict EMPLOYEE from
working for or on behalf of Insta-Heat, Inc. or from having any dealings
whatsoever with Insta-Heat, Inc. EMPLOYEE shall not be in violation of this
Agreement by his participation in the business of Insta-Heat, Inc. as an
employee, agent, consultant, officer, director or shareholder.
ARTICLE 3. OBLIGATIONS OF EMPLOYER
GENERAL DESCRIPTION
Section 3.01. EMPLOYER shall provide EMPLOYEE with compensation,
incentives, benefits, and business expense reimbursement specified elsewhere in
this Agreement.
OFFICE AND STAFF
Section 3.02. EMPLOYER shall provide EMPLOYEE with an adequate working
environment with personnel and equipment required to perform tasks EMPLOYEE is
required to perform, such as, but not limited to, secretarial and other
assistance, a private office, office equipment, supplies and other facilities
and services suitable to EMPLOYEE's position.
ARTICLE 4. COMPENSATION OF EMPLOYEE
ANNUAL SALARY
Section 4.01. (a) As compensation for the services to be performed
hereunder, EMPLOYEE shall receive a base salary of $8,000.00 per month, payable
once a month, on or before the 5th day of each month, which base salary shall be
automatically increased by five percent (5%) on September 1, 1997, and be
increased by an additional five percent (5%) on September 1, 1998.
(b) In the event EMPLOYER engages in an initial public
offering, at the conclusion of said public offering, EMPLOYEE's base salary
shall be increased from $8,000.00 per month to $12,000.00 per month, which
base salary of $12,000 per month shall be automatically increased by five
percent (5%) on September 1, 1997, and be increased by an additional five
percent (5%) on September 1, 1998.
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(c) The salary set forth herein will not cause EMPLOYER
to be restricted to paying the amount of compensation set forth above, and if
at a later time the Board of Directors determines that the minimum salary
should be increased or bonuses should be given to EMPLOYEE, this Agreement
shall not be seen as any impediment to any such activity or action.
SALARY CONTINUATION DURING DISABILITY
Section 4.02. If EMPLOYEE for any reason whatsoever becomes disabled such
that he is unable to perform the duties prescribed herein, EMPLOYER shall
continue to pay EMPLOYEE's full salary for a period of at least 120 days. If,
after said 120-day period, EMPLOYEE is still unable to perform the duties
prescribed herein, then in that event, EMPLOYER may terminate this Employment
Agreement ("Agreement").
ARTICLE 5. EMPLOYEE INCENTIVES
Section 5.01. EMPLOYEE shall be entitled to any and all EMPLOYEE
incentives that the Board of Directors from time to time may authorize for its
employees.
ARTICLE 6. EMPLOYEE BENEFITS
ANNUAL VACATION
Section 6.01. EMPLOYEE shall be entitled to 15 days vacation time per
year, to accrue pro rata as of the commencement of the Agreement. EMPLOYEE
shall also be entitled to not less than 6 national holidays per year.
ILLNESS
Section 6.02. EMPLOYEE shall be entitled to 5 sick days per year with full
pay.
OTHER BENEFITS
Section 6.03 (a) EMPLOYEE shall be entitled to any and all employee
Benefits, including but not limited to death, health, dental, and vision
benefits, that the Board of Directors from time to time may authorize for its
employees.
(b) EMPLOYER agrees to obtain a key man term life
insurance policy on EMPLOYEE in the face amount of Two Million Dollars.
EMPLOYER shall pay in a timely manner all premiums on said policy. EMPLOYEE
has the sole right to designate a beneficiary for One Million Dollars of said
policy. EMPLOYER, or its designee, shall be the beneficiary for the
remaining One Million Dollars on said policy. EMPLOYER is the sole owner of
the entire
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Two Million Dollar policy and entitled to all rights relating thereto.
EMPLOYEE authorizes EMPLOYER to take all actions necessary to obtain and
maintain said policy, to be the owner thereof, and to pay One Million Dollars of
the proceeds therefrom to EMPLOYER. EMPLOYER authorizes EMPLOYEE to name a
beneficiary for One Million Dollars of said policy. The term of said policy
shall be equal to the term of this Agreement.
ARTICLE 7. BUSINESS EXPENSES
REIMBURSEMENT OF BUSINESS EXPENSES
Section 7.01. EMPLOYER shall promptly reimburse EMPLOYEE for all
reasonable business expenses incurred by EMPLOYEE in connection with the
business of EMPLOYER. Each such expenditure is reimbursable only if EMPLOYEE
furnishes EMPLOYER adequate records and other documentary evidence required by
federal and state statutes and regulations issued by the appropriate taxing
authorities for the substantiation of each such expenditure as an income tax
deduction.
Section 7.02. It is understood that EMPLOYEE, from time to time, will be
required to spend time at industry and marketing-type conventions and that these
expenses will also be reimbursed by EMPLOYER.
ARTICLE 8. TERMINATION OF EMPLOYMENT
TERMINATION FOR CAUSE
Section 8.01. (a) EMPLOYER reserves the right to terminate this agreement
immediately for cause upon commission of one of the following acts by EMPLOYEE:
(i) gross neglect of duties of EMPLOYEE; (ii) theft by EMPLOYEE from EMPLOYER;
(iii) misuse of EMPLOYER's funds for personal gain; and/or (iv) conviction of a
felony.
(b) EMPLOYER also reserves the right to terminate
EMPLOYEE's employment for cause in the event EMPLOYEE wilfully breaches or
habitually neglects the duties which he is required to perform under the
terms of this Agreement, or in any other way materially breaches this
Agreement; provided, however, that any such termination will only occur
following written notice to EMPLOYEE of the reasons or reason for such
termination, supported by a statement of relevant facts and followed by
EMPLOYEE's failure to cure such wilful breach or habitual neglect of duties
or any material breach of this Agreement within thirty (30) days of receipt
of such notice.
(c) EMPLOYER is not obligated to pay EMPLOYEE any
severance pay upon termination for cause as specified in Section 8.01.(a) and
8.01.(b).
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TERMINATION WITHOUT CAUSE
Section 8.02. (a) This Agreement shall be terminated upon the death of
EMPLOYEE. EMPLOYEE is not entitled to receive any death benefits, unless prior
to the date of death of EMPLOYEE the Board of Directors has determined that
death benefits are to be paid to the officers of EMPLOYER.
(b) EMPLOYER reserves the right to terminate this
Employment Agreement in the event EMPLOYEE becomes disabled, subject to the
restrictions set forth in Section 4.02.
(c) EMPLOYEE reserves the right to terminate this
Employment Agreement at any time upon written notice to EMPLOYER of such
intention. EMPLOYER is not obligated to pay EMPLOYEE any sum, other than
amounts that may have accrued, upon his voluntary termination of this
Agreement.
PAYMENT ON TERMINATION
Section 8.03. (a) If at any time during the term of this Agreement, or if
in the three (3)-year period following either a (i) merger or consolidation
where EMPLOYER is not the consolidated or surviving corporation, or (ii)
transfer of all or substantially all of the assets of EMPLOYER, or (iii)
voluntary or involuntary dissolution of EMPLOYER, or (iv) change in the
composition of a majority of the Board of Directors of the Company;
(collectively (i) through (iv) are referred to as a "Change in Control"), then
following such Change in Control, EMPLOYEE, at his sole option and at any time,
may elect one of the following provisions:
(1) Continued employment by EMPLOYER and/or the surviving or
resulting corporation, said successor to be bound by all the provisions of this
Agreement;
(2) Voluntary termination of this Agreement and payment to EMPLOYEE
as severance pay or liquidated damages, or both, of a lump sum payment
("Severance Payment") equal to two hundred ninety-nine percent (299%) of the
EMPLOYEE's average annual base salary and all bonuses received for the five (5)-
year period immediately preceding the Severance Payment, or such greater amount
as a disinterested Board of Directors, or the compensation committee, if formed,
shall provide from time to time pursuant to terms which may not be revoked or
reduced thereafter. However, the total of any payment pursuant to this Section
8.03(a) shall be limited to the extent necessary, in the opinion of legal
counsel acceptable to EMPLOYEE and EMPLOYER, to avoid the payment of an "excess
parachute" payment within the meaning of Internal Revenue Code Section 280 G or
any similar successor provision.
The Severance Payment shall be made not later than the fifth (5th) day
following the
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effective date of the events specified in Section 8.03(a)(i)-(iv) herein;
provided, however, that if the amount of such payments cannot be finally
determined on or before such date, EMPLOYER shall pay to EMPLOYEE on such date a
good faith estimate of the minimum amount of such payments, and shall pay the
remainder of such payments (together with interest at the rate provided in
Internal Revenue Code Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined, but in no event later than the thirtieth (30th) day
after the applicable termination date. In the event the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by EMPLOYER payable on the fifth (5th) day after
receipt by EMPLOYEE of a written demand for payment from EMPLOYER (together with
interest calculated as above).
(b) In addition, for a two-year period following
termination, EMPLOYER shall continue to include EMPLOYEE in all of its
health, dental, vision, life insurance and other benefit programs in place at
the time of termination. Upon a dismissal other than for cause as stated in
Section 8.01(a) which does not involve Change in Control, EMPLOYEE shall
receive a Severance Payment equal to 2.99 times his average annual base
salary and bonuses during the preceding five (5) years; provided, however,
such payment shall be limited to the extent necessary to avoid the payment of
an "excess parachute" payment as defined above.
(c) If EMPLOYEE is terminated without cause during the
last two years of this Agreement, EMPLOYER will not be required to pay
EMPLOYEE the salary due for the full two-year period, but will only be
required to pay EMPLOYEE the balance of the salary that is due under the term
of this Agreement. In addition, if EMPLOYEE is terminated without cause
during the last two years of this Agreement, EMPLOYER will not be required to
include EMPLOYEE in its benefit programs during the full two-year period, but
will only be required to include EMPLOYEE in its benefit programs for the
balance of the term of this Agreement.
ARTICLE 9. COVENANT NOT TO COMPETE/TRADE SECRETS
Section 9.01. (a) During the term of this Agreement, EMPLOYEE shall not,
directly or indirectly, either as an employee, consultant, agent, principal,
partner, stockholder, corporate officer, director, or in any other individual or
representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of EMPLOYER. Nothing in
this Agreement, however, shall restrict EMPLOYEE from working for or on behalf
of Insta-Heat, Inc. or from having any dealings whatsoever with Insta-Heat, Inc.
EMPLOYEE shall not be in violation of this Agreement by his participation in the
business of Insta-Heat, Inc. as an employee, agent, consultant, officer,
director or shareholder.
(b) The term referred to in Section 9.01.(a) shall
include: (i) the actual employment period of EMPLOYEE; (ii) the time within
which EMPLOYEE is still being paid if EMPLOYEE is terminated without cause;
and (iii) a one year period if EMPLOYEE quits voluntarily.
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TRADE SECRETS/CONFIDENTIAL INFORMATION
Section 9.02. (a) The parties acknowledge and agree that during the term
of this Agreement and in the course of the discharge of his duties hereunder,
EMPLOYEE shall have access to and become acquainted with information concerning
the operation and processes of EMPLOYER that is owned by EMPLOYER and regularly
used in the operation of EMPLOYER'S business and that such information
constitutes EMPLOYER's trade secrets.
(b) EMPLOYEE specifically agrees that he shall not
misuse, misappropriate, or disclose any such trade secrets, directly or
indirectly, to any other person or use them in any way, either during the
term of this Agreement or at any other time thereafter, except as is required
in the course of his employment hereunder. EMPLOYEE agrees not to engage in
any unfair competition with EMPLOYER, either during the term of this
Agreement or at any other time thereafter.
(c) "Confidential information" shall mean information
identified as proprietary relating to the described product concept, specific
product design and its variations, know-how information relating to product
fabrication/assembly, and other information which is disclosed to EMPLOYEE by
EMPLOYER, its affiliates or agents either directly or indirectly, in writing
or by drawings or the product itself, or in any other related way, including
knowledge of EMPLOYEE obtained in EMPLOYEE'S capacities as inventor, owner,
and/or employee of EMPLOYER. It is expressly understood that Confidential
Information extends to the concept of the identified product.
(d) Confidential Information shall not include
information which is public knowledge and not covered under patents or other
rights EMPLOYER may own.
(e) EMPLOYEE shall not disclose Confidential Information
received hereunder to any third party not under a binder of secrecy from
EMPLOYER.
(f) EMPLOYEE agrees not to make any commercial or any
other use of Confidential Information received hereunder, except as may be
provided for under a separate agreement by EMPLOYER.
(g) EMPLOYEE agrees the Confidential Information
received hereunder shall be treated in such a way, taking reasonable steps to
ensure the proprietary nature of this information and to protect this
information from loss or theft, and that EMPLOYEE expressly agrees not to
publish or disclose this information to anyone other than those identified
herein, and that any disclosure will only be to those employees or advisors
needed to evaluate and use it for the purposes noted above. EMPLOYEE will
notify all employees, visitors, associates, or anyone who is given access to
such information, of its confidential nature and the existence and
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importance of this Agreement.
(h) This confidential disclosure clause shall not be
construed to grant EMPLOYEE any license or other rights except as provided
herein.
ARTICLE 10. GENERAL PROVISIONS
NOTICES
Section 9.01. Any notices to be given hereunder by either party to the
other shall be in writing and may be transmitted by personal delivery or by
mail, registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addressees appearing in
the introductory paragraph of this Agreement, but each party may change that
address by written notice in accordance with this section. Notices delivered
personally shall be deemed communicated as of the date of actual receipt; mailed
notices shall be deemed communicated as of the date of mailing.
ATTORNEYS' FEES AND COSTS
Section 9.02. If any legal action is necessary to enforce or interpret the
terms of this agreement, the prevailing party shall be entitled to reasonable
attorneys' fees and costs.
ENTIRE AGREEMENT
Section 9.03. This Agreement supersedes any and all other agreements,
either oral or in writing, between the parties hereto with respect to the
employment of EMPLOYEE by EMPLOYER and contains all of the covenants and
agreements between the parties with respect to that employment in any manner
whatsoever.
MODIFICATIONS
Section 9.05. Any modification of this Agreement will be effective only if
it is in writing and signed by the party to be charged.
EFFECT OF WAIVER
Section 9.06. The failure of either party to insist on strict compliance
with any of the terms, covenants, or conditions of this agreement by the other
party shall not be deemed a waiver of that term, covenant, or condition, nor
shall any waiver or relinquishment of any right or power at any one time or
times be deemed a waiver or relinquishment of that right or power for all or any
other times.
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PARTIAL INVALIDITY
Section 9.07. If any provision in this Agreement is held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalidated in any way.
LAW GOVERNING AGREEMENT
Section 9.08. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
Dated: 9/1/96 EMPLOYER:
------------------- SELF-HEATING CONTAINER CORPORATION
OF CALIFORNIA
BY: /s/ James L. Scudder
-------------------------------------
JAMES L. SCUDDER, PRESIDENT
EMPLOYEE:
/s/ James L. Berntsen
-------------------------------------
JAMES L. BERNTSEN
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of January 1,
1997, between Ontro, Inc., a California corporation, (hereinafter sometimes
referred to as "Ontro" or the "Corporation") and Kevin A. Hainley ("Employee").
1. TERM OF EMPLOYMENT
Ontro hereby employs Employee and Employee hereby accepts employment with
Ontro for the period beginning on January 1, 1997 and terminating on December
31, 1997. As used herein, the phrase "employment term" refers to the entire
period of employment of Employee by Ontro hereunder, whether for the period
provided above, or whether terminated earlier as hereinafter provided, or
extended by mutual agreement of Ontro and Employee.
2. DUTIES OF EMPLOYEE
2.01 GENERAL DUTIES. Employee shall serve as the Chief Financial
Officer of Ontro. Notwithstanding the foregoing, the precise services of
Employee may be specified or changed from time to time at the discretion of the
Board of Directors of Ontro.
2.02 SPECIFIC DUTIES. Employee shall serve as Chief Financial
Officer of the Company. The responsibilities of the Chief Financial Officer
("CFO") shall be to manage all of the financial affairs, including but not
limited to, all record keeping and reporting systems. The CFO shall be
responsible for the development and coordination of all financial and management
reporting systems, and management and procurement of financing sources for the
Company's projects. The CFO shall keep and maintain, or cause to be kept or
maintained, adequate and correct books and records of account of the properties
and business transactions of the Company, including accounts of its assets,
liabilities, receipts, disbursement, gains, losses, capital, retained earnings
and shares. The books of account shall at all reasonable times be open to
inspection by any Director. The Chief Financial Officer shall deposit all
monies or other valuables in the name and to the credit of the Company with such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the Company as may be ordered by the Board of Directors, shall
render to the President and Directors, whenever they request it, an account of
all his transactions as Chief Financial Officer and of the financial condition
of the Company, and shall have other powers and perform such other duties as may
be prescribed by the Board of Directors or the Bylaws. Notwithstanding the
foregoing, the precise services of Employee may be reasonably specified or
reasonably changed from time to time at the discretion of the Board of Directors
of the Company.
2.03 DEVOTION OF ENTIRE TIME TO ONTRO'S BUSINESS. Employee shall
devote his entire productive time, ability and attention to the business of
Ontro during the term of this Agreement. Employee shall not directly or
indirectly render any services of a business, commercial, or
<PAGE>
professional nature to any other person or organization, whether for
compensation or otherwise, without the prior written consent of the Board of
Directors of Ontro. Those entities or organizations which the Board of
Directors approve and the nature of the service to such entity which is approved
shall be listed on Exhibit "A" to this agreement, which shall be signed by a
member of the Board of Directors. Notwithstanding the foregoing, this paragraph
shall not be construed as preventing Employee from investing his assets in such
other manner as will not require anything other than incidental services on the
part of Employee in the operation of the affairs of any entity in which the
investments are made.
2.04 UNIQUENESS OF EMPLOYEE'S SERVICES. Employee hereby agrees the
services to be performed by him under the terms of this Agreement are of
special, unique, unusual, extraordinary, and intellectual character which gives
them a peculiar value, the loss of which cannot be reasonably or adequately
compensated by monetary damages in an action at law. Employee therefore
expressly agrees that Ontro, in addition to any other rights or remedies which
Ontro may possess, shall be entitled to injunctive and other equitable relief to
prevent a breach of this Agreement by Employee.
2.05 LOYAL AND CONSCIENTIOUS PERFORMANCE OF DUTIES. Employee agrees,
to the best of his ability and experience, he will at all times loyally and
conscientiously perform all of the duties and obligations either expressly or
implicitly required of him by the terms of this Agreement.
3. COMPENSATION OF EMPLOYEE
3.01 BASE SALARY. As compensation for services hereunder, Ontro shall
pay Mr. Hainley a salary of eight thousand dollars ($8,000) per month, until
such time as the Corporation has completed an initial public offering of its
securities and has received a minimum of $3.2 million in proceeds therefrom.
Upon the completion of said initial public offering, Employee's monthly salary
shall increase to ten thousand dollars ($10,000) per month for the duration of
the term hereof, commencing on the first day of the calendar month following the
completion of the initial public offering and continuing thoughout the remainder
of the term hereof.
3.02 SALARY CONTINUATION DURING DISABILITY. If Employee for any
reason whatsoever becomes permanently disabled, so that he is unable to perform
his duties hereunder, Ontro agrees to pay Employee his annual salary, payable in
the same manner for the remainder of the employment term less any amounts
received by Employee under any employer, group disability, or similar insurance
plan provided by Ontro.
3.03 VACATION PAY. Employee shall be entitled to a vacation of two
(2) weeks at full pay for each twelve (12) months of employment. The time or
times for such vacation shall be proposed by Employee and approved in advance by
the Chief Executive Officer.
3.04 PAID SICK LEAVE. Employee, shall be entitled to six (6) days
sick leave with full pay for each twelve (12) months of employment. Such sick
leave may not be accumulated beyond the calendar year in which it is granted.
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3.05 ADDITIONAL BONUSES. Nothing herein shall imply any limitation
on the authority of the Board of Directors to authorize any additional bonus(es)
which in their discretion they deem reasonable.
4. EMPLOYEE BENEFITS
MEDICAL, DENTAL INSURANCE COVERAGE. Ontro agrees to include Employee
in any hospital, surgical, medical and dental benefit plan adopted by Ontro for
other employees, and to include Employee in all additional medical and dental
benefit plans provided to other executives of the Corporation. Ontro further
agrees to provide reimbursement for such other medical or dental expenses
incurred by Mr. Hainley as are approved by the Board of Directors.
5. BUSINESS EXPENSES
5.01 BUSINESS EXPENSES. Ontro will promptly reimburse Employee for
business expenses reasonably incurred by Employee in connection with the
business of Ontro, provided that:
(1) Each such expenditure is of a nature qualifying it as a
allowable deduction from gross income in the determination of taxable income on
the federal and state income tax returns
of Ontro; and
(2) Employee furnishes to Ontro adequate records and other
documentary evidence required by federal and state statutes and regulations
issued by the appropriate taxing authorities where the substantiation of each
such expenditure as an income tax deduction is required; and
6. TERMINATION OF EMPLOYMENT
6.01 TERMINATION BY ONTRO FOR CAUSE. If Employee willfully breaches
or habitually neglects the duties which he is required to perform under the
terms of this Agreement, Ontro may at its option terminate this Agreement by
giving written notice of termination to Employee without prejudice to any other
remedy to which Ontro may be entitled either at law, in equity, and/or pursuant
to this Agreement.
6.02 EFFECT OF ONTRO'S MERGER, TRANSFER OF ASSETS, OR DISSOLUTION.
Upon the event of any of the following, these special provisions of this
Paragraph 6.02 shall apply:
(1) Merger or consolidation where Ontro is not the consolidated
or surviving corporation;
(2) Transfer of all or substantially all of the assets of Ontro,
or
(3) Voluntary or involuntary dissolution of Ontro.
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In the event of any such merger or consolidation, transfer of assets, or
dissolution of Ontro, Employee at his sole option, and at any time may elect one
of the following provisions:
(a) Continued employment by Ontro, and/or the surviving or
resulting corporation, said successor to be bound by all the provisions of this
Agreement;
(b) Voluntary termination of this Agreement and payment to
Employee as severance pay or liquidated damages, or both, a lump sum payment
("Severance Payment") equal to one hundred percent (100%) of the Employee's
average annual Base Salary or such greater amount as the Board of Directors
determines from time to time pursuant to terms which may not be revoked or
reduced thereafter. However, the total of any payment pursuant to this Section
6.02 shall be limited to the extent necessary, in the opinion of legal counsel
acceptable to Employee and Ontro, to avoid the payment of an "excess parachute"
payment within the meaning of Internal Revenue Code Section 280 G or any similar
successor provision.
The Severance Payment shall be made not later than the fifth (5th) day
following the effective date of the events specified in Section 6.02 (1-3)
herein; provided, however, that if the amount of such payments cannot be finally
determined on or before such date, Ontro shall pay to Employee on such date a
good faith estimate of the minimum amount of such payments, and shall pay the
remainder of such payments (together with interest at the rate provided in
Internal Revenue Code Section 1274(b)(2)(B) of the Code), as soon as the amount
thereof can be determined, but in no event later than the thirtieth (30th) day
after the applicable termination date. In the event the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by Ontro payable on the fifth (5th) day after
receipt by Employee of a written demand for payment from Ontro (together with
interest calculated as above).
6.03 DAMAGES FOR BREACH OF AGREEMENT. In the event of the breach of
this Agreement by either Ontro or Employee resulting in damages to the other
party, that party may recover from the party breaching the Agreement any and all
damages that may be sustained.
6.04 OPTION TO TERMINATE IF EMPLOYEE PERMANENTLY DISABLED. If
Employee becomes permanently disabled for a continuous period of six (6) months
or more because of sickness, physical or mental disability, or any other reason,
so that it reasonably appears he will be unable to complete his duties under
this Agreement, at that time, Ontro shall then have the option to immediately
terminate this Agreement by giving written notice of the termination to
Employee.
7. COVENANT NOT TO COMPETE
7.01 SCOPE OF COVENANT. Employee agrees that he shall not, either
directly or indirectly, carry on, participate, or engage in, either as employee,
employer, principal, agent, consultant, owner, part-owner, co-venturer, officer,
director, shareholder, partner, manager, operator, financier, employee,
salesman, or in any other individual or representative or participating
capacity, with any business which is a customer of Ontro at any time during the
term of this Agreement, or
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is in negotiations with Ontro with respect to the supplying of goods or the
performance of services by Ontro for such potential customer, for a period of
two (2) years after the termination of this Agreement.
7.02 INTERPRETATION. SHOULD ANY PORTION OR PROVISION OF THIS
COVENANT NOT TO COMPETE BE FOUND BY A COURT OF COMPETENT JURISDICTION TO BE
OVERLY BROAD, IT IS THE EXPRESS INTENT OF THE PARTIES HERETO THAT SUCH
PROVISIONS SHALL NEVERTHELESS BE ENFORCED TO THE MAXIMUM EXTENT PERMITTED BY LAW
AND SHALL GOVERN AND APPLY TO AS MUCH GEOGRAPHICAL AREA AND/OR TIME DURATION,
NOT TO EXCEED THAT WHICH IS SET FORTH ABOVE, AS POSSIBLE.
7.03 CONSIDERATION. Employee hereby acknowledges that the
consideration set forth herein shall fully support this Covenant.
7.04 REMEDIES. The remedy at law for breach of this Covenant being
inadequate, Ontro shall be entitled, in addition to such other remedies as it
may have, to temporary or injunctive relief for any breach or threatened breach
hereof without proof of actual damages that have been or may have been caused to
it by such breach.
7.05 BREACH. This Covenant shall be deemed to be part of this
Agreement, and a breach of this Covenant shall be deemed to be a breach of this
Agreement and all of its attendant obligations, undertakings, and promises.
8. CONFIDENTIALITY PROVISION
8.01 PROPRIETARY INFORMATION DEFINED. The following terms shall have
the meanings respectively set forth for them below:
(a) "Proprietary Information" shall mean any and all inventions,
research, designs, products, financing sources, processes, formulae, know-how,
customer lists, customer requirements information, trade secrets and/or other
non-public information or data comprising or related to the business of Company
as the same is carried on from time to time;
(b) "Proprietary Rights" shall mean all trademarks, patents,
copyrights, rights of creators and/or similar rights and privileges, whether
domestic or foreign, statutory or at common law, filed or not filed, perfected
or unperfected, or otherwise, relating to any Proprietary Information;
(c) "Proprietary Proceeds" shall mean all proceeds and products
of any Proprietary Information and/or Proprietary Rights; and
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(d) "Proprietary Assets" shall mean Proprietary Information
and/or Proprietary Rights and/or Proprietary Proceeds, considered collectively
or separately.
8.02 ACKNOWLEDGMENT OF ONTRO'S PROPRIETARY INFORMATION. Employee
agrees and acknowledges that any and all Proprietary Information (together with
all Proprietary Rights and/or Proprietary Proceeds relating thereto) wholly or
partially created, developed or further developed, perfected and/or completed by
Employee, acting alone or jointly with others at any time during Employee's
employment with Ontro, shall immediately upon creation, completion and/or
development become or have become, and shall at all times thereafter remain, the
sole and exclusive property of Ontro.
8.03 ONTRO'S PROPERTY. Employee specifically agrees and acknowledges
that (a) any and all Proprietary Assets, however, whenever and from whomever
acquired by Ontro, are and shall at all times remain the sole and exclusive
property of Ontro, (b) Employee shall not use, possess, disclose, transfer
and/or otherwise deal with any such Proprietary Assets at any time during his
employment with Ontro other than specifically within the scope of his employment
and in furtherance of the business and affairs of Ontro, and (c) Employee shall
not use, possess, disclose, transfer and/or otherwise deal with any Proprietary
Assets at any time after the termination of his employment with Ontro under any
circumstances whatsoever.
8.04 EMPLOYEE'S DUTIES. Employee agrees that he shall, both
throughout the term of his employment with Ontro and at any and all times
following the termination thereof, execute and deliver all such further
instruments and documents, and do and perform all such further acts and things,
as may be necessary or helpful and/or as may be reasonably requested by Ontro in
furtherance of the purposes and intent of this Agreement. By way of illustration
and not by way of limitation of the foregoing, Employee specifically agrees that
he shall:
(a) immediately communicate and thoroughly describe to Ontro in
writing any and all such Proprietary Information as is described in Section 8.01
above;
(b) promptly execute and deliver all such instruments or
agreements of assignment and/or transfer as Ontro may from time to time request
to carry out the purposes and intent of Section 8.01 above;
(c) assist Ontro, at such times and in such manner as Ontro may
request, in connection with Ontro's efforts to secure, apply for, renew or
otherwise perfect Proprietary Rights with respect to any and all Proprietary
Information; and
(d) upon the termination of his employment with Ontro,
immediately deliver to Ontro any and all written recorded or other physical
evidence of any and all Proprietary Assets in his possession or under his
control;
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PROVIDED, that in consideration of the foregoing, Ontro agrees that all
reasonable costs and expenses incurred by Employee, including reasonable
compensation for his time (except if Employee is otherwise being compensated as
a consultant) in complying with the provisions of this Section 8 shall be for
Ontro's account.
8.05 DISCLOSURE OF INFORMATION. Employee will not, during the
employment term or after, disclose or use any Proprietary Information or permit
disclosure to any person, firm, corporation, association or other entity if such
disclosure would be detrimental to Ontro.
8.06 EMPLOYEE REPRESENTATION. Employee represents and covenants that
he is not presently and will not hereafter become a party to any contract or
agreement which contravenes any of the terms, provisions, purposes or intent of
this Agreement.
8.07 SURVIVAL. It is specifically understood and agreed by both such
parties that this Agreement shall survive Employee's employment with Ontro
and/or the making and/or termination of any contract or agreement with respect
thereto.
8.08 REMEDIES. The parties hereto mutually acknowledge that the
representations, warranties, covenants and other agreements of Employee
contained in this Agreement are of special and unique importance to Ontro and
are not readily susceptible to dollar valuation. As such, in the event of the
actual or potential breach of any of such representations, warranties, covenants
or other agreements, the parties hereto specifically agree that Ontro, in
addition to any and all other rights and remedies available to it, shall be
entitled to injunctive and/or other equitable relief in furtherance of the
enforcement thereof.
9. GENERAL PROVISIONS
9.01 NOTICES. Any notices to be given hereunder by each party to the
other may be effected by personal delivery in writing or by mail, registered or
certified, postage prepaid with return receipt requested. Notices delivered
personally shall be deemed communicated as of actual receipt; mailed notices
shall be deemed communicated as of two (2) days after mailing.
9.02 TERMINATION/VIOLATION OF OTHER AGREEMENTS. Any previous written
or oral Employment Agreements between Ontro and Employee are hereby terminated.
Ontro hereby warrants to Employee that the execution of this Agreement will not
violate any outstanding agreements or covenants to which Ontro is a party.
Further, Ontro hereby warrants that the execution of this Agreement and the
performance of its terms hereunder do not violate any provisions of the By-Laws
of Ontro.
9.03 APPLICABLE LAW. This Agreement shall be construed under the laws
of the State of California and may not be altered or modified except by an
agreement in writing, signed by both parties.
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9.04 ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs, and necessary disbursements in
addition to any other relief to which he may be entitled.
9.05 ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Employee by Ontro and contains all of the covenants and
agreements between the parties with respect to such employment in any manner
whatsoever.
9.06 PARTIAL INVALIDITY. If any provision of this Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
9.07 MERGER OR CONSOLIDATION. Ontro hereby agrees that it shall not
merge or consolidate into or with or sell substantially all its assets to any
firm, entity, company or person until such other firm, entity, company or person
expressly agrees, in writing, to assume and discharge the duties and obligations
of the Ontro under this Agreement. This Agreement shall be binding upon the
parties hereto, their successors, beneficiaries, heirs and personal
representatives.
9.08 AMENDMENTS AND WAIVERS. This Agreement shall not be varied,
altered, waived, modified, changed or in any way amended in any of its parts
except by an instrument in writing, executed by the parties hereto, or by their
legal representatives. A waiver by either party of any of the terms of this
Agreement in any instance shall not be deemed or construed to be a waiver of
such term or condition for the future or of any subsequent breach thereof.
Executed at Poway, California.
