<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
DONLAR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<C> <C> <C>
ILLINOIS 36-3683785 2899
(State or other jurisdiction (I.R.S. Employer I.D. Number) (Primary Standard Industrial
of incorporation or organization) Classification Code Number)
</TABLE>
------------------------------
6502 South Archer Avenue
Bedford Park, Illinois 60501
(708) 563-9200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
LARRY P. KOSKAN
Chief Executive Officer and President
Donlar Corporation
6502 South Archer Avenue
Bedford Park, Illinois 60501
(708) 563-9200
(Name, address, including zip code, and telephone number, including area code of
agent for service)
------------------------------
Copies to:
<TABLE>
<S> <C>
Eric M. Fogel, Esq. Frederick C. Lowinger, Esq.
Holleb & Coff Sidley & Austin
55 East Monroe Street One First National Plaza
Suite 4100 Chicago, Illinois 60603
Chicago, Illinois 60603 (312) 853-7000
(312) 807-4600
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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
<TABLE>
<CAPTION>
================================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Common Stock, no par value................................. $69,000,000 $20,910
================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee.
------------------------------
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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
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.
SUBJECT TO COMPLETION, DATED OCTOBER 10, 1997
PROSPECTUS
, 1997
SHARES
DONLAR CORPORATION LOGO
COMMON STOCK
All of the shares of Common Stock, no par value ("Common Stock"),
of Donlar Corporation ("Donlar" or the "Company") offered hereby (the
"Offering") are being sold by the Company.
Prior to this Offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $ and $ per share. See "Underwriting"
for information relating to the factors to be considered in determining the
initial public offering price.
Application will be made to have the Common Stock quoted on the Nasdaq
National Market ("NASDAQ") under the trading symbol "DNLR."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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>
- ---------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total(3)..................................... $ $ $
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $ , which will be paid by the
Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock at the Price to the Public, less
Underwriting Discounts and Commissions, solely to cover overallotments, if
any. If such option is exercised in full, the total Price to the Public,
Underwriting Discounts and Commissions and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the share certificates will be made in New
York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE SCHRODER & CO. INC.
SECURITIES CORPORATION
<PAGE> 3
[INSIDE FRONT COVER]
[PHOTOS]
------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by reference
to, and should be read in conjunction with, the more detailed information and
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. The terms "Donlar" and "Company" when used herein includes Donlar
Corporation and its 90% owned subsidiary, Donlar Pharmaceutical Corporation.
Each prospective investor should read this Prospectus in its entirety. Unless
otherwise indicated, the information contained in this Prospectus: (a) assumes
no exercise of the Underwriters' overallotment option; (b) does not give effect
to the Common Stock issuable upon (i) exercise of the warrants to purchase the
Company's Common Stock outstanding on the date of this Prospectus (except for
the warrants specifically described below) and (ii) exercise of the options
granted or which may be granted under the Company's stock option plans or stock
based incentive plan; and (c) assumes that the following transactions
(collectively, the "Offering Related Transactions") are completed prior to or
concurrent with the consummation of the Offering: (1) a 1 for reverse split of
the Company's Common Stock, (2) the conversion of all shares of the Company's
Series A Preferred Stock into the Company's Common Stock at a conversion ratio
of 1 to 1, (3) the retirement of all shares of all other series of the Company's
preferred stock, (4) the exercise of all warrants for the purchase of Common
Stock that, by their terms, are required to be exercised or forfeited upon the
occurrence of a public offering, and (5) the exchange of convertible debt and
related rights for the payment of cash and issuance of the senior notes and
shares of Common Stock agreed to as part of the 1997 Agreement (as defined in
"Certain Transactions"), all as more fully described herein. Unless otherwise
indicated, capitalized terms used in this summary have the respective meanings
ascribed to them elsewhere in this Prospectus.
THE COMPANY
Donlar is the world leader in the development and marketing of a new family
of environmentally friendly and biodegradable specialty polymers, known as
thermal polyaspartates ("TPA"). TPA is non-hazardous, non-toxic and
hypo-allergenic and has a potentially wide range of applications in
agricultural, industrial and consumer markets. Utilizing its proprietary
technology, the Company develops and markets new agricultural products that
significantly increase the effectiveness of fertilizers and is developing a
similar class of products designed to enhance the efficiency of pesticides. In
each case, TPA is not absorbed by the plant. In addition, the Company develops
products that management believes provide environmentally superior alternatives
to certain existing specialty chemicals used in many consumer and industrial
applications. Through extensive research and development, the Company has
assembled a patent portfolio of over 30 issued patents worldwide that protect
the Company's cost efficient production technology, the resulting products and
their methods of use. In addition, the Company has entered into strategic
alliances and joint development agreements with several companies, including
BASF, FMC Corporation and National Starch and Chemical Company, to increase its
penetration of both the agricultural and specialty chemicals markets. Management
believes that the combination of the Company's commercialization experience with
TPA and its portfolio of patents provides a significant competitive advantage in
pursuing identified market opportunities.
The unique aspect of the Company's technology is that TPA can be used
effectively in a wide range of applications and is environmentally friendly.
This versatility results from TPA's characteristics as a highly active molecule
with strong affinity for surfaces, together with a high capacity for holding
onto water. As a result of their negative electrostatic charge, TPA products
attract or repel particles or surfaces. These key properties make TPA ideal for
attracting and collecting nutrients (crop nutrition), concentrating herbicides
and insecticides (crop protection), controlling mineral scale (water treatment),
inhibiting corrosion (oil field chemicals), acting as a moisture retention agent
(superabsorbents), acting as a moisturizer for hair and skin (personal care),
preventing dirt particles from reattaching to textile surfaces (laundry
detergents) and potentially neutralizing major basic proteins in the human body
(allergy relief). While there are well-established products that currently
perform these functions in non-agricultural applications, TPA products are
readily biodegradable and in many cases provide the same or higher levels of
performance than those products. The Company knows of no existing technology
that provides benefits comparable to those of the Company's products in
agricultural applications.
3
<PAGE> 5
The Company's commercialization efforts have focused on its crop nutrition
products. To support these efforts, the Company has conducted or commissioned
numerous studies and trials on winter wheat over the last three years. These
studies have confirmed the efficacy of the Company's AmiSorb(R) brand products.
Studies over the last two years on corn and cotton have produced similar
results. The purpose of these trials was to assess the efficacy of AmiSorb(R)
products under various agronomic conditions. Some of the variables that impact
the results of these studies and trials include: usage rate, fertility level,
soil type, hybrid type, irrigation vs. non-irrigation and method of application.
Results provide the Company with important information enabling it to refine the
optimum product usage rate and mode of application. During the most recent
growing season, farm field trials on winter wheat were conducted at 56 different
locations in 11 states using AmiSorb(R) products. The use of AmiSorb(R) products
at the currently recommended rate and application method resulted in increased
yields of up to 26 bushels per acre, with an average increase of 8 bushels per
acre, or approximately 18%. Initial farm field trials on corn were conducted in
1996 at 61 different locations in 10 states. Results for the trials demonstrated
yield increases from the use of AmiSorb(R) products of up to 60 bushels per
acre, with an average increase of 12 bushels per acre, or approximately 7%.
Results of the 1997 corn season are not available yet, but early assessments
indicate yield increases equal to or in excess of the prior year's results.
Initial field trials on cotton were also conducted in 1996 at 11 different
locations in 4 states and demonstrated yield increases of up to 690 pounds of
lint per acre, an average of 368 pounds of lint per acre, or approximately 40%.
Results for the 1997 cotton season are not available yet, but early evaluation
indicates yield increases similar to those obtained in 1996. All average
increases referred to in this paragraph were calculated on a per location basis
comparing land plots treated with AmiSorb(R) products to control land plots.
In addition to its performance characteristics, the value of TPA technology
in agricultural applications resides in its environmental friendliness and
biodegradability. The use of TPA in these applications is expected to reduce
specific environmental concerns, including fertilizer leaching and run-off and
accumulation of pesticide residues.
It has been demonstrated that TPA is an effective and environmentally safe
replacement for certain specialty chemical compounds, including polyacrylates,
in many performance chemicals applications. Since polyacrylates and many other
specialty chemicals are not biodegradable, TPA is an attractive alternative,
particularly when used in environmentally sensitive areas. Management estimates
that the world market for polyacrylates for which TPA appears to be a viable
substitute is approximately $2.2 billion annually.
In 1996, the United States Environmental Protection Agency ("EPA") awarded
the Company the first Presidential Green Chemistry Challenge Award in the small
business category for its role in the development, production and application of
TPA as a new and environmentally friendly polymer.
Management believes that the Company's development to date provides it with
a number of unique competitive advantages:
- COMMERCIALLY VIABLE PRODUCTS. The Company has successfully developed and
commercialized products for agricultural and industrial applications. The
efficacy of these products has been established in both laboratory and
field tests. In addition, the Company's strategic alliances and joint
development agreements enhance its ability to increase its penetration of
both the agricultural and specialty chemicals markets.
- ENVIRONMENTALLY FRIENDLY PRODUCTS AND TECHNOLOGY. The Company's products
are non-hazardous, non-toxic, hypo-allergenic and readily biodegradable,
and the TPA manufacturing process produces no harmful or hazardous waste
or emissions. In addition, TPA products are not absorbed by the plants.
- SIGNIFICANT BARRIERS TO ENTRY. Management believes that its extensive
patent portfolio, which covers its proven, cost efficient manufacturing
process, as well as its proprietary technology platform, provide
significant barriers to entry to its potential competitors.
- EXPERIENCED MANAGEMENT TEAM. The Company's management team has an average
of over 25 years experience in the development and marketing of specialty
chemical and agricultural products.
4
<PAGE> 6
The Company was incorporated in Illinois on January 8, 1990. The Company's
principal executive offices are located at 6502 South Archer Avenue, Bedford
Park, Illinois 60501, and its phone number is (708) 563-9200.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. shares
Common Stock to be outstanding after the
Offering(1)................................... shares
Use of Proceeds................................. The net proceeds from the Offering will be used as
follows: (i) $12 million to fund the cash portion
of the 1997 Agreement described under "Certain
Transactions;" (ii) approximately $25 million to
fund the construction of an L-aspartic acid
manufacturing facility; and (iii) the remainder of
approximately $ million for the build-up of the
Company's sales and distribution network and
various working capital purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.......... DNLR
</TABLE>
- ------------------------------
(1) Excludes (a) shares of Common Stock issuable upon exercise of
warrants to purchase Common Stock outstanding on the date hereof, but not
required to be exercised or forfeited upon the occurrence of a public
offering, (b) shares of Common Stock issuable upon exercise of
options granted under the Company's stock option plans and (c)
additional shares of Common Stock reserved for issuance under the
Company's stock option plans and stock based incentive plan; and assumes the
completion, prior to or concurrent with the consummation of the Offering, of
all of the Offering Related Transactions. See "Management -- Long-Term
Incentive Plans" and "Recent Transactions."
5
<PAGE> 7
SUMMARY FINANCIAL DATA
The following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................. $ -- $ -- $ 10 $ 23 $ 2,142 $ 575 $ 1,387
Gross profit............... -- -- 2 3 75 (111) 240
Loss from operations....... (555) (864) (1,424) (2,025) (10,606) (2,917) (4,356)
Net loss................... (617) (931) (1,522) (1,781) (12,844) (4,161) (6,925)
Net loss per common
share................... $ () $ ()
======== =======
Pro forma net loss......... $( 7,044)(1) $(4,225)(2)
======== =======
Pro forma net loss per
common share(3)......... $ ()(1) $ ()(2)
======== =======
Pro forma weighted average
common shares
outstanding(4):.........
======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(5)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $ 7,578 $
Working capital........................................... 11,334
Total assets.............................................. 26,955
Total long-term liabilities............................... 27,686
Shareholders' equity (deficit)............................ (2,860)
</TABLE>
- ------------------------------
(1) Pro forma net loss for the year ended December 31, 1996 excludes $5.8
million of non-recurring charges, consisting of the following: (i) $942,000
representing the fair value of warrants issued to providers of bridge loan
financing; (ii) $655,000 for the amortization of debt discount and deferred
financing costs incurred in connection with the 1996 Financing; (iii)
$350,000 for imputed interest on the royalty obligation incurred in
connection with the 1996 Financing; and (iv) $3.9 million for warrants to
purchase 712,299 shares of Series A Preferred Stock, with an exercise price
of $0.07 per share, that were issued to a provider of research and
development services. See "Certain Transactions."
(2) Pro forma net loss for the six-month period ended June 30, 1997 excludes
$2.7 million of non-recurring charges, consisting of the following: (i) $1.2
million for inducement warrants and preferred stock issued to holders of
convertible notes; (ii) $983,000 for the amortization of debt discount and
deferred financing costs incurred in connection with the 1996 Financing; and
(iii) $551,000 for imputed interest on the royalty obligation incurred in
connection with the 1996 Financing. See "Certain Transactions."
(3) Pro forma net loss per common share is computed based upon (i) pro forma net
loss as described in Notes (1) and (2) and (ii) pro forma weighted average
common shares as described in Note 4.
(4) Includes the weighted average number of common and common stock equivalents
as further adjusted to reflect all shares of Common Stock issuable in
connection with the Offering Related Transactions, but does not include the
Common Stock offered hereby. See "Recent Transactions" and "Certain
Transactions."
(5) Pro forma as adjusted to give effect to the Offering Related Transactions
and the sale of shares of Common Stock offered hereby at an assumed
initial public offering price of $ per share, after deducting estimated
underwriting discounts and commissions and offering expenses as described in
"Use of Proceeds."
6
<PAGE> 8
RISK FACTORS
This Prospectus contains certain forward looking statements within the
meaning of the federal securities laws. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such
forward-looking statements. Actual results and the timing of certain events
could differ materially from those expressed in, or implied by, the
forward-looking statements due to a number of factors, including those set forth
below and elsewhere in this Prospectus. Prospective purchasers of the shares of
Common Stock offered hereby should carefully consider those factors in
evaluating an investment in the Common Stock.
EARLY STAGES OF DEVELOPMENT OF THE COMPANY'S PRODUCTS
The Company was founded in 1990 and until 1996 was engaged principally in
research and development activities. While the Company has commenced marketing
its TPA products in the crop nutrition area, it is in the early stages of
commercialization and has only a limited number of product offerings, and
potential product applications are in various stages of development. As a
result, the Company's TPA products have been sold only in limited quantities and
there can be no assurance that a significant market will develop for such
products with respect to any of their potential applications. The Company's crop
nutrition products have been used commercially for only a short period of time:
three years with respect to winter wheat and two years each with respect to corn
and cotton. Current and potential customers in the agricultural, performance
chemicals and other fields in which the Company's products have potential
applications require predictable and consistent performance. Although certain
products incorporating the Company's TPA technology have passed product
performance and reliability testing in both laboratory and commercial use, there
can be no assurance that they will continue to do so consistently in the future,
will meet future customer performance standards or will offer sufficient price
or performance advantages required to achieve commercial success. The Company's
failure to develop, manufacture and commercialize TPA products on a timely and
cost effective basis would have a material adverse effect on the Company's
business, results of operations and financial condition.
ACCEPTANCE BY AGRICULTURAL CUSTOMERS
The Company's future success depends largely on acceptance of its TPA
technology by agricultural customers and the ability of the Company to educate
those customers about the proper methods and rates of application required to
obtain the levels of increased yield that its TPA products are capable of
generating. Traditionally, agricultural end users have been slow to adopt new
technologies until their consistent effectiveness and economic value have been
evidenced over several growing seasons. Successful introduction of the Company's
products will also depend to a large extent on recommendations of prior users.
Although the Company's research data has shown that the Company's crop nutrition
products result in increased yields, the level of such increase and, thus, the
economic return from use of such products, depends on the method and rate of
application and the type of crop and prevailing weather and soil conditions.
There can be no assurance that the Company will be able to demonstrate that the
purchase of the Company's crop nutrition products will be consistently cost
effective for the intended users.
As a result of the unique and innovative aspects of the Company's crop
nutrition products, those products have been the subject of numerous
agricultural industry media reports and articles. Some of these reports and
articles have been favorable, and some have been unfavorable. Of those that are
unfavorable, the Company attributes some of the adverse critical comment to
natural skepticism associated with new products and technologies, competitive
issues, and the limited number, and general public unavailability, of farm field
trial results. In addition, while some reported university studies have
suggested inconsistent performance results from the Company's products,
management believes that these results may have been affected by nonconformity
with the recommended methods and rates of application and by such variables as
weather and soil conditions. Further, the purpose of many of these studies was
to establish recommended methods and rates of application, rather than
validating the product's effectiveness. The Company's future success will
depend, in large part, on its ability to replicate its field trial successes on
an expanding scale in each crop growing season and to publicly disseminate the
results of those trials, not only to agricultural industry media, but also
directly to potential end users. There can be no assurance that the Company will
be successful in overcoming user resistance resulting from adverse publicity
regarding its products.
7
<PAGE> 9
DEPENDENCE ON PATENTS AND PROTECTION OF PROPRIETARY INFORMATION
The Company's success will depend, in part, on its ability to obtain patent
protection for its TPA processes, materials, and methods of use, to preserve its
trade secrets, and to operate without infringing the patent or other proprietary
rights of others. The Company has been granted 26 United States patents, has
received Notices of Allowances of Patentability for three additional United
States patents and has filed 12 applications for other United States patents.
Each time that the Company files a patent application in the United States, it
files similar applications in foreign jurisdictions that the Company believes
are important to its future business and that afford reasonable protection to
intellectual property rights. The Company has been granted 8 foreign patents,
including patents granted by the European Community, South Africa, Israel,
Japan, Mexico and Egypt, and currently has numerous patent applications pending
in such jurisdictions. No assurance can be given that the patent applications
filed by the Company will result in issued patents or that the scope and breadth
of any claims allowed in any patents issued to the Company will exclude
competitors or provide competitive advantages to the Company. In addition, there
can be no assurance that any patents issued to the Company will be held valid if
subsequently challenged, that others will not claim rights in the patents and
other proprietary technology owned by the Company, or that others have not
developed or will not develop similar products or technologies without violating
any of the Company's proprietary rights. The Company's inability to obtain
patent protection, preserve its trade secrets or operate without infringing the
proprietary rights of others, as well as the Company's loss of any rights to
technology that it now has or acquires in the future, could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Litigation, which could result in substantial cost to, and diversion of
effort by, the Company, may be necessary to enforce patents issued to the
Company, to defend the Company against infringement claims made by others, or to
determine the ownership, scope or validity of the proprietary rights of the
Company and others. An adverse outcome in any such litigation could subject the
Company to significant liabilities to third parties, require the Company to seek
licenses from third parties, and/or require the Company to cease using certain
technology, any of which could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company may also
become involved in interference proceedings declared by the United States Patent
and Trademark Office ("PTO") in connection with one or more of the Company's
patents or patent applications to determine priority of invention. Any such
proceeding could result in substantial cost to the Company, as well as a
possible adverse decision as to priority of invention of the patent or patent
application involved. In addition, the Company may become involved in reissue or
reexamination proceedings in the PTO in connection with the scope or validity of
the Company's patents. Any such proceeding could have a material adverse effect
on the Company's business, results of operations and financial condition, and an
adverse outcome in such proceeding could result in a reduction of the scope of
the claims of any such patents or such patents being declared invalid. In
addition, from time to time, to protect its competitive position, the Company
may initiate reexamination proceedings in the PTO with respect to patents owned
by others. Such proceedings could result in substantial cost to, and diversion
of effort by, the Company, and an adverse decision in such proceedings could
have a material adverse effect on the Company's business, results of operations
and financial condition.
The Company also relies on trade secrets and proprietary know-how in the
conduct of its business and uses employee and third-party confidentiality and
non-disclosure agreements to protect such trade secrets and know-how. There can
be no assurance that the obligation to maintain the confidentiality of such
trade secrets or proprietary information will not wrongfully be breached by
employees, consultants, advisors or others, that the Company will have adequate
remedies for any breach, or that the Company's trade secrets or proprietary
know-how will not otherwise become known or be independently developed or
discovered by third parties. See "Business -- Patents."
ACCEPTANCE BY PERFORMANCE CHEMICALS CUSTOMERS
While the Company believes that its TPA products are efficient and
effective substitutes for certain existing polyacrylate and other products used
in performance chemicals applications, the Company's success in marketing its
products will depend on the Company's ability to sell its products profitably at
competitive
8
<PAGE> 10
prices, as well as on demand for products that do not harm the environment.