EMPLOYER:
ONTRO, INC.
a California corporation
By: /s/ James A. Scudder
------------------------------------
James A. Scudder, President
EMPLOYEE:
/s/ Kevin A. Hainley
---------------------------------------
Kevin A. Hainley
8
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Exhibit "A"
Permitted Outside Activities
<PAGE>
DISTRIBUTORSHIP AGREEMENT
This distributorship agreement ("Agreement") is made and entered into as of
this day of April 4, 1997, by and between ONTRO, INC., a California corporation,
("Company") and THE L.L. KNICKERBOCKER COMPANY, INC., a California corporation
("Distributor"), in view of the following facts:
A. Company is engaged in the business of engineering, designing,
manufacturing, and supplying containers, such as cans, bottles, bowls, and
trays, that initiate a Chemical reaction in a sealed heating module inside the
container to heat the contents with which the container is filled, such as
beverages and foodstuffs, when a user presses an actuator on the container; and
B. Distributor desires to market products packaged in Company's
containers and to be designated as an exclusive distributor of such products
packaged in Company's containers.
COMPANY AND DISTRIBUTOR THEREFORE AGREE AS FOLLOWS:
1. DEFINITIONS:
For the purposes of this Agreement, the following words and terms shall
have the meaning set forth below:
1.1. The term "Containers" shall mean the types of containers and parts
and accessories thereto set forth in Schedule "A", a copy of which is attached
to this Agreement and incorporated herein by this reference.
1.2. The term "Approved Products" shall mean those product offerings of
Distributor comprised of certain Containers that have been filled with the type
of materials, for distribution in the areas and markets, and pursuant to the
distribution plan, and all other reasonable requirements or conditions all as
set forth in Schedule "B", a copy of which is attached to this Agreement and
incorporated herein by this reference.
1.3. The term "Territory" shall mean the territory, or markets which have
been designated and agreed upon by the Company and Distributor as exclusive to
Distribution in connection with each Approved Product.
1.6. The term "Written Notice" shall mean mailing of the information by
first-class, registered, certified, U.S. Express Mail, or by a recognized
overnight delivery service, addressed as follows:
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if to Company:
Ontro, Inc.
12675 Danielson Court, Suite 401
Poway, CA 92064
Fax: (619) 486-7204
if to Distributor:
The L.L. Knickerbocker Co., Inc.
30055 Comercio
Rancho Santa Margarita, CA 92688
Fax: (714) 589-0339
2. GRANT OF DISTRIBUTORSHIP:
2.1. Sale to Distributor: Subject to the terms of this Agreement, Company
shall sell Containers to Distributor for Distributor's use in manufacturing and
selling Approved Products in the Territory.
2.2. Exclusive Dealing: Company shall not, without Distributor's written
authorization, make, sell or deliver Containers to or for any party other than
Distributor which party the Company knows or should reasonably know intends to
use such Containers , to promote or sell Approved Products or substantially
similar products in a Territory defined as exclusive to Distributor in
connection with an Approved Product, during the term of this Agreement.
Distributor shall not utilize the Containers delivered to it pursuant to this
Agreement to package, sell, distribute, resell or otherwise dispose of the
Containers in a manner which will or may result in the Containers being filled
for sale to consumers with any material or marketed in any areas or in any
markets other than as set forth in connection with any Approved Product.
Distributor undertakes and agrees to take all steps necessary to ensure that
any Sub-distributor appointed pursuant to the terms of Section 2.3 below will
comply with the terms of this Section. Distributor shall not, without Company's
written authorization, purchase, acquire, manufacture or otherwise utilize any
package or container utilizing an integral means of heating the contents thereof
if such package or container was not acquired from the Company pursuant to the
terms of this Agreement. Any failure on the part of either Distributor or any
Sub-distributor to comply with the terms of this Section constitutes a material
breach of this Agreement on the part of Distributor.
2.3. Sub-distributors: Distributor may appoint Sub-distributors subject
to the approval in writing of Company, which Company shall not unreasonably
withhold. Appointment of a Sub-distributor by Distributor shall not impose on
Company any requirement that Company deal with the Sub-distributor. Appointment
of a Sub-distributor by Distributor shall not relieve Distributor
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from any of its obligations, undertakings, or risks assigned to it under this
Agreement. Distributor may contract with manufacturers to produce Approved
Products for Distributor and to package such Approved Products, using the
Containers purchased by Distributor from Company. Appointment of a Sub-
distributor or contracting with a manufacturer or any other party by Distributor
shall not relieve Distributor from any of its obligations, undertakings, or
risks assigned to it under this Agreement.
2.4. Best Efforts by Distributor: Distributor agrees to use its best
efforts to enact and carry out a policy designed to create demand for and
continually increase sales of Approved Products in the Territory. Distributor
agrees to maintain adequate working capital, facilities and personnel to
accomplish this purpose at all times. Distributor shall undertake all such
efforts at Distributor's sole cost and expense. Company shall be under no
obligation to aid Distributor in such efforts in any manner other than that
which is incidental to Company's fulfilment of obligations that may be specified
in other provisions of this Agreement.
2.5 Additional Approved Products: Distributor may, at any time, propose
additional materials for packaging in the Containers for distribution as
Approved Products by Written Notice to Company, which specifies the specific
material proposed, the name under which it will be labeled and the proposed
areas and marketing plan for its distribution. Distributor shall provide to
Company any additional information it may request concerning the proposed
material and its marketing and distribution. The Company agrees to promptly
consider any such additional product offerings proposed by Distributor. Upon
approval of such additional Distributor by Company, the parties will amend
Schedule "B" hereto and cause the additional product offerings to be included in
Schedule "B" as an Approved Product. Any amendment to Schedule "B" as provided
herein must be in writing and signed by both parties in order to become
effective.
2.6 Reports: Not less frequently than every calendar quarter,
Distributor shall prepare and deliver to Company a report of the sales activity
of the Distributor for the calendar quarter. Such report shall be in writing
and set forth, by approved product, the volume of sales during the quarter and,
with respect to each purchaser, the zip code to which the product was shipped,
the quantity purchased, the sex of the purchaser and all other demographic
information in the control, custody or possession of Distributor, other than the
name, address and telephone number of specific purchasers. The report required
by this section shall be delivered to Company not later than thirty (30) days
following the close of the calendar quarter to which the report relates.
3. MINIMUM QUANTITIES:
3.1. Minimum Quantities: Distributor shall be required to purchase, in
the first calendar month during which the Company accepts an order from
Distributor, a total of at least fifty thousand (50,000) Containers. In the
first succeeding calendar month, Distributor shall be required to purchase a
total of at least one hundred thousand (100,000) Containers. In the second
succeeding calendar month, Distributor shall be required to purchase a total of
at least two hundred thousand (200,000) Containers. During each calendar month
thereafter until the beginning of the next
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succeeding calendar quarter, Distributor shall be required to purchase a total
of at least two hundred fifty thousand (250,000) Containers. During each three
month period thereafter, Distributor shall be required to purchase at least
seven hundred fifty thousand (750,000) Containers. Failure by Distributor to
order this minimum quantity in any period specified herein shall be considered a
material breach of this Agreement.
4. PRICE:
4.1. Determination of Price: The Containers shall be sold to Distributor
by Company at the best price for the specified quantity of identical Containers
with identical heating parameters times and temperatures, set forth in Company's
published price list that is delivered to Distributor along with the notice of
acceptance of the initial order for such Products. Company shall have the right
to change all applicable prices for all Products every twelve (12) months
thereafter at its sole discretion by providing at least thirty (30) days Written
Notice to Distributor, and any such change shall become effective thirty (30)
days after such Written Notice is provided or on the date specified in such
notice, whichever is later. In no event shall a change in the price of the
Containers affect orders by Distributor that were accepted by Company before the
Written Notice of the price change was provided. The price list that is current
as of the date of this Agreement is set forth in Schedule "C", a copy of which
is attached to this Agreement and incorporated herein by this reference.
4.2. Reimbursement for Special Delivery Conditions, Taxes and Charges:
In the event that any labor or material is required to be supplied by Company in
an effort to comply with any special delivery conditions requested by
Distributor, any and all costs and expenses incurred by Company for such labor
or material shall be added to the invoice price of the Containers involved. In
the event that any sale or order of the Containers results in the imposition of
any charges or taxes by any governmental authority, such charges or taxes shall
be added to the invoice price of the Containers involved.
5. ACCEPTANCE OF ORDERS:
5.1. Acceptance: Company will not be bound by any order for Containers
placed by Distributor until such order has been accepted by Company, which
acceptance may be in whole or part at Company's sole discretion. Any order or
part thereof shall be deemed accepted only upon shipment of Containers relating
to the order by Company or by provision of Written Notice of acceptance to
Distributor. Upon acceptance of the order by Company, such acceptance shall
constitute a binding agreement of Company to sell and ship the Containers
ordered, and of Distributor to purchase and tender payment for the Containers
ordered, under the terms and conditions of this Agreement. An order placed with
and accepted by Company can be canceled only with Company's consent and upon
terms that indemnify Company against loss. Company may, at its option, give
Distributor written notice of any delay in production or delivery of the
Containers, and delivery of the Containers to Distributor, subject to such
delay, shall be deemed to be substantial compliance with the terms of such
order.
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5.2. Inconsistent Terms in an Order: In the event that any terms or
conditions contained in any order are inconsistent with the terms of this
Agreement, such inconsistent terms or conditions in the order shall be null and
void and shall not be binding on Company in the event that the order containing
such inconsistent terms or conditions is accepted by Company.
6. PAYMENTS FOR PRODUCTS:
6.1. All payments are due net, within thirty (30) days following the date
of the invoice relating to an order. Invoices will be issued following
acceptance of an order. In the event that the Company has not accepted an order
in writing, issuance of an invoice relating to the order shall constitute
acceptance thereof, according to the terms of the invoice. Any payment not
received by Company within thirty (30) days following issuance of an invoice
will be subjected to a late charge equal to 1.5% per month on the outstanding
principal balance due, but in no event greater than that allowed by law. Any
Containers manufactured or held by Company and relating to an invoice which has
not been paid within thirty (30) days following the date thereof which have not
been shipped, may be held by Company pending payment of the invoice or may be
resold to other customers. Any delay in delivery of Containers following
payment of an invoice which was not paid in full within thirty days following
its date, which delay is caused by Company's election to either hold or resell
the Containers pursuant to the terms of this Section shall be deemed in
compliance with the shipment terms of the order to which the unpaid invoice
relates. In the event the Company elects to ship any Containers pursuant to the
terms of an order whose invoice remains unpaid after thirty days, the ability of
the Company to withhold such shipment under the terms of this section shall not
be construed in any way limit the liability of Distributor for the amount of the
invoice, late fees imposed or the price of Containers shipped. The charging of
a late fee or any other action contemplated under the terms of this section
shall be cumulative and in addition to Company's other remedies under this
Agreement, at law or in equity.
6.2. Limitation on Deductions: Distributor hereby agrees that in making
any and all payments to Company under the terms of this Agreement, no deductions
for warranty or any other claims against Company shall be made unless
Distributor receives from Company prior written approval of the validity of such
a claim and the specific amount of the deduction, or such claim is limited to
the purchase price of defective containers returned to the Company pursuant to
Section 8.3 hereinbelow.
6.3. Failure to Make Payments: It is understood by the parties hereto
that the ability of Distributor to make the payments contemplated hereunder is
of the essence of this Agreement and in the event that Distributor fails to make
the payments in accordance with the terms and conditions of this Agreement, for
any reason or cause, including without limitation, by virtue of any regulation
or order of any government authority, Company may elect to terminate this
Agreement, which termination shall become effective immediately upon Company
providing Written Notice thereof, and notwithstanding the termination provisions
otherwise provided in this Agreement. Notwithstanding any other provision of
this Agreement, Distributor grants to Company a security interest in any and all
Containers in Distributor's inventory, possession or control to secure
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the purchase price of Containers delivered from time to time. This Agreement is
intended by the parties to constitute a security agreement under the terms of
the California Commercial Code. The security interest granted herein shall be a
floating and ongoing security interest in all Containers within the custody,
possession or control of the Distributor from time to time and shall not be
limited in any way to the specific Containers giving rise to a particular
payment obligation of Distributor. Company shall have the right to file UCC-1
and other statements, as it deems appropriate, to perfect such security
interest, and Distributor shall take all steps reasonably necessary to assist
Company in such filings, including execution thereof. Distributor's failure to
take any requested step for a period of fifteen (15) days following written
request therefor shall be considered a material breach of this Agreement.
7. SHIPMENT OF CONTAINERS:
7.1. Time and Costs: Company shall ship to Distributor the Containers
set forth in an accepted order to Distributor, within a commercially reasonable
time after Company's acceptance of such order. Company and Distributor
understand and agree that all shipping dates shall be approximate and shall be
computed from the date that an order is accepted by Company. All costs of
shipping and any other costs related to transfer of Containers to Distributor
shall be added to invoices and shall be borne by Distributor. Any additional
insurance costs will be added to the cost of shipping to be purchased from the
carrier, and all such costs shall be borne by Distributor.
7.2. Discharge of Company's Obligation: Company's obligation to ship the
products shall be fully and completely discharged, and ownership, legal title
and all risk of loss or damage shall immediately pass to Distributor, at the
time that the products are delivered F.O.B. San Diego, California, provided,
however, that any and all security interest in the products created in favor of
Company shall remain intact. Distributor may designate its own carrier. Company
shall not be liable for any discrepancy between the estimated shipping weights
and the actual weights of Containers shipped.
7.3. Excuse of Performance: Company shall not be obligated to sell
Containers to Distributor, including filling any order that Distributor has
placed, if Company's performance becomes impossible, whether legally or
practically. Without limiting the generality of the foregoing and by way of
example only, a sale shall be considered legally impossible, among other
circumstances, in the event of issuance of an order by a court of competent
jurisdiction enjoining Company from manufacturing, using or selling Containers
or portions thereof or holding that the manufacture, use or sale of Containers
infringes a patent held by another party, constitutes an act of unfair
competition, or violates any other right of another party.
7.4. Limitation on Damages: Company agrees to use its best efforts to
satisfy and fill orders placed by Distributor. Nevertheless, it is understood
that lead time will vary according to manufacturing and other conditions and,
consequently, any and all delivery dates communicated by Company are mere
estimates. Under no circumstances shall Company be liable to Distributor, its
agents, sub-distributors, customers or any other persons on account of late
delivery or non-delivery,
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for any special or consequential damages, whether based upon lost goodwill, lost
profits, work stoppage, impairment of other goods, breach of contract,
negligence or such other actions as may be deemed or alleged to be the cause of
a loss or damage to such person. Distributor's sole and exclusive remedy shall
be the recovery of so much of the purchase price, if any, as Distributor may
have paid to Company for the ordered Containers. Distributor expressly releases
Company from liabilities for any loss or damage arising from the failure of
Company to fill any orders of Distributor.
8. QUALITY OF CONTAINERS:
8.1. Quality of Containers: Company shall furnish to Distributor a sample
of each type of Container ("Sample Container") set forth in Schedule "A" that
shall serve as the sole and exclusive standard for gauging the quality of
Containers of that type subsequently shipped to Distributor. From time to time,
but not more than once per month, at the Request of Distributor, Company shall
furnish to Distributor a further Sample Container that shall supersede all
previously furnished Sample Containers of that type.
8.2. Limitation of Warranty: COMPANY WARRANTS THAT EACH CONTAINER SHIPPED
TO DISTRIBUTOR IS OF AT LEAST THE SAME LEVEL OF QUALITY AS THE SAMPLE CONTAINER
OF THAT TYPE AT THE TIME OF SHIPMENT. DISTRIBUTOR HEREBY ACCEPTS THIS WARRANTY
IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESSED OR IMPLIED, INCLUDING BUT NOT
LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND FITNESS. Distributor shall
satisfy itself that the Containers are suitable for the materials with which
Distributor intends to fill them, and acknowledges that it has not relied upon
any representation by Company regarding such suitability. Distributor warrants
only the quality of the empty Containers; the quality of Containers shall not be
judged in connection with their effect upon such materials, including but not
limited to the effectiveness or ineffectiveness of Containers at heating such
materials or any change such materials may undergo as a result of being placed
in, sealed in, and/or heated in Containers.
8.3. Return of Defective Containers: Within sixty (60) days of
Distributor's receipt of a shipment of Containers, Distributor may return for
credit Containers that are below the standard of quality defined by the Sample
Container. Distributor shall not be permitted to return any Containers for
credit without obtaining the prior written approval of Company to return such
products and a written authorization number issued by Company. Distributor must
include with any such return a listing detailing the Containers being returned,
the invoice number on which they were originally purchased, and a description of
the defect(s). Distributor shall bear all costs and expenses of returning the
Containers, and all risk of loss until the Containers are received by Company at
its San Diego shipping location.
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9. CONFIDENTIAL INFORMATION:
Distributor shall neither use nor disclose to any third parties any
confidential information concerning the business, affairs or products of Company
that Distributor may acquire during the course of its activities under this
Agreement. In addition, Distributor shall take all necessary precautions to
prevent any disclosure by any of its employees, officers, directors,
representatives, agents or sub-distributors. Distributor acknowledges that any
right, title and interest in and to the aforesaid confidential information is
vested in Company and that such information is the sole property of Company.
For purposes of this Agreement, it is understood by the parties hereto that the
term "confidential information" shall include, but is not limited to, trade
secrets and unpatentable intellectual property that may be communicated orally,
in writing, in drawings, or in any other medium, or by demonstration of a device
or method. Distributor acknowledges that it will hold in confidence and trust
any such confidential information and that, upon termination of this Agreement
for any cause or reason whatsoever, Distributor will promptly retrieve and
deliver to Company all documents, data and records in any medium that contains
or relates to Company's confidential information. It is specifically understood
and agreed that Distributor will not, under any circumstances, either during the
term hereof or following termination, undertake the manufacture of any Container
or component thereof or of any item intended to function in a manner
substantially similar to the Containers. For purposes of this Agreement, an
item will be deemed to function in a manner substantially similar to the
Containers if such item consists of a package, or packaging component, which
package or component, when combined with the remaining packaging components, is
self contained and intended to heat its contents.
10. TRADEMARKS, PATENTS AND COPYRIGHTS:
10.1. Ownership of Trademarks, Patents and Copyrights: Distributor
acknowledges Company's exclusive right, title and interest in and to any and all
trademarks and trade names (hereinafter such trademarks and trade names shall be
collectively referred to as the"Trademarks"), patents ("Patents") and copyrights
("Copyrights") in which Company may have at any time acquired a license or other
rights or interests in the United States of America or in any other country.
Distributor acknowledges that, in connection with any reference to the
Trademarks, Patents and Copyrights, Distributor shall not in any manner
represent that it possesses any ownership interest in the Trademarks, Patents
and Copyrights or the registration thereof, nor shall any action taken by
Distributor or on Distributor's behalf create in Distributors's favor any right,
title or interest in and to the Trademarks, Patents and Copyrights.
10.2. Attribution: Distributor shall mark each Product in the following
manner or in a similar manner that Company may, from time to time, designate
upon giving Distributor reasonable Written Notice: "This product is packaged in
an Ontro, Inc. brand self-heating container." Distributor shall not use
Company's name or Trademarks in any other manner. Distributor shall not in any
manner state or imply that Company, its licensor Insta-Heat, Inc., or any
parent, subsidiary or related entity of Company or Insta-Heat, Inc. is the
source or origin of the contents of the Containers.
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10.3. Patent Marking: Distributor shall mark each Product covered by one
or more of the Patents with a proper patent notice. Although Company shall
advise Distributor of the patent numbers) that in Company's opinion cover the
Products, Distributor shall bear all risks associated with inadvertent mis-
marking of the Products. Distributor hereby waives all claims against Company
that may arise out of its marking Products with patent notices and Company's
representations regarding the patent coverage or patent number(s).
10.4. Notification of Violations: Distributor shall promptly notify
Company, in writing, of any and all infringements, imitations, illegal use or
misuse of the Trademarks, Patents and/or Copyrights that come to Distributor's
attention. Distributor further agrees that it shall not at any time take any
other action in connection with the Trademarks, Patents or Copyrights, or
otherwise attempt to prevent infringement, imitation, illegal use or misuse of
the Trademarks, Patents and/or Copyrights.
10.5. Assistance in the Protection of the Trademarks, Patents and
Copyrights: Distributor agrees to render to Company all assistance requested of
it by Company in connection with the protection of Trademarks, Patents and/or
Copyrights, and to make promptly available to Company Distributor's records,
personnel files and any other files or information it possesses or to which it
has access that may be of use to Company in such connection.
11. COMPANY'S WARRANTY AGAINST INFRINGEMENT; INDEMNIFICATION:
Company warrants that distribution and sale of Containers shall not violate
or infringe any valid trademarks, patents and/or copyrights held by third
parties and shall defend, indemnify and save harmless Distributor, its agents,
sub-distributors, officers, directors, employees, shareholders, successors and
assigns, and each of them, from and against any and all claims, actions and
suits, whether groundless or otherwise, and from and against any and all
liabilities, judgments, losses, damages, costs, charges, attorneys' fees, and
other expenses of every nature and character by reason of such violation or
infringement.
12. DISTRIBUTOR'S INDEMNIFICATION OF COMPANY AND ASSUMPTION OF RISK:
12.1. Indemnification: Distributor agrees to indemnify, defend and save
harmless Company and its officers, directors, agents, employees, shareholders,
legal representatives, successors and assigns, and each of them, from any and
all claims, actions and suits, whether groundless or otherwise, and from and
against any and all liabilities, judgments, losses, damages, costs, charges,
attorney's fees, and other expenses of every nature and character by reason of
Distributor's business and/or actions with respect to the Products and
Containers, including any claims, actions or suits not covered under Company's
warranty as set forth in this Agreement.
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Distributor further agrees that the provisions contained in this paragraph
shall survive the termination or expiration of this Agreement and shall be
liberally construed in favor of Company.
12.2. Assumption of Risk: Distributor hereby assumes all risks of damage
to property or injury to person, arising from any cause, and Distributor hereby
waives all claims in respect thereto against Company. By way of illustration and
not by way of limitation, examples of such causes include any product-related
responsibility of Distributor, any action or proceeding alleging any violation
of any antitrust, trade regulation, unfair competition or similar statute or
regulation. Distributor further agrees that the provisions contained in this
paragraph shall survive the termination or expiration of this Agreement and
shall be liberally construed in favor of Company.
13. INDEPENDENT CONTRACTOR RELATIONSHIP:
Distributor agrees that, with respect to all matters relating to this
Agreement, Distributor shall be deemed to be an independent contractor and shall
bear all of its own expenses in connection with this Agreement. Distributor
shall have no authority, whether express or implied, to assume or create any
obligation on behalf of Company nor shall Distributor issue or cause to be
issued any quotations or draft any letters or documents over the name of
Company, but rather shall use its own name for such purposes .
14. TERM AND CANCELLATION:
14.1. Term: Subject to the termination and cancellation provisions of this
Agreement, the term of this Agreement shall commence as of the date hereof
("Effective Date") and shall continue in full force and effect for an initial
term of five (5) years. Subject to the termination and cancellation provisions
of this Agreement, unless either party gives written notice prior to the
expiration of the initial term, as provided below, this Agreement shall
automatically renew for one five (5) year renewal term on the same terms and
conditions set forth herein.
14.2. Cancellation: Subject to the other provisions of this Section,
either party may terminate this Agreement effective at the expiration of its
initial term or any actual or proposed renewal term hereof for any reason by
giving the other party at least sixty (60) days Written Notice prior to such
expiration.
14.3. Termination Date: The date upon which this Agreement is canceled or
terminated shall be hereinafter referred to as the "Termination Date".
15. TERMINATION:
This Agreement shall be terminable or shall terminate, as the case may be,
prior to the expiration of the initial five (5) year period or any renewals
thereafter if and when any of the following events occur:
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15.1. Breach of Agreement by Distributor: Subject to any Sections of this
Agreement that may provide for immediate termination without right of cure,
Company may provide Written Notice to Distributor of any breach of this
Agreement, and if Distributor fails to cure the breach within thirty (30) days
of the Written Notice, the Agreement shall terminate immediately upon Written
Notice to Distributor of such termination .
15.2. Bankruptcy or Cessation of Business: This Agreement shall be
terminated automatically and immediately upon Distributor's cessation of
business, election to dissolve, dissolution, insolvency, failure in business,
commission of an act of bankruptcy, general assignment for the benefit of
creditors, or filing of any petition in bankruptcy or relief under the
provisions of the bankruptcy laws.
15.3. Commission of a Felony: Company may terminate this Agreement
immediately upon Written Notice to Distributor if any of Distributor's principal
officers or employees are convicted of any felony involving fraud, theft or
moral turpitude.
15.4. Merger, Consolidation or Change of Ownership: Company may terminate
this Agreement immediately in the event that Distributor, without the prior
written approval of Company, merges, consolidates or sells all or substantially
all of its assets or if there is a change of more than fifty percent (50%) of
the stock ownership of Distributor.
16. RIGHTS AND OBLIGATIONS UPON TERMINATION OR CANCELLATION:
Upon the termination or cancellation of this Agreement the parties hereto
agree as follows:
16.1. Non-Liability of Company: Company shall not be liable for
consequential damages of any kind, whether as a result of a loss by Distributor
of present or prospective profits, anticipated sales, expenditures, investments,
commitments made in connection with this Agreement, or on account of any other
reason or cause whatsoever.
16.2. Continuing Obligations: Notwithstanding any contrary provision
contained in this Agreement, the parties hereto agree that each shall abide by
and uphold any and all rights or obligations accrued or existing as of the
Termination Date.
17. COMPLIANCE WITH GOVERNMENTAL REGULATIONS:
In the event any legislation, rule, judgment or order is enacted, adopted
or issued that commercially frustrates Company's purpose in entering into this
Agreement or its ability to perform, Company has the right, in its sole
discretion, notwithstanding any other provisions of this Agreement, to
immediately terminate this Agreement or to cease performing or to unilaterally
modify that portion of the Agreement that has been so affected.
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18. MEETINGS:
Company shall have the right to call meetings with Distributor to be held
at Company's primary place of business or such other location as Company and
Distributor may agree not more frequently than quarterly, provided that Company
furnishes at least fourteen (14) days Written Notice to Distributor, to review
matters relating to the terms and conditions of this Agreement and the
compliance of each of the parties therewith and to consider any special matter
of concern.
19. FORCE MAJEURE:
Distributor understands and acknowledges that Company shall not be liable
for any loss, damage, detention, delay or failure to perform in whole or in part
resulting from causes beyond Company's control, including, but not limited to,
fires, weather, strikes, insurrections, riots, embargoes, shortages of motor
vehicles, delays in transportation, inability to obtain supplies of raw
materials, or requirements or regulations of the United States government or any
other civil or military authority. Furthermore, it is understood that in no
event shall Company be liable for incidental or consequential damages resulting
therefrom.
20. CONFLICTS WITH OTHER AGREEMENTS:
Company and Distributor warrant that neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereunder
will violate or constitute a default under any agreement or instrument to which
either Company or Distributor is a party.
21. ENTIRE AGREEMENT; AMENDMENT:
This Agreement contains the entire understanding between the parties with
respect to the subject matter hereof and supersedes all prior contemporaneous
written or oral negotiations and agreements between them regarding the subject
matter hereof. This Agreement may be amended only by a writing signed by both of
the parties and clearly designated as an amendment to this Agreement by an
appropriate heading .
22. SEVERABILITY:
If any provision or portion thereof of this Agreement is determined to be
invalid or unenforceable, the provision or portion shall be deemed to be
severable from the remainder of this Agreement and shall not cause the
invalidity or unenforceability of the remainder of this Agreement.
23. ASSIGNMENT:
The parties acknowledge that this Agreement contemplates and requires in
its performance the unique circumstances, knowledge and business contacts of
Distributor. Distributor may not transfer or assign this Agreement or any
portion thereof or any right or obligation thereunder without
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Company's prior written approval, which approval shall not be unreasonably
withheld. Any attempted transfer or assignment by Distributor of this Agreement
or portion thereof or any right or obligation thereunder shall be null and void
and constitute a material breach of the Agreement. This Agreement shall be
binding upon and shall inure to the benefit of Company and its successors and
assigns, and shall be binding upon and, subject to the foregoing limitations,
inure to the benefit of Distributor and its permitted assignees and successors.
It is specifically contemplated by the parties that the Company may utilize
other persons in connection with the manufacture of the Containers and may
cause components or complete Containers to be manufactured or shipped from
locations other than the Company's facilities.
24. NO IMPLIED WAIVERS:
The failure of either party at any time to require performance by the other
party of any provision hereof shall not affect in any way the right to require
such performance at any later time, nor shall the waiver by either party of a
breach of any provision hereof be taken or held to be a waiver of such
provision.
25. ATTORNEYS' FEES:
If any arbitration or legal proceeding is brought for the enforcement of
this Agreement, or because of an alleged breach, default or misrepresentation in
connection with any provision of this Agreement or other dispute concerning this
Agreement, the successful or prevailing party shall be entitled to recover all
attorneys fees reasonably incurred.
26. ARBITRATION:
Any controversy of claim arising out of or relating to this Agreement shall
be settled by binding arbitration conducted in accordance with the Commercial
Rules of the American Arbitration Association ("AAA"), and judgment upon any
award rendered in such arbitration may be entered in any court having
jurisdiction of whether one of the parties fails or refuses to participate. Any
dispute in which monetary damages greater than one-hundred thousand dollars
($100,000) are alleged or in which injunctive relief or specific performance is
requested shall be heard by a panel of three arbitration judges, which shall
have the power to grant requests for injunctive relief and specific performance.
27. GOVERNING LAW:
This Agreement shall be construed and interpreted under the laws of the
State of California. All disputes or controversies or questions arising under
or relating to this Agreement between the parties hereto in relation to this
Agreement shall be construed and resolved under the laws of the State of
California. Any judgments upon the award entered by the arbitrators may be
entered int the State of Federal Courts situated in the State of California.
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28. COUNTERPARTS:
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
Dated: Ontro, Inc.
---------------------- a California corporation
By:
-------------------------------
James A. Scudder, President
Dated: The L.L. Knickerbocker Co., Inc.
---------------------- a California corporation
By:
-------------------------------
Louis L. Knickerbocker, President
14
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SCHEDULE "A"
CONTAINERS
<PAGE>
SCHEDULE "B"
INITIAL APPROVED PRODUCTS
<PAGE>
SCHEDULE "C"
INITIAL PRICE LIST
<PAGE>
SELF-HEATING CONTAINER CORPORATION OF CALIFORNIA
1996 OMNIBUS STOCK PLAN
1. PURPOSE OF THE PLAN. The purpose of the Self-Heating Container
Corporation of California 1996 Omnibus Stock Plan is to enable Self-Heating
Container Corporation of California to provide an incentive to eligible
employees, consultants, advisors, directors, and officers whose present and
potential contributions are important to the continued success of the Company,
to afford these individuals the opportunity to acquire a proprietary interest in
the Company, and to enable the Company to enlist and retain in its employment
the best available talent for the successful conduct of its business. It is
intended that this purpose will be effected through the granting of (a)
incentive and nonqualified stock options, (b) stock purchase rights, (c) stock
appreciation rights, and (d) long-term performance awards.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option plans under applicable securities laws,
California corporate law, and the Code.
(b) "BOARD" means the Board of Directors of the Company. If one or
more Committees have been appointed by the Board to administer the Plan, "Board"
also means such Committees.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with Section 5 of the Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means Self-Heating Container Corporation of California,
a California corporation.
(g) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship is not interrupted or terminated by the
Company, any Parent or Subsidiary. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave of
absence approved by the Company, including sick leave, military leave, or any
other personal leave; provided, however, that for purposes of Incentive Stock
Options, any such leave may not exceed ninety (90) days, unless reemployment
upon the expiration of such leave is guaranteed by contract (including certain
Company policies)
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or statute; or (ii) transfers between locations of the Company or between the
Company, its Parent, its Subsidiaries or its successor.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc., Automated
Quotation ("NASDAQ") System, the Fair Market Value of a Share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "LONG-TERM PERFORMANCE AWARD" means an award under Section 10
below. A Long-Term Performance Award shall permit the recipient to receive a
cash or stock bonus (as determined by the Board) upon satisfaction of such
performance factors as are set out in the recipient's individual grant.
Long-term Performance Awards will be based upon the achievement of Company,
Subsidiary and/or individual performance factors or upon such other criteria as
the Board may deem appropriate.
(p) "LONG-TERM PERFORMANCE AWARD AGREEMENT" means a written agreement
between the Company and an Optionee evidencing the terms and conditions of an
individual Long-Term Performance Award grant. The Long-Term Performance Award
Agreement is subject to the terms and conditions of the Plan.
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(q) "NONQUALIFIED STOCK OPTION" means any Option that is not an
Incentive Stock Option.
(r) "NOTICE OF GRANT" means a written notice evidencing certain terms
and conditions of an individual Option, Stock Purchase Right, or Long-Term
Performance Award grant. The Notice of Grant is part of the Option Agreement and
the Long-Term Performance Award Agreement.
(s) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means a stock option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(v) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(w) "OPTIONED STOCK" means the Common Stock subject to an Option or
Right.
(x) "OPTIONEE" means an Employee or Consultant who holds an
outstanding Option or Right.
(y) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(z) "PLAN" means this 1996 Omnibus Stock Plan.
(aa) "RESTRICTED STOCK" means shares of Common Stock subject to a
Restricted Stock Purchase Agreement acquired pursuant to a grant of Stock
Purchase Rights under Section 9 below.
(bb) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(cc) "RIGHT" means and includes Long-Term Performance Awards and Stock
Purchase Rights granted pursuant to the Plan.
(dd) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor rule thereto, as in effect when discretion is being exercised with
respect to the Plan.
(ee) "SAR" means a stock appreciation right granted pursuant to
Section 8 of the Plan.
(ff) "SAR AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual SAR grant. The
SAR Agreement is subject to the terms and conditions of the Plan.
3
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(gg) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(hh) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 9 of the Plan, as evidenced by a Notice of Grant.
(ii) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(fl of the Code.
3. ELIGIBILITY. Nonqualified Stock Options and Rights may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. If otherwise eligible, an Employee or Consultant who has been granted
an Option or Right may be granted additional Options or Rights.
4. STOCK SUBJECT TO THE PLAN.
(a) SHARES RESERVED. Subject to the provisions of Section 12 of the
Plan, the total number of Shares reserved and available for distribution under
the Plan is 268,200 Shares. Subject to Section 12 of the Plan, if any Shares
that have been optioned under an Option cease to be subject to such Option
(other than through exercise of the Option), or if any Option or Right granted
hereunder is forfeited or any such award otherwise terminates prior to the
issuance of Common Stock to the participant, the shares that were subject to
such Option or Right shall again be available for distribution in connection
with future Option or Right grants under the Plan; provided, however, that
Shares that have actually been issued under the Plan, whether upon exercise of
an Option or Right, shall not in any event be returned to the Plan and shall not
become available for future distribution under the Plan.
(b) NO FRACTIONAL SHARES. No fractional Shares may be issued under
this Plan; fractional Shares shall be rounded to the nearest whole Share.
(c) CONDITIONAL ISSUANCES. If this Plan is amended at any time
subject to shareholder approval, then the Board may, in accordance with the
terms and conditions of this Plan, grant Options or Rights on a conditional
basis, subject to such approval by the shareholders of the Company not later
than the next annual meeting of the shareholders of the Company following the
date of such conditional grant. Any Options or Rights granted on a conditional
basis shall not be exercisable unless and until the amendment to this Plan is
approved by the shareholders of the Company. If such an amendment is not
approved by the shareholders at the next annual meeting of shareholders of the
Company following the conditional grant, then the conditional grant shall be
canceled.
5. ADMINISTRATION.
(a) ADMINISTRATION BY THE BOARD. The Plan shall be administered by
the Board, including any duly appointed Committee of the Board. All questions
of interpretation of the Plan or of any Option or Right shall be determined by
the Board, and such determinations shall be final and binding upon all persons
having an interest in the Plan or such Option or Right. Any officer of a Parent
or Subsidiary shall have the authority to act on behalf of the Company with
respect to any matter, right, obligation, determination or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
determination or election.
4
<PAGE>
(b) POWERS OF THE BOARD. Subject to the provisions of the Plan, and
in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Board shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(m) of the Plan;
(ii) to select the Consultants and Employees to whom Options
and Rights may be granted hereunder;
(iii) to determine whether and to what extent Options and
Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option and Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options or Rights may be exercised (which may be based on
performance criteria), any vesting, acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or
Right or the shares of Common Stock relating thereto, based in each case on
such factors as the Board, in its sole discretion, shall determine;
(vii) to construe and interpret the terms of the Plan;
(viii) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(ix) to determine whether and under what circumstances an
Option or Right may be settled in cash instead of Common Stock or Common
Stock instead of cash;
(x) to reduce the exercise price of any Option or Right;
(xi) to modify or amend each Option or Right (subject to
Section 14 of the Plan);
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Right
previously granted by the Board;
(xiii) to institute an Option Exchange Program;
(xiv) to determine the terms and restrictions applicable to
Options and Rights and any Restricted Stock; and
(xv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF BOARD'S DECISION. The Board's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Rights.
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(d) RULE 16b-3 COMPLIANCE. It is the intent that this Plan and all
Options and Rights granted pursuant to it shall be administered, in the
discretion of the Board, so as to permit this Plan and the Options and Rights to
comply with Exchange Act Rule 16b-3. With respect to grants of Options and
Rights to executive officers and directors, the Plan will be administered by the
full Board or a Committee to satisfy Rule 16b-3 to the extent the Board
determines, in its sole discretion, that compliance with Rule 16b-3 is necessary
or desirable. If any provision of this Plan or of any Options and Rights would
otherwise frustrate or conflict with the intent expressed in this Section 5 (d),
that provision to the extent the Board determines it possible, necessary, or
desirable, shall be interpreted and deemed amended in the manner determined by
the Board so as to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, the provision shall be deemed void as
applicable to Optionees who are then subject to the reporting requirements of
Section 16 of the Exchange Act to the extent permitted by law and in the manner
deemed advisable by the Committee.
6. DURATION OF THE PLAN. The Plan shall remain in effect until terminated
by the Board under the terms of the Plan, provided that in no event may
Incentive Stock Options be granted under the Plan later than 10 years from the
date the Plan was adopted by the Board.
7. OPTIONS.
(a) OPTIONS. The Board, in its discretion, may grant Options to
eligible participants and shall determine whether such Options shall be
Incentive Stock Options or Nonqualified Stock Options. Each Option shall be
evidenced by a Notice of Grant/Option Agreement which shall expressly
identify the Options as Incentive Stock Options or as Nonqualified Stock
Options, and be in such form and contain such provisions as the Board shall
from time to time deem appropriate. The Notice of Grant/Option Agreement
shall govern each Optionee's rights and obligations with respect to each such
particular Option. Without limiting the foregoing, the Board may at any time
authorize the Company, with the consent of the respective recipients, to
issue new Options or Rights in exchange for the surrender and cancellation of
outstanding Options or Rights. Option agreements shall contain the following
terms and conditions:
(i) EXERCISE PRICE; NUMBER OF SHARES. The per Share exercise
price for the Shares issuable pursuant to an Option shall be such price as is
determined by the Board; provided, however, that in the case of an Incentive
Stock Option, the price shall be no less than 100% of the Fair Market Value of
the Common Stock on the date the Option is granted, subject to any additional
conditions set out in Section 7(a)(iv) below. In the case of a Nonqualified
Stock Option, the per share exercise price for the Shares issuable pursuant to
an Option shall be such price as is determined by the Board.
The Notice of Grant shall specify the number of Shares to which it
pertains.
(ii) WAITING PERIOD AND EXERCISE DATES. At the time an Option
is granted, the Board will determine the terms and conditions to be satisfied
before Shares may be purchased, including the dates on which Shares subject to
the Option may first be purchased. The Board may specify that an Option may not
be exercised until the completion of the service period specified at the time of
grant. (Any such period is referred to herein as the "waiting period.") At the
time an Option is granted, the Board shall fix the period within which the
Option may be exercised, which shall not be earlier than the end of the waiting
period, if any, nor, in the case of an Incentive Stock Option, later than ten
(10) years, from the date of grant.
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(iii) FORM 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, in the case of an Incentive Stock Option,
shall be determined at the time of grant) and may consist entirely of:
(1) cash;
(2) check;
(3) promissory note;
(4) other Shares which (1) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, unless otherwise permitted under
Applicable Laws, including Rule 16b-3 and Section 16(b) of the Exchange Act,
and (2) have a Fair Market Value on the date of surrender not greater than the
aggregate exercise price of the Shares as to which said Option shall be
exercised;
(5) delivery of a properly executed exercise notice
together with such other documentation as the Board and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price, or
the use of such other procedures which shall effect a cashless exercise;
(6) any combination of the foregoing methods of
payment; or
(7) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
(iv) SPECIAL INCENTIVE STOCK OPTION PROVISIONS. In addition to
the foregoing, Options granted under the Plan which are intended to be Incentive
Stock Options under Section 422 of the Code shall be subject to the following
terms and conditions:
(1) DOLLAR LIMITATION. To the extent that the
aggregate Fair Market Value of (a) the Shares with respect to which Options
designated as Incentive Stock Options plus (b) the shares of stock of the
Company, Parent and any Subsidiary with respect to which other incentive stock
options are exercisable for the first time by an Optionee during any calendar
year under all plans of the Company and any Parent and Subsidiary exceeds
$100,000, such Options shall be treated as Nonqualified Stock Options. For
purposes of the preceding sentence, (a) Options shall be taken into account in
the order in which they were granted, and (b) the Fair Market Value of the
Shares shall be determined as of the time the Option or other incentive stock
option is granted.
(2) 10% SHAREHOLDER. If any Optionee to whom an
Incentive Stock Option is to be granted pursuant to the provisions of the Plan
is, on the date of grant, the owner of Common Stock (as determined under Section
424(d) of the Code) possessing more than 10% of the total combined voting power
of all classes of stock of the Company or any Parent or Subsidiary of the
Company, then the following special provisions shall be applicable to the Option
granted to such individual:
(a) The per Share Option price of Shares subject to
such Incentive Stock Option shall not be less than 110% of the Fair Market Value
of Common Stock on the date of grant: and
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(b) The Option shall not have a term in excess of five
(5) years from the date of grant.
Except as modified by the preceding provisions of this subsection 7(a)(iv) and
except as otherwise limited by Section 422 of the Code, all of the provisions of
the Plan shall be applicable to the Incentive Stock Options granted hereunder.
(v) OTHER PROVISIONS. Each Option granted under the Plan may
contain such other terms, provisions, and conditions not inconsistent with the
Plan as may be determined by the Board.
(vi) BUYOUT PROVISIONS. The Board may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Board shall establish and communicate to the
Optionee at the time that such offer is made; provided, however, that buyout
offers made to officers, directors, and 10% shareholders may only be payable in
cash and shall comply with Rule 16b-3 to the extent deemed desirable or required
by the Board.
(b) METHOD OF EXERCISE.
(i) PROCEDURE FOR EXERCISE, RIGHTS AS A SHAREHOLDER. Any
Option or SAR granted hereunder shall be exercisable at such times and under
such conditions as determined by the Board and as shall be permissible under the
terms of the Plan.
An Option or SAR 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 or SAR by the person entitled to exercise the Option or SAR
and full payment for the Shares with respect to which the Option is exercised
has been received by the Company. Full payment may, as authorized by the Board
(and, in the case of an Incentive Stock Option, determined at the time of grant)
and permitted by the Option Agreement consist of any consideration and method of
payment allowable under subsection 7(a)(iii) of the Plan. Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a 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 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter shall be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised. Exercise of an SAR in any manner shall to the extent the
SAR is exercised result in a decrease in the number of Shares which thereafter
shall be available for purposes of the Plan.
(ii) RULE 16b-3. Options and SARs granted to individuals
subject to Section 16 of the Exchange Act ("Insiders") may, in the discretion of
the Board, comply with the applicable provisions of Rule 16b-3 and may contain
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
(iii) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In
the event an Optionee's Continuous Status as an Employee or Consultant
terminates (other than upon the Optionee's death or Disability), the Optionee
may exercise his or her Option or SAR, but only within such period of time as is
determined by the Board at the time of grant, not to exceed twelve (12) months
(three (3) months in the case of an Incentive Stock Option) from the date of
such termination, and only to the extent that the Optionee was entitled
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to exercise it at the date of such termination (but in no event later than the
expiration of the term of such Option or SAR as set forth in the SAR or Option
Agreement). To the extent that Optionee was not entitled to exercise an Option
or SAR at the date of such termination, and to the extent that the Optionee does
not exercise such Option or SAR (to the extent otherwise so entitled) within the
time specified herein, the Option or SAR shall terminate.
(iv) DISABILITY OF OPTIONEE. In the event an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option or SAR, but
only within twelve (12) months from the date of such termination, and only to
the extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option or SAR as set forth in the Option or SAR Agreement). To the extent that
Optionee was not entitled to exercise an Option or SAR at the date of such
termination, and to the extent that the Optionee does not exercise such Option
or SAR (to the extent otherwise so entitled) within the time specified herein,
the Option or SAR shall terminate.
(v) DEATH OF OPTIONEE. In the event of an Optionee's death,
the Optionee's estate or a person who acquired the right to exercise the
deceased Optionee's Option or SAR by bequest or inheritance may exercise the
Option or SAR, but only within twelve (12) months following the date of death,
and only to the extent that the Optionee was entitled to exercise it at the date
of death (but in no event later than the expiration of the term of such Option
or SAR as set forth in the Option or SAR Agreement). To the extent that
Optionee was not entitled to exercise an Option or SAR at the date of death, and
to the extent that the Optionee's estate or a person who acquired the right to
exercise such Option or SAR does not exercise such Option or SAR (to the extent
otherwise so entitled) within the time specified herein, the Option or SAR shall
terminate.
8. STOCK APPRECIATION RIGHTS
All Stock Appreciation Rights granted under the Plan shall comply
with, and the related SAR Agreement shall be deemed to include and be subject
to, the applicable terms and conditions set forth in this Section 8 and also the
terms and conditions set forth in Section 12 and Section 7(b) (iii), (iv), and
(v); provided, however, that the Committee may authorize an SAR Agreement
related to a Stock Appreciation Right that expressly contains terms and
provisions that differ from the terms and provisions set forth in Section 12 and
any of the terms and provisions of Section 7(b)(iii), (iv), or (v).
(a) FORM OF RIGHT. A Stock Appreciation Right may be granted (i) in
connection with a Option, either at the time of grant or at any time during the
term of the Option, or (ii) without relation to an Option.
(b) RIGHTS RELATED TO OPTIONS. A Stock Appreciation Right granted
pursuant to an Option shall entitle the Optionee, upon exercise, to surrender
that Option or any portion thereof, to the extent unexercised, and to receive
payment of any amount computed pursuant to Section 8(b)(ii). That Option shall
then cease to be exercisable to the extent surrendered. Stock Appreciation
Rights granted in connection with an Option shall be subject to the terms of the
SAR Agreement governing the Option, which shall comply with the following
provisions in addition to those applicable to Options:
(i) EXERCISE AND TRANSFER. Subject to Section 15, a Stock
Appreciation Right granted in connection with an Option shall be exercisable
only at such time or times and only to the extent that the related Option is
exercised and shall not be transferable except to the extent that the related
Option is transferable. To the extent that an Option has been exercised, the
Stock Appreciation Rights granted in connection with such Option shall
terminate.
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(ii) VALUE OF RIGHT. Upon the exercise of a Stock
Appreciation Right related to an Option, the Optionee shall be entitled to
receive payment from the Company of an amount determined by multiplying:
(a) The difference obtained by subtracting the
exercise price of a Share specified in the related Option from the Fair Market
Value of a Share on the date of exercise of the Stock Appreciation Right, by
(b) The number of Shares as to which that Stock
Appreciation Right has been exercised.
(c) RIGHT WITHOUT OPTION. A Stock Appreciation Right granted without
relationship to an Option shall be exercisable as determined by the Board and
set forth in the SAR Agreement governing the Stock Appreciation Right, which SAR
Agreement shall comply with the following provisions:
(i) NUMBER OF SHARES. Each SAR Agreement shall state the
total number of Shares to which the Stock Appreciation Right relates.
(ii) VESTING. Each SAR Agreement shall state the time or
periods in which the right to exercise the Stock Appreciation Right or a portion
thereof shall vest and the number of Shares for which the right to exercise the
Stock Appreciation Right shall vest at each such time or period.
(iii) EXPIRATION OF RIGHTS. Each SAR Agreement shall state the
date at which the Stock Appreciation Rights shall expire if not previously
exercised.
(iv) VALUE OF RIGHT. A Stock Appreciation Right granted
without relationship to an Option shall entitle the Optionee or holder of a SAR,
upon exercise of the Stock Appreciation Right, to receive payment of an amount
determined by multiplying:
(a) The difference obtained by subtracting the Fair
Market Value of a Share on the date the Stock Appreciation Right is granted from
the Fair Market Value of a Share on the date of exercise of that Stock
Appreciation Right, by
(b) The number of rights as to which the Stock
Appreciation Right has been exercised.
(d) LIMITATIONS ON RIGHTS. Notwithstanding Section 8(b)(ii) and
Section 8(c)(iv), the Board may limit the amount payable upon exercise of a
Stock Appreciation Right. Any such limitation must be determined on the date of
the Notice of Grant and be noted on the instrument evidencing the Optionee's
Stock Appreciation Right.
(e) PAYMENT OF RIGHTS. Payment of the amount determined under
Section 8(b)(ii) or Section 8(c)(iv) and Section 8(d) may be made solely in
whole Shares valued at Fair Market Value on the date of exercise of the Stock
Appreciation Right or, in the sole discretion of the Board solely in cash or a
combination of cash and Shares. If the Board decides to make full payment in
Shares and the amount payable results in a fractional Share, payment for the
fractional Share shall be made in cash.
(f) STOCKHOLDER PRIVILEGES. No Employee or Consultant shall have any
rights as a stockholder with respect to any Shares covered by a Stock
Appreciation Right until the Employee or Consultant
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becomes the holder of record of such Common Stock, and no adjustments shall be
made for dividends or other distributions or other rights as to which there is a
record date preceding the date such Employee or Consultant becomes the holder of
record of such Common Stock.
(g) OTHER AGREEMENT PROVISIONS. The SAR Agreements authorized
relating to Stock Appreciation Rights shall contain such provisions in addition
to those required by the Plan (including, without limitation, restrictions or
the removal of restrictions upon the exercise of the Stock Appreciation Right
and the retention or transfer of shares thereby acquired as the Board may deem
advisable.
9. STOCK PURCHASE RIGHTS.
(a) GRANT OF RESTRICTED STOCK. Subject to the terms and provisions
of the Plan, the Board, at any time and from time to time, may grant Stock
Purchase Rights to Employees and Consultants in such amounts as the Board in its
sole discretion shall determine.
(b) RESTRICTED STOCK PURCHASE AGREEMENT. Each Restricted Stock
grant shall be evidenced by a Restricted Stock Purchase Agreement that shall
specify the period of time during which the transfer of Restricted Stock is
limited in some way, including the passage of time, achievement of performance
goals, or upon the occurrence of other events as determined by the Board in its
sole discretion ("Period of Restriction"), the number of Shares of Restricted
Stock granted, and such other provisions as the Board, in its sole discretion,
shall determine.
(c) TRANSFERABILITY. Except as provided in this Section 9(c), the
Restricted Stock granted herein may not be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Board and specified in the Restricted Stock
Purchase Agreement, or upon earlier satisfaction of any other conditions, as
specified by the Board in its sole discretion and set forth in the Restricted
Stock Purchase Agreement. The Restricted Stock is subject to substantial risk
of forfeiture during the Period of Restriction.
(d) OTHER RESTRICTIONS. The Board shall impose such other
restrictions on any Restricted Stock granted pursuant to the Plan as it may deem
advisable including, without limitation, restrictions based upon the achievement
of specific performance goals (Company-wide, Subsidiary, and/or individual),
and/or restrictions under applicable Federal or state securities laws; any may
legend the certificate representing Restricted Stock to give appropriate notice
for such restrictions. The Restricted Stock shall be deposited in escrow with
the Company until the Restricted Stock is vested and the Period of Restriction
is terminated.
(e) CERTIFICATE LEGEND. In addition to any legends placed on
certificates pursuant to Section 9(d) herein, each certificate representing
Restricted Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the Shares of stock represented by
this Certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer as set forth in the Self-Heating
Container Corporation of California 1996 Omnibus Stock Plan and in a Restricted
Stock Purchase Agreement dated _______________, 199____. A copy of the Plan and
such Restricted Stock Purchase Agreement may be obtained from the Chief
Financial Officer of Self-Heating Container Corporation of California."
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(f) REMOVAL OF RESTRICTIONS. Except as otherwise provided in this
Section 9, Restricted Stock covered by each Restricted Stock grant made under
the Plan shall become freely transferable by the participant after the last day
of the Period of Restriction. The Board, in its discretion, may accelerate the
time at which any restriction shall lapse and/or remove any restrictions. Once
the Shares are released from the restrictions, the Employee or Consultant shall
be entitled to have the legend required by Section 9(e) removed from his or her
Share certificate.
(g) VOTING RIGHTS. During the Period of Restriction, Employees or
Consultants holding Shares of Restricted Stock granted hereunder may exercise
full voting rights with respect to those Shares.
(h) DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Employees or Consultants holding Shares of Restricted Stock granted
hereunder shall be entitled to receive all dividends and other distributions
paid with respect to those Shares while they are so held. If any such dividends
or distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Restricted Stock with
respect to which they were paid.
(i) TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT. In the event that an Employee or Consultant's employment with the
Company is terminated by reason of death or Disability, the restrictions on the
Employee or Consultant's Restricted Stock shall lapse as of the date of
termination (in the case of Disability, the restrictions shall lapse on the date
the Employee or Consultant's Disability is determined by the Board to be total
and permanent).
(j) TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment
of the Employee or Consultant shall terminate for any reason other than those
reasons described in Section 9(i), including termination for cause, all
nonvested Restricted Stock held by the Employee or Consultant at that time shall
be subject to the repurchase option of the Company, unless the Board determines
otherwise. However, with the exception of a termination of employment for cause,
the Board, in its sole discretion, shall have the right to provide for lapsing
of the restrictions on Restricted Stock following employment termination, upon
such terms and provisions as it deems proper.
(k) RULE 16B-3. If the Company has any class of equity security
registered pursuant to Section 12 of the Exchange Act, Stock Purchase Rights
granted to Insiders, and Shares purchased by Insiders in connection with the
Stock Purchase Rights, may be, in the discretion of the Board, subject to any
restrictions applicable thereto in compliance with Rule 16b-3. An Insider may
only purchase Shares pursuant to the grant of a Stock Purchase Right and may
only sell Shares purchased pursuant to the grant of a Stock Purchase Right,
during such time or times as are permitted by Rule 16b-3, unless waived in the
sole discretion of the Board.
10. LONG-TERM PERFORMANCE AWARDS.
(a) ADMINISTRATION. Long-Term Performance Awards are cash or stock
bonus awards that may be granted either alone or in addition to other awards
granted under the Plan. Such awards shall be granted for no cash consideration.
The Board shall determine the nature, length and starting date of any
performance period (the "Performance Period") for each Long-Term Performance
Award, and shall determine the performance or employment factors, if any, to be
used in the determination of Long-Term Performance Awards and the extent to
which such Long-Term Performance Awards are valued or have been earned.
Long-Term Performance Awards may vary from participant to participant and
between groups of participants and shall be based upon the achievement of
Company, Subsidiary, Parent and/or individual performance factors or upon such
other criteria as the Board may deem appropriate. Performance Periods may
overlap and participants may participate simultaneously with respect to
Long-Term Performance Awards that are subject to different Performance Periods
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and different performance factors and criteria. Long-Term Performance Awards
shall be confirmed by, and be subject to the terms of, a Long-Term Performance
Award agreement. The terms of such awards need not be the same with respect to
each participant.
At the beginning of each Performance Period, the Board may determine
for each Long-Term Performance Award subject to such Performance Period the
range of dollar values or number of shares of Common Stock to be awarded to the
participant at the end of the Performance Period if and to the extent that the
relevant measures of performance for such Long-Term Performance Award are met.
Such dollar values or number of shares of Common Stock may be fixed or may vary
in accordance with such performance or other criteria as may be determined by
the Board.
(b) ADJUSTMENT OF AWARDS. The Board may adjust the performance
factors applicable to the Long-Term Performance Awards to take into account
changes in legal, accounting and tax rules and to make such adjustments as the
Board deems necessary or appropriate to reflect the inclusion or exclusion of
the impact of extraordinary or unusual items, events or circumstances in order
to avoid windfalls or hardships.
11. NON-TRANSFERABILITY OF OPTIONS. Options and Rights may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER, ASSET
SALE OR CHANGE OF CONTROL.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Right, and the number of shares of Common Stock
which have been authorized for issuance under the Plan but as to which no
Options or Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Right, as well as the price per
share of Common Stock covered by each such outstanding Option or Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock 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 of Common Stock subject to an
Option or Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option or Right
has not been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option or Right shall terminate
as of a date fixed by the Board and give each Optionee the right to exercise his
or her Option or Right as to all or any part of the Optioned Stock, including
Shares as to which the Option or Right would not otherwise be exercisable.
(c) MERGER OR ASSET SALE. Subject to the provisions of paragraph (d)
hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each
outstanding Option and Right shall be assumed or an equivalent Option or Right
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor
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corporation does not agree to assume the Option or to substitute an equivalent
option, the Board shall, in lieu of such assumption or substitution, provide for
the Optionee to have the right to exercise the Option or Right as to all or a
portion of the Optioned Stock, including Shares as to which it would not
otherwise be exercisable. If the Board makes an Option or Right exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify the Optionee that the Option or Right shall be
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Right will terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Right shall be considered assumed if,
immediately following the merger or sale of assets, the Option or Right confers
the right to purchase, for each Share of Optioned Stock subject to the Option or
Right immediately prior to the merger or sale of assets, for the consideration
(whether stock, cash, or other securities or property) received in the merger or
sale of assets by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or
sale of assets was not solely common stock of the successor corporation or its
Parent, the Board may, with the consent of the successor corporation and the
participant, provide for the consideration to be received upon the exercise of
the Option or Right, for each Share of Optioned Stock subject to the Option or
Right, to be solely common stock of the successor corporation or its Parent
equal in Fair Market Value to the per share consideration received by holders of
Common Stock in the merger or sale of assets.
(d) CHANGE IN CONTROL. In the event of a "Change in Control" of the
Company, as defined in paragraph (e) below, then the following acceleration and
valuation provisions shall apply:
(i) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control, any Options and
Rights outstanding on the date such Change in Control is determined to have
occurred that are not yet exercisable and vested on such date shall become fully
exercisable and vested;
(ii) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control, all outstanding
Options and Rights, to the extent they are exercisable and vested (including
Options and Rights that shall become exercisable and vested pursuant to
subparagraph (i) above), shall be terminated in exchange for a cash payment
equal to the Change in Control Price, (reduced by the exercise price, if any,
applicable to such Options or Rights). These cash proceeds shall be paid to the
Optionee or, in the event of death of an Optionee prior to payment, to the
estate of the Optionee or to a person who acquired the right to exercise the
Option or Right by bequest or inheritance.
(e) DEFINITION OF "CHANGE IN CONTROL". For purposes of this Section
12, a "Change in Control" means the happening of any of the following:
(i) When any "person," as such term is used in Section 13(d)
and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company
employee benefit plan, including any trustee of such plan acting as trustee) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities entitled to vote generally in the election of directors;
or
(ii) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the
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voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the shareholders of the
Company approve an agreement for the sale or disposition by the Company of all
or substantially all the Company's assets; or
(iii) A change in the composition of the Board of Directors of
the Company occurring within a two-year period, as a result of which fewer than
a majority of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either (A) are
directors of the Company as of the date the Plan is approved by the
Board or the shareholders, whichever shall first occur, or (B) are
elected, or nominated for election, to the Board of the Company with
the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection
with an actual or threatened proxy contest relating to the election of
directors to the Company).
(f) CHANGE IN CONTROL PRICE. For purposes of this Section 12, "Change
in Control Price" shall be, as determined by the Board, (i) the highest Fair
Market Value of a Share within the 60-day period immediately preceding the date
of determination of the Change in Control Price by the Board (the "60--Day
Period"), or (ii) the highest price paid or offered per Share, as determined by
the Board, in any bona fide transaction or bona fide offer related to the Change
in Control of the Company, at any time within the 60-Day Period, or (iii) such
lower price as the Board, in its discretion, determines to be a reasonable
estimate of the fair market value of a Share.
13. DATE OF GRANT. The date of grant of an Option or Right shall be, for
all purposes, the date on which the Board makes the determination granting such
Option or Right, or such other later date as is determined by the Board. Notice
of the determination shall be provided to each Optionee within a reasonable time
after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan for any reason.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent requested by Applicable Law, rule
or regulation, including the requirements of any exchange or quotation system on
which the Common Stock is listed or quoted. Such shareholder approval, if
required, shall be obtained in such a manner and to such a degree as is required
by the Applicable Laws, rules or regulations.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Board, which
agreement must be in writing and signed by the Optionee and the Company unless
such amendment, alteration, suspension or termination is required to enable an
Option designated as an Incentive Stock Option to qualify as a Nonqualified
Stock Option or is necessary to comply with any Applicable Laws or government
regulations.
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15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option or Right unless the exercise of such Option or Right and
the issuance and delivery of such Shares shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933
("Securities Act"), as amended, the Exchange Act, the securities laws of
applicable states, the rules and regulations promulgated thereunder, Applicable
Laws, and the requirements of any stock exchange or quotation system upon which
the Shares may then be listed or quoted, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS RE: FEDERAL SECURITIES LAWS. The
Shares underlying these Options and Rights, as of the date hereof, have not been
registered under the Securities Act. The Optionee represents that if Options or
Rights are exercised in whole or in part at a time when there is NOT in effect,
under the Securities Act, a registration statement applicable to the Shares
issuable upon exercise, then the purchase of such Shares is expressly
conditioned upon the following representations, warranties and covenants:
(i) INVESTMENT INTENT. Optionee is acquiring the Shares
for its own account, not as a nominee or agent, and not with a view to their
resale or distribution and is prepared to hold the Shares for an indefinite
period and has no present intention to sell, distribute, or grant any
participating interests in the Shares. Optionee acknowledges the Shares have
not been registered under the Securities Act or the securities laws of any other
state, province or country (collectively, with the 1933 Act, the "Securities
Laws"), and that the Company is issuing the Shares to it in reliance on its
representations made herein.
(ii) RESTRICTED SECURITIES. Optionee hereby confirms it has
been informed that the Shares may not be resold or transferred unless such
Shares are first registered under the applicable Securities Laws or unless an
exemption from such registration is available. Accordingly, Optionee
acknowledges it is prepared to hold the Shares for an indefinite period.
(iii) INVESTMENT EXPERIENCE. In connection with the investment
representations made herein, Optionee represents that it is able to fend for
itself in the transactions contemplated by this Plan, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment, has the ability to bear the economic risks
of its investment, and has been furnished with and has had access to such
information as is normally made available in the form of a registration
statement, together with such additional information as is necessary to verify
the accuracy of the information supplied and to have all questions answered by
the Company.
(iv) DISPOSITION OF SHARES. Optionee agrees that it shall
make no disposition of the Shares, unless and until:
(1) Optionee shall have complied with all requirements of
this Agreement and any stock exchange on which such Shares (or any
substituted securities) may be listed;
(2) Optionee shall have notified the Company of the proposed
disposition and furnished it with a written summary of the terms and
conditions of the proposed disposition; and
(3) Optionee shall have provided an opinion to the Company's
counsel (at its expense), in form and substance reasonably satisfactory to
the Company, that (i) the proposed disposition does not require
registration of the Shares under the applicable Securities Laws or (ii) all
appropriate action necessary for compliance with the registration
requirements of the applicable
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Securities Laws or of any exemption from registration available under the
applicable Securities Laws has been taken.
16. LIABILITY OF COMPANY.
(a) INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) GRANTS EXCEEDING ALLOTTED SHARES. If the Optioned Stock covered
by an Option or Right exceeds, as of the date of grant, the number of Shares
which may be issued under the Plan without additional shareholder approval, such
Option or Right shall be void with respect to such excess Optioned Stock, unless
shareholder approval of an amendment sufficiently increasing the number of
Shares subject to the Plan is timely obtained in accordance with Section 14(b)
of the Plan.