L-aspartic acid is the principal raw material used in the manufacture of the
Company's TPA products. The Company believes that it will need to construct an
L-aspartic acid production plant in order to be able to consistently obtain
L-aspartic acid at costs that will permit it to competitively price certain of
its performance chemicals products. In addition, in order to fully commercialize
TPA products cost effectively in certain performance chemicals applications, the
Company will need to construct an as yet undesigned liquid process and
derivatives manufacturing facility. If the Company is unable to construct or
operate either such manufacturing facility cost effectively, the Company may not
be able to effectively compete in certain performance chemicals markets. See
"Business -- Raw Materials," "Business -- Performance Chemicals Applications --
Targeted Applications" and "Business -- Manufacturing and Facilities."
ACCESS TO RAW MATERIALS AT FAVORABLE PRICES
The primary raw material in the Company's TPA products is L-aspartic acid.
Because L-aspartic acid accounts for such a large percentage of the Company's
costs, any material increase in the price of this raw material could have a
material adverse effect on the Company. There are only a limited number of
suppliers of L-aspartic acid worldwide and substantially all of the commercially
available L-aspartic acid is produced by non-domestic sources. The Company
purchases primarily from sources in the People's Republic of China (the "PRC").
The "Most Favored Nation" trade status of the PRC was last renewed in July 1997
and is reviewed on an annual basis. To the extent that the PRC ceases to have
Most Favored Nation trade status, or its exports become subject to political
retaliation, the cost of importing L-aspartic acid from the PRC could increase
significantly. While management believes that the world supply of L-aspartic
acid is sufficient to meet the Company's needs over the near term, management
also believes that, by the year 2000, the Company will require amounts of
L-aspartic acid exceeding the current annual world merchant supply. It is thus
important for the Company's long-term growth that it secure a low cost and
consistent supply of L-aspartic acid. See "Business -- Raw Materials."
NEED FOR ADDITIONAL CAPITAL AND UNCERTAINTY OF ADDITIONAL FINANCING
The Company believes that funds from operations, cash on hand and the net
proceeds of the Offering will be adequate to fund the Company's operating plans
for the foreseeable future. The Company believes that its future capital
requirements may depend on many factors, including its ability to meet its
performance goals, continued progress in its research and development and
product testing programs, the magnitude of these programs, the costs necessary
to increase the Company's manufacturing capabilities and to market any resulting
product applications, and customer acceptance of the Company's current and
potential product applications. Additional factors that may affect the Company's
future capital requirements are the costs involved in preparing, filing,
prosecuting, maintaining and enforcing patents and other proprietary rights, the
ability of the Company to establish collaborative relationships and the amount
and timing of future revenues. Depending on its requirements, the Company may
seek additional funding through public or private debt or equity financing.
There can no assurance that such additional financing will be available on
acceptable terms or at all. Inadequate funding could impair the Company's
ability to compete in the marketplace. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
COMPETITION
While the Company is not aware of any technology directly competitive with
the Company's TPA products in the agricultural field, in the performance
chemicals field there is substantial competition, primarily from polyacrylates,
but also from other manufacturers of polyaspartates such as Bayer and Rohm &
Haas using production methods that may be outside the scope of the Company's
production patents and in target applications that may be outside the scope of
the Company's methods of use patents. The producers of polyacrylates, primarily
BASF and Rohm & Haas, have substantially greater financial and technical
resources, larger research and development staffs, and greater manufacturing and
marketing capabilities than the Company. There can be no assurance that the
Company's performance chemicals products will compete effectively against
products produced by such competitors. The failure of the Company to effectively
compete
9
<PAGE> 11
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business -- Competition."
LIMITED MANUFACTURING CAPACITY AND EXPERIENCE
The Company's success will depend, in part, on its ability to manufacture
its products in significant quantities, with consistent quality, at acceptable
costs and on a timely basis. The Company has limited experience in high-volume
manufacturing. With respect to its Peru, Illinois manufacturing facility, the
Company may incur significant start-up costs and unforeseen expenses in bringing
that facility on line. In addition, the Company will need to add new
manufacturing equipment to its Peru facility in the near future in order to
manufacture sufficient quantities of its products. The Company also anticipates
constructing an L-aspartic acid manufacturing facility beginning in 1998, with
expected completion in 2000. No assurance can be given that the Company will be
able to successfully make the transition to high volume polyaspartate production
or construct and operate an L-aspartic acid facility on a timely or economical
basis. See "Business -- Manufacturing and Facilities."
RELIANCE ON A SINGLE MANUFACTURING FACILITY
With the exception of the pilot plant located at the Company's headquarters
in Bedford Park, Illinois, the Company's Peru, Illinois plant is the Company's
sole manufacturing facility and the only facility capable of producing the
Company's products in quantities sufficient to meet the Company's projected
needs. Any material disruption in the Peru plant's operations, whether due to
fire, natural disaster, or otherwise, could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business -- Manufacturing and Facilities."
ABSENCE OF OPERATING PROFITS
The Company has only a limited operating history. The Company has incurred
a net loss in each year since its founding, and as of June 30, 1997, had an
accumulated deficit of $25.5 million. The Company expects to continue to incur
operating losses over the near term. The Company's ability to achieve
profitability will depend on many factors, including the Company's ability to
develop, manufacture, introduce and market commercially acceptable products
based on the Company's TPA technology. There can be no assurance that the
Company's products will be introduced or marketed successfully or that the
Company will ever achieve a profitable level of operations or, if profitability
is achieved, that it can be sustained. See "Management's Discussions and
Analysis of Financial Condition and Results of Operations" and "Business."
UNCERTAINTY OF REGULATORY APPROVALS
The Company's crop nutrition products may not be distributed in the various
states without regulatory approval by the applicable state agricultural agency.
Obtaining such approval generally requires that the Company demonstrate that its
products are safe and efficacious over a defined time period. Although the
Company has already obtained such approvals for its crop nutrition products from
the applicable agencies of 45 states, it has not received approvals from the
agriculturally significant states of California, Iowa or Mississippi because it
has not yet been able to provide performance data spanning a sufficient number
of years. Though the Company has no reason to believe that such approvals will
not be granted, there can be no assurance that such approvals will be granted on
a timely basis, if at all. In addition, the Company's products are subject to
approval by foreign regulatory authorities. See "Business -- Government
Regulation."
RELIANCE ON SINGLE TECHNOLOGY
Although the Company has obtained numerous patents covering manufacturing
processes, composition and methods of use, all of the Company's products are
based on its TPA technology. The fields in which the Company intends to sell its
products are highly competitive and intensive research and development is always
being undertaken by governmental entities, educational institutions and private
enterprises with respect to products having practical effects such as those of
certain of the Company's products. There can be no assurance that competitive
products will not be introduced by third parties or that competing materials
based
10
<PAGE> 12
on different or new technologies may not become commercially available. There
can be no assurance that the Company's competitors will not succeed in
developing or marketing materials, technologies or products that exhibit
superior performance or are more commercially desirable or more cost effective
than those developed and marketed by the Company. Any of the foregoing could
have a material adverse effect on the Company's business, results of operations
and financial condition.
RISKS ASSOCIATED WITH RAPID GROWTH
The Company's rate of growth has placed and will place significant demands
on the Company's management, as well as its administrative, operational and
financial resources. The Company's ability to manage its growth will require the
Company to continue to implement new, and improve existing, operational,
financial and management information systems. The Company's success will depend,
in large part, upon its ability to attract and retain highly qualified research
and development, management, manufacturing and marketing and sales personnel and
to continue to motivate and manage its work force, particularly its sales force.
If the Company is unable to effectively manage any of these factors, the
Company's business, its financial condition and results of operations could be
materially and adversely affected. No assurance can be given that the Company
will continue to experience growth or that the Company will be successful in
managing its growth, if any.
LIMITED MARKETING EXPERIENCE
While the Company's sales force has experience in marketing products to
agricultural end users, the Company has limited experience in marketing and
selling its TPA products. To market its products effectively, the Company will
be required to develop an expanded marketing and sales force that can
effectively demonstrate the advantages of, and recommended methods and rates of
application for, its TPA product applications. The Company's crop nutrition
products will also rely heavily on the availability of recommendations of prior
users. The Company currently maintains arrangements with third parties for
distribution of certain of its TPA products in the performance chemicals field
and expects to enter into additional arrangements with third parties for the
commercialization and marketing of its products. The Company's future success
will depend in part on its continued relationships with distributors, its
ability to enter into other similar arrangements, the continuing interest of the
Company's distributors in current and potential product applications and,
eventually, the distributors' success in marketing and willingness to purchase
the Company's products. There can be no assurance that the Company will be
successful in its marketing efforts, that it will be able to establish adequate
sales and distribution capabilities, that it will be able to enter into or
maintain marketing or distribution arrangements with third parties on
financially acceptable terms or that any third parties with whom it enters into
such arrangements will be successful in marketing the Company's products.
RELIANCE ON KEY PERSONNEL
The Company's principal executive officers have an average of over 25 years
of collective experience in chemicals research, development and sales. The loss
of the services of any of the Company's executive officers or other key
personnel, or the failure of the Company to attract and retain other skilled and
experienced personnel on acceptable terms, could have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Management."
CUSTOMER CONCENTRATION
The Company has only recently begun commercial sales of its products. The
Company sells its crop nutrition products primarily to agricultural
distributors. A relatively small number of such distributors account for a
disproportionately large portion of sales to date. For the six months ended June
30, 1997, one such distributor accounted for approximately 30% and another for
approximately 10% of the Company's sales of crop nutrition products. While the
Company expects to significantly increase its sales in this product line, these
sales may continue to be concentrated among a relatively small group of
customers. Thus, the loss of any single customer could have a material adverse
effect on the Company, its results of operations and its financial condition.
11
<PAGE> 13
MARKETS FOR CROP NUTRITION PRODUCTS ARE SEASONAL AND VOLATILE
Demand for the Company's crop nutrition products can be expected to be
significantly affected by agricultural conditions, which can be unpredictable
and volatile as a result of a number of factors. The most important factors are
weather conditions and patterns, current and projected grain stocks and prices,
and governmental agricultural policies, including those that directly or
indirectly influence the number of acres planted, the level of grain stocks, the
mix of crops planted, and crop prices. Because of its dependence on agricultural
markets, the Company's crop nutrition business is seasonal and the Company's
operating results may vary significantly from quarter to quarter. See "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality; Quarterly Results."
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
Like other manufacturers, the Company is subject to a broad range of
federal, state, local and foreign laws and requirements, including those
governing discharges to the air and water, the handling and disposal of solid
and hazardous substances and wastes, the remediation of contamination associated
with the release of hazardous substances, work place safety and equal employment
opportunities. The Company has made, and will continue to make, expenditures to
comply with such laws and requirements. The Company believes, based on
information currently available to management, that it is in compliance with
applicable environmental and other legal requirements and that it will not
require material capital expenditures to maintain compliance with such
requirements in the foreseeable future.
Governmental authorities have power to enforce compliance with such laws
and regulations, and violators may be subject to penalties, injunctions or both.
Third parties may also have the right to enforce compliance with such laws and
regulations. As the Company develops new formulations for its TPA products and
combines its TPA with other products, such as herbicides and insecticides, those
products may become subject to additional review and approval requirements
governing the sale and use of products such as those produced by the Company.
The Company's manufacturing processes do not currently result in the generation
of hazardous wastes. However, there can be no assurance that this will always be
the case, and there can be no assurance that material costs or liabilities will
not be incurred by the Company as a result. It is also possible that other
developments, such as additional or increasingly strict requirements of laws and
regulations of these types, or enforcement policies thereunder, could
significantly increase the Company's costs of operations. See "Business --
Government Regulation."
LIABILITY RISK
Products sold by the Company may expose it to potential liability for
personal injury or property damage claims relating to the use of those products,
particularly if used in a manner not in conformity with the Company's
instructions. Although product liability claims historically have not had a
material adverse effect on the Company, there can be no assurance that the
Company will not be subject to or incur liability for such claims in the future.
The Company does not currently maintain third party product liability insurance
and there can be no assurance that such insurance will be available on
economically reasonable terms. A significant claim that is uninsured or
partially insured could result in loss or deferral of revenues, diversion of
resources, or damage to the Company's reputation, any of which could have a
material adverse effect on the Company's business, operating results, and
financial condition.
CONTROL BY OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS
Following the completion of this Offering, the Company's officers,
directors and principal shareholders will own approximately % of the
outstanding Common Stock and will be able to elect all of the directors of the
Company. See "Principal Shareholders" and "Description of Capital Stock."
ABSENCE OF PRIOR PUBLIC MARKET; PUBLIC VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
or can be sustained after the Offering. The initial public
12
<PAGE> 14
offering price for the Common Stock has been determined by negotiations between
the Company and the Underwriters based on several factors and may not be
indicative of the price that may prevail in the public market. The stock market
has from time to time experienced significant price and volume fluctuations that
may be unrelated to the operating performance of any particular company. In
particular there has been significant volatility in the market price of
securities of technology companies that, like the Company, are still primarily
engaged in product development activities. Factors such as the announcement of
technology innovations and new product applications by the Company or its
competitors, disputes relating to patents and proprietary rights, changes in
financial estimates by securities analysts, failure to meet earnings
expectations of the market or of analysts, general market conditions and
fluctuations in quarterly operating results may have a significant impact on the
market price of the Common Stock. In the past, following periods of volatility
in the market price of a company's securities, securities class action
litigation has often been instituted against such a company. Any such litigation
initiated against the Company could result in substantial costs and a diversion
of management's attention and resources, which could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the Offering could adversely affect the market price of the Common Stock. Upon
completion of the Offering, the Company will have shares of Common Stock
outstanding. Of these shares, the shares of Common Stock sold in the
Offering will be freely tradeable in the market, except for shares purchased by
"affiliates" of the Company, which will be subject to the resale limitations,
excluding the holding period requirement, of Rule 144 under the Securities Act
of 1933. Certain officers, directors and shareholders of the Company, who in the
aggregate hold shares of Common Stock and warrants and options to acquire
an aggregate of shares of Common Stock, and the Company have agreed not to
sell any of their shares for a period of 180 days after the date of this
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"). The Company believes that, following expiration
of the 180 day period, of those shares will be eligible for immediate
resale in the public market, subject to Rule 144 resale limitations. Further,
the exercise of registration rights by certain of the Company's significant
shareholders would permit such persons to sell shares of Common Stock upon
registration without regard to the limitations of Rule 144. The Company has
granted registration rights covering a total of shares of Common Stock. See
"Shares Eligible for Future for Sale" and "Certain Transactions."
ABSENCE OF DIVIDENDS
The Company intends to retain its earnings to finance its growth and for
general corporate purposes. Consequently, it does not anticipate paying any cash
dividends in the foreseeable future. In addition, any credit agreements to which
the Company becomes a party in the future may contain limitations on the payment
of cash dividends and other distributions of assets. Further, the 1997 Agreement
prohibits the payment of such dividends. See "Dividend Policy."
DILUTION
Purchasers of the securities offered hereby will experience an immediate
substantial dilution in the net tangible book value of their investment. See
"Dilution."
13
<PAGE> 15
RECENT TRANSACTIONS
Prior to or concurrent with the consummation of the Offering, the following
transactions will be completed: (i) a 1 for reverse split of the Common Stock;
(ii) the conversion of all outstanding shares of the Company's Series A
Preferred Stock into shares of the Common Stock at a 1 to 1 conversion ratio;
(iii) the retirement of all shares of all other series of the Company's
preferred stock; and (iv) the transactions called for by the 1997 Agreement. See
"Certain Transactions." In addition, the Company anticipates that warrants for
the purchase of an aggregate of 661,494 shares of the Common Stock will be
exercised on or prior to consummation of the Offering, as such warrants must be
exercised or forfeited upon the occurrence of a public offering by the Company.
All of the foregoing transactions are referred to herein collectively as the
"Offering Related Transactions."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
being offered hereby, at an assumed initial public offering price of $ per
share, are estimated to be approximately $ million ($ million if the
Underwriters' overallotment option is exercised in full), after deducting
estimated underwriting discounts and commissions and offering expenses payable
by the Company.
The Company intends to use $12 million of the net proceeds of the Offering
to fund the cash portion of the 1997 Agreement. In addition, the Company will
utilize approximately $25 million to fund the construction of a facility for
manufacturing L-aspartic acid, in order to secure a consistent low-cost supply
of this key raw material for the production of TPA. The remaining net proceeds
of approximately $ million will be used to fund the build-up of its sales
and distribution network and for various working capital purposes. Pending such
uses, the Company plans to invest the net proceeds in investment grade,
interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying cash dividends or other distributions on
its Common Stock in the forseeable future, but intends instead to retain any
future earnings for reinvestment in its business. In addition, the payment of
cash dividends by the Company is prohibited by the 1997 Agreement so long as 25%
or more of the shares owned by the 1996 Investors continue to be owned by the
1996 Investors or certain transferees. Subject to any contractual restrictions,
any future determination to pay cash dividends will be at the discretion of the
Company's Board of Directors and will be dependent upon the Company's financial
condition, results of operations, capital requirements and such other factors as
the Company's Board of Directors deems relevant. There can be no assurance that
the Company will determine to pay any cash dividends in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
14
<PAGE> 16
CAPITALIZATION
The following table sets forth as of June 30, 1997, (i) the actual cash,
cash equivalents and short-term investments and total capitalization of the
Company and (ii) such cash, cash equivalents and short-term investments and
capitalization on a pro forma basis as adjusted to give effect to (a) the
Offering Related Transactions and (b) the sale by the Company of shares of
the Common Stock offered hereby at an assumed initial public offering price of
$ per share (after deducting estimated underwriting discounts and
commissions and expenses) and the application of the net proceeds therefrom as
described under "Use of Proceeds." The foregoing should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Recent Transactions," and the Consolidated Financial Statements
and notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments........... $ 7,578 $
======== =======
Debt:
Convertible debt(1)....................................... $ 23,471 $ --
Current portion of royalty obligation(1).................. 101 --
Royalty obligation, net of current maturities(1).......... 4,215 --
Senior note............................................... -- 11,000
-------- -------
Total debt............................................. 27,787 11,000
-------- -------
Shareholders' equity (deficit):
Common Stock, no par value, 60,000,000 shares authorized;
188,323 shares issued and outstanding, issued and
outstanding, as adjusted............................... 51
Series A Preferred Stock, no par value, 38,000,000 shares
authorized; 19,064,905 shares issued and
outstanding(2)......................................... 16,536 --
Series B Preferred Stock, no par value, 6,020,000 shares
authorized; 0 issued and outstanding(3)................ -- --
Series C Preferred Stock, no par value, 6,020,000 shares
authorized; 6,019,531 issued and outstanding(3)........ 1 --
Additional paid-in capital(1)............................. 6,489
Accumulated deficit(1).................................... (25,525)
Shareholder note receivable............................... (412)
-------- -------
Total shareholders' equity (deficit)................... (2,860)
-------- -------
Total capitalization........................................ $ 24,927 $
======== =======
</TABLE>
- ------------------------------
(1) Pro forma as adjusted to give effect to the transactions contemplated by the
1997 Agreement.
(2) All outstanding shares to be retired upon conversion to or exchange for
Common Stock at the closing of the Offering.
(3) All outstanding shares to be retired upon closing of the Offering.
15
<PAGE> 17
DILUTION
As of June 30, 1997, the pro forma net tangible book value (deficit) of the
Company was $( ) or $( ) per share of Common Stock outstanding. Net
tangible book deficit per share is determined by dividing the tangible net
deficit of the Company (tangible assets less liabilities) by the number of
shares of Common Stock outstanding. After giving effect to the Offering, the
Offering Related Transactions, and the use of proceeds as described herein, the
pro forma net tangible book value of the Company at June 30, 1997 would have
been approximately $ million or $ per share of Common Stock. This
represents an increase in net tangible book value of $ per share of Common
Stock for existing shareholders of the Company and an immediate dilution of
$ per share of Common Stock to new shareholders at the assumed public
offering price. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)....... $
Pro forma net tangible book value (deficit) per
share before the Offering......................... $
Increase in pro forma net tangible book value per
share attributable to new shareholders............
--------
Pro forma net tangible book value per share after the
Offering...............................................
--------
Dilution in net tangible book value per share to
new shareholders....................................... $
========
</TABLE>
- ------------------------------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses to be paid by the Company.