17. 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.
18. PROVISION OF INFORMATION. At least annually, copies of the Company's
annual report or Form 10-K for the just completed fiscal year shall be made
available to each Optionee and purchaser of Shares upon exercise of an Option or
Right. The Company shall not be required to provide such information to persons
whose duties in connection with the Company assure them access to equivalent
information.
19. PLAN DOES NOT AFFECT EMPLOYMENT STATUS.
(a) Status as an Employee or Consultant shall not be construed as a
commitment that any Option or Right will be made under the Plan to such
Employee or Consultant or to eligible Employees or Consultants generally.
(b) Nothing in the Plan or in any Agreement or related documents
shall confer upon any Employee or Consultant or Optionee any right to continue
in the employment of the Company or any Parent or Subsidiary or constitute any
contract of employment or affect any right which the Company or any Parent or
Subsidiary may have to change such person's compensation, other benefits, job
responsibilities, or title, or to terminate the employment of such person with
or without cause.
20. UNFUNDED PLAN. The Plan shall be unfunded and the Company shall not
be required to segregate any assets that may at any time be represented by
Options or Rights under the Plan. Neither the Company, its Parent or
Subsidiary, nor the Board shall be deemed to be a trustee of any amounts to be
paid under the Plan, nor shall anything contained in the Plan or any action
taken pursuant to its provisions create or be construed to create a fiduciary
relationship between the Company and/or its Parent or Subsidiary and an
Optionee. To the extent any person acquires a right to receive an Option or
Right under the Plan, such right shall be no greater than the right of an
unsecured general creditor of the Company.
21. INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board or officers or employees of the Company
and any Parent or Subsidiary, members of the Board and any officers or employees
of the Company and any Parent or Subsidiary to whom authority to act for the
Board is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in
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connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan, or any right granted hereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such person
is liable for gross negligence, bad faith or intentional misconduct in duties;
provided, however, that within sixty (60) days after the institution of such
action, suit or proceeding, such person shall offer to the Company, in writing,
the opportunity at its own expense to handle and defend the same.
22. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS
(a) ABILITY TO USE STOCK TO SATISFY WITHHOLDING. At the discretion
of the Company, Optionees may satisfy withholding obligations as provided in
this Section 22. When an Optionee incurs tax liability in connection with the
award, vesting or exercise of an Option or Right, which tax liability is subject
to tax withholding under applicable tax laws (including federal, state and local
laws), the Optionee may satisfy the withholding tax obligation (up to an amount
calculated by applying such Optionee's maximum marginal tax rate) by electing to
have the Company withhold from the Shares to be issued upon award, vesting or
exercise of the Option or Right that number of Shares, or by delivering to the
Company that number of previously owned Shares, having a Fair Market Value (as
defined in the Plan) equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld or delivered, as the case may be,
shall be determined on the date that the amount of tax to be withheld is
determined (the "Tax Date").
(b) ELECTION TO HAVE SHARES WITHHELD. All elections by an Optionee
to have Shares withheld or to deliver previously owned Shares pursuant to this
Section 22 shall be made in writing in a form acceptable to the Company and
shall be subject to the following restrictions:
(i) the election must be made on or prior to the application
Tax Date;
(ii) all elections shall be subject to the consent or
disapproval of the Company; and
(iii) if the Optionee is subject to Section 16 of the
Securities Act, the election shall, to the extent practicable, desirable, or as
determined by the Board, comply with the applicable provisions of Rule 16b-3 and
may be subject to such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
(c) SECTION 83(b) ELECTIONS. In the event that (i) an election to
have the Shares withheld is made by an Optionee, (ii) no election is filed under
Section 83(b) of the Internal Revenue Code by such Optionee, and (iii) the Tax
Date is deferred under Section 83 of the Internal Revenue Code, the Optionee
shall receive the full number of Shares with respect to which the Option or
Right has been awarded, has vested or has been exercised, as the case may be,
but such Optionee shall be unconditionally obligated to tender back to the
Company the proper number of Shares on the Tax Date.
23. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months after the
date the Plan is adopted. Such shareholder approval shall be obtained in the
manner and to the degree required under applicable federal and state law.
Adopted by the Board of Directors on __________ 1996
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SELF-HEATING CONTAINER CORPORATION OF CALIFORNIA
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Option Agreement") is made and
entered into as of _______________, 199____, by and between Self-Heating
Container Corporation of California and _______________________ (the
"Optionee").
The Company has granted to the Optionee an option to purchase certain
Shares, upon the terms and conditions set forth in this Option Agreement (The
"Option"). The Option shall in all respects be subject to the terms and
conditions of the Self-Heating Container Corporation of California 1996 Omnibus
Stock Plan (the "Plan"), the provisions of which are incorporated herein by
reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "DATE OF OPTION GRANT" means ____________________,
19_______.
(b) "NUMBER OF OPTION SHARES" means _______ Shares as adjusted
from time to time pursuant to Section 8.
(c) "EXERCISE PRICE" means $___________ per Share, as adjusted
from time to time pursuant to Section 8.
(d) "INITIAL EXERCISE DATE" means the Date of Option Grant.
(e) "OPTION EXPIRATION DATE" means the date ten (10) years after
the Date of Option Grant.
(f) "COMPANY" means Self-Heating Container Corporation of
California, a California corporation, or any successor corporation thereto.
(g) "DISABILITY" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(h) "SECURITIES ACT" means the Securities Act of 1993, as
amended.
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(i) "CONTINUOUS STATUS AS AN EMPLOYEE" means that the employment
relationship is not interrupted or terminated by the Company, the Parent or
Subsidiary. Continuous Status as an Employee shall not be considered
interrupted in the case of: (i) any leave of absence approved by the Company,
including sick leave, military leave, or any other personal leave; provided,
however, that for purposes of Incentive Stock Options, any such leave may not
exceed ninety (90) days, unless reemployment upon the expiration of such leave
is guaranteed by contract (including certain Company policies) or statute; or
(ii) transfers between locations of the Company or between the Company, its
Parent, its Subsidiaries, or its successor. (NOTE: If the Option is exercised
more than three (3) months after the date on which the Optionee ceased to be an
Employee (other than by reason of death or a Disability, the Option will be
treated as a Non-Qualified Stock Option and not as an Incentive Stock Option to
the extent required by Section 422 of the Code.)
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, and the plural shall include the
singular. Use of the term "or" is intended to include the conjunctive as well
as the disjunctive.
2. TAX CONSEQUENCES.
2.1 TAX STATUS OF THE OPTION. This Option is intended to be an
Incentive Stock Option within the meaning of Section 422(b) of the Code, but the
Company does not represent or warrant that this Option qualifies as such. The
Optionee should consult with the Optionee's own tax advisor regarding the tax
effects of this Option and the requirements necessary to obtain favorable income
tax treatment under Section 422 of the Code, including, but not limited to,
holding period requirements. (NOTE: If the aggregate Exercise Price of the
Option (that is, the Exercise Price multiplied by the Number of Option Shares)
plus the aggregate exercise price of any other Incentive Stock Options held by
the Optionee (whether granted pursuant to the Plan or any other stock option
plan of the Company) is greater than One Hundred Thousand Dollars ($100,000),
the Optionee should contact the Chief Financial Officer of the Company to
ascertain whether the entire Option qualifies as an Incentive Stock Option.
2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase Shares that are both nontransferable and
subject to a substantial risk of forfeiture, the Optionee understands that the
Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days
after the date on which the Optionee exercises the Option. Shares acquired upon
exercise of the Option are nontransferable and subject to a substantial risk of
forfeiture if, for example, (a) they are unvested and are subject to a right of
the Company to repurchase such shares at the Optionee's original purchase price
if the Optionee's Continuous Status as an Employee terminates, (b) the Optionee
is an officer, director, or 10% shareholder ("Insider") and exercises the Option
within six (6) months of the Date of Option Grant (if a class of equity security
of the Company is registered under Section 12 of the Exchange Act and
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no exemption from Rule 16b-3 is available), or (c) the Optionee is subject to a
restriction on transfer to comply with "Pooling-of-Interests Accounting" rules.
Failure to file an election under Section 83(b), if appropriate, may result in
adverse tax consequences to the Optionee. The Optionee acknowledges that the
Optionee has been advised to consult with a tax advisor prior to the exercise of
the Option regarding the tax consequences to the Optionee of the exercise of the
Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE
DATE ON WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE
EXTENDED. THE OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b)
ELECTION IS THE OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS
THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of the
Company or a Parent or Subsidiary shall have the authority to act on behalf of
the Company with respect to any matter, right, obligation, or election which is
the responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE.
(a) Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Exercise Date and prior to the termination
of the Option (as provided in Section 6) in an amount not to exceed the Number
of Option Shares less the number of shares previously acquired upon exercise of
the Option. Notwithstanding the foregoing, the aggregate Fair Market Value of
the shares of Stock with respect to which the Optionee may exercise the Option
for the first time during any calendar year, when added to the aggregate Fair
Market Value of the shares subject to any other options designated as Incentive
Stock Options granted to the Optionee under all stock option plans of the
Company prior to the Date of Option Grant with respect to which such options are
exercisable for the first time during the same calendar year, shall not exceed
One Hundred Thousand Dollars ($100,000). For purposes of the preceding
sentence, options designated as Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
shares of stock shall be determined as of the time the option with respect to
such shares is granted. Such limitation on exercise shall be referred to in this
Option Agreement as the "ISO Exercise Limitation." If Section 422 of the Code
is amended to provide for a different limitation from that set forth in this
Section 4.1(a), the ISO Exercise Limitation shall be deemed amended effective as
of the date required or permitted by such amendment to the Code. The ISO
Exercise Limitation shall terminate upon the earlier of (i) the Optionee's
termination of Service, (ii) the day immediately prior to the effective date of
a Change of Control in which the Option is not assumed or substituted for by the
acquiring Corporation as provided in Section 8, or (iii) the day ten
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(10) days prior to the Option Expiration Date. Upon such termination of the ISO
Exercise Limitation, the Option shall be deemed a Non-Qualified Stock Option to
the extent of the number of shares subject to the Option which would otherwise
exceed the ISO Exercise Limitation.
4.2 PAYMENT OF EXERCISE PRICE.
(a) FORM OF PAYMENT. The payment of the aggregate Exercise
Price for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Board at the time of grant, and
may consist entirely of:
(1) cash;
(2) check;
(3) promissory note;
(4) other Shares which (1) in the case of Shares acquired
upon exercise of an option have been owned by the Optionee for more than six
months on the date of surrender unless otherwise permitted under applicable
laws, including Rule 16b-3; and (2) have a Fair Market Value on the date of
surrender not greater than the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(5) delivery of a properly executed exercise notice
together with such other documentation as the Board and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price or
the use of such other procedures which shall effect a cashless exercise;
(6) any combination of the foregoing methods of payment; or
(7) such other consideration and method of payment for the
issuance of Shares tot he extent permitted by Applicable Laws.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of Shares to the extent such
tender of Shares would constitute a violation of the provisions of any law,
regulation, or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of Shares unless such
Shares either have been owned by the Optionee for more than six (6) months or
were not acquired, directly or indirectly, from the Company unless approved by
the Board and in compliance with Applicable Laws, including Rule 16b-3.
4.3 TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate
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provision for, any sums required to satisfy the federal, state, local and
foreign tax withholding obligations of the Company, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless the tax withholding obligations of the Company are satisfied.
Accordingly, the Optionee may not be able to exercise the Option when desired,
even though the Option is vested, and the Company shall have no obligation to
issue a certificate for such shares or release such shares from any escrow
provided herein. At the discretion of the Company, Optionees may satisfy
withholding obligations by electing to have the Company withhold from the Shares
to be issued upon award, vesting, or exercise of the Option, that number of
Shares having a fair market value equal to the amount required to be withheld.
4.4 CERTIFICATE REGISTRATION. Except in the event the Exercise Price
is paid by means of a cashless exercise, the certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, the heirs of the Optionee.
4.5 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state, or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state, or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
maybe requested by the Company.
4.6 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
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5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be so exercised
by the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Continuing Status as an Employee as described in Section 1.1(i), or (c) a Change
of Control to the extent provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DEATH OF OPTIONEE. In the event of an Optionee's death,
the Optionee's estate or a person who acquired the right to exercise the
deceased Optionee's Option by bequest or inheritance may exercise the Option,
but only within twelve (12) months following the date of death, and only to the
extent that the Optionee was entitled to exercise it at the date of death (but
in no event later than the expiration of the term of such Option as set forth in
the Option Agreement). To the extent that Optionee was not entitled to exercise
an Option at the date of death, and to the extent that the Optionee's estate or
a person who acquired the right to exercise such Option does not exercise such
Option (to the extent otherwise so entitled) within the time specified herein,
the Option shall terminate.
(b) DISABILITY OF OPTIONEE. In the event an Optionee's
Continuous Status as an Employee terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option, but only within twelve
(12) months from the date of such termination, and only to the extent that the
Optionee was entitled to exercise it at the date of such termination. To the
extent that Optionee was not entitled to exercise an Option at the date of such
termination, and to the extent that the Optionee does not exercise such Option
(to the extent otherwise so entitled) within the time specified herein, the
Option shall terminate. If the Option is exercised more than three (3) months
after the date on which the Optionee's Continuing Status as an Employee
terminated as a result of a disability other than a permanent and total
disability as defined in Section 22(a)(3) of the Code, the Option will be
treated as a Non-Qualified Stock Option and not as an Incentive Stock Option to
the extent required by Section 422 of the Code.
(c) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP.
Subject to Section 24 of the Plan relating to forfeitures of Options, in the
event an Optionee's Continuous Status as an Employee terminates (other than upon
the Optionee's death or Disability), the Optionee may exercise his or her
Option, but only within such period of time as is determined by the Board at the
time of grant, not to exceed three (3) months from the date of such termination,
and only to
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the extent that the Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise an Option
at the date of such termination, and to the extent that the Optionee does not
exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.5, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date. The Company makes no representation as
to the tax consequences of any such delayed exercise. The Optionee should
consult with the Optionee's own tax advisor as to the tax consequences to the
Optionee of any such delayed exercise.
7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred ninetieth (190th) day after
the Optionee's termination of Service, or (iii) the Option Expiration Date. The
Company makes no representation as to the tax consequences of any such delayed
exercise. The Optionee should consult with the Optionee's own tax advisor as to
the tax consequences tot he Optionee of any such delayed exercise.
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER, ASSET
SALE OR CHANGE OF CONTROL.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock 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 an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock 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 of Common Stock subject to an Option.
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(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. 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 or her
Option as to all or any part of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable.
(c) MERGER OR ASSET SALE. Subject to the provisions of paragraph (d)
hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each
outstanding Option shall be assumed or an equivalent Option substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation does not agree to assume the Option or
to substitute an equivalent option, the Board shall, in lieu of such assumption
or substitution, provide for the Optionee to have the right to exercise the
Option as to all or a portion of the Optioned Stock, including Shares as to
which it would not otherwise be exercisable. If the Board makes an Option
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Board shall notify the Optionee that the Option shall be
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option will terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, immediately
following the merger or sale of assets, the Option confers the right to
purchase, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, for the consideration (whether stock,
cash, or other securities or property) received in the merger or sale of assets
by holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Board may, with the consent of the successor corporation and the
participant, provide for the consideration to be received upon the exercise of
the Option, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in Fair Market
Value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
(d) CHANGE IN CONTROL. In the event of a "Change in Control" of the
Company, as defined in paragraph (e) below, then the following acceleration and
valuation provisions shall apply:
(i) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control, any Options
outstanding on the date such Change in Control is determined to have occurred
that are not yet exercisable and vested on such date shall become fully
exercisable and vested;
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(ii) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control, all outstanding
Options, to the extent they are exercisable and vested (including Options that
shall become exercisable and vested pursuant to subparagraph (i) above), shall
be terminated in exchange for a cash payment equal to the Change in Control
Price (reduced by the exercise price, if any, applicable to such Options). These
cash proceeds shall be paid to the Optionee or, in the event of death of an
Optionee prior to payment, to the estate of the Optionee or to a person who
acquired the right to exercise the Option by bequest or inheritance.
(e) DEFINITION OF "CHANGE IN CONTROL". For purposes of this Section
8, a "Change in Control" means the happening of any of the following:
(i) When any "person," as such term is used in Section 13(d)
and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company
employee benefit plan, including any trustee of such plan acting as trustee) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities entitled to vote generally in the election of directors;
or
(ii) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the shareholders of the Company approve an agreement for the
sale or disposition by the Company of all or substantially all the Company's
assets; or
(iii) A change in the composition of the Board of the Company
occurring within a two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either (A) are
directors of the Company as of the date the Plan is approved by the
Board or the shareholders, whichever shall first occur, or (B) are
elected, or nominated for election, to the Board of the Company with
the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection
with an actual or threatened proxy contest relating to the election of
directors to the Company).
(f) CHANGE IN CONTROL PRICE. For purposes of this Section 8, "Change
in Control Price" shall be, as determined by the Board, (i) the highest Fair
Market Value of a Share within the 60-day period immediately preceding the date
of determination of the Change in Control Price by the Board (the "60--Day
Period"), or (ii) the highest price paid or offered per Share, as determined
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by the Board, in any bona fide transaction or bona fide offer related to the
Change in Control of the Company, at any time within the 60-Day Period, or (iii)
such lower price as the Board, in its discretion, determines to be a reasonable
estimate of the fair market value of a Share.
9. RIGHTS AS A SHAREHOLDER, EMPLOYEE, OR CONSULTANT. The Optionee shall
have no rights as a shareholder with respect to any shares covered by the
Option until the date of the issuance of a certificate for the shares for which
the Option has been exercised (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the company). No
adjustment shall be made for dividends, distributions, or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 8. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue as an Employee of the Company or interfere in any
way with any right of the Company to terminate the Optionee's continuing states
as an Employee, as the case may be, at any time.
10. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) yeas after the Date of Option Grant. Until such time as the Optionee
disposes of such shares in a manner consistent with the provisions of this
Option Agreement, unless otherwise expressly authorized by the company, the
Optionee shall hold all shares acquired pursuant to the Option in the Optionee's
name (and not in the name of any nominee) for the one-year period immediately
after the exercise of the Option and the two-year period immediately after Date
of Option Grant. At any time during the one-year or two-year periods set forth
above, the Company may place a legend on any certificate representing shares
acquired pursuant to the Option requesting the transfer agent for the Company's
stock to notify the Company of any such transfer shall continue notwithstanding
that a legend has been placed on the certificate pursuant to the preceding
sentence.
11. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state, or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section. Unless otherwise specified by the Company,
legends placed on such certificates may include, but shall not be limited to,
the following:
11.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1993, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE
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HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT, OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
11.2 Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
11.3 "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION
AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs,
THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO ________________. SHOULD THE
REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND
FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE
CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED
UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE
NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED
ABOVE."
12. PUBLIC OFFERING. The Optionee hereby agrees that in the event of any
underwritten public offering of stock made by the Company pursuant to an
effective registration statement filed under the Securities Act, the Optionee
shall not offer, sell, contract to sell, pledge, hypothecate, grant any option
to purchase or make any short sale of, or otherwise dispose of any shares of
stock of the Company or any rights to acquire stock of the Company for such
period of time from and after the effective date of such registration statement
as may be established by the underwriter for such public offering; provided,
however, that such period of time shall not exceed eighteen (18) months from the
effective date of the registration statement to be filed in connection with such
public offering. The foregoing limitation shall not apply to shares registered
in the public offering under the Securities Act. The Optionee shall be subject
to this Section provided and only if the officers and directors of the Company
are also subject to similar arrangements.
13. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors, and assigns.
14. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation or is
required to enable the Option to qualify as an Incentive Stock Option. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
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15. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute
the entire understanding and agreement of the Optionee and the Company with
respect to the subject matter contained herein or therein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Company with respect to such subject matter other than
those set forth or provided for herein or therein. To the extent contemplated
herein or therein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
16. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
Self-Heating Container Corporation of
California
By:
--------------------------------
Title:
-------------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive, and final all decisions or interpretations of the Board
upon any questions arising under this Option Agreement.
The undersigned acknowledges receipt of a copy of the Plan.
OPTIONEE
Date:
-------------------- --------------------------------
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SELF-HEATING CONTAINER CORPORATION OF CALIFORNIA
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Option Agreement") is made
and entered into as of _______________, 199____, by and between Self-Heating
Container Corporation of California and _______________________ (the
"Optionee").
The Company has granted to the Optionee an option to purchase certain
Shares, upon the terms and conditions set forth in this Option Agreement (The
"Option"). The Option shall in all respects be subject to the terms and
conditions of the Self-Heating Container Corporation of California 1996 Omnibus
Stock Plan (the "Plan"), the provisions of which are incorporated herein by
reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "DATE OF OPTION GRANT" means ________________, 19_______.
(b) "NUMBER OF OPTION SHARES" means _______ Shares, as adjusted
from time to time pursuant to Section 8.
(c) "EXERCISE PRICE" means $___________ per Share, as adjusted
from time to time pursuant to Section 8.
(d) "INITIAL EXERCISE DATE" means the Date of Option Grant.
(e) "OPTION EXPIRATION DATE" means the date ten (10) years after
the Date of Option Grant.
(f) "COMPANY" means Self-Heating Container Corporation of
California, a California corporation, or any successor corporation thereto.
(g) "DISABILITY" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(h) "SECURITIES ACT" means the Securities Act of 1993, as
amended.
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(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that
the employment relationship is not interrupted or terminated by the Company, the
Parent or Subsidiary. Continuous Status as an Employee or Consultant shall not
be considered interrupted in the case of: (i) any leave of absence approved by
the Company, including sick leave, military leave, or any other personal leave.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, and the plural shall include the
singular. Use of the term "or" is intended to include the conjunctive as well
as the disjunctive.
2. TAX CONSEQUENCES.
2.1 TAX STATUS OF THE OPTION. This Option is intended to be a
Nonqualified Stock Option and shall not be treated as an Incentive Stock Option
within the meaning of Section 422(b) of the Code.
2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase Shares that are both nontransferable and
subject to a substantial risk of forfeiture, the Optionee understands that the
Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code., which must be filed no later than thirty (30) days
after the date on which the Optionee exercises the Option. Shares acquired upon
exercise of the Option are nontransferable and subject to a substantial risk of
forfeiture if, for example, (a) they are unvested and are subject to a right of
the Company to repurchase such shares at the Optionee's original purchase price
if the Optionee's Continuous Status as an Employee terminates, (b) the Optionee
is an officer, director, or 10% shareholder ("Insider") and exercises the Option
within six (6) months of the Date of Option Grant (if a class of equity security
of the Company is registered under Section 12 of the Exchange Act and no
exemption from Rule 16b-3 is available, or (c) the Optionee is subject to a
restriction on transfer to comply with "Pooling-of-Interests Accounting" rules.
Failure to file an election under Section 83(b), if appropriate, may result in
adverse tax consequences to the Optionee. The Optionee acknowledges that the
Optionee has been advised to consult with a tax advisor prior to the exercise of
the Option regarding the tax consequences to the Optionee of the exercise of the
Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE
DATE ON WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE
EXTENDED. THE OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b)
ELECTION IS THE OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS
THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
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3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of the
Company or a Parent or Subsidiary shall have the authority to act on behalf of
the Company with respect to any matter, right, obligation, or election which is
the responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE.
(a) Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Exercise Date and prior to the termination
of the Option (as provided in Section 6) in an amount not to exceed the Number
of Option Shares less the number of shares previously acquired upon exercise of
the Option.
4.2 PAYMENT OF EXERCISE PRICE.
(a) FORM OF PAYMENT. The payment of the aggregate Exercise
Price for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Board at the time of grant, and
may consist entirely of:
(1) cash;
(2) check;
(3) promissory note;
(4) other Shares which (1) in the case of Shares acquired
upon exercise of an option have been owned by the Optionee for more than six
months on the date of surrender unless otherwise permitted under applicable
laws, including Rule 16b-3; and (2) have a Fair Market Value on the date of
surrender not greater than the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(5) delivery of a properly executed exercise notice
together with such other documentation as the Board and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price or
the use of such other procedures which shall effect a cashless exercise;
(6) any combination of the foregoing methods of payment; or
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(7) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option may
not be exercised by tender to the Company of Shares to the extent such tender of
Shares would constitute a violation of the provisions of any law, regulation, or
agreement restricting the redemption of the Company's stock. The Option may not
be exercised by tender to the Company of Shares unless such Shares either have
been owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company unless approved by the Board and in
compliance with Applicable Laws, including Rule 16b-3.
4.3 TAX WITHHOLDING. At the time the Option is exercised, in whole or in
part, or at any time thereafter as requested by the Company, the Optionee hereby
authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for, any sums required
to satisfy the federal, state, local and foreign tax withholding obligations of
the Company, if any, which arise in connection with the Option, including,
without limitation, obligations arising upon (i) the exercise, in whole or in
part, of the Option, (ii) the transfer, in whole or in part, of any shares
acquired upon exercise of the Option, (iii) the operation of any law or
regulation providing for the imputation of interest, or (iv) the lapsing of any
restriction with respect to any shares acquired upon exercise of the Option.
The Optionee is cautioned that the Option is not exercisable unless the tax
withholding obligations of the Company are satisfied. Accordingly, the Optionee
may not be able to exercise the Option when desired, even though the Option is
vested, and the Company shall have no obligation to issue a certificate for such
shares or release such shares from any escrow provided herein. At the
discretion of the Company, Optionees may satisfy withholding obligations by
electing to have the Company withhold from the Shares to be issued upon award,
vesting, or exercise of the Option, that number of Shares having a fair market
value equal to the amount required to be withheld.
4.4 CERTIFICATE REGISTRATION. Except in the event the Exercise Price is
paid by means of a cashless exercise, the certificate for the shares as to which
the Option is exercised shall be registered in the name of the Optionee, or, if
applicable, the heirs of the Optionee.
4.5 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant
of the Option and the issuance of shares of Stock upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal,
state, or foreign law with respect to such securities. The Option may not be
exercised if the issuance of shares of Stock upon exercise would constitute a
violation of any applicable federal, state, or foreign securities laws or other
law or regulations or the requirements of any stock exchange or market system
upon which the Stock may then be listed. In addition, the Option may not be
exercised unless (i) a registration statement under the Securities Act shall at
the time of exercise of the Option be in effect with respect to the shares
issuable upon exercise of the Option or (ii) in the opinion of legal counsel to
the Company, the shares issuable upon exercise of the Option may be issued in
accordance with the terms of an applicable exemption from the registration
requirements of the Securities Act. THE OPTIONEE IS
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CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares subject to the Option shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which
such requisite authority shall not have been obtained. As a condition to the
exercise of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as maybe requested by the Company.
4.6 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be so exercised
by the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Continuing Status as an Employee as described in Section 1.1(i), or (c) a Change
of Control to the extent provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DEATH OF OPTIONEE. In the event of an Optionee's death,
the Optionee's estate or a person who acquired the right to exercise the
deceased Optionee's Option by bequest or inheritance may exercise the Option,
but only within twelve (12) months following the date of death, and only to the
extent that the Optionee was entitled to exercise it at the date of death (but
in no event later than the expiration of the term of such Option as set forth in
the Option Agreement). To the extent that Optionee was not entitled to exercise
an Option at the date of death, and to the extent that the Optionee's estate or
a person who acquired the right to exercise such Option does not exercise such
Option (to the extent otherwise so entitled) within the time specified herein,
the Option shall terminate.
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(b) DISABILITY OF OPTIONEE. In the event an Optionee's
Continuous Status as an Employee terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option, but only within twelve
(12) months from the date of such termination, and only to the extent that the
Optionee was entitled to exercise it at the date of such termination. To the
extent that Optionee was not entitled to exercise an Option at the date of such
termination, and to the extent that the Optionee does not exercise such Option
(to the extent otherwise so entitled) within the time specified herein, the
Option shall terminate. If the Option is exercised more than three (3) months
after the date on which the Optionee's Continuing Status as an Employee
terminated as a result of a disability other than a permanent and total
disability as defined in Section 22(a)(3) of the Code, the Option will be
treated as a Non-Qualified Stock Option and not as an Incentive Stock Option to
the extent required by Section 422 of the Code.
(c) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP.
Subject to Section 24 of the Plan relating to forfeitures of Options, in the
event an Optionee's Continuous Status as an Employee terminates (other than upon
the Optionee's death or Disability), the Optionee may exercise his or her
Option, but only within such period of time as is determined by the Board at the
time of grant, not to exceed twelve (12) months from the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it at the date of such termination. To the extent that Optionee was not entitled
to exercise an Option at the date of such termination, and to the extent that
the Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.5, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date. The Company makes no representation as
to the tax consequences of any such delayed exercise. The Optionee should
consult with the Optionee's own tax advisor as to the tax consequences to the
Optionee of any such delayed exercise.
7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred ninetieth (190th) day after
the Optionee's termination of Service, or (iii) the Option Expiration Date. The
Company makes no representation as to the tax consequences of any such delayed
exercise. The Optionee should consult with the Optionee's own tax advisor as to
the tax consequences to the Optionee of any such delayed exercise.
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8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER, ASSET
SALE OR CHANGE OF CONTROL.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock 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 an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock 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 of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. 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 or her
Option as to all or any part of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable.
(c) MERGER OR ASSET SALE. Subject to the provisions of paragraph (d)
hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each
outstanding Option shall be assumed or an equivalent Option substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation does not agree to assume the Option or
to substitute an equivalent option, the Board shall, in lieu of such assumption
or substitution, provide for the Optionee to have the right to exercise the
Option as to all or a portion of the Optioned Stock, including Shares as to
which it would not otherwise be exercisable. If the Board makes an Option
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Board shall notify the Optionee that the Option shall be
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option will terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, immediately
following the merger or sale of assets, the Option confers the right to
purchase, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, for the consideration (whether stock,
cash, or other securities or property) received in the merger or sale of assets
by holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were
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offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets was not solely
common stock of the successor corporation or its Parent, the Board may, with the
consent of the successor corporation and the participant, provide for the
consideration to be received upon the exercise of the Option, for each Share of
Optioned Stock subject to the Option, to be solely common stock of the successor
corporation or its Parent equal in Fair Market Value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
(d) CHANGE IN CONTROL. In the event of a "Change in Control" of the
Company, as defined in paragraph (e) below, then the following acceleration and
valuation provisions shall apply:
(i) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control, any Options
outstanding on the date such Change in Control is determined to have occurred
that are not yet exercisable and vested on such date shall become fully
exercisable and vested;
(ii) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control, all outstanding
Options, to the extent they are exercisable and vested (including Options that
shall become exercisable and vested pursuant to subparagraph (i) above), shall
be terminated in exchange for a cash payment equal to the Change in Control
Price (reduced by the exercise price, if any, applicable to such Options). These
cash proceeds shall be paid to the Optionee or, in the event of death of an
Optionee prior to payment, to the estate of the Optionee or to a person who
acquired the right to exercise the Option by bequest or inheritance.
(e) DEFINITION OF "CHANGE IN CONTROL". For purposes of this Section
8, a "Change in Control" means the happening of any of the following:
(i) When any "person," as such term is used in Section 13(d) and
14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company
employee benefit plan, including any trustee of such plan acting as trustee) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities entitled to vote generally in the election of directors;
or
(ii) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the shareholders of the Company approve an agreement for the
sale or disposition by the Company of all or substantially all the Company's
assets; or
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(iii) A change in the composition of the Board of the Company
occurring within a two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either (A) are
directors of the Company as of the date the Plan is approved by the
Board or the shareholders, whichever shall first occur, or (B) are
elected, or nominated for election, to the Board of the Company with
the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection
with an actual or threatened proxy contest relating to the election of
directors to the Company).
(f) CHANGE IN CONTROL PRICE. For purposes of this Section 8, "Change
in Control Price" shall be, as determined by the Board, (i) the highest Fair
Market Value of a Share within the 60-day period immediately preceding the date
of determination of the Change in Control Price by the Board (the "60--Day
Period"), or (ii) the highest price paid or offered per Share, as determined by
the Board, in any bona fide transaction or bona fide offer related to the Change
in Control of the Company, at any time within the 60-Day Period, or (iii) such
lower price as the Board, in its discretion, determines to be a reasonable
estimate of the fair market value of a Share.
9. RIGHTS AS A SHAREHOLDER, EMPLOYEE, OR CONSULTANT. The Optionee shall
have no rights as a shareholder with respect to any shares covered by the
Option until the date of the issuance of a certificate for the shares for which
the Option has been exercised (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the company). No
adjustment shall be made for dividends, distributions, or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 8. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue as an Employee of the Company or interfere in any
way with any right of the Company to terminate the Optionee's Continuing Status
as an Employee, as the case may be, at any time.
10. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state, or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section. Unless otherwise specified by the Company,
legends placed on such certificates may include, but shall not be limited to,
the following:
10.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701
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UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF
THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT, OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
10.2 Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
11. PUBLIC OFFERING. The Optionee hereby agrees that in the event of any
underwritten public offering of stock made by the Company pursuant to an
effective registration statement filed under the Securities Act, the Optionee
shall not offer, sell, contract to sell, pledge, hypothecate, grant any option
to purchase or make any short sale of, or otherwise dispose of any shares of
stock of the Company or any rights to acquire stock of the Company for such
period of time from and after the effective date of such registration statement
as may be established by the underwriter for such public offering; provided,
however, that such period of time shall not exceed eighteen (18) months from the
effective date of the registration statement to be filed in connection with such
public offering. The foregoing limitation shall not apply to shares registered
in the public offering under the Securities Act. The Optionee shall be subject
to this Section provided and only if the officers and directors of the Company
are also subject to similar arrangements.
12. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors, and assigns.
13. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
14. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute
the entire understanding and agreement of the Optionee and the Company with
respect to the subject matter contained herein or therein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Company with respect to such subject matter other than
those set forth or provided for herein or therein. To the extent contemplated
herein or therein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
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15. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
Self-Heating Container Corporation of
California
By:
-------------------------------
Title:
----------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive, and final all decisions or interpretations of the Board
upon any questions arising under this Option Agreement.
The undersigned acknowledges receipt of a copy of the Plan.
OPTIONEE
Date:
-------------------------- --------------------------------------
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SELF-HEATING CONTAINER CORPORATION OF CALIFORNIA
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement (the "Agreement") is made and
entered into as of _____________________, 199___, by and between Self-Heating
Container Corporation of California ("Company") and __________________________,
(the "Purchaser").
The Company has granted to the Purchaser Stock Purchase Rights to purchase
Restricted Stock of the Company, upon the terms and conditions set forth in this
Agreement. The Restricted Stock shall in all respects be subject to the terms
and conditions of the Self-Heating Container Corporation of California 1996
Omnibus Stock Plan (the "Plan"), the provisions of which are incorporated herein
by reference. Unless otherwise defined herein, capitalized terms shall have the
meanings assigned to such terms in the Plan.
1. PURCHASE OF SHARES
(a) PURCHASE. Purchaser hereby purchases, and the Company hereby sells
to Purchaser, ___________ shares of the Company's Common Stock (the "Shares") at
a purchase price of $________ per share (the "Purchase Price"), pursuant to the
provisions of this Agreement.
(b) PAYMENT. Concurrently with the execution of this Agreement,
Purchaser shall deliver to the Secretary of the Company $___________ in cash,
totaling the aggregate Purchase Price for the Shares, or such other method of
payment as the Board of Directors or a Committee thereof shall authorize.
(c) DELIVERY OF CERTIFICATES. The certificates representing the Shares
hereunder shall be held in escrow by the Secretary of the Company as provided in
Article 5 hereof.
2. CONDITIONS UPON ISSUANCE OF RESTRICTED STOCK
(a) LEGAL COMPLIANCE. Restricted Stock shall not be issued pursuant to
the exercise of a Right unless the exercise of such Right and the issuance and
delivery of such Restricted Shares shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933 ("Securities
Act"), as amended, the Exchange Act, the securities laws of applicable states,
the rules and regulations promulgated thereunder, Applicable Laws, and the
requirements of any stock exchange or quotation system upon which the Restricted
Stock may then be listed or quoted, and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
<PAGE>
(b) INVESTMENT REPRESENTATIONS RE: FEDERAL SECURITIES LAWS. The Shares
underlying these Rights, as of the date hereof, have not been registered under
the Securities Act. The Optionee represents that if Rights are exercised in
whole or in part at a time when there is NOT in effect, under the Securities Act
with the Securities and Exchange Commission and with all applicable states, a
registration statement applicable to the Shares issuable upon exercise, then the
purchase of such Shares is expressly conditioned upon the following
representations, warranties, and covenants:
(i) INVESTMENT INTENT. This Agreement is made with Purchaser in
reliance upon its representation to the Company which, by its execution hereof
it confirms, that it is acquiring the Shares for its own account, not as a
nominee or agent, and not with a view to their resale or distribution and that
it is prepared to hold the Shares for an indefinite period and has no present
intention to sell, distribute, or grant any participating interests in the
Shares. Purchaser hereby acknowledges the fact that the Shares have not been
registered under the Securities Act or the securities laws of any other state,
province, or country (collectively with the Securities Act, the "Securities
Laws"), and that the Company is issuing the Shares to it in reliance on its
representations made herein.
(ii) RESTRICTED SECURITIES. Purchaser hereby confirms that it has
been informed that the Shares may not be resold or transferred unless such
Shares are first registered under the applicable Securities Laws or unless an
exemption from such registration is available. Accordingly, Purchaser hereby
acknowledges that it is prepared to hold the Shares for an indefinite period.
(iii) INVESTMENT EXPERIENCE. In connection with the investment
representations made herein, Purchaser represents that it is able to fend for
itself in the transactions contemplated by this Agreement, has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of its investment, has the ability to bear the economic
risks of its investment, and has been furnished with and has had access to such
information as is normally made available in the form of a registration
statement, together with such additional information as is necessary to verify
the accuracy of the information supplied and to have all questions answered by
the Company.
(iv) DISPOSITION OF SHARES. Purchaser hereby agrees that it
shall make no disposition of the Shares (other than a permitted transfer under
Section 3(a)), unless and until:
(1) Purchaser shall have complied with all requirements of
this Agreement and any stock exchange on which such Shares (or any
substituted securities) may be listed;
(2) Purchaser shall have notified the Company of the proposed
disposition and furnished it with a written summary of the terms and
conditions of the proposed disposition; and
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(3) Purchaser shall have provided an opinion to the Company's
counsel (at its expense), in form and substance reasonably satisfactory to
the Company, that (i) the proposed disposition does not require
registration of the Shares under the applicable Securities Laws or (ii) all
appropriate action necessary for compliance with the registration
requirements of the applicable Securities Laws or of any exemption from
registration available under the applicable Securities Laws has been taken.
The Company shall not be required (i) to transfer on its books any Shares
which have been sold or transferred in violation of the provisions of this
Section 2 nor (ii) to treat as the owner of the Shares, or otherwise to accord
voting or dividend rights to, any transferee to whom the Shares have been so
transferred.
(c) RESTRICTIVE LEGENDS. Unless and until the Shares are registered
with the Securities and Exchange Commission and with the applicable states, in
order to reflect the restrictions on disposition of the Shares, the stock
certificates for the Shares shall be endorsed with restrictive legends,
including the following legends:
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THAT
ACT, A 'NO ACTION' LETTER OF THE SECURITIES AND EXCHANGE COMMISSION AS TO
SUCH SALE OR OFFER, OR AN OPINION OF COUNSEL TO THE COMPANY THAT
REGISTRATION UNDER SUCH ACT IS NOT REQUIRED FOR SUCH SALE OR OFFER."
(ii) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS AND CONDITIONS OF A CERTAIN RESTRICTED STOCK PURCHASE
AGREEMENT DATED AS OF ________, 199__, AS AMENDED FROM TIME TO TIME, WHICH
INCLUDES CERTAIN RESTRICTIONS ON TRANSFER, REPURCHASE RIGHTS AND A MARKET
STAND-OFF AGREEMENT. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN
REQUEST TO THE SECRETARY OF THE COMPANY."
(iii) Any legend required to be placed thereon by applicable state
securities laws.
3. TRANSFER RESTRICTIONS
(a) TRANSFER RESTRICTIONS. Purchaser shall not transfer, sell, assign,
encumber, pledge or otherwise dispose of any of the Shares which are subject to
repurchase by the Company pursuant to Section 4 hereunder until the Shares are
Vested Shares as defined in Section 4 herein, or upon
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earlier satisfaction of any other conditions as specified by the Board in its
sole discretion. Such restrictions on transfer shall not be applicable to a
transfer of title to the shares affected pursuant to the Purchaser's will or the
laws of descent or distribution.
(b) TERMINATION OF RESTRICTIONS ON DEATH OR DISABILITY. In the event
Purchaser's employment with the Company is terminated by reason of death or
Disability, the restrictions on transfer on Purchaser's Vested and Unvested
Shares (as defined in Section 4 herein) of Restricted Stock shall lapse as of
the date of termination, subject to the requirements of Section 2.
(c) REPURCHASE RIGHT ON TERMINATION OF EMPLOYMENT. If the employment
of the Purchaser shall terminate for any reason other than death or Disability,
including a termination for cause, all Unvested Shares of Restricted Stock held
by the Purchaser shall be subject to the Company's option to repurchase such
Unvested Shares at the Purchase Price as determined in accordance with Section 4
herein. With the exception of termination for cause, the Board in its sole
discretion shall have the right to provide for the lapse of the restrictions on
Unvested Shares of Restricted Stock following termination of employment.
Subject to the provisions of Section 2, the restrictions on transfer of an
Purchaser's Vested Shares shall lapse as of the date they become Vested Shares
in accordance with Section 4 herein. Once the shares are Vested Shares and are
no longer subject to the restrictions on transfer, the Company shall, on the
request of the Purchaser, remove the legend from the Vested Shares in a timely
manner, upon receipt of such representations and warranties as the Company shall
request.
(d) VOTING RIGHTS. After the purchase of the Shares in accordance with
Section 1 of this Agreement, and notwithstanding such Shares are Unvested Shares
or Vested Shares, the Purchaser shall be entitled to exercise full voting rights
with respect to the Shares.
(e) DIVIDENDS AND OTHER DISTRIBUTIONS. While the Shares are subject to
restrictions on transfer in accordance with this Section 3, and while Shares are
Unvested or Vested Shares, the Purchaser holding such Restricted Stock shall be
entitled to receive all dividends and other distributions paid with respect to
such Shares. If any such dividends or distributions are paid in Common Stock of
the Company, the Shares shall be subject to the same restrictions on transfer
and right of repurchase as the Shares of Restricted Stock with respect to which
they were paid.
(f) TRANSFEREE OBLIGATIONS. Each person (other than the Company) to
whom the Shares are transferred by means of one of the permitted transfers
specified in Section 3(a) must as a condition precedent to the validity of such
transfer acknowledge in writing to the Company that such person is bound by each
and every provision of this Agreement and that the transferred shares are
subject to the Company's repurchase right created hereunder and the market
stand-off obligations set forth in Section 9(i) hereof, to the same extent such
shares would be so subject if retained by Purchaser.
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(g) DEFINITION OF OWNER. For purposes of Section 4 of this Agreement,
the term "Owner" shall include Purchaser and all subsequent holders of the
Shares who derive their chain of ownership through a permitted transfer from
Purchaser in accordance with Section 3(a).
4. REPURCHASE RIGHT AND VESTING OF SHARES
(a) REPURCHASE RIGHT. The Shares shall be subject to the following
right and option of the Company to repurchase the Shares (the "Repurchase
Right"), exercisable by the Company as set forth in this Section 4. For
purposes of this Agreement, the Shares shall be considered vested as follows:
(i) Twenty-five percent (25%) Shares shall vest one hundred
eighty (180) days after the effective date of this Agreement. (Describe
other applicable conditions.)
(ii) An additional twenty-five percent (25%) Shares shall vest
upon the first anniversary of this Agreement. (Describe other applicable
conditions.)
(iii) An additional twenty-five percent (25%) Shares shall vest
upon the second anniversary of this Agreement. (Describe other applicable
conditions.)
(iv) An additional twenty-five percent (25%) Shares shall vest
upon the third anniversary of this Agreement. (Describe other applicable
conditions.)
Shares which have vested pursuant to the foregoing schedule are referred to
herein as "Vested Shares." Shares which are not Vested Shares are referred to
herein as "Unvested Shares." The Company (which for purposes of this Agreement
shall include any assignee or successor of Company) shall have the option to
purchase any or all of the Unvested Shares at the Purchase Price at any time and
shall notify Purchaser, by written notice pursuant to Section 4(c), as to
whether the Company desires to purchase any or all of the Unvested Shares
pursuant to the exercise of the Repurchase Right.
(b) REPURCHASE RIGHT UPON TRANSFER OF SHARES. In the event Purchaser
should attempt to transfer any of the Unvested Shares, (other than by way of a
permissible transfer under Section 3(a)), then the Company shall have the right,
exercisable at any time within sixty (60) days following such attempted
transfer, to repurchase any or all of the Unvested Shares at the Purchase Price.
(c) EXERCISE OF REPURCHASE RIGHT. The Repurchase Right shall be
exercisable by written notice delivered to Purchaser (or other Owner of the
Shares) within the respective time frames set forth in Sections 4(a) or 4(b).
The notice shall indicate the number of Unvested Shares to be repurchased and
the date on which the repurchase is to be effected, such date to be not more
than thirty (30) days after the date of notice. Purchaser (or other Owner)
shall, prior to the close of
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business on the date specified for the repurchase, deliver to the Secretary of
the Company the certificates representing the Unvested Shares to be repurchased,
each certificate to be properly endorsed for transfer. The Company shall
concurrently with the receipt of such stock certificates
pay to Purchaser (or other Owner), in cash or cash equivalents (including
cancellation of any outstanding purchase-money indebtedness incurred by
Purchaser in connection with the acquisition of the Shares or otherwise), an
amount equal to the Purchase Price of the Unvested Shares which are to be
repurchased.
(d) TERMINATION OF REPURCHASE RIGHT. The Repurchase Right shall
terminate and cease to be exercisable in accordance with one or more of the
following provisions:
(i) The Repurchase Right shall terminate with respect to any
Shares for which it is not timely exercised under Section 4(b); and
(ii) The Repurchase Right shall terminate with respect to any and
all Shares in which Purchaser vests pursuant to the provisions of Section
4(a).
The parties hereby expressly acknowledge and agree that the Company's
Repurchase Right under Section 4(a) shall not terminate as to any of the
Unvested Shares until the date which is five years after the effective date of
this Agreement.
(e) ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of any
stock dividend, stock split, stock combination, recapitalization or similar
transaction affecting the Company's outstanding securities without receipt of
consideration, or in the event of the conversion of the Company's outstanding
Common Stock (including the Shares) into cash or other shares or securities of
the Company or any other corporation as a result of a merger, consolidation,
liquidation or other reorganization, then any new, substituted, or additional
securities or other property (including money paid other than as a cash
dividend) which are by reason of such transaction distributed with respect to
the Shares shall be subject to the same vesting schedule in effect under Section
4(a) for the Shares and shall accordingly be subject to the Repurchase Right to
the same extent the Shares are at the time of such transaction covered by the
Repurchase Right. The Company (or its successor) may require the establishment
of an escrow account for any money (other than cash dividends) or other property
or securities distributed with respect to the Unvested Shares in order to
facilitate any subsequent exercise by the Company (or its successor) of the
Repurchase Right. Appropriate adjustments shall also be made to the price per
share to be paid upon the exercise of the Repurchase Right in order to reflect
the effect of such transaction upon the company's capital structure; PROVIDED,
HOWEVER, that the aggregate Purchase Price payable for the Unvested Shares shall
remain the same.
5. ESCROW
(a) DEPOSIT. Upon issuance, the certificates for any Shares purchased
hereunder shall be deposited in escrow with the Secretary of the Company (or
such other person as determined by the Board of Directors of the Company), to be
held in accordance with the provisions of this Section
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5. The deposited certificates, together with any other assets or securities
from time to time deposited with the Company pursuant to the requirements of
this Agreement, shall remain in escrow until such time or times as the
certificates (or other assets and securities) are to be released or otherwise
surrendered for cancellation in accordance with Section 5(c). Upon delivery of
the certificates (or other assets and securities ) to the Company, Purchaser
shall be issued an instrument of deposit acknowledging the number of Shares (or
other assets and securities) delivered in escrow to the Company.
(b) RECAPITALIZATION. All regular cash dividends on the Shares (or
other securities at the time held in escrow) shall be paid directly to Purchaser
and shall not be held in escrow. However, in the event of any stock dividend,
stock split, recapitalization or other change affecting the Company's
outstanding Common Stock as a class effected without receipt of consideration
any new, substituted or additional securities or other property which is by
reason of such transaction distributed with respect to the Shares, shall be
immediately delivered to the Company to be held in escrow under this Section 5,
but only to the extent the Shares are at the time subject to the escrow
requirements of Section 5(a).
(c) RELEASE/SURRENDER. The Shares, together with any other assets or
securities held in escrow hereunder shall be subject to the following terms and
conditions relating to their release from escrow or their surrender to the
Company for repurchase and cancellation:
(i) Should the Company (or its assignees) elect to exercise its
Repurchase Right under Section 4 with respect to any Unvested Shares, then the
escrowed certificates for such shares (together with any other assets or
securities issued with respect thereto), shall be delivered to the Company,
concurrently with the payment to Purchaser, in cash or cash equivalent
(including the cancellation of any purchase-money indebtedness), of an amount
equal to the aggregate purchase price for such Shares, and Purchaser shall cease
to have any further rights or claims with respect to such Shares (or other
assets or securities attributable to such Shares).
(ii) On the date the Shares of Restricted Stock become the Vested
Shares (as well as any assets and securities attributable thereto), they shall
be released from escrow and delivered to Purchaser.
6. ADMINISTRATION
All questions of interpretation concerning this Restricted Stock Purchase
Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Restricted Stock Purchase
Agreement. Any officer of the Company or a Parent or Subsidiary shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, or election which is the responsibility of or which is allocated to
the Company herein, provided the officer has apparent authority with respect to
such matter, right, obligation, or election.
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7. SPECIAL UNITED STATES TAX PROVISIONS
(a) SECTION 83(b) ELECTION. Purchaser understands that under Section
83 of the Internal Revenue Code of 1986, as amended (the "Code"), the excess of
the fair market value of the Shares on the date any forfeiture restrictions
applicable to such Shares lapse over the Purchase Price for such Shares will be
reportable as ordinary income on such lapse date. For this purpose, the term
"forfeiture restrictions" includes the right of the Company to repurchase the
Shares pursuant to the Repurchase Right provided under Section 4. Purchaser
understands that it may elect under Section 83(b) of the Code to be taxed at the
time the Shares are acquired hereunder, rather than when and as such Shares
cease to be subject to such forfeiture restrictions. Such election must be
filed with the Internal Revenue Service within thirty (30) days after the date
of this Agreement. The form for making this election must be filed with the
Internal Revenue Service within thirty (30) days after the date of this
Agreement. Purchaser understands that failure to make this filing within the
thirty (30)-day period will result in the recognition of ordinary income by
Purchaser as the forfeiture restrictions lapse.
(b) ACKNOWLEDGMENT. PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S
SOLE RESPONSIBILITY, AND NOT THE COMPANY'S, TO FILE A TIMELY ELECTION UNDER
SECTION 83(b), EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO
MAKE THIS FILING ON HIS BEHALF. This filing should be made by registered or
certified mail, return receipt requested, and Purchaser must retain two (2)
copies of the completed form for filing with his State and Federal tax returns
for the current tax year and an additional copy for his personal records.
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER, ASSET
SALE, OR CHANGE OF CONTROL.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Right, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Rights have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Right, as well as the price per share of Common Stock covered by each such
outstanding Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock 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.
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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 of Common Stock subject to an Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that a Right has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its sole
discretion in such instances, declare that any Right shall terminate as of a
date fixed by the Board and give each Optionee the right to exercise his or her
Right as to all or any part of the Optioned Stock, including Shares as to which
the Right would not otherwise be exercisable.
(c) MERGER OR ASSET SALE. Subject to the provisions of paragraph
(d) hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each
outstanding Right shall be assumed or an equivalent Right substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation does not agree to assume the Right or
to substitute an equivalent Right, the Board shall, in lieu of such assumption
or substitution, provide for the Optionee to have the right to exercise the
Right as to all or a portion of the Optioned Stock, including Shares as to which
it would not otherwise be exercisable. If the Board makes a Right exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify the Optionee that the Right shall be exercisable for a
period of fifteen (15) days from the date of such notice, and the Right will
terminate upon the expiration of such period. For the purposes of this
paragraph, the Right shall be considered assumed if, immediately following the
merger or sale of assets, the Right confers the right to purchase, for each
Share of Optioned Stock subject to the Right immediately prior to the merger or
sale of assets, for the consideration (whether stock, cash, or other securities
or property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets was not solely
common stock of the successor corporation or its Parent, the Board may, with the
consent of the successor corporation and the participant, provide for the
consideration to be received upon the exercise of the Right, for each Share of
Optioned Stock subject to the Right, to be solely common stock of the successor
corporation or its Parent equal in Fair Market Value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
(d) CHANGE IN CONTROL. In the event of a "Change in Control" of
the Company, as defined in paragraph (e) below, then the following acceleration
and valuation provisions shall apply:
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(i) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control, any Rights
outstanding on the date such Change in Control is determined to have occurred
that are not yet exercisable and vested on such date shall become fully
exercisable and vested;
(ii) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control, all outstanding
Rights, to the extent they are exercisable and vested (including Rights that
shall become exercisable and vested pursuant to subparagraph (i) above), shall
be terminated in exchange for a cash payment equal to the Change in Control
Price (reduced by the exercise price, if any, applicable to such Rights). These
cash proceeds shall be paid to the Optionee or, in the event of death of an
Optionee prior to payment, to the estate of the Optionee or to a person who
acquired the right to exercise the Right by bequest or inheritance.
(e) DEFINITION OF "CHANGE IN CONTROL". For purposes of this
Section 8, a "Change in Control" means the happening of any of the following:
(i) When any "person," as such term is used in Section 13(d)
and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company
employee benefit plan, including any trustee of such plan acting as trustee) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities entitled to vote generally in the election of directors;
or
(ii) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the shareholders of the Company approve an agreement for the
sale or disposition by the Company of all or substantially all the Company's
assets; or
(iii) A change in the composition of the Board of the Company
occurring within a two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors.
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"Incumbent Directors" shall mean directors who either (A) are
directors of the Company as of the date the Plan is approved by the
Board or the shareholders, whichever shall first occur, or (B) are
elected, or nominated for election, to the Board of the Company with
the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection
with an actual or threatened proxy contest relating to the election
of directors to the Company).
(f) CHANGE IN CONTROL PRICE. For purposes of this Section 8,
"Change in Control Price" shall be, as determined by the Board, (i) the highest
Fair Market Value of a Share within the 60-day period immediately preceding the
date of determination of the Change in Control Price by the Board (the "60--Day
Period"), or (ii) the highest price paid or offered per Share, as determined by
the Board, in any bona fide transaction or bona fide offer related to the Change
in Control of the Company, at any time within the 60-Day Period, or (iii) such
lower price as the Board, in its discretion, determines to be a reasonable
estimate of the fair market value of a Share.
9. SHAREHOLDER RIGHTS; LIMITATIONS
(a) SHAREHOLDER RIGHTS. Except with respect to restrictions on
transfer set forth herein and as provided in Section 10(i), Purchaser shall have
all the rights of a shareholder with respect to the Shares, whether or not his
interest in the Shares is at the time vested. Accordingly, Purchaser shall have
the right to vote the Shares and to receive any cash dividends or other
distributions paid or made with respect to the Shares.
(b) AUTOMATIC CANCELLATION. If the Company shall make available, at
the time and place and in the amount and form provided in this Agreement, the
consideration for the Shares to be repurchased in accordance with the provisions
of this Agreement, then from and after such time Purchaser (or other Owner)
shall no longer have any rights as a holder of such Shares (other than the right
to receive payment of such consideration in accordance with this Agreement), and
such Shares shall be deemed to be repurchased in accordance with the applicable
provisions hereof, and the company (or its assigns) shall be deemed the owner
and holder of such Shares, whether or not the certificates therefor have been
delivered as required by this Agreement.
(c) COMPLIANCE WITH LAW. Under no circumstances shall Shares of the
Company's Common Stock or other assets be issued or delivered to Purchaser
pursuant to the provisions of this Agreement unless and until, in the opinion of
counsel for the company or its successors, there shall have been compliance with
all applicable requirements of the federal and state securities laws and the
exchange on which stock of the same class is then listed, and all other
requirements of law or of any regulatory bodies having jurisdiction over such
issuance and delivery.
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10 INTERPRETATION
(a) PURCHASER UNDERTAKING. Purchaser hereby agrees to take whatever
additional action and execute whatever additional documents the Company may in
its judgment deem necessary or advisable in order to carry out or effect one or
more of the obligations or restrictions imposed on either Purchaser or the
Shares pursuant to the express provisions of this Agreement.
(b) SATISFACTION OF PRE-EXISTING RIGHTS. Purchaser hereby
acknowledges, agrees, and confirms that the issuance of the Shares hereunder is
in full and complete satisfaction of any and all pre-existing rights which
Purchaser may have to acquire shares of preferred or Common Stock of the
Company, whether pursuant to written or oral offers, understandings or
arrangements, and the Purchaser hereby releases and discharges the Company from
any and all obligations or liabilities to issue shares of its Common or
preferred Stock to Purchaser pursuant to any such pre-existing rights of
Purchaser.
(c) NO CONTRACT. THIS AGREEMENT SHALL NOT BE CONSTRUED SO AS TO GRANT
PURCHASER ANY RIGHT TO REMAIN ENGAGED AS AN EMPLOYEE OR CONSULTANT OF THE
COMPANY OR ITS AFFILIATES FOR ANY PERIOD OF SPECIFIC DURATION. ACCORDINGLY,
EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED IN ANY WRITTEN EMPLOYMENT OR
CONSULTING AGREEMENT BETWEEN THE EMPLOYEE OR THE CONSULTANT AND THE COMPANY (OR
ANY AFFILIATE), THE EMPLOYEE OR THE CONSULTANT'S ENGAGEMENT MAY BE TERMINATED AT
ANY TIME WITH OR WITHOUT CAUSE.
(d) NOTICES. Any notice required or permitted in connection with the
exercise of the Repurchase Right hereunder or in connection with any other
matter pertaining to this Agreement shall be given in writing and shall be
deemed effective upon personal delivery or upon deposit in the United States
mail, registered and certified, postage prepaid and addressed to the party to be
notified at the address indicated below such party's signature line on this
Agreement or at such other address as such party may designate by ten (10) days'
advance written notice under this Section to the other party to this Agreement.
(e) GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and shall be governed by, the laws of the State of California.
(f) NO WAIVER. The failure of the Company (or its assigns) in any
instance to exercise its Repurchase Right hereunder shall not constitute a
waiver of such Repurchase Right with respect to subsequent occasions when such
right may again become exercisable pursuant to the provisions of this Agreement.
No waiver of any breach or condition of this Agreement shall be deemed to be a
waiver of any other or subsequent breach or condition, whether of like or
different nature.
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(g) ASSIGNMENTS. The Company may assign its Repurchase Right under
this Agreement to any person or entity selected by the Company's Board,
including (without limitation) one or more shareholders of the Company.
(h) SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer
set forth herein, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Company and its successors and assigns and
Purchaser's legal representatives, heirs, legatees, distributees, assigns
and transferrees by operation of law, whether or not any such person shall have
become a party to this Agreement and have agreed in writing to join herein and
be bound by the terms and conditions hereof.
(i) MARKET STAND-OFF OBLIGATIONS. Notwithstanding any other provisions
hereof, in the event that Purchaser is an officer or director of the Company,
Purchaser hereby agrees that during the period of duration specified by the
Company and an underwriter of Common Stock or other securities of the Company
following the effective date of a registration statement of the Company filed
under the 1933 Act, Purchaser shall not, to the extent requested by the Company
and such underwriter, directly or indirectly sell, offer to sell, contract to
sell (including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of (other than to donees who agree to
be similarly bound) any securities of the Company held by Purchaser at any time
during such period (including the Shares), except Common Stock included in such
registration; PROVIDED, HOWEVER, that all officers and directors of the Company
enter into similar agreements. In order to enforce the foregoing covenant, the
Company may impose stock-transfer instructions with respect to the registerable
securities of Purchaser (and the shares or securities of every other person
subject to the foregoing restriction) until the end of such period and may
endorse the stock certificate(s) representing the Shares with appropriate
legends.
(j) TERMINATION OR AMENDMENT. The Board may terminate or amend the
Plan or the Restricted Stock at any time; provided, however, that no such
termination or amendment may adversely affect the Restricted Stock or any
unexercised portion hereof without the consent of the Purchaser unless such
termination or amendment is necessary to comply with any applicable law or
government regulation. No amendment or addition to this Restricted Stock
Purchase Agreement shall be effective unless in writing.
(k) INTEGRATED AGREEMENT. This Restricted Stock Purchase Agreement and
the Plan constitute the entire understanding and agreement of the Purchaser and
the Company with respect to the subject matter contained herein or therein, and
there are no agreements, understandings, restrictions, representations, or
warranties among the Purchaser and the Company with respect to such subject
matter other than those set forth or provided for herein or therein. To the
extent contemplated herein or therein, the provisions of this Restricted Stock
Purchase Agreement shall survive any repurchase of the Restricted Stock and
shall remain in full force and effect.
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(l) COUNSEL TO THE COMPANY. Purchaser hereby acknowledges and agrees
that this Agreement has been prepared by Fisher Thurber LLP, counsel to the
company, which counsel has represented the interests of the Company and not
those of the Purchaser with respect to the transactions contemplated hereunder.
Purchaser further acknowledges and agrees that he has been provided the
opportunity and encouraged to consult with counsel of his own choosing with
respect to this Agreement and the transaction contemplated hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first indicated above.
Self-Heating Container Corporation of California
By:
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Title:
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Address:
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Purchaser:
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Name:
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Address:
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[SIGNATURE PAGE TO RES TRICTED STOCK PURCHASE AGREEMENT]
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") OR UNDER ANY STATE SECURITIES LAWS. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT, AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, PLEDGED, MORTGAGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED (1) WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR (2) UNLESS ONTRO, INC.
HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO ONTRO, INC. AND ITS COUNSEL
THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
NONQUALIFIED
STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement is made effective January 6,
1997 ("Effective Date") by and between ONTRO, INC., a California corporation
("Ontro" or "Corporation"), and SUZANNE JOHNSON ("Optionee").
RECITALS
A. Optionee is a consultant to the Corporation, and the Corporation
desires to afford Optionee the opportunity to obtain stock ownership in the
Corporation so that Optionee may have a significant proprietary interest in
Corporation's success.
B. The Board of Directors of the Corporation ("Board") has granted to
Optionee a Non-Qualified Stock Option ("Option") upon the terms and subject to
the conditions of this Agreement.
AGREEMENT
In consideration of services rendered and to be rendered by Optionee to
Corporation and of the agreements set forth below the parties agree as follows:
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SECTION 1
GRANT OF OPTION
1.1 GRANT OF OPTION. The Corporation hereby grants to Optionee this
Non-Qualified Stock Option, subject to the terms and conditions of this
Agreement. The Option granted herein shall allow the Optionee or his designees
to purchase up to an aggregate of FIVE THOUSAND (5,000) SHARES ("Option
Shares") of the Corporation's common stock.
1.2 TERM OF OPTION. Subject to the terms and conditions of this
Agreement, the Corporation hereby grants to Optionee an Option to purchase
shares of the Corporation's common stock from the Corporation, during the period
ending five (5) years from the Effective Date ("Expiration Date").
1.3 EXERCISE PRICE. The shares of common stock underlying this Option may
be purchased for THREE DOLLARS ($3.00) per share ("Exercise Price"). For the
purposes of this Agreement, "exercise" refers to the procedure by which Optionee
elects to purchase a designated number of shares of the Corporation's common
stock at the Exercise Price per share.
1.4 CONDITIONS OF OPTION. Optionee understands that he may only exercise
this Option and purchase the Option Shares subject to the terms and conditions
as set forth in this Agreement.