The following table summarizes, on a pro forma basis as of June 30, 1997,
the difference between the existing shareholders and new shareholders with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share paid
(before deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders.................. % $ % $
New shareholders.......................
--- --- ---- --- ------
Totals............................ % $ % $
=== === ==== === ======
</TABLE>
The foregoing calculations do not give effect to, as of June 30, 1997, (i)
shares of Common Stock issuable upon the exercise of outstanding warrants
at a weighted average exercise price of $ per share and (ii)
shares of Common Stock issuable upon the exercise of outstanding options at a
weighted average exercise price of $ per share. The foregoing also does not
give effect to shares of Common Stock reserved for issuance upon the
exercise of options that may be granted in the future under the Company's stock
option plans and stock-based incentive plans. See "Capitalization,"
"Management -- Long-Term Incentive Plans," "Description of Capital Stock" and
Note 10 of "Notes to Consolidated Financial Statements."
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected financial data is qualified by reference to, and
should be read in conjunction with, the financial statements and related notes
thereto appearing elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The selected
statement of operations data set forth below for the year ended December 31,
1996 and the balance sheet data as of December 31, 1996 are derived from the
financial statements of the Company audited by which are
included elsewhere in this Prospectus. The selected statement of operations data
for the years ended December 31, 1992, 1993, 1994 and 1995 and the balance sheet
data as of December 31, 1992, 1993, 1994 and 1995 are derived from financial
statements of the Company audited (in the case of the 1993, 1994 and 1995 data)
and compiled (in the case of the 1992 data)by
. The statement of operations data for the years ended December
31, 1992 and 1993, and the balance sheet data as of December 31, 1992, 1993 and
1994 are not included in this Prospectus. The selected financial data for the
six month periods ended June 30, 1996 and 1997 have been derived from unaudited
financial statements of the Company which, in the opinion of management, include
all adjustments (consisting of normal and recurring adjustments) which are
necessary to present fairly the results of these interim periods. Results for
the six months ended June 30, 1997 are not necessarily indicative of results to
be expected during the remainder of the current fiscal year or for any future
period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $ -- $ -- $ 10 $ 23 $ 2,142 $ 575 $ 1,387
Cost of products sold................... -- -- 8 20 2,067 686 1,147
------ ------- ------- ------- -------- ------- -------
Gross profit (loss)..................... -- -- 2 3 75 (111) 240
Selling, general and administrative
expenses.............................. 361 439 705 1,027 5,643 2,054 3,543
Research and development................ 194 425 721 1,001 5,038 752 1,053
------ ------- ------- ------- -------- ------- -------
Loss from operations.................... (555) (864) (1,424) (2,025) (10,606) (2,917) (4,356)
Interest income......................... 5 21 15 100 410 70 271
Interest expense........................ (67) (88) (113) (367) (2,648) (1,314) (2,840)
Research income......................... -- -- -- 511 -- -- --
------ ------- ------- ------- -------- ------- -------
Net loss................................ $ (617) $ (931) $(1,522) $(1,781) $(12,844) $(4,161) $(6,925)
====== ======= ======= ======= ======== ======= =======
Net loss per common share............... $ ( ) $ ( )
======== =======
Pro forma net loss...................... $ (7,044)(1) $(4,225)(2)
======== =======
Pro forma net loss per common
share(3).............................. $ ( )(1) $ ( )(2)
======== =======
Pro forma weighted average common shares
outstanding(4)........................
======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments........................... $ 857 $ 281 $ 37 $ 2,563 $ 14,793 $ 878 $ 7,578
Working capital (deficit)............... 357 (486) (583) 2,126 14,044 (2,121) 11,334
Total assets............................ 1,131 935 1,264 4,193 27,352 5,170 26,955
Total long-term liabilities............. 1,010 1,059 1,814 6,432 32,519 6,482 27,686
Total shareholders' (deficit)........... (521) (1,019) (1,228) (2,992) (9,556) (6,007) (2,860)
</TABLE>
- ------------------------------
(1) Pro forma net loss for the year ended December 31, 1996 excludes $5.8
million of non-recurring charges, consisting of the following: (i) $942,000
representing the fair value of warrants issued to providers of bridge loan
financing; (ii) $655,000 for the amortization of debt discount and deferred
financing costs incurred in connection with the 1996 Financing; (iii)
$350,000 for imputed interest on the royalty obligation incurred in
connection with the 1996 Financing; and (iv) $3.9 million for warrants to
purchase 712,299 shares of Series A Preferred Stock, with an exercise price
of $0.07 per share, which were issued to a provider of research and
development services. See "Certain Transactions."
(2) Pro forma net loss for the six-month period ended June 30, 1997 excludes
$2.7 million of non-recurring charges, consisting of the following: (i) $1.2
million for inducement warrants and preferred stock issued to holders of
convertible notes; (ii) $983,000 for the amortization of debt discount and
deferred financing costs incurred in connection with the 1996 Financing; and
(iii) $551,000 for imputed interest on the royalty obligation incurred in
connection with the 1996 Financing. See "Certain Transactions."
(3) Pro forma net loss per common share is computed based upon (i) pro forma net
loss as described in Notes (1) and (2) and (ii) pro forma weighted average
common shares as described in Note 4.
(4) Includes the weighted average number of common and common stock equivalents
as further adjusted to reflect all shares of Common Stock issuable in
connection with the Offering Related Transactions, but does not include the
Common Stock offered hereby. See "Recent Transactions" and "Certain
Transactions."
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto contained elsewhere in this
Prospectus.
OVERVIEW
The Company is the world leader in the development and marketing of thermal
polyaspartates, a new family of biodegradable, environmentally friendly polymers
with applications in agricultural, industrial and consumer markets. The
principal agricultural product is a crop nutrient absorption enhancer, sold
under the brand name AmiSorb(R), which has been shown to increase the
effectiveness of applied fertilizers. The Company is also developing products
using TPA that are designed to enhance the efficiency of herbicides and
insecticides, reducing the overall amounts of those products introduced into the
environment. The Company's performance chemical products are designed to be
replacements for certain existing chemicals, primarily nonbiodegradable
polyacrylates. Sales in the performance chemicals area have been limited thus
far to the water treatment and secondary oil recovery markets.
The Company was founded in 1990. Prior to 1995, the Company was considered
a development stage company for financial reporting purposes, as it was engaged
primarily in developing its products and identifying potential markets for those
products. The Company has begun the commercialization of TPA in various
applications, but only since 1996 has it had significant sales activity.
Manufacturing activity has thus far been limited to production at the pilot
plant in Bedford Park, Illinois. As of June 30, 1997, the Company had invested
$8.9 million for the construction of a new production plant in Peru, Illinois.
Since that date, the Company has invested an additional $1.3 million to complete
the plant. The facility is currently undergoing break-in and ramp up leading to
full operational activity of its one installed chemical reactor, which is
anticipated to be achieved in early 1998. The Peru plant is designed to
accommodate up to four additional chemical reactors, with a maximum combined
annual production capacity of 150 million pounds of TPA.
The Company historically has been financed by the sale of private equity
and convertible debt. In August 1996, the Company completed a $26 million
private placement of securities, including convertible debt, primarily with a
professional venture capital firm (the "1996 Financing"). In addition, in April
1997, the Company secured approximately $5 million from the sale of Series A
Preferred Stock to a group of insurance companies related to the agriculture
industry. The proceeds of these transactions have been used to finance the
construction of the new production plant and to fund operations and inventory
buildup. In connection with the 1996 Financing, the Company became obligated to
pay certain "royalty obligations" to the investors in that financing (the "1996
Investors"), equal to a percentage of the Company's sales for specified future
periods, and the 1996 Investors were issued certain warrants to purchase shares
of the Company's Series A Preferred Stock.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net sales. Sales in the first half of 1997 were $1.4 million compared to
$575,000 in the same period in 1996, an increase of 141%. 1997 results include
primarily sales of the Company's AmiSorb(R) brand product and are concentrated
on winter wheat, corn and cotton applications, whereas a year ago, the crop
application was primarily winter wheat.
Cost of products sold. Cost of products sold of $1.2 million for the first
half of 1997 compared to $686,000 in the same period in 1996, an increase of
67%, reflects the high costs of operation of the Company's pilot plant in
Bedford Park, Illinois and, in 1997, $228,000 of costs during the transition
from the pilot plant to the new production plant in Peru, Illinois. Negative
margin of $111,000 in the first six months of 1996 reflects the start-up nature
of the pilot plant's operations.
Selling, general and administrative expenses. Selling, general and
administrative expense of $3.5 million for the six months ended June 30, 1997,
compared to $2.1 million in the same period in 1996, an increase of
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72%, which reflects $727,000 of advertising expense associated with acceleration
of the advertising campaign in advance of the spring planting season, $115,000
of administrative costs associated with the start-up and formal dedication of
the Company's new manufacturing facility, $98,000 for various outside
consultants and $306,000 of additional salary and benefit expense related to an
increase in staff.
Research and development. Research and development costs of $1.1 million
for the six months ended June 30, 1997, compared to $752,000 in the same period
in 1996 an increase of 40%, was primarily due to an increase in research staff.
Interest income. Interest income for the first six months of 1997 was
$271,000, compared to $70,000 in the same period in 1996, an increase of 290%,
which includes interest on short term securities purchased following the
Company's 1996 and April, 1997 financings.
Interest expense. Interest expense for the six months ended June 30, 1997
of $2.8 million compared to $1.3 million in the same period in 1996, an increase
of 116%, includes in 1997 $1.2 million, representing the fair value of stock and
inducement warrants issued to the holders of convertible notes, $983,000 of
amortization of debt discount and deferred financing costs incurred in
connection with the 1996 Financing, $551,000 of imputed interest on the royalty
obligation incurred in connection with the 1996 Financing, and $115,000 of
interest expense on convertible notes. 1996 includes expense associated with
warrants granted in connection with bridge financing of $942,000.
Income tax expense. The Company is currently in a tax loss carry-forward
situation. Tax loss carry-forwards begin to expire in 2007. No benefit for the
losses in the periods has been recorded.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Net sales. Net sales increased from $9,600 in 1994 to $23,000 in 1995 to
$2.1 million in 1996. 1996 was the first year of significant product sales;
99.5% of such sales were from the agricultural market for the Company's
Amisorb(R) brand product primarily for application on winter wheat crops.
Cost of products sold. Cost of products sold increased from $8,100 in 1994
to $20,000 in 1995 to $2.1 million in 1996. The Company has operated from a
small scale pilot plant pending completion, break-in and production run up at
its plant in Peru, Illinois. The 3.5% gross margin achieved in 1996 reflects the
start-up nature of operations. Cost of sales in 1994 and 1995 were nominal,
reflecting the small batch volumes of product produced.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $705,000 in 1994 to $1.0 million in 1995
to $5.6 million in 1996. 1996 includes $368,000 of compensation expense relating
to Series A Preferred Stock options granted and vesting in 1996, and $380,000 of
compensation expense relating to common stock options granted and vesting in
1996. Employee costs increased by $1.2 million from $489,000 in 1995 to $1.7
million in 1996, reflecting increased staffing. Advertising costs increased from
$31,000 in 1995 to $1.3 million in 1996 due to the acceleration of the Company's
advertising campaign. Outside consultant costs increased by $622,000 to
$672,000, from $50,000 in 1995, and travel and entertainment costs increased
$314,000 to $407,000 in 1996, from $93,000 in 1995.
Research and development. Research and development expense increased from
$721,000 in 1994 to $1.0 million in 1995 to $5.0 million in 1996. 1996 research
and development expenses includes a charge of approximately $3.9 million of
compensation expense relating to the granting of a warrant to purchase 712,299
shares of Series A Preferred Stock to one of the Company's directors who is
developing pharmaceutical applications for the Company's products. This warrant
grant is a non-recurring item. See "Certain Transactions." The increase from
1994 to 1995 was primarily due to a research staff increase.
Interest income. Interest income increased from $15,000 in 1994 to $100,000
in 1995 to $410,000 in 1996, due to the additional short-term investments
available from the proceeds of the 1995 issuance of $4.8 million in convertible
notes, and the additional short term investments available following the 1996
Financing.
Interest expense. Interest expense increased from $113,000 in 1994 to
$367,000 in 1995 to $2.7 million in 1996. 1996 interest expense includes
$942,000 representing the fair value of warrants issued to providers of
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bridge loan financing, $655,000 of amortization of debt discount and deferred
financing costs incurred in connection with the 1996 Financing, $350,000 of
imputed interest on the royalty obligation incurred in connection with the 1996
Financing and $687,000 of interest expense on convertible debt issued prior to
August 1996. Interest expense increased in 1995 related to interest on
convertible debt at rates of 8.0% and 8.5%. 1994 interest of $113,000 reflects
primarily interest expense on notes and convertible notes at rates ranging from
5.25% to 8.66%.
Research income. 1995 research income of $511,000 represents research
income from Bayer AG of $370,000 and National Starch of $140,000. Research
revenues are not expected to recur.
Income tax expense. The Company has tax loss carry-forwards available and
no future tax benefit for the losses was recorded in 1996, 1995 or 1994. These
carry-forwards begin to expire in 2007.
LIQUIDITY AND CAPITAL RESOURCES
The Company has not yet generated positive cash flow from operating
activities. It intends to use a portion of the proceeds of the Offering to fund
the cash portion of the 1997 Agreement, to fund the construction of its proposed
L-aspartic acid plant, as well as the build-up of its sales and distribution
network and working capital requirements. The Company is examining the
availability of project financing to fund the costs of construction of the
proposed L-aspartic acid plant and, if such financing is available on
commercially attractive terms, may utilize such financing. In such case, a
portion of the Offering proceeds would become available for alternative uses,
such as expanding manufacturing capabilities, further investments in the
Company's sales and distribution network, and general working capital uses. The
Company has not paid dividends in the past and does not anticipate the payment
of dividends for the foreseeable future. Cash in excess of operating
requirements is invested in U.S. government securities with maturities of
generally less than three months and money market accounts with major banks.
Cash, cash equivalents and short term investments at June 30, 1997, were
$7.6 million, or $7.2 million lower than at December 31, 1996. The reduction in
cash, cash equivalents and short-term investments reflects a $4.7 million
investment in the Company's new production plant in Peru, Illinois, and the
working capital needs associated with operations in the period and the buildup
of inventory for the 1997 Fall and 1998 Spring planting seasons, offset by the
sale of $5.5 million in Series A Preferred Stock.
On September 30, 1997, the Company completed construction of its Peru,
Illinois TPA production plant and began test operations of its first chemical
reactor at that plant. The Company anticipates that it will expend an additional
$1.1 million to pay outstanding obligations related to this project. As of
September 30, 1997, the Company had commitments to purchase approximately
$800,000 in raw materials from two overseas suppliers prior to December 31,
1997. The commitments are denominated in U.S. dollars.
In 1994, the Company entered into a licensing agreement with a shareholder
for the use of patent rights. The licensing agreement requires the Company to
pay $7.5 million in cumulative royalties, based on a percentage of future
agricultural sales. As of June 30, 1997, no royalties have been paid under this
agreement. See Note 13 of "Notes to Consolidated Financial Statements."
The Company believes that the net proceeds from the sale of Common Stock
offered hereby, together with funds generated by operations, will provide
adequate cash to fund its anticipated cash needs over the near term.
SEASONALITY; QUARTERLY RESULTS
The Company may experience significant fluctuations in future quarterly
operating results due to a number of factors, including: (i) the introduction of
new products and the market response to those products, (ii) changes in product
pricing policies, (iii) changes in the level of marketing and other operating
expenses to support future growth, (iv) competitive factors, (v) seasonal
trends, (vi) relationships with distributors, (vii) weather patterns and
conditions, (viii) changes in demand for fertilizer and herbicide products in
the agriculture industry, and (ix) general economic conditions. Consequently,
quarterly revenues and operating
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results may fluctuate significantly, and the Company believes that
period-to-period comparisons of results will not necessarily be meaningful and
should not be relied upon as an indication of future performance.
The Company expects sales of its agriculture products to be seasonal,
reflecting the purchasing patterns of the agriculture industry, with sales
concentrated in the first and fourth calendar quarters. The Company believes
that the impact of this seasonality will be mitigated to some extent as sales
from its performance chemicals begin to comprise a larger percentage of its
total revenues. However, there can be no assurance that either sales from its
specialty products will increase as a percentage of total revenues or that such
an increase will reduce the impact of seasonality.
RECENT DEVELOPMENTS
Pursuant to an agreement reached with the 1996 Investors, which modified
the terms of their original agreements, the Company will, upon closing of the
Offering: (i) pay the 1996 Investors $12 million in cash out of the proceeds of
the Offering; (ii) issue to the 1996 Investors an $11 million principal amount
senior note, maturing on the fifth anniversary of its issuance, bearing interest
at the rate of 12% per annum, payable-in-kind at the Company's option for the
first two years; and (iii) issue to such investors 9,019,531 shares of the
Company's Common Stock. In exchange for the foregoing, the 1996 Investors will
relinquish their Convertible Subordinated Promissory Notes and related rights
and securities acquired by them in the 1996 Financing, including all shares of
all series of the Company's preferred stock, royalty interests, shortfall
warrants and stock in the Company's Agricultural Technologies, Inc. subsidiary.
See "Certain Transactions."
ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share" ("EPS"). Implementation of SFAS No. 128 is
required for periods ending after December 15, 1997. The standard establishes
new methods for computing and presenting EPS and replaces the presentation of
primary and fully-diluted EPS with basic and diluted EPS. The new methods under
this standard are not expected to have a significant impact on the Company's EPS
amounts.
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BUSINESS
THE COMPANY
Donlar is the world leader in the development and marketing of a new family
of environmentally friendly and biodegradable specialty polymers, known as
thermal polyaspartates ("TPA"). TPA is non-hazardous, non-toxic and
hypo-allergenic and has a potentially wide range of applications in
agricultural, industrial and consumer markets. Utilizing its proprietary
technology, the Company develops and markets new agricultural products that
significantly increase the effectiveness of fertilizers and is developing a
similar class of products designed to enhance the efficiency of pesticides. In
each case, TPA is not absorbed by the plant. In addition, the Company develops
products that management believes provide environmentally superior alternatives
to certain existing specialty chemicals used in many consumer and industrial
applications. Through extensive research and development, the Company has
assembled a patent portfolio of over 30 issued patents worldwide that protect
the Company's cost efficient production technology, the resulting products and
their methods of use. In addition, the Company has entered into strategic
alliances and joint development agreements with several companies, including
BASF, FMC Corporation and National Starch and Chemical Company, to increase its
penetration of both the agricultural and specialty chemicals markets. Management
believes that the combination of the Company's commercialization experience with
TPA and its portfolio of patents provides a significant competitive advantage in
pursuing identified market opportunities.
The unique aspect of the Company's technology is that TPA can be used
effectively in a wide range of applications and is environmentally friendly.
This versatility results from TPA's characteristics as a highly active molecule
with strong affinity for surfaces, together with a high capacity for holding
onto water. As a result of their negative electrostatic charge, TPA products
attract or repel particles or surfaces. These key properties make TPA ideal for
attracting and collecting nutrients (crop nutrition), concentrating herbicides
and insecticides (crop protection), controlling mineral scale (water treatment),
inhibiting corrosion (oil field chemicals), acting as a moisture retention agent
(superabsorbents), acting as a moisturizer for hair and skin (personal care),
preventing dirt particles from reattaching to textile surfaces (laundry
detergents) and potentially neutralizing major basic proteins in the human body
(allergy relief). While there are well-established products that currently
perform these functions in non-agricultural applications, TPA products are
readily biodegradable and in many cases provide the same or higher levels of
performance than those products. The Company knows of no existing technology
that provides benefits comparable to those of the Company's products in
agricultural applications.
The Company's commercialization efforts have focused on its crop nutrition
products. To support these efforts, the Company has conducted or commissioned
numerous studies and trials on winter wheat over the last three years. These
studies have confirmed the efficacy of the Company's AmiSorb(R) brand products.
Studies over the last two years on corn and cotton have produced similar
results. The purpose of these trials was to assess the efficacy of AmiSorb(R)
products under various agronomic conditions. Some of the variables that impact
the results of these studies and trials include: usage rate, fertility level,
soil type, hybrid type, irrigation vs. non-irrigation and method of application.