SECTION 2
EXERCISE OF OPTION
2.1 EXERCISE DATES. Subject to the limitations set forth in Section 2.2,
the Optionee may elect to purchase some or all of the Option Shares at one or
more times during the term of this Option.
2.2 VESTING CONDITIONS. The ability of the Optionee to exercise this
Option and purchase the Option shares is subject to certain vesting conditions.
Optionee shall accrue the right to exercise the Option and purchase
twenty-five percent (25%) of the total Option Shares for each twelve (12)
months of continuous service to the Corporation's Advisory Board. For each
twelve (12) month period in which Optionee has continuosly served as on the
Corporation's Advisory Board, Optionee shall have the right to exercise this
Option and purchase twenty-five percent (25%) of the total number of Option
Shares (1,250 shares), and confirming that her continuing participation as a
member of the Corporation's Advisory Board shall be at the sole discretion of
the Board of Directors.
2.3 MANNER OF EXERCISE OF OPTION AND PAYMENT FOR COMMON STOCK. Optionee
may elect to purchase the number of Option Shares specified in Section 2.2
above, (or in the case of his death, by his or her legatee(s) under his last
will or by his executors, personal representatives or
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distributees) by giving written notice to the Secretary of the Corporation,
setting forth the number of Option Shares he is electing to purchase. The
Exercise Price shall be paid in full (i) in cash, (ii) in shares of the
Corporation's common stock valued at the closing price for the common stock
on the Nasdaq Stock Market on the date of exercise (or the trading day last
preceding the date of exercise), (iii) by agreeing to surrender a portion of
the Option Shares then owned and available to be purchased by him valued at
the excess of (A) the closing price for the common stock on the Nasdaq Stock
Market on the date of Optionee's election to purchase (or the trading day
last preceding the date of Optionee's election to purchase), over (B) the
aggregate Exercise Price of the Option Shares subject to such portion of this
Option, or (iv) by such other medium of payment as the Board, in its
discretion, shall authorize, or by any combination of (i), (ii), (iii) and
(iv), at the discretion of the Board. As soon as reasonably possible
following such notice of election to purchase, a certificate representing the
Option Shares purchased, registered in the name of the Optionee, shall be
delivered to the Optionee.
2.4 RULE 16b-3. Options granted to individuals subject to Section 16 of
the Securities Exchange Act of 1934 ("34 Act") shall, to the extent practicable,
desirable, or as determined by the Board of Directors, comply with the
applicable provisions of Rule 16b-3 of the 34 Act and may, as determined by the
Board of Directors, contain such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
34 Act.
2.5 STOCK CERTIFICATES. Promptly after any exercise in whole or in part
of the Option by Optionee, the Corporation shall deliver to Optionee a
certificate or certificates for the number of Shares with respect to which the
Option was so exercised, registered in Optionee's name.
SECTION 3
DURATION OF OPTION
3.1 The Option, to the extent not previously exercised, shall terminate
upon the earliest of the following dates:
3.1.1 On the Expiration Date; or
3.1.2 In the event of Optionee's death, the Optionee's estate or a
person who acquired the right to purchase the deceased Optionee's Option Shares
by bequest or inheritance may elect to purchase the Option Shares, but only
within twelve (12) months following the date of death, and only to the extent
that the Optionee was entitled to purchase the Option Shares at the date of
death (but in no event later than the Expiration Date). To the extent that
Optionee was not entitled to purchase Option Shares at the date of death, and to
the extent the Optionee's estate or a person who acquired the right to purchase
such Option Shares does not exercise such Option (to the extent otherwise so
entitled) within the time specified herein, the Option shall terminate.
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SECTION 4
NONTRANSFERABILITY
4.1 RESTRICTION. The Option is not transferable by Optionee otherwise
than by testamentary will or the laws of descent and distribution and, during
Optionee's lifetime, may be exercised only by Optionee or Optionee's guardian or
legal representative. No assignment, sale, pledge, hypothecation, disposition
or transfer of the Option, whether voluntary, involuntary, or by operation of
law or otherwise, except by testamentary will or the laws of descent and
distribution, shall vest in the assignee or transferee any interest or right,
but immediately upon any attempt to assign or transfer the Option, the Option
shall terminate and be of no force or effect. This Option shall not be made
subject to execution, attachment, or similar process.
4.2 EXERCISE IN EVENT OF DEATH OR DISABILITY. Whenever the word
"Optionee" is used in any provision of this Agreement under circumstances when
the provision should logically be construed to apply to the Optionee's guardian,
legal representative, executor, administrator, or the person or persons to whom
the Option may be transferred by testamentary will or by the laws of descent and
distribution, the word "Optionee" shall be deemed to include such person or
persons.
SECTION 5
NO RIGHTS AS SHAREHOLDER PRIOR TO EXERCISE
Optionee shall not be deemed for any purpose to be a shareholder of
Corporation with respect to any shares subject to the Option under this
Agreement to which the Optionee has not exercised his election to purchase.
SECTION 6
ADJUSTMENTS
6.1 NO EFFECT ON CHANGES IN CORPORATION'S CAPITAL STRUCTURE. The
existence of the Option shall not affect in any way the right or power of
Corporation or its shareholders to make or authorize any adjustments,
recapitalization, reorganization, or other changes in Corporation's capital
structure or its business, or any merger or consolidation of Corporation, or any
issue of bonds, debentures, preferred or preference stocks ahead of or affecting
the Option Shares, or the dissolution or liquidation of Corporation, or any sale
or transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
6.2 ADJUSTMENT TO OPTION SHARES. The Option Shares are subject to
adjustment upon changes in capitalization, dissolution, merger, asset sale or a
change in control as follows:
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Corporation, the number of Option Shares of any unexercised
portion of this Option, as well
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as the exercise price per share of said unexercised Option Shares, shall be
proportionately adjusted for any increase or decrease in the number of the
Corporation's issued and outstanding shares resulting from a stock split,
reverse stock split, combination or reclassification of the shares, or any other
increase or decrease in the number of issued shares effected without receipt of
consideration by the Corporation; provided, however, that conversion of any
convertible securities of the Corporation shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be made by
the Board of Directors, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Corporation 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 Option Shares.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Corporation, to the extent that an Option has
not been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board of Directors 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 of Directors and give each Optionee
the right to exercise his or her Option as to all or any part of the Option
Shares, including Shares as to which the Option would not otherwise be
exercisable.
(c) MERGER OR CONSOLIDATION. In the event of a merger of the
Corporation with or into another corporation, or the sale of substantially all
of the assets of the Corporation, outstanding Options shall be subject to the
agreement of merger or consolidation. Such agreement may provide for the
assumption of outstanding Options by the surviving corporation or its parent or
for their continuation by the Corporation (if the Corporation is the surviving
corporation). In the event the Corporation is not the surviving corporation and
the surviving corporation will not assume the outstanding Options, the agreement
of merger or consolidation may provide for payment of a cash settlement for
exercisable Options equal to the difference between the amount to be paid for
one share under such agreement and the Exercise Price and for purposes of such
payments all vesting conditions set forth in Section 2 hereof shall be deemed
satisfied or waived as of the date of merger or sale of substantially all of the
Corporation's assets.
In connection with any adjustment under this Section 6 resulting in a
fractional share interest, such interest may be rounded down to the nearest
whole share if such interest is less than 0.5 share; otherwise such fractional
share interest may be rounded up to the nearest whole share.
SECTION 7
COMPLIANCE WITH SECURITIES LAWS
7.1 NO EXERCISE UNTIL COMPLIANCE. If the Board of Directors at any time
determines that registration or qualification of the Option Shares or the Option
is required under state or federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable,
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then the Option may not be exercised, in whole or in part, until such
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Board of Directors, in
their absolute discretion.
7.2 INVESTMENT REPRESENTATIONS RE: FEDERAL SECURITIES LAWS. The Option
and the Option Shares as of the date hereof, have not been registered under the
Securities Act of 1933 (the "33 Act") and the Corporation has no plans to
register them. The Optionee represents that the grant of this Option, and if
this Option is exercised in whole or in part at a time when there is NOT in
effect, under the 33 Act, a registration statement applicable to the Option
Shares issuable upon exercise, the receipt of this Option, and the purchase of
any Option Shares is expressly conditioned upon the following representations,
warranties and covenants:
(a) Any Option Shares purchased upon exercise of this Option shall be
acquired for the Optionee's account for investment only, and not with a view to,
or for sale in connection with, any distribution of the Option Shares in
violation of the 33 Act, or any rule or regulation under the 33 Act. Further,
the Optionee either has a pre-existing personal or business relationship with
the Corporation or any of its officers, directors or controlling persons, or by
reason of Optionee's business or financial experience, or the business or
financial experience of their professional advisors who are unaffiliated with
and not compensated by the Corporation, they could reasonably be assumed to have
the capacity to protect their own interests in connection with the grant of this
Option and the exercise and sale of the Option Shares.
(b) The Optionee has had such opportunity as he or she has deemed
adequate to obtain from representatives of the Corporation such information as
is necessary to permit the Optionee to evaluate the merits and risks of his or
her investment in the Corporation.
(c) The Optionee is able to bear the economic risk of holding shares
acquired pursuant to the exercise of the Option for an indefinite period.
(d) The Optionee understands that:
(i) the shares acquired pursuant to the exercise of the Option
will not be registered under the 33 Act or under any state securities laws and
are "restricted securities" within the meaning of Rule 144 under the 33 Act;
(ii) such shares cannot be sold, transferred or otherwise
disposed of unless they are subsequently registered under the 33 Act;
(iii) in any event, the exemption from registration under
Rule 144 will not be available for at least two (2) years, and even then will
not be available unless a public market then exists for the shares, adequate
information concerning the Corporation is then available to the public, and
other terms and conditions of Rule 144 are complied with; and
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(iv) there is currently no registration statement on file with
the Securities and Exchange Commission with respect to the Option Shares and the
Corporation has no obligation or current intention to register any shares
acquired pursuant to the exercise of this Option under the 33 Act.
Upon any exercise of this Option, the Optionee shall be deemed to have
reaffirmed, as of the date of such exercise, the representations made in this
Section 7.2.
SECTION 8
LEGEND ON STOCK CERTIFICATES
All stock certificates representing Option Shares issued to the Optionee
upon exercise of this Option shall have affixed thereto a legend substantially
in the following form, in addition to any other legends required by applicable
state law:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR UNDER ANY STATE SECURITIES LAWS. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT, AND NOT
WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
SOLD, PLEDGED, MORTGAGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED (1) WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND UNDER ANY APPLICABLE STATE
SECURITIES LAWS, OR (2) UNLESS ONTRO, INC. HAS RECEIVED
AN OPINION OF COUNSEL SATISFACTORY TO ONTRO, INC. AND
ITS COUNSEL THAT AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
SECTION 9
MISCELLANEOUS PROVISIONS
9.1 VIOLATION. Any provision of this Agreement to the contrary
notwithstanding, the Option shall not be exercisable at any time, in whole or in
part, if issuance and delivery of the Option Shares would violate any law or
regulation.
9.2 DISPUTES. Any dispute or disagreement that may arise under or as a
result of this Agreement, or any question as to the interpretation of this
Agreement, may be determined by the Board in its absolute and uncontrolled
discretion, and any such determination shall be final, binding, and conclusive
on all affected persons.
9.3 NOTICES. Any notice that a party may be required or permitted to give
to the other shall be in writing, and may be delivered personally or by
certified or registered mail, postage prepaid, addressed to the Corporation at
12675 Danielson Court, Suite 401, Poway, California 92064, and
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to the Optionee as such address is set forth on the Corporations books and
records or such other address as either party, by notice to the other, may
designate in writing from time to time;
9.4 TAX ELECTIONS. Optionee acknowledges that he has considered the
advisability of all tax elections in connection with the exercise of the Option
and purchase of the Option Shares hereunder, and the execution and delivery of
this Agreement, including the making of an election under Section 83(b) of the
Internal Revenue Code of 1986, as amended, and any similar elections under
California or applicable state law, and that the Corporation has no
responsibility for the making of any such election. Optionee further
acknowledges he shall consult with his tax advisor, at his own expense,
regarding the tax consequences of the grant of the Option, the exercise of the
Option and the sale of the Option Shares prior to the signing of this Agreement.
9.5 LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
9.6 VENUE. Venue for any action arising out of this Agreement shall be in
the appropriate court located in San Diego County, California.
9.7 TITLES AND CAPTIONS. All section titles or captions contained in this
Agreement are for convenience only and shall not be deemed part of the context
nor effect the interpretation of this Agreement.
9.8 ENTIRE AGREEMENT. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement.
9.9 AGREEMENT BINDING. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
9.10 COMPUTATION OF TIME. In computing any period of time pursuant to this
Agreement, the day of the act, event or default from which the designated period
of time begins to run shall be included, unless it is a Saturday, Sunday, or a
legal holiday, in which event the period shall begin to run on the next day
which is not a Saturday, Sunday, or legal holiday, in which event the period
shall run until the end of the next day thereafter which is not a Saturday,
Sunday, or legal holiday.
9.11 PRONOUNS AND PLURALS. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular, or plural as
the identity of the person or persons may require.
9.12 PRESUMPTION. This Agreement or any section thereof shall not be
construed against any party due to the fact that said Agreement or any section
thereof was drafted by said party.
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9.13 FURTHER ACTION. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of the Agreement.
9.14 PARTIES IN INTEREST. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall be for
the benefit of any third party.
9.15 SAVINGS CLAUSE. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
9.16 UNREGISTERED SHARES. Optionee represents that he/she understands that
the Option Shares are not now registered under the Securities Act of 1933 or
under any state securities law and that the Option Shares, upon exercise, may
not be so registered in the foreseeable future.
9.17 REPRESENTATION BY COUNSEL. Optionee represents that he has been
advised that he is not being represented in this transaction by the
Corporation's attorneys and that Optionee has been advised to seek separate
legal counsel for advice in this matter and has done so to the extent desired.
EXECUTED at Poway, California by:
ONTRO, INC.
a California corporation
By: /s/ James A. Scudder
------------------------------------
JAMES A. SCUDDER, President
The undersigned Optionee hereby acknowledges receipt of an executed
original of this Non-Qualified Stock Option Agreement, accepts the option
granted thereunder and agrees to the terms and conditions thereof.
Dated: April 7, 1996 /s/ Suzanne Johnson
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Suzanne Johnson, Optionee
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") OR UNDER ANY STATE SECURITIES LAWS. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT, AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, PLEDGED, MORTGAGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED (1) WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR (2) UNLESS ONTRO, INC.
HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO ONTRO, INC. AND ITS COUNSEL
THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
NONQUALIFIED
STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement is made effective December 31,
1996 ("Effective Date") by and between ONTRO, INC., a California corporation
("Ontro" or "Corporation"), and DAVID A. FISHER ("Optionee").
RECITALS
A. Optionee has served as legal counsel to the Corporation, and the
Corporation desires to afford Optionee or his designees the opportunity to
obtain stock ownership in the Corporation so that Optionee may have a
significant proprietary interest in Corporation's success.
B. The Board of Directors of the Corporation ("Board") has granted to
Optionee a Non-Qualified Stock Option ("Option") upon the terms and subject to
the conditions of this Agreement.
AGREEMENT
In consideration of services rendered and to be rendered by Optionee to
Corporation and of the agreements set forth below the parties agree as follows:
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SECTION 1
GRANT OF OPTION
1.1 GRANT OF OPTION. The Corporation hereby grants to Optionee this
Non-Qualified Stock Option, subject to the terms and conditions of this
Agreement. The Option granted herein shall allow the Optionee or his designees
to purchase up to an aggregate of FIFTY THOUSAND (50,000) SHARES ("Option
Shares") of the Corporation's common stock.
1.2 TERM OF OPTION. Subject to the terms and conditions of this
Agreement, the Corporation hereby grants to Optionee an Option to purchase
shares of the Corporation's common stock from the Corporation, during the period
ending five (5) years from the Effective Date ("Expiration Date").
1.3 EXERCISE PRICE. The shares of common stock underlying this Option
may be purchased for TWO AND FIFTY ONE HUNDREDTHS DOLLARS ($2.50) per share
("Exercise Price"). For the purposes of this Agreement, "exercise" refers to
the procedure by which Optionee elects to purchase a designated number of
shares of the Corporation's common stock at the Exercise Price per share.
1.4 CONDITIONS OF OPTION. Optionee understands that he may only exercise
this Option and purchase the Option Shares subject to the terms and conditions
as set forth in this Agreement.
SECTION 2
EXERCISE OF OPTION
2.1 EXERCISE DATES. Subject to the limitations set forth in Section 2.2,
the Optionee may elect to purchase some or all of the Option Shares at one or
more times during the term of this Option.
2.2 VESTING CONDITIONS. The ability of the Optionee to exercise this
Option and purchase the Option shares is subject to certain vesting conditions.
Optionee shall accrue the right to exercise the Option and purchase all or any
portion of the Option Shares on the thirtieth day from the effective date of
this Agreement.
2.3 MANNER OF EXERCISE OF OPTION AND PAYMENT FOR COMMON STOCK. Optionee
may elect to purchase the number of Option Shares specified in Section 2.2
above, (or in the case of his death, by his or her legatee(s) under his last
will or by his executors, personal representatives or distributees) by giving
written notice to the Secretary of the Corporation, setting forth the number of
Option Shares he is electing to purchase. The Exercise Price shall be paid in
full (i) in cash, (ii) in shares of the Corporation's common stock valued at the
closing price for the common stock on the NASDAQ Stock Market on the date of
exercise (or the trading day last preceding the date of exercise), (iii) by
agreeing to surrender a portion of the Option Shares then owned and available
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to be purchased by him valued at the excess of (A) the closing price for the
common stock on the NASDAQ Stock Market on the date of Optionee's election to
purchase (or the trading day last preceding the date of Optionee's election to
purchase), over (B) the aggregate Exercise Price of the Option Shares subject to
such portion of this Option, or (iv) by such other medium of payment as the
Board, in its discretion, shall authorize, or by any combination of (i), (ii),
(iii) and (iv), at the discretion of the Board. As soon as reasonably possible
following such notice of election to purchase, a certificate representing the
Option Shares purchased, registered in the name of the Optionee, shall be
delivered to the Optionee.
2.4 RULE 16b-3. Options granted to individuals subject to Section 16 of
the Securities Exchange Act of 1934 ("34 Act") shall, to the extent practicable,
desirable, or as determined by the Board of Directors, comply with the
applicable provisions of Rule 16b-3 of the 34 Act and may, as determined by the
Board of Directors, contain such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
34 Act.
2.5 STOCK CERTIFICATES. Promptly after any exercise in whole or in part
of the Option by Optionee, the Corporation shall deliver to Optionee a
certificate or certificates for the number of Shares with respect to which the
Option was so exercised, registered in Optionee's or Optionee's designee's name.
SECTION 3
DURATION OF OPTION
3.1 The Option, to the extent not previously exercised, shall terminate
upon the earliest of the following dates:
3.1.1 On the Expiration Date; or
3.1.2 In the event of Optionee's death, the Optionee's estate or a
person who acquired the right to purchase the deceased Optionee's Option Shares
by bequest or inheritance may elect to purchase the Option Shares, but only
within twelve (12) months following the date of death, and only to the extent
that the Optionee was entitled to purchase the Option Shares at the date of
death (but in no event later than the Expiration Date). To the extent that
Optionee was not entitled to purchase Option Shares at the date of death, and to
the extent the Optionee's estate or a person who acquired the right to purchase
such Option Shares does not exercise such Option (to the extent otherwise so
entitled) within the time specified herein, the Option shall terminate.
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SECTION 4
NONTRANSFERABILITY
4.1 RESTRICTION. The Option is not transferable by Optionee otherwise
than by testamentary will or the laws of descent and distribution and, during
Optionee's lifetime, may be exercised only by Optionee or Optionee's guardian or
legal representative. No assignment, sale, pledge, hypothecation, disposition
or transfer of the Option, whether voluntary, involuntary, or by operation of
law or otherwise, except by testamentary will or the laws of descent and
distribution, shall vest in the assignee or transferee any interest or right,
but immediately upon any attempt to assign or transfer the Option, the Option
shall terminate and be of no force or effect. This Option shall not be made
subject to execution, attachment, or similar process.
4.2 EXERCISE IN EVENT OF DEATH OR DISABILITY. Whenever the word
"Optionee" is used in any provision of this Agreement under circumstances when
the provision should logically be construed to apply to the Optionee's guardian,
legal representative, executor, administrator, or the person or persons to whom
the Option may be transferred by testamentary will or by the laws of descent and
distribution, the word "Optionee" shall be deemed to include such person or
persons.
SECTION 5
NO RIGHTS AS SHAREHOLDER PRIOR TO EXERCISE
Optionee shall not be deemed for any purpose to be a shareholder of
Corporation with respect to any shares subject to the Option under this
Agreement to which the Optionee has not exercised his election to purchase.
SECTION 6
ADJUSTMENTS
6.1 NO EFFECT ON CHANGES IN CORPORATION'S CAPITAL STRUCTURE. The
existence of the Option shall not affect in any way the right or power of
Corporation or its shareholders to make or authorize any adjustments,
recapitalization, reorganization, or other changes in Corporation's capital
structure or its business, or any merger or consolidation of Corporation, or any
issue of bonds, debentures, preferred or preference stocks ahead of or affecting
the Option Shares, or the dissolution or liquidation of Corporation, or any sale
or transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
6.2 ADJUSTMENT TO OPTION SHARES. The Option Shares are subject to
adjustment upon changes in capitalization, dissolution, merger, asset sale or a
change in control as follows:
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Corporation, the number of Option Shares of any unexercised
portion of this Option, as well
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as the exercise price per share of said unexercised Option Shares, shall be
proportionately adjusted for any increase or decrease in the number of the
Corporation's issued and outstanding shares resulting from a stock split,
reverse stock split, combination or reclassification of the shares, or any other
increase or decrease in the number of issued shares effected without receipt of
consideration by the Corporation; provided, however, that conversion of any
convertible securities of the Corporation shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be made by
the Board of Directors, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Corporation 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 Option Shares.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Corporation, to the extent that an Option has
not been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board of Directors 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 of Directors and give each Optionee
the right to exercise his or her Option as to all or any part of the Option
Shares, including Shares as to which the Option would not otherwise be
exercisable.
(c) MERGER OR CONSOLIDATION. In the event of a merger of the
Corporation with or into another corporation, or the sale of substantially all
of the assets of the Corporation, outstanding Options shall be subject to the
agreement of merger or consolidation. Such agreement may provide for the
assumption of outstanding Options by the surviving corporation or its parent or
for their continuation by the Corporation (if the Corporation is the surviving
corporation). In the event the Corporation is not the surviving corporation and
the surviving corporation will not assume the outstanding Options, the agreement
of merger or consolidation may provide for payment of a cash settlement for
exercisable Options equal to the difference between the amount to be paid for
one share under such agreement and the Exercise Price and for purposes of such
payments all vesting conditions set forth in Section 2 hereof shall be deemed
satisfied or waived as of the date of merger or sale of substantially all of the
Corporation's assets.
In connection with any adjustment under this Section 6 resulting in a
fractional share interest, such interest may be rounded down to the nearest
whole share if such interest is less than 0.5 share; otherwise such fractional
share interest may be rounded up to the nearest whole share.
SECTION 7
COMPLIANCE WITH SECURITIES LAWS
7.1 NO EXERCISE UNTIL COMPLIANCE. If the Board of Directors at any time
determines that registration or qualification of the Option Shares or the Option
is required under state or federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable,
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then the Option may not be exercised, in whole or in part, until such
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Board of Directors, in
their absolute discretion.
7.2 INVESTMENT REPRESENTATIONS RE: FEDERAL SECURITIES LAWS. The Option
and the Option Shares as of the date hereof, have not been registered under the
Securities Act of 1933 (the "33 Act") and the Corporation has no plans to
register them. The Optionee represents that the grant of this Option, and if
this Option is exercised in whole or in part at a time when there is NOT in
effect, under the 33 Act, a registration statement applicable to the Option
Shares issuable upon exercise, the receipt of this Option, and the purchase of
any Option Shares is expressly conditioned upon the following representations,
warranties and covenants:
(a) Any Option Shares purchased upon exercise of this Option shall be
acquired for the Optionee's account for investment only, and not with a view to,
or for sale in connection with, any distribution of the Option Shares in
violation of the 33 Act, or any rule or regulation under the 33 Act. Further,
the Optionee either has a pre-existing personal or business relationship with
the Corporation or any of its officers, directors or controlling persons, or by
reason of Optionee's business or financial experience, or the business or
financial experience of their professional advisors who are unaffiliated with
and not compensated by the Corporation, they could reasonably be assumed to have
the capacity to protect their own interests in connection with the grant of this
Option and the exercise and sale of the Option Shares.
(b) The Optionee has had such opportunity as he or she has deemed
adequate to obtain from representatives of the Corporation such information as
is necessary to permit the Optionee to evaluate the merits and risks of his or
her investment in the Corporation.
(c) The Optionee is able to bear the economic risk of holding shares
acquired pursuant to the exercise of the Option for an indefinite period.
(d) The Optionee understands that:
(i) the shares acquired pursuant to the exercise of the Option
will not be registered under the 33 Act or under any state securities laws and
are "restricted securities" within the meaning of Rule 144 under the 33 Act;
(ii) such shares cannot be sold, transferred or otherwise
disposed of unless they are subsequently registered under the 33 Act;
(iii) in any event, the exemption from registration under
Rule 144 will not be available for at least two (2) years, and even then will
not be available unless a public market then exists for the shares, adequate
information concerning the Corporation is then available to the public, and
other terms and conditions of Rule 144 are complied with; and
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(iv) there is currently no registration statement on file with
the Securities and Exchange Commission with respect to the Option Shares and the
Corporation has no obligation or current intention to register any shares
acquired pursuant to the exercise of this Option under the 33 Act.
Upon any exercise of this Option, the Optionee shall be deemed to have
reaffirmed, as of the date of such exercise, the representations made in this
Section 7.2.
SECTION 8
LEGEND ON STOCK CERTIFICATES
All stock certificates representing Option Shares issued to the Optionee
upon exercise of this Option shall have affixed thereto a legend substantially
in the following form, in addition to any other legends required by applicable
state law:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR UNDER ANY STATE SECURITIES LAWS. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT, AND NOT
WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
SOLD, PLEDGED, MORTGAGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED (1) WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND UNDER ANY APPLICABLE STATE
SECURITIES LAWS, OR (2) UNLESS ONTRO, INC. HAS RECEIVED
AN OPINION OF COUNSEL SATISFACTORY TO ONTRO, INC. AND
ITS COUNSEL THAT AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
SECTION 9
MISCELLANEOUS PROVISIONS
9.1 VIOLATION. Any provision of this Agreement to the contrary
notwithstanding, the Option shall not be exercisable at any time, in whole or in
part, if issuance and delivery of the Option Shares would violate any law or
regulation.
9.2 DISPUTES. Any dispute or disagreement that may arise under or as a
result of this Agreement, or any question as to the interpretation of this
Agreement, may be determined by the Board in its absolute and uncontrolled
discretion, and any such determination shall be final, binding, and conclusive
on all affected persons.
9.3 NOTICES. Any notice that a party may be required or permitted to give
to the other shall be in writing, and may be delivered personally or by
certified or registered mail, postage prepaid, addressed to the Corporation at
12675 Danielson Court, Suite 401, Poway, California 92064, and
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to the Optionee as such address is set forth on the Corporations books and
records or such other address as either party, by notice to the other, may
designate in writing from time to time;
9.4 TAX ELECTIONS. Optionee acknowledges that he has considered the
advisability of all tax elections in connection with the exercise of the Option
and purchase of the Option Shares hereunder, and the execution and delivery of
this Agreement, including the making of an election under Section 83(b) of the
Internal Revenue Code of 1986, as amended, and any similar elections under
California or applicable state law, and that the Corporation has no
responsibility for the making of any such election. Optionee further
acknowledges he shall consult with his tax advisor, at his own expense,
regarding the tax consequences of the grant of the Option, the exercise of the
Option and the sale of the Option Shares prior to the signing of this Agreement.
9.5 LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
9.6 VENUE. Venue for any action arising out of this Agreement shall be in
the appropriate court located in San Diego County, California.
9.7 TITLES AND CAPTIONS. All section titles or captions contained in this
Agreement are for convenience only and shall not be deemed part of the context
nor effect the interpretation of this Agreement.
9.8 ENTIRE AGREEMENT. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement.
9.9 AGREEMENT BINDING. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
9.10 COMPUTATION OF TIME. In computing any period of time pursuant to this
Agreement, the day of the act, event or default from which the designated period
of time begins to run shall be included, unless it is a Saturday, Sunday, or a
legal holiday, in which event the period shall begin to run on the next day
which is not a Saturday, Sunday, or legal holiday, in which event the period
shall run until the end of the next day thereafter which is not a Saturday,
Sunday, or legal holiday.
9.11 PRONOUNS AND PLURALS. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular, or plural as
the identity of the person or persons may require.
9.12 PRESUMPTION. This Agreement or any section thereof shall not be
construed against any party due to the fact that said Agreement or any section
thereof was drafted by said party.
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9.13 FURTHER ACTION. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of the Agreement.
9.14 PARTIES IN INTEREST. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall be for
the benefit of any third party.
9.15 SAVINGS CLAUSE. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
9.16 UNREGISTERED SHARES. Optionee represents that he/she understands that
the Option Shares are not now registered under the Securities Act of 1933 or
under any state securities law and that the Option Shares, upon exercise, may
not be so registered in the foreseeable future.
9.17 REPRESENTATION BY COUNSEL. Optionee represents that he has been
advised that he is not being represented in this transaction by the
Corporation's attorneys and that Optionee has been advised to seek separate
legal counsel for advice in this matter and has done so to the extent desired.
EXECUTED at Poway, California by:
ONTRO, INC.
a California corporation
By: /s/ James A. Scudder
------------------------------------
JAMES A. SCUDDER, President
The undersigned Optionee hereby acknowledges receipt of an executed
original of this Non-Qualified Stock Option Agreement, accepts the option
granted thereunder and agrees to the terms and conditions thereof.
Dated: 1-6, 1997 /s/ David A. Fisher
--- ---------------------------------------
DAVID A. FISHER, Optionee
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ONTRO, INC.
NOTICE OF EXERCISE OF STOCK OPTION
I hereby exercise my Non-Qualified Stock Option granted by Ontro, Inc. and
seek to purchase ___________________ common shares of the Corporation pursuant
to said Option. I understand that this exercise is subject to all the terms and
provisions of the Non-Qualified Stock Option Agreement.
Enclosed is my check in the sum of $_______________ in payment for such
shares.
I hereby represent that the shares of common shares to be delivered to me
pursuant to the above-mentioned exercise of said Option are being acquired by me
as an investment and not with a view to, or for sale in connection with, the
distribution of any thereof.
Dated: ___________________, ______
__________________________________
Signature of Optionee
Receipt is hereby acknowledged of the delivery to me by Ontro, Inc. of
certificates for ____________ common shares of the Corporation purchased by me
pursuant to the terms and conditions of the Non-Qualified Stock Option Agreement
referred to above.
Dated: ___________________, ______
__________________________________
Signature of Optionee
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VOID AFTER 5:00 P.M. PACIFIC STANDARD TIME, ON ____________, 199__
NEITHER THIS WARRANT NOR THE WARRANT SHARES HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THE CORPORATION WILL NOT TRANSFER THIS WARRANT OR THE
WARRANT SHARES UNLESS (I) THERE IS AN EFFECTIVE REGISTRATION COVERING SUCH
WARRANT OR SUCH WARRANT SHARES, AS THE CASE MAY BE, UNDER THE SECURITIES ACT OF
1933 AND APPLICABLE STATES SECURITIES LAWS, (II) IT FIRST RECEIVES A LETTER FROM
AN ATTORNEY, ACCEPTABLE TO THE BOARD OF DIRECTORS AND ITS AGENTS, STATING THAT
IN THE OPINION OF THE ATTORNEY THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933 AND UNDER ALL APPLICABLE STATE SECURITIES LAWS,
OR (III) THE TRANSFER IS MADE PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF
1933.
SELF-HEATING CONTAINER CORPORATION OF CALIFORNIA
NO. W-_____________ WARRANT TO SUBSCRIBE FOR
________ SHARES OF COMMON STOCK
COMMON STOCK PURCHASE WARRANT
_______________________, 199___
NOT TRANSFERABLE OR EXERCISABLE
EXCEPT UPON CONDITIONS HEREIN SPECIFIED
-------------------------
THIS CERTIFIES that, for value received,________________________________
("Holder") is entitled to subscribe for and purchase from SELF-HEATING
CONTAINER CORPORATION OF CALIFORNIA, a California corporation (hereinafter
called the "Corporation"), ________ shares of Common Stock, (the "Common
Stock"), of the Corporation (such shares to be subject to adjustment in
accordance with Section 3 hereof, hereinafter sometimes called the "Warrant
Shares") at an exercise price of $1.00 per share (the "Exercise Price"), at any
time or from time to time during the Exercise Period (as defined in Section 1
hereof).
Section 1. EXERCISE OF WARRANT.
(a) The rights represented by this Warrant may be exercised by the
holder hereof, in whole at any time or in part from time to time during the
Exercise Period, but not as to a fractional share of Common Stock, by the
surrender of this Warrant (properly endorsed) at the office of the Corporation,
at 12675 Danielson Court, Suite 401, Poway, CA 92064 (or at such other agency or
office of the Corporation in the United States of America as the Corporation may
designate by notice in writing to the holder hereof at the address of such
holder appearing on the
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books of the Corporation), and by payment to the Corporation of the Exercise
Price in cash or by certified or official bank check in United States Dollars
for each share being purchased.
(b) In the event of any exercise of the rights represented by this
Warrant, (i) a certificate or certificates for the shares of Common Stock so
purchased, registered in the name of the person entitled to receive the same,
shall be mailed to the Holder within a reasonable time after the rights
represented by this Warrant shall have been so exercised; provided, however,
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any such
certificate in a name other than that of the registered Holder thereof, and the
Corporation shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Corporation the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid; and (ii) unless
this Warrant has expired, a new Warrant representing the number of shares
(except a remaining fractional share), if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the Holder
hereof within such time. The person in whose name any certificate for shares of
Common Stock is issued upon exercise of this Warrant, shall for all purposes be
deemed to have become the Holder of record of such shares on the date on which
this Warrant was surrendered and payment of the Exercise Price was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Corporation are closed, such person shall be deemed to have become the
Holder of record of such shares at the close of business on the next succeeding
date on which the stock transfer books are open. The issuance of any shares of
Common Stock pursuant to the terms of this Warrant shall at all times be subject
to compliance with all requirements of the Securities Act of 1933, as amended,
and with all applicable foreign and state securities and blue sky laws then in
effect.
(c) As used herein, the following terms shall have the following
meanings:
(i) "CLOSING PRICE" on any Trading Day shall mean the reported
last sales price of a share of Common Stock, regular way, on such Trading Day,
or in case no sale takes place on such Trading Day, the average of the last
reported closing bid and asked prices, regular way, in each case on the
principal national securities exchange on which the Common Stock is then listed
or admitted to trading or, if the Common Stock is not then listed or admitted to
trading on any national securities exchange, the highest closing sales price or,
if no sale takes place on such Trading Day, the average of the closing bid and
asked prices of a share of Common Stock in the over-the-counter market as shown
on NASDAQ or, if the Common Stock is not then quoted in such system, as reported
on the OTC Bulletin Board or as published by the National Quotation Bureau,
Incorporated or any similar successor organization, and in either case as
reported by any member firm of the New York Stock Exchange selected by the
Corporation.
(ii) "EXERCISE PERIOD" shall mean the period beginning on the
date hereof and ending on the 25th monthly anniversary of the date hereof,
subject to earlier termination in accordance with the following provisions. If,
at any time after the date hereof, the Closing Price of the Corporation's Common
Stock exceeds $8.00 per share for any 20 out of any 30 consecutive Trading Days,
the Corporation may, upon giving written notice to the Holders of the Warrants,
no later than 10 days after the end of any such 30-day period, notify the
Holders of outstanding Warrants that the Exercise Period will terminate on a
date specified by the Corporation in such notice which shall not be earlier than
the 45th day after the end of such 30-day period. Notwithstanding the foregoing
sentence, the Corporation will not be permitted to accelerate the termination of
the Exercise Period as set forth above unless the Corporation has an effective
registration statement covering all of the Warrant Shares at the time the
Corporation provides notice of the acceleration of the termination of the
Exercise Period and the Corporation has reason to believe, and in good faith
does believe, such registration statement shall remain in effect throughout the
Exercise Period, as accelerated.
The Corporation shall: (A) take all action reasonably
necessary to keep such registration statement effective for a period of not less
than six months after the termination of the accelerated exercise period,
including, without limitation the filing of all such amendments and supplements
as may be necessary to keep such registration statement effective; and (B) use
its best efforts to register or qualify the Warrant Shares covered by the
aforesaid registration statement under the securities or blue sky laws of such
jurisdiction as any Holders of the Warrants and Warrant Shares shall reasonably
request (provided, the Company shall not be required to consent to
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general service of process for all purposes of any jurisdiction where it is not
then qualified) and do any and all other acts or things which may be reasonably
necessary or advisable to enable such seller to consummate the public sale or
other disposition in such jurisdictions of such securities.
(iii) "TRADING DAY" shall mean any day on which the principal
national securities exchange or over-the-counter market in which the Common
Stock is traded is open for business and in which there is no restriction on
trading in the Common Stock.
Section 2. COVENANTS AS TO COMMON STOCK. The Corporation covenants and
agrees all Warrant Shares will, upon issuance, be validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. The Corporation further covenants and agrees the Corporation
will at all times have authorized and reserved, free from preemptive rights, a
sufficient number of shares of its common stock to provide for the exercise of
the rights represented by this Warrant. If and so long as the Common Stock
issuable upon the exercise of this Warrant is listed on any national securities
exchange, the Corporation will, if permitted by the rules of such exchange, list
and keep listed on such exchange, upon official notice of issuance, all of the
Warrant Shares.
Section 3. TRANSFER.
(a) SECURITIES LAWS. Neither this Warrant nor the Warrant Shares
have been registered under the Securities Act of 1933. The Corporation will not
transfer this Warrant or the Warrant Shares unless (i) there is an effective
registration covering such Warrant or such shares, as the case may be, under the
Securities Act of 1933 and applicable states securities laws, (ii) it first
receives a letter from an attorney, acceptable to the Corporation's board of
directors or its agents, stating that in the opinion of the attorney the
proposed transfer is exempt from registration under the Securities Act of 1933
and under all applicable state securities laws, or (iii) the transfer is made
pursuant to Rule 144 under the Securities Act of 1933.
(b) COMPLIANCE WITH BLUE SKY LAWS. The Corporation will be able to
issue the Warrant Shares upon exercise of the Warrant only if there is a then
current Offering Memorandum or registration statement available for and
distributed to the Warrant Holders relating to such Common Stock, and only if
such Warrant and Common Stock is qualified for sale or exempt from qualification
under applicable state securities laws of the jurisdiction in which the Holders
of the Warrants reside. The Corporation reserves the right in its sole
discretion to determine not to apply for exemptions or to register such Common
Stock in any jurisdiction where the time and expense do not justify the costs of
such exemption filing or registration. The Warrants may be deprived of any
value in the event the Corporation does not satisfy or the Corporation chooses
not to satisfy any such requirements. Although it is the present intention of
the Corporation to satisfy such requirements, there can be no assurance the
Corporation will be able to do so; provided, however, the Corporation will not
be permitted to accelerate the termination of the Exercise Period of these
Warrants unless such acceleration is accomplished in full compliance with
Section 1(c)(ii) hereof.
(c) INVESTMENT REPRESENTATIONS. The Holder of the Warrant agrees and
acknowledges the Warrant is being purchased for his own account, for investment
purposes only, that he either has a prior personal or business relationship with
the officers, directors or controlling persons, or by reason of his business or
financial experience, or the business or financial experience of he and his
professional advisors who are unaffiliated with and not compensated by the
Corporation, could be reasonably assumed to have the capacity to protect his own
interests in connection with the purchase of and the exercise of the Warrants,
and not for the account of any other person, and not with a view to
distribution, assignment or resale to others or to fractionalization in whole or
in part, and the Holder further represents, warrants and agrees as follows: no
other person has or will have a direct or indirect beneficial interest in this
Warrant and the Holder will not sell, hypothecate or otherwise transfer his
Warrant except in accordance with the Act and applicable state securities laws
or unless, in the opinion of counsel for the Holder acceptable to the
Corporation, an exemption from the registration requirements of the Act and such
state laws is available.
(d) CONDITIONS TO TRANSFER. Prior to any such proposed transfer, and
as a condition thereto, if such transfer is not made pursuant to an effective
registration statement under the Securities Act, the Holder will, if
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requested by the Corporation, deliver to the Corporation (i) an investment
covenant signed by the proposed transferee, (ii) an agreement by such transferee
that the restrictive investment legend set forth above be placed on the
certificate or certificates representing the securities acquired by such
transferee, (iii) an agreement by such transferee that the Corporation may place
a "stop transfer order" with its transfer agent or registrar, and (iv) an
agreement by the transferee to indemnify the Corporation to the same extent as
set forth in the next succeeding paragraph.
(e) INDEMNITY. The Holder acknowledges the Holder understands the
meaning and legal consequences of this Section, and the Holder hereby agrees to
indemnify and hold harmless the Corporation, its representatives and each
officer, director, agent, and legal counsel thereof from and against any and all
loss, damage or liability (including all attorneys' fees and costs incurred in
enforcing this indemnity provision) due to or arising out of (a) the inaccuracy
of any representation or the breach of any warranty of the Holder contained in,
or any other breach of, this Warrant, (b) any transfer of any of this Warrant or
the Warrant Shares in violation of the Securities Act of 1933, the Securities
Exchange Act of 1934, as amended, or the rules and regulations promulgated under
either of such acts, (c) any transfer of this Warrant or any of the Warrant
Shares not in accordance with this Warrant or (d) any untrue statement or
omission to state any material fact in connection with the investment
representations or with respect to the facts and representations supplied by the
Holder to counsel to the Corporation upon which its opinion as to a proposed
transfer shall have been based.
(f) HOLDBACK PERIOD AND TRANSFER. Except as specifically restricted
hereby, this Warrant and the Warrant Shares issued may be transferred by the
Holder in whole or in part at any time or from time to time. In the event the
Corporation publicly offers shares of its Common Stock, the Warrant Shares may
not be sold from the date of the Corporation's initial public offering of
securities for the period set forth in any agreement between the Company and any
underwriter or managing broker of such public offering. Upon surrender of this
Warrant certificate to the Corporation or at the office of its stock transfer
agent, if any, with the Assignment Form annexed hereto duly executed and funds
sufficient to pay any transfer tax, and upon compliance with the foregoing
provisions, the Corporation shall, without charge, execute and deliver a new
Warrant certificate in the name of the assignee named in such instrument of
assignment, and this Warrant certificate shall promptly be canceled. Any
assignment, transfer, pledge, hypothecation or other disposition of this Warrant
attempted contrary to the provisions of this Warrant, or any levy of execution,
attachment or other process attempted upon this Warrant, shall be null and void
and without effect.
Section 4. RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Corporation, either at
law or in equity, and the rights of the Holder are limited to those expressed in
this Warrant.
Section 5. ANTI-DILUTION PROVISIONS.
(a) STOCK SPLITS, DIVIDENDS, ETC.
(i) If the Corporation shall at any time after the date hereof
subdivide its outstanding shares of Common Stock (or other securities at the
time receivable upon the exercise of the Warrant) by recapitalization,
reclassification or split-up thereof, or if the Corporation shall declare a
stock dividend or distribute shares of Common Stock to its stockholders, the
number of shares of Common Stock subject to this Warrant immediately prior to
such subdivision shall be proportionately increased, and if the Corporation
shall at any time combine the outstanding shares of Common Stock by
recapitalization, reclassification or combination thereof, the number of shares
of Common Stock subject to this Warrant immediately prior to such combination
shall be proportionately decreased. Any such adjustment and adjustment to the
Exercise Price pursuant to this Section shall be effective at the close of
business on the effective date of such subdivision or combination or if any
adjustment is the result of a stock dividend or distribution then the effective
date for such adjustment based thereon shall be the record date therefor.
(ii) Whenever the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted, as provided in this Section, the
Exercise Price shall be adjusted to the nearest cent by multiplying such
Exercise Price immediately prior to such adjustment by a fraction (x) the
numerator of which shall be the number of
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shares of Common Stock purchasable upon the exercise immediately prior to such
adjustment, and (y) the denominator of which shall be the number of shares of
Common Stock so purchasable immediately thereafter.
(b) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In
case of any reorganization of the Corporation (or any other corporation, the
securities of which are at the time receivable on the exercise of this Warrant)
after the date hereof, or in case after such date the Corporation (or any such
other corporation) shall consolidate with or merge into another corporation or
convey all or substantially all of its assets to another corporation, then, and
in each such case, the Holder of this Warrant upon the exercise as provided in
Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the securities and property receivable upon the exercise of this Warrant prior
to such consummation, the securities or property to which such Holder would have
been entitled upon such consummation if such Holder had exercised this Warrant
immediately prior thereto; in each such case, the terms of this Warrant shall be
applicable to the securities or property received upon the exercise of this
Warrant after such consummation.
(c) CERTIFICATE AS TO ADJUSTMENTS. In each case of an adjustment in
the number of shares of Common Stock receivable on the exercise of this Warrant,
the Corporation at its expense shall promptly compute such adjustment in
accordance with the terms of the Warrant and prepare a certificate executed by
an officer of the Corporation setting forth such adjustment and showing the
facts upon which such adjustment is based. The Corporation shall forthwith mail
a copy of each such certificate to each Holder.
(d) NOTICES OF RECORD DATE, ETC. In case:
(i) the Corporation shall take a record of the holders of its
Common Stock (or other securities at the time receivable upon the exercise of
the Warrant) for the purpose of entitling them to receive any dividend (other
than a cash dividend at the same rate as the rate of the last cash dividend
theretofore paid) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other securities,
or to receive any other right; or
(ii) of any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation, then, and in each such case, the Corporation
shall mail or cause to be mailed to each Holder a notice specifying, as the case
may be, (A) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (B) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any, to be fixed, as to which the
holders of record of Common Stock (or such other securities at the time
receivable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other securities) for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up. Such notice shall
be mailed at least twenty (20) days prior to the date therein specified, and
this Warrant may be exercised prior to said date during the term of the Warrant.
(e) THRESHOLD FOR ADJUSTMENTS. Anything in this Section to the
contrary notwithstanding, the Corporation shall not be required to give effect
to any adjustment until the cumulative resulting adjustment in the Exercise
Price pursuant to this Section shall have required a change of the Exercise
Price by at least $.20, but when the cumulative net effect of more than one
adjustment so determined shall be to change the Exercise Price by at least $.40,
such full change in the Exercise Price shall thereupon be given effect. No
adjustment shall be made by reason of the issuance of shares upon conversion
rights, stock issuance rights or similar rights currently outstanding or any
change in the number of treasury shares held by the Corporation.
Section 6. LEGEND AND STOP TRANSFER ORDERS. Unless the Warrant Shares
have been registered under the Securities Act, upon exercise of any of this
Warrant and the issuance of any of the Warrant Shares, the Corporation shall
instruct its transfer agent, if any, to enter stop transfer orders with respect
to such shares, and all certificates representing shares of Warrant Shares shall
bear on the face thereof substantially the following legend:
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<PAGE>
This certificate has not been registered under the
Securities Act of 1933. The Corporation will not transfer
this certificate unless (i) there is an effective
registration covering the shares represented by this
certificate under the Securities Act of 1933 and all
applicable state securities laws, (ii) it first receives a
letter from an attorney, acceptable to the board of
directors or its agents, stating that in the opinion of the
attorney the proposed transfer is exempt from registration
under the Securities Act of 1933 and under all applicable
state securities laws, (iii) the transfer is made pursuant
to Rule 144 under the Securities Act of 1933.
Section 7. OFFICER'S CERTIFICATE. Whenever the number or kind of
securities purchasable upon exercise of this Warrant or the Exercise Price shall
be adjusted as required by the provisions hereof, the Corporation shall
forthwith file with its Secretary or Assistant Secretary at its principal office
and with its stock transfer agent, if any, an officer's certificate showing the
adjusted number of kind of securities purchasable upon exercise of this Warrant
and the adjusted Exercise Price determined as herein provided and setting forth
in reasonable detail such facts as shall be necessary to show the reason for and
the manner of computing such adjustments. Each such officer's certificate shall
be made available at all reasonable times for inspection by the Holder and the
Corporation shall, forthwith after each such adjustment, mail by certified mail
a copy of such certificate to the Holder.
Section 8. TRANSFER OF WARRANT. Subject to Section 3 hereof, this
Warrant and all rights hereunder are transferable in whole (or in part), at the
agency of office of the Corporation referred to in Section 1 hereof by the
Holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant properly endorsed. Each taker and Holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant, when endorsed, in
blank, shall be deemed negotiable, and, when so endorsed the Holder hereof may
be treated by the Corporation and all other persons dealing with this Warrant as
the absolute owner hereof for all purposes and as the person entitled to
exercise the rights represented by this Warrant, or to the transfer hereof on
the books of the Corporation, any notice to the contrary notwithstanding; but
until each transfer on such books, the Corporation may treat the registered
Holder hereof as the owner hereof for all purposes.
Section 9. ELIMINATION OF FRACTIONAL INTERESTS. The Corporation shall
not be required to issue stock certificates representing fractions of shares of
Common Stock, nor shall it be required to issue script or pay cash in lieu of
fractional interests, it being the intent of the parties that all fractional
interests shall be eliminated.
Section 10. EXCHANGE OF WARRANT. Subject to the limitations set forth
herein this Warrant is exchangeable, upon the surrender hereof by the Holder
hereof at the office or agency of the Corporation designated in Section 1
hereof, for a new Warrant of like tenor representing the right to subscribe for
and purchase the number of Warrant Shares which may be subscribed for and
purchased hereunder.
Section 11. NOTICES TO WARRANT HOLDERS. Nothing contained in this
Warrant shall be construed as conferring upon the Holder hereof the right to
vote or to consent to or receive notice as a shareholder in respect of any
meetings of shareholders for the election of Directors or any other matter, or
as having any rights whatsoever as a shareholder of the Corporation. If,
however, at any time prior to the expiration of the Warrant and prior to its
exercise, any of the following events shall occur:
(a) The Corporation shall offer to all of the holders of its Common
Stock any additional shares of stock of the Corporation or securities
convertible into or exchangeable for shares of stock of the Corporation, or any
option, right or warrant to subscribe therefor; or
(b) A dissolution, liquidation or winding up of the Corporation
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety (whether
by merger, consolidation or sale of assets) shall be proposed; then, in any one
or more of said events, the Corporation shall give written notice of such events
at least fifteen (15) days prior to the date fixed as a record date or the date
of closing the transfer books for the determination of the shareholders entitled
to such convertible or exchangeable securities or subscription rights, or
entitled to vote on such proposed dissolution, liquidation, winding up or sale.
Such
B-6
<PAGE>
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the issuance of any
convertible or exchangeable securities, or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
Section 12. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. Upon
surrender by the Holder of this Warrant to the Corporation, the Corporation at
its expense will issue in exchange therefor, and deliver to such Holder, a new
Warrant. Upon receipt of evidence satisfactory to the Corporation of the loss,
theft, destruction or mutilation of this Warrant, and in the case of any such
loss, theft or destruction, upon delivery by such Holder of an indemnity
agreement or security satisfactory to the Corporation, and in case of any such
mutilation, upon surrender and cancellation of this Warrant, the Corporation,
upon reimbursement of all reasonable expenses incident thereto, will issue and
deliver to such Holder a new Warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant delivered to such Holder in
accordance with this Section 12 shall bear the same securities legends as the
Warrant which it replaced.
Section 13. GOVERNING LAW. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of California applicable to
contracts made therein.
Section 14. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder of this Warrant, to the address of
such Holder as shown on the books of the Corporation; or
(b) If the Corporation, at 12675 Danielson Court, Suite 401, Poway,
Ca. 92064 Attn: James A. Scudder.
Section 15. SUCCESSORS. All the covenants, agreements, representations
and warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
Section 16. HEADINGS. The Article and Section headings in this Warrant
are inserted for purposes of convenience only and shall have no substantive
effect.
IN WITNESS WHEREOF, SELF-HEATING Container Corporation of California has
caused this Warrant to be executed by a duly authorized officer under its
corporate seal and to be dated as of the date first above written.
SELF-HEATING CONTAINER CORPORATION
OF CALIFORNIA
By:
---------------------
Name:
-------------------
Title:
------------------
[CORPORATE SEAL]
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<PAGE>
FORM OF ASSIGNMENT
[To be signed only upon transfer of the Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto,______________________ all of the rights represented by the within
Warrant to purchase__________ shares of Common Stock of SELF-HEATING
Container Corporation of California to which the within Warrant relates, and
appoints______________________________, Attorney to transfer such rights on
the books of SELF-HEATING Container Corporation of California with full power
of substitution in the premises.
Dated:
- -------------------- -------------------------
(Signature)
-------------------------
-------------------------
(Address)
Signed in the presence of:
- -----------------------------------
Name:
------------------------------
B-8
<PAGE>
FORM OF EXERCISE
[To be signed only upon exercise of the Warrant]
THE UNDERSIGNED, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, shares of Common Stock of SELF-HEATING
Container Corporation of California and herewith tenders payment of $_________
in full payment of the exercise price for such shares, and requests that
the certificates for such shares be issued in the name of, and delivered to,
_________________________________ whose address is___________________________
_____________________________________________________________________________ .
Dated:
------------------------ -------------------------
(Signature)
-------------------------
-------------------------
(Address)
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 30th day
of May, 1997 by and between ONTRO, INC., a California corporation (the
"Company"), and JOHN AND CARMELLA DANNA TRUST, S.P. La Barbera, Trustee
("Danna" or "Purchaser").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF COMMON STOCK. Subject to the terms and
conditions of this Agreement, Purchaser agrees, to acquire at the Closing and
the Company agrees to sell and issue to Purchaser Two Hundred Twenty Two
Thousand Two Hundred Twenty Two (222,222) shares of the Company's Common Stock
(the "Common Stock") for the purchase price of Two Dollars and 25/100 ($2.25)
per share for a total purchase price of Four Hundred Ninety Nine Thousand Nine
Hundred Ninety Nine and 50/100 Dollars ($499,999.50). Subject to the terms and
conditions of this Agreement, Purchaser agrees to acquire at the Closing and the
Company agrees to issue at the Closing the number of shares of Common Stock set
forth above.
1.2 CLOSING. The purchase and sale of the Common Stock shall take
place at the offices of the Company, at 10:00 a.m., on or before May 30, 1997,
or at such other time and place as the Company and Purchaser mutually agree
upon, verbally or in writing (which time and place are designated as the
"Closing"). At the Closing the Company shall deliver to Purchaser a certificate
representing the Common Stock which Purchaser is purchasing against delivery to
the Company by Purchaser of the purchase price by confirmed wire transfer or
certified funds. The Certificate(s) shall be in the name of Purchaser, or
otherwise as he shall direct the Company in writing.
2. REPRESENTATIONS AND WARRANTIES OF PURCHASER. This Agreement is made
with Purchaser in reliance upon the following representation and warranties to
the Company by the Purchaser:
2.1 AUTHORIZATION. This Agreement constitutes Purchaser's valid
and legally binding obligation, enforceable in accordance with its terms.
2.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Common Stock to be
received by Purchaser will be acquired for investment for Purchaser's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Purchaser has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, Purchaser further represents Purchaser does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Common Stock.
<PAGE>
2.3 DISCLOSURE OF INFORMATION. Purchaser has received all the
information it considers necessary or appropriate for deciding whether to
acquire the Common Stock, including but not limited to the Company's audited
financial statements dated December 31, 1996; a draft of the Company's
unaudited financial statements dated March 31, 1997; and a draft of the
Company's proposed prospectus as part of a Form SB-2 Registration Statement.
Purchaser further represents has had an opportunity to ask questions and receive
answers for the Company regarding the Company, its business and the terms and
conditions of the offering of the Common Stock.
2.4 DEVELOPMENT STAGE COMPANY. The undersigned recognizes the
Company is a development stage Company, that it has an accumulated deficit and a
working capital deficit, has not generated any revenue from operations and is
not expected to generate any revenue from operations for some time and perhaps
for years, and that proposed development expenditures are expected to result in
substantial and increasing losses over at least the next year, and possibly much
longer. The undersigned recognizes investment in the Company involves
substantial risk, and the undersigned should not purchase the Common Stock
unless it can afford the complete loss of its investment. The undersigned has
taken full cognizance of and understands all of the risk factors related to the
receipt of the Common Stock.
2.5 CONFIDENTIALITY. Purchaser hereby represents, warrants and
covenants he shall maintain in confidence, and shall not use or disclose without
the prior written consent of the Company, any information identified as
confidential that is furnished to Purchaser by the Company whether or not it was
furnished in connection with this Agreement. This obligation of confidentiality
shall not apply, however, to any information (a) in the public domain through no
unauthorized act or failure to act by Purchaser, or (b) lawfully disclosed to
Purchaser by a third party who possessed such information without any obligation
of confidentiality. Purchaser further covenants he shall return to the Company
all tangible materials containing such information upon request by the Company.
2.6 INVESTMENT EXPERIENCE. Purchaser is an investor in securities
of companies in the development stage and acknowledges he is able to fend for
himself, can bear the economic risk and complete loss of his investment and has
such knowledge and experience in financial or business matters that Purchaser is
capable of evaluating the merits and risks of the investment in the Common
Stock.
2.7 ADVICE OF PROFESSIONALS. The undersigned has carefully
considered and has been advised by the Company to have any material provided by
anyone regarding the Company, including but not limited to this Stock Purchase
Agreement, related documents and the acquisition of the Common Stock reviewed by
independent legal counsel prior to acquisition, and to discuss with professional
tax and financial advisers the suitability of Purchaser's acquisition of the
Common Stock for Purchaser's particular tax and financial situation, and he has
determined the Common Stock is a suitable investment. The Company specifically
disclaims any representations regarding the legal, tax, or financial
consequences of the purchase, other than the representation this is a high risk
transaction.
2.8 FINANCIAL STATUS. All information which the undersigned has
provided to the Company concerning the undersigned and his financial position is
correct as of the date set forth therein, and if there should be any change in
such information prior to Purchaser's acceptance as a shareholder of the
Company, the undersigned will immediately provide such information to the
Company and will promptly send confirmation of such information to the Company.
2
<PAGE>
2.9 AUTHORITY. If this Stock Purchase Agreement is executed and
delivered on behalf of a partnership, corporation, trust, estate or other
entity, (i) the undersigned's execution, delivery and performance of and under
this Stock Purchase Agreement, and all documents ancillary hereto, and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized, and the undersigned is duly authorized (a) to execute and deliver
this Stock Purchase Agreement and all other instruments executed and delivered
on behalf of such partnership, corporation, trust, estate or other entity, in
connection with the issuance in its name of the Common Stock; and (b) to acquire
and hold the Common Stock, (ii) such entity has not been formed for the specific
purpose of acquiring the Common Stock; and (iii) when executed and delivered by
the Company, will constitute such partnership's, corporation's, trust's,
estate's or other entity's legal, valid and binding obligation enforceable
against it in accordance with its terms.
2.10 RESTRICTED SECURITIES. Purchaser understands the shares of
Common Stock he is acquiring are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Securities Act"), only in certain
limited circumstances. In this connection Purchaser represents he is familiar
with Securities and Exchange Commission ("SEC") Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.
2.11 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, Purchaser further agrees not to
make any disposition of all or any portion of the Common Stock unless and until:
(a) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(b) (i) Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition and (ii)
Purchaser shall have the furnished the Company with an opinion of counsel in a
form satisfactory to Company and its counsel in their sole discretion, that such
disposition will not require registration of such shares under the Securities
Act.
2.12 LEGENDS. It is understood that the certificates evidencing the
Common Stock may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT."
(b) Any legend required by the laws of the State of
California or other jurisdiction, including any legend required by the
California Department of Corporations and section 417 and 418 of the California
Corporations Code.
3
<PAGE>
2.13 ACCREDITED INVESTOR. Purchaser is an accredited investor as
defined in Code of Federal Regulations Section 230.501(a)(Regulation D), as
amended, under the Securities Act.
2.14 REMOVAL OF LEGENDS; FURTHER COVENANTS.
(a) Any legend endorsed on a certificate pursuant to
Section 2.12(a) hereof shall be removed (i) if the Common Stock represented by
such certificate shall have been effectively registered under the Securities Act
or otherwise lawfully sold in a public transaction, (ii) if the Common Stock may
be transferred in compliance with Rule 144(k) promulgated under the Securities
Act, or (iii) if Purchaser shall have provided the Company with an opinion of
counsel, in form and substance acceptable to the Company and its counsel in
their sole discretion from attorneys reasonably acceptable to the Company and
its counsel, stating a public sale, transfer or assignment of the Common Stock
may be made without registration.
(b) Any legend endorsed upon a certificate pursuant to
Section 2.12(a) hereof shall be removed if the Company receives an order of the
appropriate state authority authorizing such removal or if Purchaser provides
the Company with an opinion of counsel, in form and substance acceptable to the
Company and its counsel in their sole discretion and from attorneys reasonably
acceptable to the Company and its counsel, stating that such state legend may be
removed.
(c) Purchaser further covenants that Purchaser will not
transfer the Common Stock, in violation of the Securities Act, the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), or the rules of the
Commission promulgated thereunder, including Rule 144 under the Securities Act.
Further, Purchaser agrees, prior to the closing of the Company's initial public
offering, Purchaser will not transfer any of the Common Stock in a public
offering without the Company's prior consent, even if Purchaser is otherwise
permitted to transfer them pursuant to Rule 144(k).
2.15 NO REPRESENTATIONS REGARDING FUTURE RESULTS. It never has been
represented, guaranteed or warranted by any broker, the Company, any of the
officers, directors, shareholders, partners, employees, legal counsel, auditor
or agents of the Company or its advisors, or any other persons, whether
expressly or by implication, that the past performance or experience of the
management of the Company, or of any other person, will in any way indicate the
future results of the ownership of the Common Stock or of the Company's
activities.
2.16 ACKNOWLEDGMENT. The undersigned acknowledges he understands
the meaning and legal consequences of the representations and warranties
contained in this Agreement, and the undersigned hereby agrees the Company and
each officer, director, employee, agent, legal counsel and controlling person
thereof, past, present or future, may rely on each such representation and
warranty.
2.17 NON TRANSFERABILITY. Neither this Stock Purchase Agreement, nor
any of your interests herein, shall be assignable or transferable by the
undersigned in whole or in part except by operation of law.
2.18 NO ADVERTISEMENT. The undersigned is not purchasing the Common
Stock as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or presented at any seminar, or any
solicitation of a subscription by a person not previously known to the
undersigned.
4
<PAGE>
2.19 SURVIVAL. The foregoing representations and warranties shall be
true and accurate as of the date of the acceptance hereof by the Company and
shall survive the execution and delivery of this Stock Purchase Agreement and
the issuance of the Common Stock thereafter.
2.20 INDEMNIFICATION. The undersigned shall indemnify and hold
harmless the Company and/or any of its officers, employees, directors or control
persons of any such entity who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of or
arising from any actual or alleged misrepresentation or misstatement of facts or
omission to represent or state facts made by the undersigned to the Company
concerning itself or its financial position in connection with the offering,
sale or issuance of the Common Stock to the undersigned which is not remedied by
timely notice to the Company as provided above, against losses, liabilities and
expenses for which the Company or any of its respective officers, employees,
agents, directors, legal counsel or control persons of any such entity which
have not otherwise been reimbursed (including attorneys' fees, judgments, fines
and amounts paid in settlement) as actually and reasonably incurred by such
person or entity in connection with such action, suit or proceeding.
2.21 DUE EXECUTION. The undersigned agrees to execute this Stock
Purchase Agreement in full and acknowledges the receipt and acceptance by the
Company of such stock purchase agreement shall be a condition precedent to the
issuance of the Common Stock.
3. CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SHARES OF COMMON
STOCK WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
COMMON STOCK OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF COMMON STOCK IS
EXEMPT FROM QUALIFICATION BY SECTIONS 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
4. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to Purchaser under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by Purchaser:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in Section 2 hereof shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
4.2 PAYMENT OF PURCHASE PRICE. The purchase price specified in
Section 1.1 shall have been delivered to the Company.