Results provide the Company with important information enabling it to refine the
optimum product usage rate and mode of application. During the most recent
growing season, farm field trials on winter wheat were conducted at 56 different
locations in 11 states using AmiSorb(R) products. The use of AmiSorb(R) products
at the currently recommended rate and application method resulted in increased
yields of up to 26 bushels per acre, with an average increase of 8 bushels per
acre, or approximately 18%. Initial farm field trials on corn were conducted in
1996 at 61 different locations in 10 states. Results for the trials demonstrated
yield increases from the use of AmiSorb(R) products of up to 60 bushels per
acre, with an average increase of 12 bushels per acre, or approximately 7%.
Results of the 1997 corn season are not available yet, but early assessments
indicate yield increases equal to or in excess of the prior year's results.
Initial field trials on cotton were also conducted in 1996 at 11 different
locations in 4 states and demonstrated yield increases of up to 690 pounds of
lint per acre, an average of 368 pounds of lint per acre, or approximately 40%.
Results for the 1997 cotton season are not available yet, but early evaluation
indicates yield increases similar to those obtained in 1996. All average
increases referred to in this paragraph were calculated on a per location basis
comparing land plots treated with AmiSorb(R) products to control land plots.
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In addition to its performance characteristics, the value of TPA technology
in agricultural applications resides in its environmental friendliness and
biodegradability. The use of TPA in these applications is expected to reduce
specific environmental concerns, including fertilizer leaching and run-off and
accumulation of pesticide residues.
It has been demonstrated that TPA is an effective and environmentally safe
replacement for certain specialty chemical compounds, including polyacrylates,
in many performance chemicals applications. Since polyacrylates and many other
specialty chemicals are not biodegradable, TPA is an attractive alternative,
particularly when used in environmentally sensitive areas. Management estimates
that the world market for polyacrylates and other products for which TPA appears
to be a viable substitute is approximately $2.2 billion annually.
In 1996, the United States Environmental Protection Agency ("EPA") awarded
the Company the first Presidential Green Chemistry Challenge Award in the small
business category for its role in the development, production and application of
TPA as a new and environmentally friendly polymer.
COMPETITIVE STRENGTHS
Management believes that the Company's development to date provides it with
a number of unique competitive advantages:
- COMMERCIALLY VIABLE PRODUCTS. The Company has successfully developed and
commercialized products for agricultural and industrial applications. The
efficacy of these products has been established in both laboratory and
field tests. In addition, the Company's strategic alliances and joint
development agreements enhance its ability to increase its penetration of
both the agricultural and specialty chemicals markets.
- ENVIRONMENTALLY FRIENDLY PRODUCTS AND TECHNOLOGY. The Company's products
are non-hazardous, non-toxic, hypo-allergenic and readily biodegradable,
and the TPA manufacturing process produces no harmful or hazardous waste
or emissions. In addition, TPA products are not absorbed by the plants.
- SIGNIFICANT BARRIERS TO ENTRY. Management believes that its extensive
patent portfolio, which covers its proven, cost efficient manufacturing
process, as well as its proprietary technology platform provide
significant barriers to entry to its potential competitors.
- EXPERIENCED MANAGEMENT TEAM. The Company's management team has an average
of over 25 years experience in the development and marketing of specialty
chemicals and agricultural products.
TARGET APPLICATIONS AND STRATEGIES
The Company's primary objective is to utilize its leadership position in
the polyaspartate market to expand its penetration of agricultural and
industrial applications of TPA products. With rising pressure on farmers to
increase crop yields cost effectively and in an environmentally friendly manner,
and continued pressure on industry and consumers to use environmentally friendly
products, management believes that there will be strong demand for its TPA
products. The Company's commercialization efforts for TPA products will focus on
crop nutrition, crop protection and performance chemicals applications. The
following provides an overview of these three applications, the key elements of
the Company's strategy for each application and the Company's manufacturing and
research and development strategies to support these applications.
Crop Nutrition. The Company's AmiSorb(R) products work by enhancing the
uptake of fertilizers and nutrients by agricultural crops. The benefits of this
process are earlier crop maturity, increased crop growth, improved crop yield,
and noticeable improvement in crop quality. The Company's near-term strategic
initiatives will be to:
- INCREASE AND FOCUS SALES EFFORT. The Company intends to expand
significantly its sales force over the near term and focus its efforts on
leading distributors. By expanding its sales force the Company will be
able to increase the number of its dealer and distributor relationships
and better educate the end user about its products. The Company is
focusing on a core group of distributors in order to maximize the
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effectiveness of its selling efforts. Management believes that a key to
achieving rapid sales growth will be its ability to educate distributors,
dealers and end users about the efficacy, cost-competitiveness and safety
of its products.
- EXPAND TARGET MARKET. While the Company is currently targeting the winter
wheat, corn and cotton markets in the U.S., management intends to target
numerous other crops, such as soybeans, fruits, vegetables and sorghum, as
soon as its sales force reaches the required size to service those markets
effectively. In addition, management believes that there are substantial
opportunities in international markets, and it intends to continue to
pursue strategic alliances with leading international agri-chemical
companies to capitalize on these opportunities. The Company recently
entered into a five-year cooperation agreement with BASF AG to develop and
distribute its crop nutrition products in Europe.
Crop Protection. The Company is dedicated to developing products that by
enhancing the absorption, and therefore the efficiency, of herbicides and
insecticides, reduce the overall amount of those chemicals introduced into the
environment. To exploit opportunities in this application, the Company will:
- COMPLETE PRODUCT DEVELOPMENT. The Company plans to continue the
development of new crop protection products based on its proprietary
polyaspartate technology. Management believes that the Company will be in
a position to begin the commercialization process in the near term.
- PURSUE MARKET OPPORTUNITIES. Management is evaluating several
alternatives for commercializing crop protection products. These may
include pursuing strategic alliances, joint ventures and licensing
agreements as well as establishing a direct sales force. Given the
substantial market opportunity, the Company is likely to pursue a number
of these alternatives in order to maximize its market penetration.
Performance Chemicals. The Company markets TPA as a biodegradable
substitute for chemicals currently used in water treatment, oil field chemicals,
coatings and dispersants, detergents and cleaners, and personal care and
superabsorbent applications. Its strategic goals are to:
- INCREASE MARKET PENETRATION. Management intends to follow a two-fold
strategy for marketing and distributing its performance chemicals products
that will combine joint ventures and strategic alliances with the
development of a direct sales force. Given the unique competitive dynamics
and customer base for each target market, management believes that it will
require both elements of this strategy to maximize its sales effectiveness
and profitability. The Company has already established a development
agreement with British Petroleum and distribution agreements with FMC
Corporation and National Starch and Chemical Company.
- EXPAND PRODUCT LINE. While it is currently pursuing the oil field and
water treatment markets in the U.S. and Europe, the Company is also in the
process of developing additional environmentally friendly TPA products for
other markets, such as detergents, personal care, superabsorbents and
coatings. Because the Company's existing TPA products have been proven to
be as effective as existing polyacrylate and other products, management
believes that increasing worldwide pressure on industry and consumers to
use environmentally friendly products will produce significant demand for
its products in these markets.
Manufacturing and Research & Development. In support of its
application-specific growth strategies, the Company will:
- ENHANCE RAW MATERIAL POSITION. Management intends to assure itself of a
consistent low-cost supply of its key raw material, L-aspartic acid, by
constructing an L-aspartic acid manufacturing facility. The Company has,
and expects to continue over the near term, purchase contracts with
existing suppliers of this key raw material.
- EXPAND MANUFACTURING CAPABILITIES. To support the Company's growth, the
Company will expand its manufacturing facilities with the addition of four
chemical reactors to its Peru, Illinois manufacturing facility as demand
for its products increases, construct an L-aspartic acid manufacturing
facility, and plan for the construction of a liquid process and
derivatives plant as new TPA products are developed.
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The Company's manufacturing strategy is based on modular expansion and
management believes that this expansion process can be accomplished with
no adverse impact on continuing operations.
- CONTINUE TO DEVELOP INNOVATIVE PRODUCTS. The Company will continue to
conduct extensive research and development activity in order to enhance
the Company's position as the world leader in TPA technology and new
product development.
The Company has also identified uses for TPA in the pharmaceutical field,
and has obtained patent rights to those uses. While the Company has determined
that, due to the significant testing and regulatory requirements involved,
commercial development in this area will occur at a later stage, it continues to
invest in research and development in this area.
COMPANY HISTORY
Organized in 1990 as Koskan Chemical Company and funded by a series of
private financings, the Company was successful in obtaining early patent
protection for processes to produce polyaspartates and for several methods of
use for that product. The Company recognized that, if produced in commercially
economic quantities, polyaspartates could be an efficient replacement for a
related class of specialty chemicals known as polyacrylates, as well as other
chemicals. In addition, during the course of their early research and
development activities, Company researchers discovered that polyaspartates
increase crop yields by enhancing nutrient uptake. The Company made the decision
to exploit this aspect of TPA chemistry directly in agriculture markets
following the determination by the U.S. Environmental Protection Agency that TPA
was not subject to regulation under the Federal Insecticide, Fungicide and
Rodenticide Act. More recently, the Company discovered that when combined with
herbicides or insecticides, the Company's TPA products enhance the efficiency of
those chemicals. Therefore, while maintaining required effectiveness, the
quantity of herbicide or insecticide can be significantly reduced. Furthermore,
preliminary medical research has indicated that TPA can be used in
pharmaceutical applications. In 1997, the Company acquired two patents covering
use of polyaspartates as potential asthma and allergy treatments.
AGRICULTURAL APPLICATIONS
INDUSTRY OVERVIEW
Background. Long-term demand for fertilizers, herbicides and insecticides
is driven primarily by demand for worldwide grain production, which is closely
correlated to world population growth. The world population is forecasted to
increase from 5.8 billion people in 1997 to over 6.6 billion people by 2007.
Rising world populations, along with rising income levels, will necessitate
higher grain production. The need to increase grain production will be further
accelerated by the current low levels of global grain stocks, which are at their
second lowest level in 40 years. In the absence of significant additional arable
land for planting, increased emphasis will be placed on more intensive farming
practices. These practices are increasingly dependent upon high-technology,
science-based agriculture.
North America, China and Europe are the major grain producers in the world
and account for the largest share of world fertilizer consumption. World
consumption of fertilizers in 1996 was over 141 million tons, with the U.S.
representing approximately 22 million tons, or 16% of the total. Fertilizers
enhance the fertility of soil by replacing essential nutrients that are absorbed
from soil by crops. The three primary nutrients that are essential to plant
growth are nitrogen, potash and phosphate. Fertilizers must be applied each year
because virtually all of their nutritional value to crops is consumed or lost
during each growing season.
In addition to applying fertilizers to enhance crop yields, farmers also
apply significant amounts of pesticides, which include herbicides, insecticides,
fungicides and nematocides, to protect their crops from the damage caused by
weeds and insects. Worldwide sales of pesticides were approximately $32 billion
in 1996. The products that have been the most successful in gaining market share
have principally been the newer, more environmentally friendly and efficacious
products.
Environmental Aspects. Because substantial amounts of fertilizer applied to
crops are not used by those crops, those unused nutrients make their way into
watersheds. As a result, supplies of potable water become
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contaminated. These fertilizers also cause accelerated algae growth in those
watersheds, leading to low oxygen levels in the water. Several state and local
regulatory authorities have instituted or proposed limitations on the use of
certain fertilizers in identified geographic areas. In addition, the build-up of
pesticide residues is a serious environmental problem associated with the
agricultural industry. The use of TPA in agricultural applications promises to
reduce these significant environmental problems.
CROP NUTRITION
Nutrient use efficiency is a critical issue in agricultural economics, as
is the environmental impact created by unutilized nutrients. TPA products are
applied with fertilizer, requiring no significant change to current farming
practices. The Company has been able to demonstrate that TPA has the ability to
enhance the uptake of macro and micronutrients, enabling plants to use more of
the available nutrients, mature earlier and produce higher yields. Studies
conducted by major U.S. universities and crop consultants and actual farm
applications have shown that TPA is effective as a nutrient absorption enhancer
in a wide variety of crops, including winter wheat, corn, cotton, soybeans,
sorghum, peppers, tomatoes, and lettuce. In addition, because the use of TPA in
conjunction with fertilizer results in increased uptake of that fertilizer by
crops, less fertilizer remains in the soil. As a result, less fertilizer leaches
into watersheds and less contamination occurs.
The first polyaspartate product introduced by the Company for agricultural
application is based on the active ingredient called Carpramid. Carpramid
defines specific TPA formulations related to molecular weight and physical and
chemical properties. Carpramid is commercialized in two forms, a liquid product
sold under the AmiSorb(R) trade name and AmiSorb(R) 10G, a granular formulation.
These products are formulated for use on winter wheat, corn and cotton. In the
future, the Company plans to vary the molecular weight or other physical and
chemical properties of its products for use on additional crops.
PRODUCT CHEMISTRY
The mobility and availability of nutrients (fertilizers) applied to the
soil are determined by soil type (sand, clay, loams, etc.), moisture, pH and
other conditions. In general, fertilizer is not a very efficient crop input, as
plants are inefficient users of fertilizer. Typically, plants utilize only
50%-60% of nitrogen and only 40%-50% of phosphate and potash.
TPA works by attracting nutrients and facilitating their conveyance to the
plant's root system. TPA is characterized by a highly negative charged polymer
chain and a high capacity (10 to 20 times higher than most soils) to attract
positive charged ions. When TPA is applied with liquid fertilizers or in the
proximity of dissolving solid fertilizers in the soil, it acts "like a magnet"
to quickly attract nutrients made up of positive charged ions, including
potassium, ammonium, calcium, magnesium, zinc, manganese, and iron. Once it has
attracted a layer of positive charged ions, TPA is also able to attract
nutrients made up of negative charged anions such as phosphates, nitrates,
chlorides, and sulfates. This process, known as ionic double layering, creates
zones of nutrient concentration higher than those in the surrounding soil. These
reservoirs of high nutrient concentration provide an enhanced supply of
nutrients to the plant.
TARGETED CROPS
In order to maximize the effectiveness of its initial commercialization
efforts, the Company is concentrating on three of the country's largest crops in
terms of acres planted. For a full description of the field trials discussed
below, see "Business -- The Company."
Winter Wheat. The Company has targeted winter wheat as one of the initial
crops for its marketing efforts because it represents the world's largest, and
the United States' second largest, agricultural product in terms of planted
acres, with approximately 570 million acres of winter wheat planted worldwide in
1996, of which 57 million acres was planted in the U.S. During the most recent
growing season, farm field trials on winter wheat were conducted at 56 different
locations in 11 states using AmiSorb products. The use of AmiSorb products at
the currently recommended rate and application method resulted in increased
yields of up to 26 bushels per acre, with an average increase of 8 bushels per
acre, or approximately 18%. The Company's first commercial sales for a winter
wheat crop planting season (Fall 1996-Spring 1997) consisted
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<PAGE> 28
of 50,000 gallons to 200 end users, covering 150,000 acres of winter wheat.
Donlar has initially targeted its sales efforts on 12 states that represent
nearly 80% of total U.S. acres of winter wheat planted.
[Insert Bar Graph Showing Winter Wheat Results]
Corn. The second primary crop targeted by the Company is corn. Corn is the
world's third largest, and the United States' largest, agricultural product in
terms of acres planted, with 350 million acres of corn planted worldwide in
1996, of which 73 million acres were planted in the U.S. Initial farm field
trials on corn were conducted in 1996 at 61 different locations in 10 states.
Results for the trials demonstrated yield increases from the use of AmiSorb
products of up to 60 bushels per acre, with an average increase of 12 bushels
per acre, or 7%. Results of the 1997 corn season are not available yet, but
early assessments indicate yield increases equal to or in excess of the prior
year's results.
[Insert Bar Graph Showing Corn Results]
Cotton. The third primary crop targeted by the Company is cotton. Cotton is
the world's fifth largest, and the United States' fourth largest, agricultural
product in terms of acres planted, with 88 million acres of cotton planted
worldwide in 1996, of which 16 million acres was planted in the U.S. Initial
field trials on cotton were conducted in 1996 at 11 different locations in 4
states and demonstrated yield increases of up to 690 pounds of lint per acre, an
average of 368 pounds of lint per acre, or approximately 40%. Results for the
1997 cotton season are not available yet, but early evaluation indicates yield
increases similar to those obtained in 1996.
[Insert Bar Graph Showing Cotton Results]
Other Crops. The effects of TPA on many other crops, including soybeans,
sorghum, vegetables, trees and vines, have been and will continue to be tested.
Initial test results with each of these crops have shown yield improvement and
potential economic returns similar to or higher than those resulting from the
use of AmiSorb(R) products on winter wheat, corn and cotton. Initial
commercialization efforts with respect to these crop applications are in
progress. However, full commercialization in any of these areas is not expected
to begin before 2000.
SALES AND DISTRIBUTION
The Company has positioned its products as new agricultural inputs that
provide significantly increased returns to growers. The Company believes that
successful trial usage and word-of-mouth endorsement by innovative growers, in
conjunction with marketing support from the Company, will be key factors in its
ability to successfully achieve rapid market acceptance of its products.
Management believes that the optimal method for achieving its domestic sales
strategy is to develop a direct sales force that will market and sell its
products to agricultural distributors and dealers, in part through education of
these parties and end users. In international markets, the Company has
determined to rely on strategic alliances with major international agricultural
distributors.
North America. The Company currently markets and sells its AmiSorb(R)
products through agricultural distributors and dealers. Distributors include
cooperatives, as well as national and regional distributors. Many of these
distributors sell through their own retail outlets as well as to independent
dealers. There are approximately 10,000 to 15,000 agricultural dealers in the
United States, including cooperatives. The Company currently plans to focus its
sales efforts on 10 to 14 distributors, with a combined customer base of
approximately 3,200 dealers, that have a reputation for being leaders in
marketing innovative and value-added specialty products.
In the U.S., the Company has established a sales force of nine salespersons
organized into four geographical regions. By the first quarter of 1998, the
Company expects to increase its U.S. sales force to 18 salespersons. The Company
is also in the process of forming a Mexican subsidiary for the purpose of
marketing and selling its AmiSorb(R) products in Mexico. The Company currently
sells products in Mexico through a major international distributor. In addition,
the Company is conducting marketing and product registration studies in the
Canadian market.
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<PAGE> 29
International. Although the Company's focus in the near term is the North
American agricultural market, the Company is in the process of developing its
substantial international market opportunities. The Company plans to target
areas where there is significant pressure to produce higher crop yields due to a
limited availability of arable land. Management believes that market entry into
these countries may be most effectively pursued through strategic alliances with
existing agricultural companies. In order to pursue international opportunities,
the Company intends to establish a European sales office to manage activities
for that agricultural area.
In April, 1997, the Company entered into a five-year agreement with BASF AG
providing for BASF to conduct agricultural field trials of its AmiSorb(R)
products in various regions of Europe beginning in 1997. Subject to satisfactory
commercial feasibility studies, BASF will be entitled to act as the exclusive
distributor of AmiSorb(R) products on a region-by-region basis throughout
Europe. Other regions of the world will be handled on a case-by-case basis.
CROP PROTECTION
The Company has identified another major use for its TPA technology in the
rapidly changing crop protection industry. The worldwide crop protection market
reached record sales of $32 billion in 1996. North America, which is the largest
market for pesticides (herbicides, insecticides, fungicides and nematocides),
represents close to $10 billion of this total and grew by approximately 6.5% in
1996. Europe represents the second largest market for pesticides with 1996 sales
of approximately $9 billion. Most of the growth in this industry can be
attributed to the introduction of new products. In response to increasing public
and governmental pressure to reduce or even eliminate the use of certain
pesticides known to be serious pollutants, the pesticide industry is seeking to
develop more environmentally friendly products.
The Company has conducted preliminary field and laboratory tests indicating
that certain variations of TPA enhance the absorption, and therefore the
efficiency, of insecticides and herbicides. The potential to significantly
reduce the application levels of both herbicides and insecticides promises
reduction of the overall amount of these chemicals introduced into the
environment.
The Company was recently granted two U.S. patents covering methods of use
of certain polyaspartates that result in an increase in the uptake of herbicides
and insecticides. The Company expects these patents, together with a continued
research and development effort, to provide a framework for its proprietary
polyaspartate technology to bring to market a new class of crop protection
products. Preliminary university and field studies on both corn and soybeans
have shown no deleterious effect to crop production and fertility, while
maintaining weed control at reduced pesticide usage rates. The Company believes
that the mechanisms involved are similar to those evidenced in the crop
nutrition area and support the commercialization of crop protection products
incorporating the characteristics of weed and insect control, lower levels of
active ingredients, reduced environmental impact and equal or lower costs to the
end-user. The Company is conducting further tests to corroborate the manner in
which TPA enhances the uptake of herbicides and insecticides and believes it
will be in a position to begin commercializing products in the near term.
SALES AND DISTRIBUTION
Management is evaluating several alternatives for commercializing crop
protection products. These include pursuing strategic alliances, joint ventures
and licensing agreements, as well as establishing a direct sales force. Given
the substantial market opportunity, the Company is likely to pursue a number of
these alternatives in order to maximize its market penetration. The Company's
objective at this time is to evolve the present knowledge into a viable business
opportunity based on economic and environmental benefits.
PERFORMANCE CHEMICALS APPLICATIONS
TPA has been demonstrated to be an effective and environmentally safe
replacement for certain specialty chemical compounds, including polyacrylates,
in many performance chemicals applications. Laboratory studies have shown that
TPA products are readily biodegradable. Since polyacrylates and many other
specialty chemicals are not biodegradable, TPA is an attractive alternative,
particularly when used in environmentally
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<PAGE> 30
sensitive areas. It is estimated that the world market for polyacrylates and
other products for which TPA appears to be a viable substitute exceeds $2.2
billion annually.
PRODUCT CHEMISTRY
As a result of its negative charge, TPA has the power to attract and hold,
or to repel. These properties can be modified by varying the length of the
polymer chain. TPA's ability to attract and hold is very useful in managing the
scaling effects of calcium and magnesium salts that are present in essentially
all water. This is commonly known as "water hardness." The ability to repel is
useful in keeping particles suspended and is valuable in providing dispersing or
suspending properties to particles in applications such as paints and pigments.
The polymer chain can also be made into a gel that has the ability to hold water
like a sponge. The water absorption effect of TPA is dramatic in that it can
hold nearly 100 times its own weight in water. While other specialty chemicals
exhibit similar properties, the key to the value of TPA as an alternative to
those chemicals is that TPA breaks down harmlessly in the environment after
performing its functions.
TARGET APPLICATIONS
Donlar has initially identified six distinct specialty chemicals markets
for application of its TPA technology. These markets are water treatment, oil
field chemicals, superabsorbents, personal care, coatings and dispersants, and
detergents and cleaners. The Company's products can be formulated with varying
molecular weights in order to specifically serve each target market.
Water Treatment. Water hardness is a major problem for applications
involving large quantities of water used for cooling, such as industrial or
commercial cooling towers. The natural evaporation of the water causes the
calcium and magnesium to increase in concentration, eventually adhering to the
cooling surfaces and inhibiting heat transfer, clogging pipes, and causing
corrosion. The same effect is seen when large quantities of water are pumped or
transferred through pipes, such as in mining operations. TPA is an ideal
compound for scale and corrosion inhibition and dispersancy for many industrial
water treatment applications. In Company conducted tests, Donlar's TPA products
have demonstrated significant performance improvements in scale inhibition
compared to commonly used polyacrylates. Working with Henkel Corporation, the
Company has established the first commercial specialty chemical application for
TPA, scale inhibition for pipes and pumps used to pump seepage and drilling
water out of abandoned mines in Germany. TPA is the only product known to the
Company that fulfills the region's requirement for an environmentally friendly
product that can be discharged directly into the waterways.
Current competing water treatment formulations include polyacrylates as
scale inhibitors, but also require the addition of other compounds as corrosion
inhibitors. Because TPA performs both functions, management believes that it
will be a cost effective and biodegradable replacement for existing water
treatment formulations. Management estimates that the current water treatment
market for polyacrylates and other products for which TPA appears to be a viable
substitute exceeds $250 million annually worldwide.
Oil Field Chemicals. In off-shore secondary oil recovery operations, sea
water is pumped into the oil field to increase oil production. However, sea
water both corrodes and causes scale to accumulate on the inside surface of the
water injection pipes. TPA's capacity to simultaneously act as both a scale and
corrosion inhibitor make it ideally suited as a biodegradable replacement for
currently used polyacrylate-based compounds in this application. Management
estimates that the current market for polyacrylates in oil production is
currently 800 million pounds per year, for an approximate worldwide market size
of $350 million.
British Petroleum is expected shortly to commence testing of the Company's
TPA product as a scale and corrosion inhibitor on one of its oil platforms in
the North Sea. Management estimates that usage of current scale and corrosion
inhibitors in the North Sea alone exceeds 50 million pounds per year.
Superabsorbents. TPA is a highly effective superabsorbent that can be used
as a biodegradable, substitute for polyacrylates. Management estimates that the
current worldwide market for polyacrylates used in superabsorbents is $1.3
billion. There are four large and growing superabsorbents markets: baby diapers,
adult incontinence products, feminine hygiene and other markets such as cat
litter, landfill liners, moisture
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<PAGE> 31
control in the cable and packaging industries and fire fighting. Molnlycke, AB,
one of Europe's largest manufacturers of diapers is currently testing the
Company's TPA products in superabsorbent applications.
Personal Care. Certain TPA products provide enhanced performance
characteristics when used in hair care, cosmetics and skin care products,
without negative environmental impact. These characteristics include
conditioning, antistatic properties, increased hair volume, anti-irritancy,
humectancy, water proofing and foam stability. The Company estimates a market
potential for TPA products in personal care of approximately $80 million
annually worldwide.
Coatings and Dispersants. TPA products are also well suited to improve
suspension properties of small particles in a variety of coatings and
dispersants applications. These properties are important in paints, pigments,
food concentrates, toothpaste, pesticide blends and drilling muds used in oil
recovery operations. Because of its biodegradability, TPA is an attractive
alternative to compounds currently serving this market. Management estimates
that the market for polyacrylates in these applications is $50 million annually
worldwide.
Detergents and Cleaners. TPA products act as encrustation inhibitors and
anti-redeposition agents in detergent applications. TPA is comparable in
performance to polyacrylates in these applications, with the added benefit of
being biodegradable. The Company is developing a manufacturing process that will
make TPA cost-competitive with polyacrylates, while at the same time meeting the
required color and other formulation standards demanded by detergent companies.
Management estimates that the current market for polyacrylates in detergent
applications is in excess of $200 million annually worldwide.
With respect to superabsorbents, personal care, coatings and dispersants
and detergents and cleaners, the Company will be unable to undertake large scale
commercialization efforts prior to constructing a liquid process and derivatives
plant for the production of those products. The Company will require additional
sources of funding in order to construct such a plant and, if such funding is
available on commercially attractive terms and the Company's research and
development efforts continue to show positive results, the Company may undertake
to construct such a plant in the foreseeable future. In the absence of such
funding or positive research results, the Company will not fully commercialize
products for these applications over the near term.
SALES AND DISTRIBUTION
The Company's primary marketing and distribution strategy for performance
chemicals is to develop strategic alliances with major international enterprises
having marketing and distribution strength in each of the Company's potential
market sectors. In addition, the Company may selectively undertake direct sales
efforts to maximize market opportunities on a market-by-market basis.
In 1993, the Company entered into a development agreement with BP
Exploration Operating Company Limited ("BPX"), an affiliate of British
Petroleum, pursuant to which BPX will evaluate TPA products in the control of
scale and corrosion in oil pipelines. Under the terms of this agreement, BPX
will be entitled to a nonexclusive, royalty-free worldwide license for use of
the TPA products in that application, and Donlar will be the exclusive supplier
of BPX's requirements of those products. This agreement expired by its terms in
February 1997, but the parties continue to operate under this agreement pending
execution of a new agreement, identical in its terms.
In 1996, the Company granted to FMC Corporation (UK) Limited an exclusive
right to distribute TPA products in the oil field industry for use as a
corrosion and scale inhibitor. In order to maintain its exclusivity, FMC is
required to purchase increasing minimum annual quantities of TPA product from
the Company. FMC Corporation currently has a major presence in the oil field
chemical service business (particularly in the environmentally sensitive North
Sea region), supplying an extensive line of products to key oil field chemical
service companies.
The Company entered into joint technology development and distribution
agreements with National Starch and Chemical Company ("National Starch") in 1996
to provide for joint research and development activities as well as distribution
of TPA products. Under the terms of these agreements, the Company has
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granted National Starch exclusive rights with regard to TPA product derivatives
in cosmetics, paper, adhesives, textile pre-treatment, water treatment/corrosion
control, industrial dispersants, detergents, cleaning products for industry and
institutions and industrial dispersants, while the parties share rights to TPA
product derivates in the pharmaceuticals field. Donlar has reserved the fields
of agriculture, superabsorbents and oil field chemicals from the provisions of
these agreements. The parties will jointly own and use technology developed by
them under the agreements in return for cross-royalty payments. Donlar is to be
the exclusive supplier of TPA products to National Starch for its sales in these
fields.
PHARMACEUTICAL APPLICATIONS
Medical researchers have identified pharmaceutical applications for
polyaspartates ranging from blood plasma substitutes to allergy and asthma
treatments to antibiotic extenders. Dr. Gerald Gleich, Professor of Immunology
and Medicine at the Mayo Medical School in Rochester, Minnesota, recently was
granted two patents relating to the use of polyaspartates in the treatment of a
wide variety of allergic conditions. In an effort to expedite research and
development and possible subsequent commercialization of TPA in pharmaceutical
applications, the Company and Dr. Gleich entered into an agreement whereby the
Company purchased these patents and named Dr. Gleich as Vice President of
Research of its subsidiary, Donlar Pharmaceuticals Corporation. In return for
those patents, Dr. Gleich was granted a 10% equity interest in Donlar
Pharmaceutical Corporation and the right to receive royalties, at rates ranging
from 0.5% to 2.0%, on sales of products based on those patents, to a maximum
aggregate of $10 million. Dr. Gleich's research has shown that polyaspartates
neutralize the major basic protein that is believed to be the primary cause for
development of allergic reactions resulting in asthma, hay fever,
conjunctivitis, and other conditions. Initial animal studies have demonstrated
the ability of polyaspartates to inhibit the onset of these allergic reactions.
The Company is currently funding toxicology studies of TPA necessary to apply
for Food and Drug Administration Phase I clinical testing. The Company expects
to expend as much as $2 million to $3 million over the next several years to
reach this stage of research. Because of the extensive regulatory process
involved, the Company does not foresee commercialization of its TPA products for
pharmaceutical purposes over the near term.
RAW MATERIALS
The principal raw material in the Company's TPA products is L-aspartic
acid. There are a limited number of suppliers worldwide and substantially all of
the commercially available L-aspartic acid is produced by non-domestic sources.
The sources of substantially all of the L-aspartic acid used by the Company are
in the People's Republic of China. The Company forward purchases L-aspartic acid
from these sources in order to ensure a stable supply over the near term. Based
on management's estimates of the Company's increased production of polyaspartate
products over the foreseeable future, management believes that its requirements
for L-aspartic acid will outstrip the world merchant supply by the year 2000.
The Company intends to utilize approximately $25 million of the proceeds of
the Offering to construct an L-aspartic acid manufacturing facility, to be
located on its Peru site. The Company intends to thereby ensure itself of a
captive supply of this key raw material at a lower cost and in sufficient
quantities to meet its anticipated requirements. The Company anticipates that
this facility will be capable of producing 47 million pounds of L-aspartic acid
annually. The Company expects to break ground for this facility by late 1998, to
complete the facility in 2000 and to begin full scale production at this
facility in 2001. There are a number of proven technologies for the production
of L-aspartic acid, all of which are proprietary to industrial manufacturers.
The Company expects to license one of these production technologies for this
plant's operations. Management believes that it will be able to do so on
economically acceptable terms and is currently in discussions with manufacturers
concerning such licensing arrangements.
Once this L-aspartic acid plant is completed, the Company will have to
provide for a stable supply of maleic anhydride, a basic raw material in the
manufacture of L-aspartic acid. There are a number of suppliers of maleic
anhydride worldwide and the Company is currently in discussions with several of
these suppliers. The production of L-aspartic acid from maleic anhydride
involves the conversion of maleic anhydride to fumaric acid as a first step.
Subsequently, fumaric acid is converted to aspartic acid via an enzymatic
process.
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The production of L-aspartic acid will require the construction of a simple
waste treatment facility involving readily available equipment.
PROCESS
The Company's TPA products are manufactured using the following patented
process.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
-------------- ------------------- -----------------------
L-aspartic Heat Polysuccinimide Base chemical Polyaspartate (TPA)
acid ----------> (intermediate) ---------> (10%-60% solution)
-------------- ------------------- -----------------------
Water
- --------------------------------------------------------------------------------------------------------------
</TABLE>
In the Company's patented continuous process, L-aspartic acid is conveyed
as a powder to a thin film cascading reactor where heat is applied, yielding an
intermediate compound called polysuccinimide. In this step, water vapor, the
only by-product of the TPA manufacturing process, is produced. Polysuccinimide
is then mixed with water and a base chemical, such as sodium hydroxide or
potassium hydroxide. The finished or final product is a liquid solution
containing between 10% and 60% active sodium polyaspartate (TPA). Because there
are no hazardous emissions from this process or from the Company's current
manufacturing facilities, the need for any waste treatment facility is
eliminated.
MANUFACTURING AND FACILITIES
The Company's headquarters, located in Bedford Park, Illinois, consists of
approximately 11,000 square feet of office and laboratory space, and the pilot
plant described below. This property is leased by the Company from the Illinois
Institute of Technology (the "Landlord"). The Company's lease for this facility
expired in July 1997. The Company is currently negotiating with the Landlord for
a new lease and, until execution of such a lease, the Landlord is extending the
expired lease on a month-to-month basis.
The Company currently operates a pilot plant at its headquarters for the
production of TPA products. The pilot plant has the capacity to produce 13
million pounds of polyaspartate products annually, an amount sufficient for the
development and testing of such products, but not sufficient to meet anticipated
production requirements over the near term.
To meet its projected production requirements for TPA, the Company has
constructed a polyaspartate manufacturing facility in Peru, Illinois on a 40
acre parcel purchased by the Company in 1996. This 50,000 square foot facility
currently contains one chemical reactor, which is designed to produce 30 million
pounds of polyaspartate products annually. The facility is large enough to
accommodate five such reactors and the Company anticipates adding the other four
reactors serially over the next several years as demand for its products
increases. This expansion process is essentially modular and is not expected to
involve substantial engineering or technical expenses or delays. The facility is
currently undergoing break-in and ramp-up leading to full operational activity
(80% of maximum capacity) for its one installed chemical reactor, which is
anticipated to be achieved by April 1, 1998. The Peru, Illinois parcel is
sufficient in size to accommodate the Company's planned L-aspartic acid
manufacturing facility. The Company has an option to purchase an 80 acre parcel
contiguous to its current parcel. The Peru facility is strategically located
near barge, rail and road transportation facilities.
The Company leases warehouse space in strategic locations in Texas,
Arizona, Kansas, Florida and Indiana in order to provide its customers with a
proximate supply of the Company's products. In addition, the Company has
allocated space on its Peru, Illinois parcel for the construction of a liquid
process and derivatives plant, the completion of which will be necessary in
order to enable the Company to fully commercialize products for certain
performance chemical applications. This plant has yet to be designed, and the
Company will require additional financing in order to construct this plant.
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COMPETITION
In agricultural applications, TPA provides the end user with what the
Company believes to be a unique ability to realize improved economic returns
through the use of an environmentally friendly product, without the use of
genetic engineering or other similar techniques. However, competition in the
agricultural industry is intense. Competitors include major chemical and
pharmaceutical companies, as well as specialized biotechnology firms. Many of
these companies have considerably greater financial, technical and marketing
resources than the Company. In addition, universities and public and private
research organizations may develop competing technologies. However, the Company
knows of no existing technology that provides comparable benefits to
agricultural end users, and believes that its extensive portfolio of
agricultural patents provides a significant barrier to entry by potential
competitors.
In the performance chemicals field, the Company's TPA products compete
primarily with polyacrylates, the major producers of which are BASF and Rohm &
Haas. The Company believes that its TPA products currently are cost effective
substitutes for polyacrylates in oil field chemical and personal care
applications, in which the Company's products exhibit equal or superior
performance characteristics and also are environmentally friendly. However, the
Company will have to substantially lower its costs of production to be
competitive with polyacrylates in detergents and superabsorbents. The Company
believes it can substantially lower its production costs by constructing a
facility for the production of L-aspartic acid. The Company's patents do not
cover all possible applications of TPA in the specialty chemicals field. There
can be no assurance that a competitor will not develop patents on one or more
methods of use that will foreclose or limit the Company from introducing its TPA
products in a particular area of application, including those applications that
it has targeted for commercialization.
RESEARCH AND DEVELOPMENT
The Company's research and development department, consisting of 22
chemists and chemical engineers, including 9 Ph.D.'s and 10 others holding
advanced degrees, is organized into four groups as follows:
Corporate Research is responsible for developing new polyaspartate
technology and products as well as the processes to make them. These new
technology platforms include copolymers and derivatives. Additional
responsibilities of the Corporate Research group include the identification and
development of new raw materials and their sourcing.
The Pilot Plant Group is responsible for evaluating the commercial
viability and practicability of research laboratory developments on a commercial
production scale and scaling-up laboratory processes to a commercial level.
Two Applications Development Groups, one dedicated to the Company's
agricultural markets, and the other to the performance chemicals field, are
responsible for testing the efficacy in particular end uses of the technologies
developed by the other groups. The agricultural group evaluates the efficacy of
the Company's agricultural products in new applications. The performance
chemicals group simulates real world processes and tests the efficacy of the
Company's products against existing products.
PATENTS
The Company's TPA technology is protected through a family of patents and a
broad base of proprietary know-how. Donlar's United States patent portfolio
includes 26 issued patents, Notices of Allowance of Patentability for 3
additional patents, and 12 patents pending or in the process of being filed. The
Company holds 8 foreign patents and has numerous foreign patents pending or in
the process of being filed. These patents relate to the Company's manufacturing
techniques, composition of matter, and methods of use. Patents begin to expire
in the years 2008-2011. Donlar intends to continue to invest in research
necessary to extend and protect its patent portfolio.
The Company holds several different manufacturing and process-related
patents regarding polyaspartates. These include, but are not limited to,
processes involving a variety of starting raw materials, such as L-aspartic acid
and maleic anhydride, in both dry and solution processes, and with and without
catalysts. The Company's
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first patent was also the first U.S. issued patent covering the production of a
synthetic protein on a large scale or commodity basis. The Company holds patents
that specifically describe the composition of polyaspartates, including specific
structure and including its various salts, within a wide range of molecular
weights.
Method of use patents that pertain to performance chemicals include
dispersion and inhibition of mineral and metal oxide particulates in water-borne
systems used by the municipal and industrial process industry and oil and gas
production, as well as related applications found in detergents, personal care
and cosmetics, dispersants and pulp and paper making. Also included are
technologies that relate to the inhibition of corrosion of various metals,
representing the first use of a water-soluble polymer in typical water treatment
applications, and environmentally friendly superabsorbents for baby diapers,
adult incontinence products, medical fluids use, spill pickup and fire fighting
agents.
The Company holds several patents for various polyaspartates in the field
of agriculture, both in crop nutrition and crop protection. The crop nutrition
patents cover most plants, including grain and row crops, vegetables, fruits,
trees and ornamentals and methods, such as nutrient and seed coatings. The crop
protection patents cover all major classes of herbicides and insecticides.
The Company's joint development agreement with British Petroleum Co. Ltd.
("BP") provides that the Company will be the assignee for all technologies
developed in conjunction with BP in the water treatment area, including
corrosion inhibition and the formation of monomolecular films. Under its joint
development agreement with National Starch, National Starch owns all
intellectual property rights with respect to TPA product derivatives in the
fields of cosmetics, adhesives, textile pre-treatment, water treatment/corrosion
control, industrial dispersants, detergents and cleaning products for industries
and institutions, while the Company retains such rights and in the fields of
agriculture, oil field chemicals, superabsorbents. However, the parties
cross-license all such intellectual property rights. The Company and National
Starch share rights with respect to TPA product derivatives in the
pharmaceutical field.
GOVERNMENT REGULATION
All of the Company's products are registered, as all chemicals must be,
with the U.S. Environmental Protection Agency ("EPA") under the federal Toxic
Substances Control Act. However, EPA has determined that the Company's crop
nutrition products are not subject to regulation under the Federal Insecticide,
Fungicide and Rodenticide Act.