4.3 CALIFORNIA QUALIFICATION. The offer and sale to Purchaser of
the Common Stock shall be exempt from qualification under the California
Corporate Securities Law of 1968, as amended.
5
<PAGE>
5. MISCELLANEOUS.
5.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of Purchaser contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing.
5.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding of the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assignees any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
5.3 GOVERNING LAW VENUE. This Agreement shall be governed by
and construed under the laws of the State of California, irrespective of its
choice of law principles. Any action brought in connection with this
Agreement shall only be brought in a court located in San Diego County,
California.
5.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or, if sent
by telex or telecopier, upon receipt of the correct answer back, or upon deposit
with the United States Post Office, by registered or certified mail, or upon
deposit with an overnight air courier, in each case postage prepaid and
addressed to the party to be notified at the address indicated for such party on
the signature page hereof, or at such other address as such party may designate
by 10 days' advance written notice to the other parties.
5.7 FINDERS' FEE. Each party represents the other will not be
obligated for any finders' fee or commission in connection with this
transaction. Purchaser agrees to indemnify and hold harmless the Company from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which Purchaser is responsible.
The Company agrees to indemnify and hold harmless Purchaser from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
5.8 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in particular instance and wither retroactively or prospectively),
only with the written consent of the Company and Purchaser.
6
<PAGE>
5.9 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ONTRO, INC.
a California corporation
By: /s/ James A. Scudder
-----------------------------
James A. Scudder, President
PURCHASER:
JOHN AND CARMELLA DANNA TRUST
By: /s/ S. P. La Barbera
-----------------------------
S. P. La Barbera, Trustee
7
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 23rd day
of September, 1997 by and between ONTRO, INC., a California corporation (the
"Company"), and C. JAMES MOORE ("Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF COMMON STOCK. Subject to the terms and
conditions of this Agreement, Investor agrees, to acquire at the Closing and the
Company agrees to sell and issue to Investor at the Closing Twenty Thousand
(20,000) shares of the Company's Common Stock (the "Common Stock") for the
purchase price of Three Dollars and 13/100 ($3.13) per share for a total
purchase price of Sixty Two Thousand Six Hundred Dollars ($62,600). Subject to
the terms and conditions of this Agreement, Investor agrees to acquire at the
Closing and the Company agrees to issue at the Closing that number of shares of
Common Stock set forth above
1.2 CLOSING. The purchase and sale of the Common Stock shall take place
at the offices of Ontro, Inc., 12675 Danielson Ct., #401, Poway, California,
(the "Closing"). At the Closing the Company shall deliver to Investor a
certificate representing the Common Stock which Investor is purchasing against
delivery to the Company by Investor of the purchase price by confirmed wire
transfer or certified funds. The Closing may take place via the U.S. mail or
other courier service if agreed to by the parties. The Certificate(s) shall be
in the name of Investor or any other designated person or entity of Investor's
choosing.
2. REPRESENTATIONS AND WARRANTIES OF INVESTOR. This Agreement is made
with Investor in reliance upon Investor's representation and warranties to the
Company, which by Investor's execution of this Agreement Investor hereby
confirms, that:
2.1 AUTHORIZATION. This Agreement constitutes Investor's valid and
legally binding obligation, enforceable in accordance with its terms.
2.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Common Stock to be
received by Investor will be acquired for investment for Investor's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, Investor further represents that Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Common Stock.
2.3 DISCLOSURE OF INFORMATION. Investor believes he has received
all the information he considers necessary or appropriate for deciding whether
to acquire the Common Stock. Investor further represents that he has had an
opportunity to ask questions and receive answers for the Company regarding the
Company, its business and the terms and conditions of the offering of the Common
Stock.
2.4 DEVELOPMENT STAGE COMPANY. The Investor recognizes the Company
is a development stage Company, that it has an accumulated deficit and a working
capital deficit, has not generated any revenue from operations and is not
expected to generate any revenue from operations for
<PAGE>
some time and perhaps for years, and that proposed development expenditures are
expected to result in substantial and increasing losses over at least the next
one or more years, and possibly much longer. Investment in the Company involves
substantial risk, and the Investor can afford the complete loss of its
investment. The Investor has taken full cognizance of and understands all of
the risk factors related to the receipt of the Common Stock.
2.5 CONFIDENTIALITY. Investor hereby represents, warrants and
covenants that he shall maintain in confidence, and shall not use or disclose
without the prior written consent of the Company, any information identified as
confidential that is furnished to him by the Company in connection with this
Agreement. This obligation of confidentiality shall not apply, however, to any
information (a) in the public domain through no unauthorized act or failure to
act by Investor, or (b) lawfully disclosed to Investor by a third party who
possessed such information without any obligation of confidentiality. Investor
further covenants that he shall return to the Company all tangible materials
containing such information upon request by the Company.
2.6 ADVICE OF PROFESSIONALS. The Investor has carefully considered
and has been advised by the Company to have any material provided by anyone
regarding the Company, including but not limited to this Stock Purchase
Agreement, related documents and the acquisition of the Common Stock reviewed by
his legal counsel prior to acquisition, and to discuss with his professional tax
and financial advisers the suitability of his acquisition of the Common Stock
for his particular tax and financial situation, and he has determined the Common
Stock is a suitable investment for him. The Company specifically disclaims any
representations regarding the legal, tax, or financial consequences of the
purchase, other than the representation this is a high risk transaction.
2.7 FINANCIAL STATUS. All information which the Investor has
provided to the Company concerning the Investor and its financial position,
including but not limited to this Agreement, is correct as of the date hereof,
and if there should be any change in such information prior to his acceptance as
a shareholder of the Company, the Investor will immediately provide such
information to the Company and will promptly send confirmation of such
information to the Company.
2.8 AUTHORITY. If this Stock Purchase Agreement is executed and
delivered on behalf of a partnership, corporation, trust, estate or other
entity, (i) the Investor's execution, delivery and performance of and under this
Stock Purchase Agreement, and all documents ancillary hereto, and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized, and the Investor is duly authorized (a) to execute and deliver this
Stock Purchase Agreement and all other instruments executed and delivered on
behalf of such partnership, corporation, trust, estate or other entity, in
connection with the issuance in its name of the Common Stock; and (b) to acquire
and hold the Common Stock, (ii) such entity has not been formed for the specific
purpose of acquiring the Common Stock; and (iii) when executed and delivered by
the Company, will constitute such partnership's, corporation's, trust's,
estate's or other entity's legal, valid and binding obligation enforceable
against it in accordance with its terms.
2.9 RESTRICTED SECURITIES. Investor understands that the shares of
Common Stock he is acquiring are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may only be resold without registration
under the Securities Act of 1933, as amended (the "Securities Act"), in certain
limited circumstances. In this connection
2
<PAGE>
Investor represents he is familiar with Securities and Exchange Commission
("SEC") Rule 144, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
2.10 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, Investor further agrees not to
make any disposition of all or any portion of the Common Stock unless and until:
(a) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(b) (i) Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition and (ii)
Investor shall have furnished the Company with an opinion of counsel in a form
satisfactory to the Company and its counsel, that such disposition will not
require registration of such shares under the Securities Act.
2.11 LEGENDS. It is understood the certificates evidencing the
Common Stock may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD
PURSUANT TO RULE 144 OF SUCH ACT."
(b) Any legend required by the laws of the State of
California or other jurisdiction, including any legend required by the
California Department of Corporations and section 417 and 418 of the California
Corporations Code.
2.12 ACCREDITED OR FOREIGN INVESTOR. Investor is an accredited
investor as defined in Rule 501(a) of Regulation D, as amended, of the SEC under
the Securities Act.
2.13 FURTHER COVENANTS. Investor further covenants that Investor
will not transfer the Common Stock, in violation of the Securities Act, the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or the
rules of the Commission promulgated thereunder, including Rule 144 under the
Securities Act. Further, Investor agrees that, prior to the closing of the
Company's initial public offering, Investor will not transfer any of the Common
Stock in a public offering without the Company's prior consent, even if Investor
is otherwise permitted to transfer them pursuant to Rule 144(k).
2.14 RESTRICTION ON TRANSFER. In the event the Company publicly
offers shares of its Common Stock, the Common Stock may not be sold from the
date of the Company's initial public offering of securities for a period ending
six months after the conclusion of such initial public offering. In the event
the Company effects a firmly underwritten initial public offering of its
securities, Investor agrees to enter into any "lock up" agreement required by
the Underwriter therein.
2.15 NO REPRESENTATIONS REGARDING FUTURE RESULTS. It never has been
represented, guaranteed or warranted by any broker, the Company, any of the
officers, directors, shareholders, partners, employees, legal counsel, auditor
or agents of the Company or its advisors, or any other persons,
3
<PAGE>
whether expressly or by implication, that the past performance or experience of
the management of the Company, or of any other person, will in any way indicate
the future results of the ownership of the Common Stock or of the Company's
activities.
2.16 ACKNOWLEDGMENT. The Investor acknowledges he understands the
meaning and legal consequences of the representations and warranties contained
in this Agreement, and the Investor hereby agrees the Company and each officer,
director, employee, agent, legal counsel and controlling person thereof, past,
present or future, may rely on each such representation and warranty.
2.17 NON TRANSFERABILITY. Neither this Stock Purchase Agreement, nor
any of Investor's interests herein, shall be assignable or transferable by the
Investor in whole or in part except by operation of law.
2.18 NO ADVERTISEMENT. The Investor is not purchasing the Common
Stock as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or presented at any seminar, or any
solicitation of a subscription by a person not previously known to the Investor.
2.19 EXPERIENCE OF INVESTOR. The Investor and/or his purchaser
representative currently have such knowledge and experience in finance, tax,
securities, investments and other business matters so as to be able to protect
the Investor's interests in connection with the purchase of the Common Stock.
The Investor's investment in the Company hereunder is not material when compared
to his total financial capacity. Investor is an investor in securities of
companies in the development stage.
2.20 SURVIVAL. The foregoing representations and warranties shall be
true and accurate as of the date of the acceptance hereof by the Company and
shall survive the execution and delivery of this Stock Purchase Agreement and
the issuance of the Common Stock thereafter.
2.21 INDEMNIFICATION. The Investor shall indemnify and hold harmless
the Company and/or any of its officers, employees, directors or control persons
of any such entity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of or arising from any
actual or alleged misrepresentation or misstatement of facts or omission to
represent or state facts made by the Investor to the Company concerning itself
or its financial position in connection with the offering, sale or issuance of
the Common Stock to the Investor which is not remedied by timely notice to the
Company as provided above, against losses, liabilities and expenses for which
the Company or any of its respective officers, employees, agents, directors,
legal counsel or control persons of any such entity which have not otherwise
been reimbursed (including attorneys' fees, judgments, fines and amounts paid in
settlement) as actually and reasonably incurred by such person or entity in
connection with such action, suit or proceeding.
2.22 DUE EXECUTION. The Investor agrees to execute this Stock
Purchase Agreement in full and acknowledges the receipt and acceptance by the
Company of such stock purchase agreement shall be a condition precedent to the
issuance of the Common Stock.
3. CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SHARES OF
COMMON STOCK WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH COMMON STOCK OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE
4
<PAGE>
SALE OF COMMON STOCK IS EXEMPT FROM QUALIFICATION BY SECTIONS 25100, 25102 OR
25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS
AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
4. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by Investor:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Investor contained in Section 2 hereof shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
4.2 PAYMENT OF PURCHASE PRICE. The purchase price specified in
Section 1.1 shall have been delivered to the Company.
4.3 CALIFORNIA QUALIFICATION. The offer and sale to Investor of
the Common Stock shall be exempt from qualification under the California
Corporate Securities Law of 1968, as amended.
5. MISCELLANEOUS.
5.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of Investor contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing.
5.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding of the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assignees any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
5.3 GOVERNING LAW AND VENUE. This Agreement shall be governed by
and construed under the laws of the State of California, irrespective of its
choice of law principles. The parties agree this Agreement is entered into in
and to be performed in, and venue for any action in connection with this
Agreement or the Common Stock shall be in an appropriate court located in San
Diego County, California.
5.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or, if sent
by telex or telecopier, upon receipt of the correct answer back, forty-eight
(48) hours after deposit with the United States Post Office, by registered or
certified mail, or upon deposit with a recognized overnight air courier who
requires a signature from recipient, in each case postage prepaid and addressed
to the party to be notified at the address indicated for such party on the
signature
5
<PAGE>
page hereof, or at such other address as such party may designate by 10 days'
advance written notice to the other parties.
5.7 FINDERS' FEE. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Investor agrees to indemnify and hold harmless the Company from
any liability for any other commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which Investor is responsible.
The Company agrees to indemnify and hold harmless Investor from any
liability for any other commission or compensation in the nature of a finders'
fee (and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
5.8 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in particular instance and wither retroactively or prospectively),
only with the written consent of the Company and Investor.
5.9 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ONTRO, INC.
a California corporation
-------------------------------------
James A. Scudder, President
12675 Danielson Ct., #401
Poway, CA 92064
WITH COPY TO:
Fisher Thurber LLP
4225 Executive Square, Suite 1600
La Jolla, CA 92037
Attention: David A. Fisher
INVESTOR:
-------------------------------------
C. JAMES MOORE
6125 Merrymount
Fort Worth, TX 76107
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 24th day
of September, 1997 by and between ONTRO, INC., a California corporation (the
"Company"), and SCOTT and SUSAN MOORE ("Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF COMMON STOCK. Subject to the terms and
conditions of this Agreement, Investors agree, to acquire at the Closing and the
Company agrees to sell and issue to Investors at the Closing Eleven Thousand
Nine Hundred Forty-Nine (11,949) shares of the Company's Common Stock (the
"Common Stock") for the purchase price of Three Dollars and 13/100 ($3.13) per
share for a total purchase price of Thirty Seven Thousand Four Hundred Dollars
and 37/00 ($37,400.37). Subject to the terms and conditions of this Agreement,
Investors agree to acquire at the Closing and the Company agrees to issue at the
Closing that number of shares of Common Stock set forth above
1.2 CLOSING. The purchase and sale of the Common Stock shall take place
at the offices of Ontro, Inc., 12675 Danielson Ct., #401, Poway, California,
(the "Closing"). At the Closing the Company shall deliver to Investors a
certificate representing the Common Stock which Investor are purchasing against
delivery to the Company by Investors of the purchase price by confirmed wire
transfer or certified funds. The Closing may take place via the U.S. mail or
other courier service if agreed to by the parties. The Certificate(s) shall be
in the name of Investors or any other designated person or entity of Investors'
choosing.
2. REPRESENTATIONS AND WARRANTIES OF INVESTOR. This Agreement is made
with the Investors in reliance upon Investors' representation and warranties to
the Company, which by Investors' execution of this Agreement Investor hereby
confirms, that:
2.1 AUTHORIZATION. This Agreement constitutes Investors' valid
and legally binding obligation, enforceable in accordance with its terms.
2.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Common Stock to be
received by Investors will be acquired for investment for Investors' own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Investors have no present intention
of selling, granting any participation in, or otherwise distributing the same.
By executing this Agreement, Investors further represent that Investors do not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Common Stock.
2.3 DISCLOSURE OF INFORMATION. Investors believes they have
received all the information they consider necessary or appropriate for deciding
whether to acquire the Common Stock.
<PAGE>
Investors further represent they have had an opportunity to ask questions and
receive answers for the Company regarding the Company, its business and the
terms and conditions of the offering of the Common Stock.
2.4 DEVELOPMENT STAGE COMPANY. The Investors recognize the Company
is a development stage Company, that it has an accumulated deficit and a working
capital deficit, has not generated any revenue from operations and is not
expected to generate any revenue from operations for some time and perhaps for
years, and that proposed development expenditures are expected to result in
substantial and increasing losses over at least the next one or more years, and
possibly much longer. Investment in the Company involves substantial risk, and
the Investor can afford the complete loss of its investment. The Investors have
taken full cognizance of and understands all of the risk factors related to the
receipt of the Common Stock.
2.5 CONFIDENTIALITY. Investors hereby represent, warrant and
covenant they shall maintain in confidence, and shall not use or disclose
without the prior written consent of the Company, any information identified as
confidential that is furnished to him by the Company in connection with this
Agreement. This obligation of confidentiality shall not apply, however, to any
information (a) in the public domain through no unauthorized act or failure to
act by Investor, or (b) lawfully disclosed to Investor by a third party who
possessed such information without any obligation of confidentiality. Investors
further covenant they shall return to the Company all tangible materials
containing such information upon request by the Company.
2.6 ADVICE OF PROFESSIONALS. The Investors have carefully
considered and has been advised by the Company to have any material provided by
anyone regarding the Company, including but not limited to this Stock Purchase
Agreement, related documents and the acquisition of the Common Stock reviewed by
their legal counsel prior to acquisition, and to discuss with his professional
tax and financial advisers the suitability of his acquisition of the Common
Stock for their particular tax and financial situation, and have determined the
Common Stock is a suitable investment for them. The Company specifically
disclaims any representations regarding the legal, tax, or financial
consequences of the purchase, other than the representation this is a high risk
transaction.
2.7 FINANCIAL STATUS. All information which the Investors have
provided to the Company concerning the Investors and their financial position,
including but not limited to this Agreement, is correct as of the date hereof,
and if there should be any change in such information prior to their acceptance
as a shareholder of the Company, the Investors will immediately provide such
information to the Company and will promptly send confirmation of such
information to the Company.
2.8 AUTHORITY. If this Stock Purchase Agreement is executed and
delivered on behalf of a partnership, corporation, trust, estate or other
entity, (i) the Investors' execution, delivery and performance of and under this
Stock Purchase Agreement, and all documents ancillary hereto, and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized, and the Investors are duly authorized (a) to execute and deliver
this Stock Purchase Agreement and all other instruments executed and delivered
on behalf of such partnership, corporation, trust, estate or other entity, in
connection with the issuance in its name of the Common Stock; and (b) to acquire
and hold the Common
2
<PAGE>
Stock, (ii) such entity has not been formed for the specific purpose of
acquiring the Common Stock; and (iii) when executed and delivered by the
Company, will constitute such partnership's, corporation's, trust's, estate's or
other entity's legal, valid and binding obligation enforceable against it in
accordance with its terms.
2.9 RESTRICTED SECURITIES. Investors understand that the shares
of Common Stock they are acquiring are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may only be resold without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), in certain limited circumstances. In this connection Investors represent
they are familiar with Securities and Exchange Commission ("SEC") Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act.
2.10 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, Investor further agrees not to
make any disposition of all or any portion of the Common Stock unless and until:
(a) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(b) (i) Investors shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition and (ii)
Investors shall have furnished the Company with an opinion of counsel in a form
satisfactory to the Company and its counsel, that such disposition will not
require registration of such shares under the Securities Act.
2.11 LEGENDS. It is understood the certificates evidencing the
Common Stock may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD
PURSUANT TO RULE 144 OF SUCH ACT."
(b) Any legend required by the laws of the State of
California or other jurisdiction, including any legend required by the
California Department of Corporations and section 417 and 418 of the California
Corporations Code.
2.12 ACCREDITED OR FOREIGN INVESTOR. Investors are accredited
investors as defined in Rule 501(a) of Regulation D, as amended, of the SEC
under the Securities Act.
2.13 FURTHER COVENANTS. Investors further covenant that Investors
will not transfer the Common Stock, in violation of the Securities Act, the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or the
rules of the Commission promulgated thereunder, including Rule 144 under the
Securities Act. Further, Investors agree that, prior to the closing of the
Company's initial public
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<PAGE>
offering, Investors will not transfer any of the Common Stock in a public
offering without the Company's prior consent, even if Investors are otherwise
permitted to transfer them pursuant to Rule 144(k).
2.14 RESTRICTION ON TRANSFER. In the event the Company publicly
offers shares of its Common Stock, the Common Stock may not be sold from the
date of the Company's initial public offering of securities for a period ending
six months after the conclusion of such initial public offering. In the event
the Company effects a firmly underwritten initial public offering of its
securities, Investors agree to enter into any "lock up" agreement required by
the Underwriter therein.
2.15 NO REPRESENTATIONS REGARDING FUTURE RESULTS. It never has been
represented, guaranteed or warranted by any broker, the Company, any of the
officers, directors, shareholders, partners, employees, legal counsel, auditor
or agents of the Company or its advisors, or any other persons, whether
expressly or by implication, that the past performance or experience of the
management of the Company, or of any other person, will in any way indicate the
future results of the ownership of the Common Stock or of the Company's
activities.
2.16 ACKNOWLEDGMENT. The Investors acknowledge they understand the
meaning and legal consequences of the representations and warranties contained
in this Agreement, and the Investors hereby agree the Company and each officer,
director, employee, agent, legal counsel and controlling person thereof, past,
present or future, may rely on each such representation and warranty.
2.17 NON TRANSFERABILITY. Neither this Stock Purchase Agreement,
nor any of Investors' interests herein, shall be assignable or transferable by
the Investor in whole or in part except by operation of law.
2.18 NO ADVERTISEMENT. The Investors are not purchasing the Common
Stock as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or presented at any seminar, or any
solicitation of a subscription by a person not previously known to the Investor.
2.19 EXPERIENCE OF INVESTOR. The Investors and/or their purchaser
representative currently have such knowledge and experience in finance, tax,
securities, investments and other business matters so as to be able to protect
the Investors' interests in connection with the purchase of the Common Stock.
The Investors' investment in the Company hereunder is not material when compared
to his total financial capacity. Investors are investors in securities of
companies in the development stage.
2.20 SURVIVAL. The foregoing representations and warranties shall
be true and accurate as of the date of the acceptance hereof by the Company and
shall survive the execution and delivery of this Stock Purchase Agreement and
the issuance of the Common Stock thereafter.
2.21 INDEMNIFICATION. The Investors shall indemnify and hold
harmless the Company and/or any of its officers, employees, directors or control
persons of any such entity who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of or
arising from any actual or alleged misrepresentation or misstatement of facts or
omission to represent or state facts made by the Investor to the Company
concerning itself or its financial position in connection with the offering,
sale or issuance of the Common Stock to the Investor which is not remedied by
timely notice to the Company as provided
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above, against losses, liabilities and expenses for which the Company or any of
its respective officers, employees, agents, directors, legal counsel or control
persons of any such entity which have not otherwise been reimbursed (including
attorneys' fees, judgments, fines and amounts paid in settlement) as actually
and reasonably incurred by such person or entity in connection with such action,
suit or proceeding.
2.22 DUE EXECUTION. The Investors agree to execute this Stock
Purchase Agreement in full and acknowledges the receipt and acceptance by the
Company of such stock purchase agreement shall be a condition precedent to the
issuance of the Common Stock.
3. CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SHARES OF
COMMON STOCK WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH COMMON STOCK OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF COMMON
STOCK IS EXEMPT FROM QUALIFICATION BY SECTIONS 25100, 25102 OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
4. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by Investor:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investors contained in Section 2 hereof shall be true on and
as of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
4.2 PAYMENT OF PURCHASE PRICE. The purchase price specified in
Section 1.1 shall have been delivered to the Company.
4.3 CALIFORNIA QUALIFICATION. The offer and sale to Investor of
the Common Stock shall be exempt from qualification under the California
Corporate Securities Law of 1968, as amended.
5. MISCELLANEOUS.
5.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of Investors contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing.
5.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding of the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assignees any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
5.3 GOVERNING LAW AND VENUE. This Agreement shall be governed by
and construed under the laws of the State of California, irrespective of its
choice of law principles. The parties agree this
5
<PAGE>
Agreement is entered into in and to be performed in, and venue for any action in
connection with this Agreement or the Common Stock shall be in an appropriate
court located in San Diego County, California.
5.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or, if sent
by telex or telecopier, upon receipt of the correct answer back, forty-eight
(48) hours after deposit with the United States Post Office, by registered or
certified mail, or upon deposit with a recognized overnight air courier who
requires a signature from recipient, in each case postage prepaid and addressed
to the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate by
10 days' advance written notice to the other parties.
5.7 FINDERS' FEE. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Investor agrees to indemnify and hold harmless the Company from
any liability for any other commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which Investor is responsible.
The Company agrees to indemnify and hold harmless Investors from any
liability for any other commission or compensation in the nature of a finders'
fee (and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
5.8 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in particular instance and whether retroactively or prospectively),
only with the written consent of the Company and Investor.
5.9 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ONTRO, INC.
a California corporation
/s/ James A. Scudder
---------------------------------
James A. Scudder, President
12675 Danielson Ct., #401
Poway, CA 92064
WITH COPY TO:
Fisher Thurber LLP
4225 Executive Square, Suite 1600
La Jolla, CA 92037
Attention: David A. Fisher
INVESTORS:
/s/ Scott Moore
---------------------------------
SCOTT MOORE
6309 Indian Creek
Fort Worth, TX 76116
/s/ Susan Moore
---------------------------------
SUSAN MOORE
6309 Indian Creek
Fort Worth, TX 76116
<PAGE>
EVALUATION AGREEMENT
THIS AGREEMENT is made as of this 23rd day of May, 1997 between ONTRO, INC.
of 12675 Danielson Ct., #401, Poway CA 92064 ("Ontro") and NESTLE USA, INC. of
800 North Brand Boulevard, Glendale, CA 91203 ("Nestle").
BACKGROUND
A. Ontro has developed a self-heating container for foods and beverages (the
"Container"), for which United States Patents Nos. 5,461,867 and 5,626,022 have
been granted and PCT Application WO 95/32656 has been filed, and has developed
technology relating to the functionality of the Container.
B. Ontro has requested Nestle to evaluate its possible commercial interest in
the Container, with the intent that if Nestle's evaluation of the Container is
favorable, the parties may negotiate an agreement under which Nestle would have
the right to utilize the Container in the production and sale of designated food
and/or beverage products. Nestle is willing to evaluate its commercial interest
in the Container on the terms and conditions set forth below.
IT IS AGREED as follows:
1. During the term of this Agreement, (i) Nestle will evaluate its interest in
the Container for use in packaging beverage and liquid food products, including
but not limited to infant formula (the "Product Categories") and (ii) Ontro will
not grant any right or license or enter into any agreement with respect to the
Container which would in any way prevent or restrict Ontro's ability to grant
Nestle the right to utilize the Container in the Product Categories.
2. To enable Nestle to carry out its evaluation, Ontro shall, promptly upon
execution of this Agreement,
(a) make a full disclosure to Nestle of all business and technical
information in Ontro's possession or under its control regarding the Container,
which may be reasonably required by or useful to Nestle in conducting its
evaluation of the Container, including, without limitation, specifications,
drawings, cost and pricing information, manufacturing information, suppliers,
economic studies and forecasts, patent enforcement and validity opinions, and
the like, provided, however, that Ontro shall not be obligated to disclose
information which it has received from third parties under conditions of
confidentiality;
(b) disclose to Nestle all information in Ontro's possession or under its
control regarding State and/or Federal regulatory petitions, requirements,
requests, exemptions,
1
<PAGE>
clearances, inquiries, and the like concerning the Container, its ingredients,
construction, or use;
(c) provide Nestle with a reasonable number of functional samples of the
Container, up to a maximum of 5,000 units, to enable Nestle to test the
functional effectiveness and storage and handling characteristics and stability
of the Container;
(d) make available for consultation with Nestle, upon Nestle's reasonable
request, during regular business hours, those officers, employees and
representatives of Ontro knowledgeable in the Container to freely discuss with
Nestle business and technical information concerning the Container. Such
consultations shall be at Ontro's offices in Poway, CA or at such other places
as Nestle may designate, provided that Nestle shall pay the travel and living
expenses of Ontro's personnel for meetings outside of Poway, CA.
3. A research study (the "Study") shall be established with the BASES group to
obtain (i) qualitative information regarding the concept of using the Container
in the packaging of foods and beverages and the pricing of Containers, and (ii)
quantitive information concerning sales volume potentials for foods and
beverages in the Product Categories packaged in the Containers. The protocol for
the Study shall be mutually agreed to by Ontro and Nestle, and Ontro and Nestle
shall each pay one-half of the cost of the Study. Ontro and Nestle shall both
be entitled to all information generated or provided from or as a result of the
Study.
4. All information disclosed by Ontro to Nestle pursuant to this agreement,
including the Containers, shall be subject to the confidentiality and limited
use provisions of the Confidential Disclosure Agreement of April 15, 1997
between the parties, provided that the information is identified as confidential
at the time of disclosure as provided in paragraph I of said agreement. Also,
the terms, conditions and exclusions set out in the Confidential Disclosure
Agreement regarding information disclosed by Ontro shall also apply to
information disclosed by Nestle to Ontro pursuant to this Agreement.
5. Nestle shall consult with Ontro from time to time during the course of its
evaluation of the Container, with regard to the status and current results of
its evaluation. Within thirty (30) days after the expiration or termination of
this Agreement, Nestle shall notify Ontro of the results of its evaluation of
the Container.
(a) If Nestle informs Ontro that as a result of its evaluation it desires
to acquire rights for the commercial use of the Container, the parties shall use
their reasonable best efforts to negotiate a mutually acceptable agreement for
Nestle's commercial use of the Container for the Product Categories.
(b) If Nestle informs Ontro that it has no interest in the commercial use
of the Container, Nestle shall promptly return to Ontro all information
regarding the Container disclosed to it by Ontro in written form as well as any
remaining Containers. Any analysis, compilations, studies or other documents
prepared by Nestle during the course of its evaluation,
2
<PAGE>
which contains Confidential Information of Ontro, will be destroyed.
6. The period of Nestle's evaluation of the Container shall be eight (8)
months from the date of this Agreement, or four (4) months from the date Ontro
provides Nestle with all samples of the Container reasonably required by Nestle
for shelf life and storage stability testing, whichever is last to occur.
7. The parties shall at all times be independent contractors and neither shall
have the right to act as the agent of the other in any respect. This Agreement
shall in no way constitute or give rise to a partnership, agency, or joint
venture between the parties.
8. This Agreement is only for the purpose of evaluation of the Container by
Nestle. No other right is granted by Ontro.
9. Any dispute relating to this Agreement shall be resolved in accordance with
the rules of the American Arbitration Association.
10. This Agreement, together with the Confidential Disclosure Agreement, sets
forth the entire understanding between the parties relating to the subject
matter hereof and supersedes all prior agreements and understandings between the
parties (whether written or oral) relating thereto. No modification shall be
effective unless made in writing and signed by a duly authorized representative
of each party.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
signed by its duly authorized representative.
ONTRO, INC. NESTLE USA, INC.
By By
--------------------------- --------------------------
Title Title
------------------------ -----------------------
3
<PAGE>
COMPUTATION OF PRO FORMA LOSS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31, Six-Months Ended June 30,
----------------------- --------------------------
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . $164,100 $1,468,400 $220,100 $1,117,000
-------- ---------- -------- ----------
-------- ---------- -------- ----------
Weighted average shares used to compute net loss per share:
Weighted average common shares excluding common shares
issued in accordance with Staff Accounting Bulletin 83 . . . 1,226,464 1,832,958 1,412,444 2,772,334
Number of common shares issued and stock options and warrants
granted in accordance with Staff Accounting Bulletin 83. . . 1,378,417 1,341,141 1,378,417 1,186,686
--------- --------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,604,881 3,174,099 2,790,861 3,959,020
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss per share. . . . . . . . . . . . . . . . . . . . . . $0.06 $0.46 $0.08 $0.28
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
<PAGE>
[Letterhead]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Ontro, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
Our report dated February 14, 1997, contains an explanatory paragraph that
states that the Company has suffered recurring losses from operations and has
a net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
San Diego, California
October 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 12,000 514,800
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 14,500 524,300
<PP&E> 312,100 424,300
<DEPRECIATION> 24,900 55,500
<TOTAL-ASSETS> 328,600 999,800
<CURRENT-LIABILITIES> 235,300 1,478,200
<BONDS> 110,000 0
0 0
0 0
<COMMON> 1,141,900 1,606,300
<OTHER-SE> 405,707 440,200
<TOTAL-LIABILITY-AND-EQUITY> 328,600 999,800
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,445,600 1,062,300
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 22,800 54,700
<INCOME-PRETAX> (1,468,400) (1,117,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,468,400) (1,117,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,468,400) (1,117,000)
<EPS-PRIMARY> (0.46) (0.28)
<EPS-DILUTED> 0 0
</TABLE>