The Company's crop nutrition products are subject to approval by state
agricultural agencies prior to their distribution in the applicable state. The
Company has obtained approvals for such products from 45 states. Among the
states from which it has not received approval are California, Iowa and
Mississippi. The Company's performance data regarding its crop nutrition
products is currently under review by the agricultural agencies of such states,
and the Company knows of no reason why such approvals will not be granted once
sufficient data has been reviewed by the applicable agencies. As new crop
nutrition products are developed by the Company, such products may require
additional review and approval from state agricultural agencies. This process
takes up to three years.
Each foreign jurisdiction in which the Company anticipates marketing its
products maintains its own regulatory requirements governing the sale and use of
products such as those produced by the Company. The Company intends to rely to a
large degree on its strategic alliance partners to evaluate and effect
compliance with applicable regulations. In connection with its current European
marketing activities, the Company is relying on BASF to provide these services.
As the Company develops new formulations for its TPA products and combines
its TPA products with other products, such as herbicides and insecticides, those
products may become subject to additional review and approval requirements by
domestic and international regulatory authorities. However, the Company might
benefit from increased governmental regulation. Increased regulation of
fertilizers could benefit the Company, as the Company's AmiSorb(R) products
cause less fertilizer to remain in the soil, and increased regulation of
pesticides could benefit the Company, as the Company's products hold the
prospect of reducing the need for high volumes of pesticide.
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<PAGE> 36
EMPLOYEES
As of September 30, 1997, the Company had 56 full-time employees. These
include 27 full-time executive, sales and administrative employees, 20 full-time
research and development employees, and 9 full-time production employees. The
Company anticipates that its total number of employees will increase to
approximately 100 during fiscal year 1998, primarily as a result of bringing its
polyaspartate production facility on line and increasing commercialization of
its products. The Company's employees are not represented under any collective
bargaining agreement.
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The Company's executive officers, directors and key employees and their
respective ages and positions as of September 30, 1997 are as follows:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Larry P. Koskan............ 54 Chief Executive Officer, President and Chairman of the
Board
Bernardo N. Rico........... 57 Executive Vice President, Secretary and Director
Gerald E. Noonan........... 52 Vice President, Finance, Chief Financial Officer and
Treasurer
Robert P. Pietrangelo...... 56 President, Performance Chemicals Division
Joseph F. Prochaska........ 51 President, Agricultural Products Division
Robert W. Cooper(1)(2)..... 68 Director
Daniel M. Gill(2).......... 33 Director
Richard C. Lee(1)(2)....... 47 Director
Dr. Robert G. Martin(2).... 55 Director
Dr. Donald R. Sanders(1)... 48 Director
John R. Willis............. 48 Director
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Larry P. Koskan, the Company's founder, has served as a director, President
and Chief Executive Officer since its inception, and as Chairman of the Board
since 1992. Prior to founding the Company, Mr. Koskan held several research and
development and manufacturing positions during a 23 year career with Nalco
Chemical Company ("Nalco"). As Corporate Research Development Director for
Nalco, his duties included establishing large-volume market opportunities for
innovative, specialty polymers. He also served as Vice President of Research and
Development of Nalco's Water and Waste Treatment Division. Mr. Koskan holds a
B.S. in Education and Chemistry from the University of Kansas and an M.S. in
Organic Chemistry from Loyola University of Chicago and is the inventor or
co-inventor of over 20 U.S. patents.
Bernardo N. Rico joined the Company as Vice President of Sales and
Marketing in February 1993. In May 1993 he was elected a director, in September
1994 was appointed Executive Vice President and in 1995 was appointed Secretary.
Prior to joining the Company, Mr. Rico worked for Nalco for 23 years and held
various sales, marketing and management positions, including assignments in
Japan and as General Manager of Nalco's affiliate in Mexico (NalcoMex). Mr. Rico
holds a B.S. in Chemistry from the University of Madrid, Spain and an M.S. in
Environmental Engineering from Purdue University, where he was a Fulbright
Scholar.
Gerald E. Noonan joined the Company in April 1997 as Vice President Finance
and Administration and Treasurer and, in September 1997, was named Chief
Financial Officer. Prior to joining the Company,
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<PAGE> 37
Mr. Noonan was Vice President Finance of the National Accounts Division of
ProSource Distribution Services, Inc., formerly a division of The Martin-Brower
Company. Prior to joining The Martin-Brower Company in 1984 as its controller,
Mr. Noonan was with Price Waterhouse for 10 years, where he was a senior audit
manager. Mr. Noonan has a B.S. in Accounting from Quincy University and is a
Certified Public Accountant.
Robert P. Pietrangelo joined the Company in April 1997 as Vice President,
Sales and Marketing of the Company's Performance Chemicals Division. Prior to
joining the Company, Mr. Pietrangelo held various management positions in the
performance chemicals industry, including marketing manager with CPS Chemical,
and Strategic Business Unit Manager with Rohm & Haas Company. Mr. Pietrangelo
has a B.A. in Chemistry and Mathematics from LaSalle University and an M.B.A. in
Marketing and Finance from Drexel University.
Joseph F. Prochaska joined the Company in June 1997 as Senior Vice
President of the Company's Agricultural Products Division and, in October 1997,
was named President of that division. Prior to joining the Company, Mr.
Prochaska was President and Chief Executive Officer of Willmar Manufacturing, a
manufacturer of agricultural application equipment. Prior to that time, Mr.
Prochaska held various sales and marketing positions with Ciba-Geigy Corp. Mr.
Prochaska has a B.S. in Forestry/Agriculture from Michigan State University, an
M.B.A. from Capital University and an M.A. in Management from Claremont Graduate
School.
Robert W. Cooper has served as a director since June 1992. He is a
principal of Cooper-Pruyn Architects, Ltd., and President and Chief Executive
Officer of R.W. Cooper and Associates, a company providing engineering and
management services to the food processing, chemical and building materials
industries. Mr. Cooper is a Registered Professional Engineer in Illinois and is
a member of ASCE and the Illinois Society of Professional Engineers.
Daniel M. Gill has served as a director of the Company since August 1996.
Mr. Gill is a founder and Managing Director of Willis Stein & Partners, L.P.
Prior to founding Willis Stein, Mr. Gill served as Managing Director of
Continental Illinois Venture Corporation from 1989 through 1994. From 1986
through 1988, Mr. Gill worked in the Corporate Finance Department of Kidder,
Peabody & Co., Incorporated. Mr. Gill also serves as a Director of Racing
Champions Corporation and a number of privately held companies. Mr. Gill
received an M.B.A. from the University of Chicago Graduate School of Business
and holds a B.A. degree in Economics from Bucknell University.
Richard C. Lee has served as a director since June 1992. He is President of
Affiliated Steam Equipment Company, a manufacturer, representative and
distributor of steam related industrial heating and processing equipment. Mr.
Lee is the past President of the Chemical Equipment Sales Engineers Association
of Chicago and the acting President of the Alsip, Illinois Industrial District
Association. Mr. Lee holds a B.S. in Business Administration from Carthage
College in Kenosha, Wisconsin.
Dr. Robert G. Martin has served as a director since June 1992. Dr. Martin,
a cataract surgeon, is a principal of Carolina Eye Associates, a 15-office
ophthalmic practice. He is Chairman of the Board of the Society for Excellence
in Eye Care and past president of the American Board of Eye Surgery. Dr. Martin
holds a B.S. in Chemistry and an M.D. from the University of North Carolina at
Chapel Hill.
Dr. Donald R. Sanders has served as a director and consultant to the
Company since June 1992. He was elected President of Donlar Pharmaceuticals
Corporation in 1997. He is also director of the Center for Clinical Research in
Chicago. Dr. Sanders has been actively involved with the design, implementation
and presentation of scientific studies for the medical profession and FDA
petitions. Dr. Sanders hold a B.S. in Biological Sciences, an M.D. and a Ph.D.
in Pharmacology from the University of Illinois. Dr. Sanders also serves as a
director of STAAR Surgical Company.
John R. Willis has served as a director of the Company since August 1996.
Mr. Willis is a founder and Managing Director of Willis Stein & Partners, L.P.
Prior to founding Willis Stein, Mr. Willis served as President of Continental
Illinois Venture Corporation from 1989 through 1994. Prior to his tenure at
CIVC, Mr. Willis founded and served as a Managing Director of Continental
Mezzanine Investment Group,
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<PAGE> 38
following his service in various other senior lending positions at Continental
Bank, which he joined in 1974. Mr. Willis also serves as a Director of The
Petersen Companies, Inc. and a number of privately held companies. Mr. Willis
received an M.B.A. from the University of Chicago Graduate School of Business
and holds a B.S. degree in Agricultural Business Management from Purdue
University.
In addition, following the consummation of the Offering, the Company
intends to appoint at least one additional independent director.
KEY EMPLOYEES
Ronald P. Fister, age 49, joined the Company in June 1997 as Vice President
of Sales and Marketing for the Company's Agricultural Products Division. Prior
to joining the Company, Mr. Fister held a number of management positions in the
agriculture supply industry, including Vice President of Sales and Marketing of
Willmar Manufacturing, an agricultural application equipment manufacturer,
Director of Specialty Sales for Sandoz Agro, Inc., and various sales and
marketing positions with Ciba-Geigy Corp. Mr. Fister has a B.S. in Botany from
Georgetown College.
Dr. Larry Murphy, age 59, joined the Company in April 1996 as Vice
President of Global Research for the Company's Agricultural Products Division.
Prior to joining the Company, Dr. Murphy had served as Senior Vice President of
the Potash & Phosphate Institute. Dr. Murphy earned his B.S., M.S. and Ph.D.
degrees from the University of Missouri.
Dr. J. Larry Sanders, age 49, joined the Company as Vice President and
General Manager of its Agricultural Products Division in August 1995. He is
currently Vice President Research and Development of that division. Dr. Sanders
previously was Director of Marketing and Technical Services with American Plant
Food Corporation and worked for 13 years with the Potash and Phosphate Institute
of Canada, where he acted as Director of Eastern Canada and International
Coordinator (Asia). Dr. Sanders holds a PhD in soil fertility and plant
nutrition from the University of Arkansas and has authored over 150 articles and
papers.
BOARD OF DIRECTORS
The Company's directors are elected at the annual meeting of the Company's
shareholders to serve for one year terms. The Company's directors receive no
salaries or fees for their service in such capacity. From time to time the
Company has granted directors options to purchase shares of Series A Preferred
Stock pursuant to the Company's 1994 Plans. See "Long Term Incentive Plans --
The 1994 Plans." Pursuant to the 1997 Agreement, the Company and certain of its
principal shareholders (who together with the 1996 Investors, immediately prior
to the Offering, beneficially owned in excess if 66 2/3% of the outstanding
voting securities of the Company) have granted the 1996 Investors the right to
designate two members of the Company's Board of Directors and have agreed to
vote in favor of such designees. See "Management -- Principal Shareholders."
The Board of Directors has delegated certain of its authority to its Audit
and Compensation Committees. The members of the Audit Committee are Robert W.
Cooper, Daniel M. Gill, Richard C. Lee and Dr. Robert G. Martin. The Audit
Committee's responsibilities include making recommendations to the Board of
Directors regarding the selection of independent public accountants and
reviewing the plan and results of the audit performed by such accountants and
the adequacy of the Company's systems of internal accounting controls. The
members of the Compensation Committee are Dr. Donald R. Sanders, Robert W.
Cooper and Richard C. Lee. The Compensation Committee reviews the Company's
remuneration policies and practices, establishes the salaries and other
compensation of the Company's officers and administers the Company's stock
option plans and stock based incentive plan. The Company may from time to time
form other committees as circumstances warrant. Such committees will have
authority and responsibility delegated by the Board of Directors.
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<PAGE> 39
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the annual
compensation for services in all capacities to the Company for its fiscal years
ended December 31, 1996, 1995 and 1994, rendered by the Company's Chief
Executive Officer and the Company's other most highly compensated executive
officer (the "Named Executives").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
---------------------------------------- SECURITIES UNDERLYING
OTHER OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (NO. OF SHARES)
<S> <C> <C> <C> <C> <C>
Larry P. Koskan,..................... 1996 $185,813 $40,000 $ -- 90,834
President & Chief 1995 142,986 10,000 -- 61,000
Executive Officer 1994 120,346 -- -- 94,555
Bernardo N. Rico,.................... 1996 180,122 30,000 -- 45,000
Executive Vice 1995 141,676 15,000 -- 31,000
President 1994 137,393 -- -- 702,501
</TABLE>
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table summarizes certain information regarding options to
purchase Common Stock issued to the Named Executives during the Company's fiscal
year ended December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------
POTENTIAL
PERCENT OF REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE
UNDERLYING EMPLOYEES EXERCISE APPRECIATION FOR
OPTIONS IN FISCAL PRICE EXPIRATION OPTION TERM(1)
NAME GRANTED YEAR ($/SH) DATE -----------------
5% 10%
<S> <C> <C> <C> <C> <C> <C>
Larry P. Koskan................. 55,834 24.29% $0.30 May 30, 2006
35,000(2) 26.88% 5.00 May 30, 2006
Bernardo N. Rico................ 15,000 6.53% 0.30 May 30, 2006
30,000(2) 23.04% 5.00 May 30, 2006
</TABLE>
- ------------------------------
(1) The dollar amounts under these columns represent the potential tangible
value, before income taxes, of each option assuming that the market price of
Common Stock appreciates in value from the fair market value at the date of
grant to the end of the option term at five percent and ten percent annual
rates and therefore are not intended to forecast possible future
appreciation, if any, of the price of Common Stock.
(2) Represents options originally issued for the equivalent number of shares of
the Company's Series A Preferred Stock.
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<PAGE> 40
OPTIONS EXERCISED IN LAST FISCAL YEAR; FISCAL YEAR END OPTION VALUES
No options were exercised in the fiscal year ended December 31, 1996. The
following table summarizes certain information regarding year end option values
of the Named Executives.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
OPTIONS AT VALUE OF EXERCISABLE
DECEMBER 31, 1996 IN-THE-MONEY OPTIONS AT
(NO. OF SHARES) DECEMBER 31, 1996
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Larry P. Koskan............................. 181,389 -- $ 943,223 $ --
65,000(1) -- 92,500 --
Bernardo N. Rico............................ 503,167 225,334 2,643,225 1,183,217
50,000(1) -- 65,000 --
</TABLE>
- ------------------------------
(1) Represents options originally issued for the equivalent number of shares of
the Company's Series A Preferred Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1996, the Compensation Committee consisted of Dr. Donald
R. Sanders, Richard C. Lee, and Robert W. Cooper.
The following discussion of historical transactions describes the issuance
of shares of Series A Preferred Stock and securities exercisable for shares of
Series A Preferred Stock. Upon consummation of the Offering, all shares of
Series A Preferred Stock will be converted into the equivalent number of shares
of Common Stock, and all securities exercisable for shares of Series A Preferred
Stock will become exercisable for an equivalent number of shares of Common
Stock, in each case subject to the same vesting terms.
In 1995, the Individual Retirement Account of Dr. Donald R. Sanders
purchased an aggregate of $400,000 in principal amount of convertible promissory
notes of the Company in exchange for consideration in that amount. In connection
with the purchase of such promissory notes, Dr. Sanders was issued warrants for
the purchase of an aggregate of 25,000 shares of Common Stock, at an exercise
price of $0.30 per share.
On December 23, 1996, the Company prepaid various convertible promissory
notes in the aggregate principal amount of $700,000, together with accrued
interest in the amount of $147,199, held by the Individual Retirement Account of
Dr. Donald R. Sanders. At the time of their prepayment, such notes, including
both principal and interest, were convertible at various conversion prices into
an aggregate of 866,335 shares of Series A Preferred Stock.
On December 23, 1996, the Company issued to Dr. Donald R. Sanders warrants
to purchase 712,299 shares of the Company's Series A Preferred Stock at an
exercise price of $0.074 per share. These warrants expire on December 23, 2006.
Concurrently with the issuance of those warrants, Dr. Sanders purchased 154,036
shares of Series A Preferred Stock from the Company at a price of $5.50 per
share. Dr. Sanders paid for these shares with a non-interest bearing promissory
note in the principal amount of $847,199. Indebtedness of $412,199 remains
outstanding under this note. The Company expects this note to be repaid prior to
the end of 1997.
Dr. Donald R. Sanders is the owner of the Center for Clinical Research (the
"Center"). The Company has engaged the Center to perform consulting services
with respect to statistical analysis of research data. During 1996, the Company
paid the Center a total of $77,300 for such services and, in 1997, has paid the
Center a total of $45,000 for such services.
During 1996, Dr. Donald R. Sanders loaned the Company the sum of $100,000
and was issued warrants for the purchase of 53,846 shares of Series A Preferred
Stock. See "Certain Transactions."
R.W. Cooper & Associates, Inc., a company owned and controlled by Robert W.
Cooper, acted as general contractor and provided engineering consulting services
with respect to the construction of the Company's
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<PAGE> 41
Peru, Illinois manufacturing facility. R.W. Cooper & Associates, Inc. charged
the Company a total of $730,000 for such services in 1996 and $1.1 million for
such services in 1997. The Company has paid $644,000 of this amount and, in
September 1997, R.W. Cooper & Associates, Inc. was issued 83,605 shares of
Series A Preferred Stock, at an agreed price of $5.50 per share, in satisfaction
of the Company's obligations to date. See "Certain Transactions."
LONG TERM INCENTIVE PLANS
In 1994, the Company adopted two separate but virtually identical stock
option plans (collectively, the "1994 Plans") for the purpose of (i) attracting
and retaining the best available personnel for positions of substantial
responsibility; (ii) providing additional incentives to employees and
consultants of the Company and its subsidiaries and (iii) to promote the success
of the Company's business. In October 1997, the Company adopted a stock based
incentive plan (the "ECP" and, together with the 1994 Plans, the "Plans"), to be
effective upon consummation of the Offering, covering the Company's five most
highly compensated executive officers and other executives of the Company. The
summaries of the Plans set forth below are qualified in their entirety by
reference to the text of the Plans, which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
THE 1994 PLANS
The 1994 Plans (individually, "Plan I" and "Plan II") provide for the
issuance of options to purchase shares of the Company's Series A Preferred Stock
and Common Stock respectively. Upon consummation of the Offering, all options to
purchase shares of Series A Preferred Stock under Plan I will become options to
purchase the equivalent number of shares of Common Stock.
Administration. The Board of Directors is currently the administrator of
each Plan. Upon becoming subject to the Exchange Act, provision is made so that
administration is in compliance with Rule 16b-3 of the Exchange Act.
Eligibility. Employees, directors, consultants and advisors are eligible to
participate in the 1994 Plans. The administrator will select the individuals who
will participate in the 1994 Plans ("Participants") and determine the terms and
conditions of options granted, subject to the terms of the 1994 Plans.
Stock Options. Options granted under the 1994 Plans may be incentive stock
options ("ISOs") or nonqualified stock options. A stock option entitles a
Participant to purchase shares of Series A Preferred Stock under Plan I or
Common Stock under Plan II from the Company at the option price. Subject to
certain exceptions, the option price must be paid upon exercise in cash or cash
equivalent. The option price will be fixed by the Administrator at the time the
option is granted, but the price cannot be less than the fair market value of
the underlying share on the date of grant in the case of an ISO. The exercise
price of an ISO granted to any Participant who is a Ten Percent Shareholder (as
defined below) may not be less than 110% of the fair market value of the
underlying share on the date of grant. A Participant is a Ten Percent
Shareholder if he owns, or is deemed to own, more than ten percent of the total
combined voting power of all classes of stock of the Company or a related
entity. All options expire upon the date specified in any award agreement, which
may not exceed ten years from the date of grant, except that ISOs held by a Ten
Percent Shareholder may not be exercised after five years from the date of
grant.
Share Authorization. All awards made under the 1994 Plans will be evidenced
by written agreements between the Company and the Participant. A maximum of
1,000,000 shares of Series A Preferred Stock may be issued under Plan I and a
maximum of 3,000,000 shares of Common Stock may be issued under Plan II. The
number of shares covered by an option shall be adjusted, as the Board of
Directors deems appropriate, in the event of a stock dividend, stock split,
reverse stock spit, combination, reclassification or other similar event.
Outstanding Awards. The Company has outstanding options under Plan I
covering 630,226 shares of Series A Preferred Stock, at exercise prices ranging
from $0.44 to $5.50 per share. The Company has outstanding options under Plan II
covering 2,469,340 shares of Common Stock at exercise prices ranging from $0.23
to $0.30 per share.
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<PAGE> 42
THE ECP
Awards granted under the ECP are based on shares of Common Stock. The ECP
is administered by a committee appointed by the Company's Board of Directors.
After the completion of the Offering, the ECP will be administered by the
Compensation Committee of the Board of Directors. The ECP provides for the grant
of incentive and nonqualified stock options, stock appreciation rights,
restricted stock, performance shares and performance units (individually, an
"Award" or collectively, "Awards"). Only officers or certain salaried employees
of the Company with potential to contribute to the future success of the Company
or its subsidiaries will be eligible to receive Awards under the ECP. The
administrator of the ECP has the discretion to select the employees to whom
Awards will be granted, to determine the type, size and terms and conditions
applicable to each Award and the authority to interpret, construe and implement
the provisions of the ECP. The administrator's decisions will be final and
binding.
One million (1,000,000) shares of Common Stock may be subject to Awards
under the ECP, all of which may be in the form of stock options.
The terms of the Awards will be set forth in award agreements ("Award
Agreements"). These Awards are described below:
Stock Options. Options (each an "Option") to purchase shares of Common
Stock, which may be incentive or nonqualified stock options, may be granted
under the ECP at an exercise price (the "Option Price") determined by the
administrator of the ECP in its discretion, provided that the Option Price for
an incentive stock option may be no less than the fair market value of a share
of Common Stock on the date of grant. Each Option represents the right to
purchase one share of Common Stock at the specified Option Price. Options will
expire not later than 10 years after the date on which they are granted and will
become exercisable at such times and in such installments as determined by the
administrator of the ECP.
Stock Appreciation Rights. An Award of a stock appreciation right ("SAR")
may be granted under the ECP. Generally, one SAR is granted with respect to one
share of Common Stock. The SAR entitles the participant, upon the exercise of
the SAR, to receive an amount equal to the appreciation in the underlying share
of Common Stock. The appreciation is equal to the difference between (i) the
"base value" of the SAR (which is determined with reference to the fair market
value of the Common Stock on the date the SAR is granted), and (ii) the fair
market value of the Common Stock on the date the SAR is exercised. Upon the
exercise of a vested SAR, the exercising participant will be entitled to receive
the appreciation in the value of one share of Common Stock as so determined,
payable at the discretion of the administrator in cash, shares of Common Stock,
or some combination thereof.
SARs will expire not later than 10 years after the date on which they are
granted. SARs become exercisable at such times and in such installments as
determined by the administrator of the ECP.
Tandem Option/SARs. An Option and an SAR may be granted "in tandem" with
each other (a "Tandem Option/SAR"). An Option and an SAR are considered to be in
tandem with each other because the exercise of the Option aspect of the tandem
unit automatically cancels the right to exercise the SAR aspect of the tandem
unit, and vice versa. The Option may be an incentive stock option or a
nonqualified stock option. Each Option shall be coupled with one SAR.
Descriptions of the terms of the Option and the SAR aspects of a Tandem
Option/SAR are provided above.
Restricted Stock. An Award of restricted stock ("Restricted Stock") is an
Award of Common Stock that is subject to such restrictions as the administrator
of the ECP deems appropriate, including forfeiture conditions and restrictions
against transfer for a period specified by the administrator of the ECP. Prior
to the expiration of the restricted period, except as and only if provided by
the administrator of the ECP, a grantee who has received a Restricted Stock
Award generally has the rights of a stockholder of the Company, including the
right to vote and to receive cash dividends on the shares subject to the Award.
Performance Shares and Performance Units. A performance share Award (a
"Performance Share") and/or a performance unit Award (a "Performance Unit") may
be granted under the ECP. Each Performance Unit will have an initial value that
is established by the administrator of the ECP at the time of
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<PAGE> 43
grant. Each Performance Share will have an initial value equal to the fair
market value of one share of Common Stock on the date of grant. Such Awards may
be earned based upon satisfaction of certain specified performance criteria,
subject to such other terms and conditions as the administrator of the ECP deems
appropriate. Performance objectives will be established for the performance
period during which performance will be measured (the "Performance Period") and
may be based on net earnings, operating earnings or income, net income, absolute
and/or relative return on equity, capital invested or assets, earnings per
share, profits, earnings growth, revenue growth, comparisons to peer companies,
share price, total shareholder return, economic value added, customer
satisfaction, any combination of the foregoing and/or such other measures,
including individual measures of performance, as the administrator of the ECP
deems appropriate. Prior to the end of a Performance Period, the administrator
of the ECP, in its discretion, may adjust the performance objectives to reflect
an event that may materially affect the performance of the Company. The extent
to which a grantee is entitled to payment in settlement of such an Award at the
end of the Performance Period will be determined by the administrator of the
ECP, in its discretion, based on whether the performance criteria have been met
and payment will be made in cash or in shares of Common Stock in accordance with
the terms of the applicable Award Agreements.
Additional Information. Under the ECP, if there is any change in the
capitalization of the Company, a corporate transaction, a reorganization or a
partial liquidation of the Company, such proportionate adjustments as may be
necessary (in the form determined by the administrator of the ECP) to reflect
such change will be made to prevent dilution or enlargement of the rights with
respect to the aggregate number of shares of Common Stock for which Awards in
respect thereof may be granted under the ECP, the number of shares of Common
Stock covered by each outstanding Award and the price per share in respect
thereof. Unless otherwise provided in an Award Agreement, an individual's rights
under the ECP may not be assigned or transferred (except in the event of death).
An individual's rights under the ECP are subject to forfeiture for competitive
activity or activity that is inimical to the best interest of the Company.
The ECP will remain in effect until terminated by the Board of Directors
and thereafter until all Awards granted thereunder are satisfied by the issuance
of shares of Common Stock and/or the payment of cash or the ECP is otherwise
terminated pursuant to the terms of the ECP or under any Award Agreements.
Notwithstanding the foregoing, no Awards may be granted under the ECP after the
tenth anniversary of the effective date of the ECP. The Board of Directors may
at any time terminate, modify or amend the ECP; provided, however, that no such
amendment, modification or termination may materially adversely affect an
optionee's or grantee's rights under any Award theretofore granted under the
ECP, except with the consent of such optionee or grantee.
AGREEMENTS WITH EXECUTIVE OFFICERS AND KEY EMPLOYEES
On July 1, 1996, the Company entered into employment agreements with each
of Mr. Koskan and Mr. Rico, pursuant to which each has agreed to serve the
Company in his designated office for a period of five years, with an option on
the part of the executive officer to extend the term for an additional two
years. Under the terms of those employment agreements, Messrs. Koskan and Rico
are entitled to an annual base salary of $185,000 and $175,000, respectively,
subject to periodic review and potential increase by the Company. The employment
agreements provide that the respective officers are eligible for such cash bonus
and stock option plans as the Company may adopt, and provide for participation
in Company hospitalization, medical and term life insurance plans. Each
employment agreement provides that the officer will not compete with the Company
during employment and for a period of two years following termination of
employment and will maintain the confidentiality of the Company's proprietary
information.
Under the foregoing employment agreements, the officers are not entitled to
severance payments in the event of their voluntary termination of employment. In
the event of involuntary termination, death or disability, the officers are
entitled to receive a payment equal to their base compensation in the
immediately preceding twenty-four month period, and unvested options become
immediately vested.
The Company has engaged the services of Dr. J. Larry Sanders under the
terms of an employment agreement dated August 15, 1995. That agreement has a
stated term of five years and provides for a base
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<PAGE> 44
salary to Dr. Sanders of $160,000 per year, subject to annual review and
potential increase by the Company. Dr. Sanders is also entitled to participate
in incentive cash bonuses to be based on performance of the Company's
Agricultural Products Division in realizing certain goals established by the
Company's Board of Directors from year to year, as well as such other
hospitalization, medical, disability and life insurance plans as the Company may
adopt from time to time. Under the terms of that employment agreement, Dr.
Sanders was granted options under the Company's 1994 Plans to purchase up to
50,000 shares of Common Stock at a price of $0.30 per share. The options vest at
a rate of 20% per year over the five-year term of the employment agreement,
subject to acceleration in full if Agricultural Products Division sales exceed
$10 million between August 15, 1997 and August 15, 1998. Dr. Sanders's
employment agreement provides for a two year non-competition period following
termination of employment and the continuing maintenance of the confidentiality
of the Company's proprietary information.
Under the foregoing employment agreement, Dr. Sanders is not entitled to
receive severance payments in the event of voluntary termination or termination
by the Company for cause. In any such event, unexercised stock options are
cancelled. In the event of death or disability, all obligations to Dr. Sanders
cease as of the date of such occurrence, but Dr. Sanders is entitled to receive
such severance benefits, if any, as may then be provided for under Company plans
or policies. Any unexercised and unvested portions of any stock options will be
governed by the terms of the plan under which they were issued.
CERTAIN TRANSACTIONS
The following discussion of historical transactions describes the issuance
of shares of Series A Preferred Stock and securities exercisable for shares of
Series A Preferred Stock. Upon consummation of the Offering, all shares of
Series A Preferred Stock will be converted into the equivalent number of shares
of Common Stock and all securities exercisable for shares of Series A Preferred
Stock will become exercisable for an equivalent number of shares of Common
Stock, in each case, subject to the same vesting terms.
During 1995, Dr. Donald R. Sanders' Individual Retirement Account loaned
funds to the Company in exchange for a convertible promissory note. In
connection with that transaction, the Company issued warrants to Dr. Sanders for
the purchase of Common Stock. See "Compensation Committee Interlocks and Insider
Participation."
During 1996, the Company borrowed an aggregate of $2,600,000 from various
employees, directors and shareholders and in connection therewith issued
promissory notes in that aggregate amount, as well as warrants to purchase an
aggregate of 553,847 shares of Series A Preferred Stock. In connection with this
transaction, Jerilyn K. Koskan, the record owner of in excess of 5% of the
Series A Preferred Stock, loaned the Company $75,000 and received warrants for
the purchase of 11,538 shares of Series A Preferred Stock, and Dr. Donald R.
Sanders loaned the Company $100,000 and received warrants for the purchase of
53,846 shares of Series A Preferred Stock. The warrants issued to Mrs. Koskan
and Dr. Sanders currently are exercisable at a price of $4.50 per share.
On December 23, 1996, the Company prepaid various convertible promissory
notes held by the Individual Retirement Account of Dr. Donald R. Sanders, a
director of the Company, and issued warrants to purchase the Company's Series A
Preferred Stock to Dr. Sanders. In addition, Dr. Sanders purchased shares of
Series A Preferred Stock and is the owner of an entity that the Company has
engaged to perform consulting services. See "Management -- Compensation
Committee Interlocks and Insider Participation."
Between September 1994 and November 1995, Robert G. Martin, a director of
the Company, advanced the Company sums in the aggregate amount of $2,100,340, in
exchange for various promissory notes, in response to the Company's capital
raising activities and, in connection therewith, was issued warrants for the
purchase of an aggregate of 118,930 shares of Series A Preferred Stock and
62,217 shares of Common Stock.
R.W. Cooper & Associates, Inc., a company owned and controlled by Robert W.
Cooper, acted as general contractor and provided engineering consulting services
with respect to the construction of the Peru, Illinois manufacturing facility.
See "Management -- Compensation Committee Interlocks and Insider Participation."
43
<PAGE> 45
On August 26, 1996, the Company entered into a Securities Purchase
Agreement and related documentation (collectively, the "1996 Investment") with
Willis Stein & Partners, L.P. ("Willis Stein"), Star Polymers, L.L.C. ("Star
Polymers") and RGM/BVM Limited Partnership, a partnership of which Robert G.
Martin is the general partner (the "Martin Partnership") (Willis Stein, Star
Polymers and the Martin Partnership are referred to collectively as the "1996
Investors"). Pursuant to the terms of the 1996 Investment, the 1996 Investors
purchased from the Company Convertible Subordinated Promissory Notes in the
aggregate principal amount of $26 million (the "1996 Notes"). The 1996 Notes
were convertible into 6,019,531 shares of the Company's Series A Preferred Stock
and 6,019,531 shares of the Company's Series B Preferred Stock. As part of the
1996 Investment, the 1996 Investors also received (i) warrants entitling them to
purchase additional shares of the Company's Series A Preferred Stock at a
nominal exercise price upon the failure of the Company to meet certain financial
goals during specified time periods (the "Shortfall Warrants"), (ii) 6,019,531
shares of the Company's Series C Preferred Stock and (iii) 12.5% of the
outstanding common stock of Agricultural Technologies, Inc., then a subsidiary
of the Company (the "Ag Tech Stock"). The 1996 Investment provided that, upon
the conversion of the 1996 Notes, the 1996 Investors would be entitled to
receive royalty interests entitling them to receive a percentage of the
Company's consolidated net revenues during certain future time periods (the
"Royalty Interests"). The 1996 Investors also received certain preemptive rights
with respect to the issuance by the Company of additional securities and the
right to appoint two members of the Company's Board of Directors.
On October , 1997, the Company and the 1996 Investors entered into an
Exchange and Amendment Agreement and related documentation (collectively, the
"1997 Agreement") pursuant to which, in order to facilitate the Offering, the
1996 Investors will relinquish their Convertible Subordinated Promissory Notes
and related rights and securities acquired by them pursuant to the 1996
Investment, including shares of all series of the Company's preferred stock,
Royalty Interests, Shortfall Warrants and Ag Tech Stock, in exchange for which
the Company will, upon completion of the Offering (a) pay the 1996 Investors an
aggregate of $12 million in cash from the proceeds of the Offering, (b) issue
the 1996 Investors senior notes, in the aggregate principal amount of $11
million, bearing interest at 12% per annum, (c) issue the 1996 Investors an
aggregate of 9,019,531 shares of Common Stock and (d) grant to the 1996
Investors registration rights with respect to their newly issued Common Stock.
Subsequently, Agricultural Technologies, Inc. will be dissolved and its assets
and liabilities will be distributed to the Company.
The Martin Partnership was a 3.85% participant in the transactions
contemplated by the 1996 Investment Documents and will participate to that
extent in the payments, rights and obligations reflected in the 1997 Agreement.
44
<PAGE> 46
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1997, and as
adjusted to reflect the sale of the shares offered hereby, by: (i) each of the
Company's directors and executive officers, (ii) all directors and executive
officers of the Company as a group, and (iii) all persons known by the Company
to own beneficially more than 5% of the Company's Common Stock. Unless otherwise
indicated, the address of each of the persons and entities named below is in
care of the Company's executive offices.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING(1)
-------------------- --------------------
NUMBER OF NUMBER OF
NAME SHARES PERCENT SHARES PERCENT
<S> <C> <C> <C> <C>
Larry P. Koskan(2)(3)................................... 5,981,912 21.0% %
Bernardo N. Rico(4)..................................... 629,209 2.2
Gerald E. Noonan........................................ -- *
Joseph F. Prochaska..................................... -- *
Robert P. Pietrangelo................................... -- *
Robert W. Cooper(5)..................................... 130,021 *
Daniel M. Gill(6)....................................... -- --
Richard C. Lee(7)....................................... 7,200 *
Dr. Robert G. Martin(8)(9).............................. 4,366,422 15.3
Dr. Donald R. Sanders(10)............................... 3,183,400 11.1
John R. Willis(6)....................................... -- --
Jerilyn K. Koskan(2)(11)................................ 5,981,912 21.0
James R. and Louise Sanderson, Trustees of the Koskan
Children's Trust(12).................................. 2,000,000 7.1
Willis Stein & Partners, L.P.(6)........................ 7,631,912 26.9
RGM/BVM Limited Partnership(8).......................... 346,904 1.2
All directors and officers as a group (11
persons)(13).......................................... 21,930,076 75.2
</TABLE>
- ------------------------------
* Less than one percent (1%)
(1) Applicable percentage of ownership prior to this Offering is based upon
28,356,364 shares of Common Stock outstanding after giving effect to the
Offering Related Transactions. For ownership after completion of this
Offering, applicable percentage ownership is based on shares of
Common Stock outstanding and assumes no exercise of the Underwriters'
overallotment option. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission, and includes voting
and investment power with respect to the shares shown as beneficially
owned. Number of shares of Common Stock deemed beneficially owned by any
person includes outstanding shares of Common Stock held by such person and
any shares of Common Stock issuable upon exercise of stock options,
warrants, convertible securities and similar rights held by such person
that are exercisable within 60 days.
(2) Larry P. Koskan and Jerilyn K. Koskan are husband and wife. Shares of
Common Stock owned of record by each are shown as beneficially owned by the
other. Each disclaims beneficial ownership of the shares held of record by
the other.
(3) Includes 2,910,456 shares of Common Stock and 119,555 shares of Common
Stock issuable pursuant to options that are exercisable within 60 days
after the date of this Prospectus held in the name of Larry P. Koskan.
(4) Includes 628,167 shares of Common Stock issuable pursuant to options that
are exercisable within 60 days after the date of this Prospectus.
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<PAGE> 47
(5) Includes 106,383 shares of Common Stock owned of record by R.W. Cooper &
Associates, Inc., a company owned by Mr. Cooper, 2,000 shares of Common
Stock owned of record by Dawn M. Cooper, 3,000 shares of Common Stock owned
by Robert A. Cooper, Jr., and 8,778 shares of Common Stock owned by the
Robert Cooper Trust. Mr. Cooper disclaims beneficial ownership of all
shares of Common Stock not held of record by Mr. Cooper. Also includes
6,500 shares of Common Stock issuable pursuant to options that are
exercisable within 60 days after the date of this Prospectus and 3,360
shares of Common Stock issuable pursuant to warrants that are currently
exercisable.
(6) Mr. Gill and Mr. Willis are managing directors of Willis Stein & Partners,
L.L.C., the general partner of Willis Stein & Partners, L.P., an investment
partnership. To avoid duplication, shares of Common Stock owned of record
by Willis Stein & Partners L.P. are not shown as beneficially owned by
Messrs. Gill and Willis. Mr. Gill and Mr. Willis each disclaim beneficial
ownership of the shares of Common Stock of the Company owned, and to be
owned, by Willis Stein & Partners, L.P. The address for Mr. Gill, Mr.
Willis and Willis Stein & Partners, L.P. is 227 West Monroe Street, Suite
4300, Chicago, Illinois 60606. Messrs. Gill and Willis are the director
designees of the 1996 Investors. See "Management -- Board of Directors."
(7) Includes 6,500 shares of Common Stock issuable pursuant to options that are
exercisable within 60 days after the date of this Prospectus and 700 shares
of Common Stock issuable pursuant to warrants that are currently
exercisable.
(8) Dr. Martin is the general partner of RGM/BVM Limited Partnership. The
shares of Common Stock shown as beneficially owned by Dr. Martin include
the shares owned of record by RGM/BVM Limited Partnership. Dr. Martin
disclaims beneficial ownership of the shares of Common Stock of the Company
owned by RGM/BVM Limited Partnership.
(9) Includes 56,666 shares of Common Stock owned of record by Jonathan G.T.
Martin, 56,666 shares of Common Stock owned of record by the Robert M.
Martin Trust, and 56,666 shares of Common Stock owned of record by the Ryan
A. Martin Trust. Also includes 90,500 shares of Common Stock issuable
pursuant to options that are exercisable within 60 days after the date of
this Prospectus and 223,947 shares of Common Stock issuable pursuant to
warrants that are currently exercisable.
(10) Includes 41,333 shares of Common Stock owned of record by Dr. Sanders'
wife, Wanda G. Sanders, 7,000 shares of Common Stock issuable pursuant to
currently exercisable warrants owned of record by Wanda G. Sanders, 47,667
shares of Common Stock owned of record by Kendra Sanders, 47,667 shares of
Common Stock owned of record by Monica Sanders, 426,760 shares owned of
record by the Donald Sanders Trust, 1,392,328 shares of Common Stock owned
of record by the Donald R. Sanders and Wanda G. Sanders Limited Partnership
(the "Sanders Partnership") and 421,500 shares of Common Stock issuable
pursuant to options exercisable within 60 days after the date of this
Prospectus that are owned of record by the Sanders Partnership. Also
includes 5,000 shares of Common Stock issuable pursuant to options that are
exercisable within 60 days after the date of this Prospectus and 794,145
shares of Common Stock issuable pursuant to currently exercisable warrants.
(11) Includes 2,912,363 shares of Common Stock, 28,000 shares of Common Stock
issuable pursuant to options that are exercisable within 60 days after the
date of this Prospectus and 11,538 shares of Common Stock issuable pursuant
to currently exercisable warrants held in the name of Jerilyn K. Koskan.
(12) Does not include 3,352 shares of Common Stock owned of record by James R.
Sanderson, individually, 7,692 shares of Common Stock issuable pursuant to
currently exercisable warrants owned of record by James R. Sanderson,
individually, and 3,333 shares of Common Stock owned of record by Louise
Sanderson, individually.
(13) Includes the shares owned of record by Willis Stein & Partners, L.P. See
footnote (6) above.
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<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 60,000,000 shares
of Common Stock, no par value per share. After completion of the Offering,
shares of Common Stock will be issued and outstanding, after giving
effect to the Offering Related Transactions.
The following description of the capital stock of the Company and certain
provisions of the Company's Amended Articles of Incorporation and Amended and
Restated Bylaws is a summary and is qualified in its entirety by the provisions
of the Amended Articles of Incorporation and Amended and Restated Bylaws, which
have been filed as exhibits to the Company's Registration Statement, of which
this Prospectus is a part.
COMMON STOCK
The issued and outstanding shares Common Stock are, and the shares of
Common Stock being offered hereby by the Company will be, upon payment therefor,
validly issued, fully paid and nonassessable. The holders of outstanding shares
of Common Stock are entitled to receive dividends out of assets legally
available therefor at such times and in such amounts as the Board of Directors
may from time to time determine. See "Dividend Policy." The shares of Common
Stock are neither redeemable nor convertible, and holders have no preemptive or
subscription rights to purchase any securities of the Company. Upon liquidation,
dissolution or winding up of the Company, the holders of shares Common Stock are
entitled to receive, pro rata, the assets of the Company that are legally
available for distribution, after payment of all debts and other liabilities.
Each outstanding share of Common Stock is entitled to one vote on all matters
submitted to a vote of shareholders. There is no cumulative voting in the
election of directors.
CERTAIN STATUTORY AND OTHER PROVISIONS
Illinois law and the Company's Amended Articles of Incorporation and
Amended and Restated Bylaws contain several provisions that may make the
acquisition of control of the Company by means of tender offer, open market
purchases, proxy contest or otherwise more difficult. Set forth below is a
description of those provisions.
ILLINOIS LAW
Following the Offering, the Company will be subject to Section 7.85 of the
Business Corporation Act of Illinois ("Section 7.85"). Section 7.85 prohibits a
publicly held Illinois corporation from engaging in a "business combination"
with an "interested shareholder," unless the proposed "business combination" (i)
receives the affirmative vote of the holders of at least 80% of the combined
voting power of the then outstanding shares of all classes and series of the
corporation entitled to vote generally in the election of directors (the "Voting
Shares") voting together as a single class, and the affirmative vote of a
majority of the combined voting power of the then outstanding Voting Shares held
by disinterested shareholders voting together as a single class, (ii) is
approved by at least two-thirds of the "disinterested directors," or (iii)
provides for consideration offered to shareholders that meets certain fair price
standards and satisfied certain procedural requirements. Such fair price
standards require that the fair market value per share of such consideration be
equal to or greater than the higher of (A) the highest price paid by the
"interested shareholder" during the two-year period immediately prior to the
first public announcement of the proposed "business combination" or in the
transaction by which the "interested shareholder" became such, and (B) the fair
market value per common share on the first trading date after the first public
announcement of the proposed "business combination" or on the trading date after
the date that the first public announcement that the "interested shareholder"
has become such. For purposes of Section 7.85, "disinterested director" means
any member of the board of directors of the corporation who (a) is neither the
"interested shareholder" nor an affiliate or associate thereof, (b) was a member
of the board of directors prior to the time that the "interested shareholder"
became such, or was recommended to succeed a "disinterested director" by a
majority of the "disinterested directors" then in office, and (c) was not
nominated for election as a director by the "interested shareholder" of any
affiliate or associate thereof. For purposes of Section 7.85 and Section 11.75
described below, a "business combination" includes a merger, asset sale or other
transaction resulting in a financial
47
<PAGE> 49
benefit to the interested shareholder, and an "interested shareholder" is a
person who, together with affiliates and associates, owns (or within the prior
two years, did own) 10% or more of the combined voting power of the outstanding
Voting Shares.
The Company is also subject to Section 11.75 of the Business Corporation
Act of Illinois ("Section 11.75") which prohibits "business combinations" with
"interested shareholders" for a period of 3 years following the date that such
shareholder became an "interested shareholder," unless (i) prior to such date,
the Board of Directors approved the transaction that resulted in the shareholder
becoming an "interested shareholder," or (ii) upon consummation of such
transaction, the "interested shareholder" owned at least 85% of the Voting
Shares outstanding at the time such transaction commenced (excluding shares
owned by directors who are also officers, and shares owned by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer), or (iii) on or after such date, the "business
combination" is approved by the Board of Directors and authorized at a meeting
of the shareholders by 66 2/3% of the outstanding Voting Shares not owned by the
"interested shareholder." For purposes of Section 11.75, an "interested
shareholder" is a person who, together with affiliates and associates, owns (or
within the prior three years, did own) 15% of the Voting Shares.
Illinois law requires the affirmative votes of at least two-thirds of the
votes of the shares of the Company entitled to approve or authorize any (a)
merger or consolidation of the Company with or into another corporation, (b)
sale, lease or other disposition of all or substantially all of the assets of
the Company, (c) dissolution of the Company or (d) amendment of the Company's
Amended Articles of Incorporation. The two-thirds voting requirement may have
the effect of delaying, deterring or preventing a change of control of the
Company not favored by a shareholder or group of shareholders holding more than
one-third of the outstanding voting stock.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
The Company's Amended Articles of Incorporation eliminate the liability of
the Company's directors to the Company or its shareholders for monetary damages
resulting from breaches of their fiduciary duties as directors. Directors remain
liable for breaches of their duty of loyalty to the Company or its shareholders,
as well as for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law and transactions from which a director
derives improper personal benefit. The Company's Amended Articles of
Incorporation also do not absolve directors of liability under Section 8.65 of
the Business Corporation Act of Illinois, which makes directors personally
liable for (i) unlawful dividends or unlawful stock repurchases or redemptions
if the director did not act in good faith, (ii) the barring of known claims
against the corporation after dissolution, or (iii) debts incurred by a
dissolved corporation in carrying on its business. The effect of this provision
is to eliminate the personal liability of directors for monetary damages for
actions involving a breach of their fiduciary duty of care, including any such
actions involving gross negligence. The Company believes that this provision
does not eliminate the liability of directors of the Company to the Company or
its stockholders for monetary damages under the Federal securities laws. The
Amended Articles of Incorporation and Amended and Restated By-laws also provide
indemnification for the benefit of directors and officers of the Company to the
fullest extent permitted by Illinois law as it may be amended from time to time,
including most circumstances under which indemnification otherwise would be
discretionary.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of the Offering, the Company will have
shares of Common Stock outstanding, of which the shares of Common Stock
sold pursuant to the Offering will be freely tradeable without restriction or
further registration under the Securities Act, except those shares acquired by
"affiliates" of the Company as that term is defined under the Securities Act.
Holders of the remaining shares
48
<PAGE> 50
will be eligible to sell such shares pursuant to Rule 144 under the Securities
Act ("Rule 144") at prescribed times and subject to the manner of sale, volume,
notice and information restrictions of Rule 144.
The Company, its officers, directors and certain other shareholders who
collectively own shares and hold options and warrants to acquire an
aggregate of shares of Common Stock have agreed with the Underwriters,
except with the prior written consent of DLJ and subject to certain limited
exceptions, not to offer, sell, pledge, contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of directly or
indirectly any shares of Common Stock of the Company or any securities
convertible into or exercisable or exchangeable for Common Stock or in any other
manner transfer all or any portion of the economic consequences associated with
the ownership of any Common Stock for a period of 180 days after the date of
this Prospectus. Upon the expiration of such 180-day period, such holders will
in general be entitled to dispose of their shares, although the shares of Common
Stock held by affiliates of the Company or that constitute "restricted
securities" under Rule 144 will continue to be subject to the restrictions of
Rule 144.
In addition, the Company may issue shares of Common Stock (and may consider
filing a registration statement with respect to such shares) in connection with
potential future business acquisitions and resales of such shares by the
recipients. Shares so registered could be sold in the public market. No
predictions can be made as to the effect, if any, that market sales of such
shares or the availability of such shares for sale will have on the market price
for shares of Common Stock prevailing from time to time. Sales of substantial
amounts of shares of Common Stock in the public market following the Offering
could adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of equity
securities.
49
<PAGE> 51
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated ,
1997 (the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), who are represented by Donaldson, Lufkin & Jenrette Securities
Corporation and Schroder & Co. Inc. (the "Representatives"), have severally
agreed to purchase from the Company the respective number of shares of Common
Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Schroder & Co. Inc..........................................
---------
Total..................................................
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of additional shares of Common Stock
at the initial public offering price less underwriting discounts and
commissions. The Underwriters may exercise such option solely to cover
overallotments, if any, made in connection with the Offering. To the extent that
the Underwriters exercise such option, each Underwriter will become obligated,
subject to certain conditions, to purchase its prorata portion of such
additional shares based on such Underwriter's percentage underwriting commitment
as indicated in the preceding table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
shareholders of the Company has agreed, subject to certain exceptions, not to
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that
50
<PAGE> 52
transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) for a period of 180 days
after the date of this Prospectus without the prior written consent of DLJ. In
addition, during such period, the Company has also agreed not to file any
registration statement with respect to, and each of its executive officers,
directors and certain shareholders of the Company has agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock without DLJ's prior written consent.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial public
offering price include the prospects for future earnings of the Company, the
history of and the prospects for the industry in which the Company competes, the
past and present operations of the Company, the historical results of operations
of the Company, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of the
Offering.
Other than in the United States, no action has been taken by the Company or
the Underwriters that would permit a public offering of the shares of Common
Stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of Common Stock offered hereby may not be offered or sold,
directly or indirectly, nor may this Prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
Common Stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this Prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the offering of the Common Stock and the distribution of this
Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
The Company has granted certain shareholders the right to require the
Company to register their stock under the Securities Act. See "Certain
Transactions."
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Holleb & Coff, Chicago, Illinois. Certain legal matters
in connection with the Offering will be passed upon for the Underwriters by
Sidley & Austin, Chicago, Illinois. Members of Holleb & Coff hold options for
the purchase of 25,000 shares of Common Stock at an option price of $5.00 per
share.
EXPERTS
The consolidated balance sheet of Donlar Corporation and Subsidiaries as of
December 31, 1996, and the related consolidated statements of operations,
shareholders' deficit and cash flows for the year ended December 31, 1996,
included in this Prospectus and elsewhere in this Registration Statement have
been audited by , independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report. The
51
<PAGE> 53
consolidated balance sheet of Donlar Corporation and Subsidiaries as of December
31, 1995 and the related consolidated statements of operations, shareholders'
deficit and cash flows for each of the two years in the period ended December
31, 1995, included in this Prospectus and elsewhere in this Registration
Statement have been audited by
independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C. a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. As used herein, the term "Registration Statement" means the initial
Registration Statement and any and all amendments, exhibits, schedules and
supplements thereto. This Prospectus omits certain information contained in the
Registration Statement, as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement, a copy of
which may be obtained from the Commission at its principal office in Washington,
D.C. upon payment of prescribed fees. Statements herein concerning the contents
of any contract or other document are not necessarily complete and in each
instance reference is made to such contract or other document filed with the
Commission as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
As a result of the Offering, the Company will become subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith will file reports and other
information with the Commission. Reports, registration statements, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the following regional offices of the Commission: 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, New York, New York 10048. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and will be available on the
Commission's Internet World Wide Web site at http://www.sec.gov.
52
<PAGE> 54
DONLAR CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of , Independent Public
Accountants............................................... F-2
Report of ,
Independent Public Accountants............................ F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997 (unaudited)............................. F-4
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and the six months ended
June 30, 1996 and 1997 (unaudited)........................ F-5
Consolidated Statements of Shareholders' Deficit............ F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the six months ended
June 30, 1996 and 1997 (unaudited)........................ F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WHEN THE TRANSACTION REFERRED TO IN NOTE 21 OF THE NOTES TO FINANCIAL STATEMENTS
HAS BEEN CONSUMMATED, WE WILL BE IN A POSITION TO RENDER THE FOLLOWING REPORT.
To the Shareholders and Board of Directors
of Donlar Corporation:
We have audited the accompanying consolidated balance sheet of DONLAR
CORPORATION (an Illinois corporation) AND SUBSIDIARIES as of December 31, 1996,
and the related consolidated statements of operations, shareholders' deficit,
and cash flows for the year ended 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Donlar
Corporation and Subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
Chicago, Illinois
April 25, 1997 (except with
respect to the matter discussed in
Note 21 as to which the date is
, 1997)
F-2
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WHEN THE TRANSACTION REFERRED TO IN NOTE 21 OF THE NOTES TO FINANCIAL STATEMENTS
HAS BEEN CONSUMMATED, WE WILL BE IN A POSITION TO RENDER THE FOLLOWING REPORT.
To the Shareholders and Board of Directors
of Donlar Corporation:
We have audited the accompanying consolidated balance sheet of DONLAR
CORPORATION (an Illinois corporation) AND SUBSIDIARIES as of December 31, 1995,
and the related consolidated statements of operations, shareholders' deficit,
and cash flows for each of the two years in the period ended December 31, 1995.
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 audits 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 provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Donlar
Corporation and Subsidiaries as of December 31, 1995, and the results of their
operations and their cash flows for each of the two years ended December 31,
1995, in conformity with generally accepted accounting principles.
Chicago, Illinois
February 12, 1996 (except with
respect to the matter discussed in
Note 21 as to which the date is
, 1997)
F-3
<PAGE> 57
DONLAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- ------------
ASSETS 1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 614,231 $ 2,322,134 $ 3,718,244
Short-term investments.................................... 1,948,812 12,470,926 3,859,948
Accounts receivable....................................... 80,300 845,282 817,682
Inventories............................................... 215,937 2,724,743 4,987,411
Prepaid expenses and other current assets................. 19,441 69,550 79,814
----------- ------------ ------------
Total current assets................................ 2,878,721 18,432,635 13,463,099
----------- ------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET.......................... 390,962 5,500,670 10,352,282
----------- ------------ ------------
OTHER ASSETS:
Deferred financing costs, net of accumulated amortization
of $0, $265,933 and $664,833 at December 31, 1995 and
1996, and June 30, 1997, respectively................... -- 2,127,466 1,728,566
Patents, net of accumulated amortization of $92,578,
$173,582 and $222,907 at December 31, 1995 and 1996, and
June 30, 1997, respectively............................. 919,617 1,244,352 1,318,637
Deposits.................................................. 3,500 46,389 92,778
----------- ------------ ------------
Total other assets.................................. 923,117 3,418,207 3,139,981
----------- ------------ ------------
$ 4,192,800 $ 27,351,512 $ 26,955,362
=========== ============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of royalty obligation..................... $ -- $ -- $ 100,956
Note payable.............................................. 100,000 -- --
Revolving credit facility................................. -- 828,400 --
Accounts payable.......................................... 132,091 2,562,410 1,486,624
Accrued interest.......................................... 510,549 916,191 --
Accrued expenses.......................................... 9,857 81,152 541,671
----------- ------------ ------------
Total current liabilities........................... 752,497 4,388,153 2,129,251
----------- ------------ ------------
LONG-TERM LIABILITIES:
Convertible debt.......................................... 6,432,339 28,669,339 23,470,668
Royalty obligation, net of current maturities............. -- 3,850,000 4,214,870
----------- ------------ ------------
Total long-term liabilities............................... 6,432,339 32,519,339 27,685,538
----------- ------------ ------------
Total liabilities................................... 7,184,836 36,907,492 29,814,789
----------- ------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, no par value, 25,000,000, 60,000,000 and
60,000,000 shares authorized at December 31, 1995 and
1996, and June 30, 1997, respectively; 4,400, 76,323,
and 188,323 shares issued and outstanding as of December
31, 1995 and 1996 and June 30, 1997, respectively....... 1,320 22,897 50,897
Series A convertible preferred stock, no par value;
20,000,000, 38,000,000 and 38,000,000 shares authorized
at December 31, 1995 and 1996, and June 30, 1997,
respectively; 14,120,775, 14,321,538, and 19,064,905
shares issued and outstanding as of December 31, 1995
and 1996, and June 30, 1997, respectively............... 2,762,206 3,831,195 16,536,471
Series B preferred stock, no par value, 6,020,000 shares
authorized at December 31, 1996, and June 30, 1997,
respectively; 0, issued and outstanding at December 31,
1995 and 1996 and June 30, 1997, respectively........... -- -- --
Series C preferred stock, no par value, 6,020,000 shares
authorized at December 31, 1996, and June 30, 1997; 0,
6,019,531 and 6,019,531 issued and outstanding at
December 31, 1995 and 1996 and June 30, 1997,
respectively............................................ -- 1,000 1,000
Additional paid-in capital................................ -- 6,035,452 6,488,910
Accumulated deficit....................................... (5,755,562) (18,599,325) (25,524,506)
Shareholder note receivable............................... -- (847,199) (412,199)
----------- ------------ ------------
Total shareholders' deficit......................... (2,992,036) (9,555,980) (2,859,427)
----------- ------------ ------------
$ 4,192,800 $ 27,351,512 $ 26,955,362
=========== ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE> 58
DONLAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- -------------------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $ 9,610 $ 22,777 $ 2,142,467 $ 575,205 $ 1,386,761
Cost of products sold........... 8,140 19,702 2,067,163 686,610 1,146,324
----------- ----------- ------------ ----------- -----------
Gross profit (loss)...... 1,470 3,075 75,304 (111,405) 240,437
Selling, general and
administrative expenses....... 704,382 1,026,785 5,643,115 2,054,117 3,542,698
Research and development........ 721,053 1,000,795 5,038,080 751,628 1,053,654
----------- ----------- ------------ ----------- -----------
Loss from operations..... (1,423,965) (2,024,505) (10,605,891) (2,917,150) (4,355,915)
Other income (expense):
Interest income............... 14,646 100,277 409,722 69,611 271,432
Interest expense.............. (112,941) (366,860) (2,647,594) (1,313,128) (2,840,698)
Research income............... -- 510,322 -- -- --
----------- ----------- ------------ ----------- -----------
Total other income
(expense)............. (98,295) 243,739 (2,237,872) (1,243,517) (2,569,266)
----------- ----------- ------------ ----------- -----------
Loss before income
taxes................. (1,522,260) (1,780,766) (12,843,763) (4,160,667) (6,925,181)
Provision for income taxes...... -- -- -- -- --
----------- ----------- ------------ ----------- -----------
Net loss........................ $(1,522,260) $(1,780,766) $(12,843,763) $(4,160,667) $(6,925,181)
=========== =========== ============ =========== ===========
Net loss per common share....... $ $
============ ===========
Average common shares
outstanding...................
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 59
DONLAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
------------------------ ------------------------ --------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993....... 2,889,417 $ 1,433,350 -- $ -- -- $-- -- $ --
Stock conversion............... (2,889,417) (1,433,350) 14,447,085 1,433,350 -- -- -- --
Issuance of preferred stock.... -- -- 338,400 1,513,856 -- -- -- --
Retirement of preferred
stock........................ -- -- (669,710) (200,000) -- -- -- --
Net loss....................... -- -- -- -- -- -- -- --
---------- ----------- ---------- ----------- -- --- --------- ------
BALANCE, December 31, 1994....... -- -- 14,115,775 2,747,206 -- -- -- --
Exercise of stock options...... 4,400 1,320 -- -- -- -- -- --
Issuance of preferred stock.... -- -- 5,000 15,000 -- -- -- --
Net loss....................... -- -- -- -- -- -- -- --
---------- ----------- ---------- ----------- -- --- --------- ------
BALANCE, December 31, 1995....... 4,400 1,320 14,120,775 2,762,206 -- -- -- --
Exercise of stock options and
warrants..................... 71,923 21,577 800 2,400 -- -- -- --
Issuance of preferred stock.... -- -- 199,963 1,066,589 -- -- 6,019,531 1,000
Issuance of stock options and
warrants..................... -- -- -- -- -- -- -- --
Net loss....................... -- -- -- -- -- -- -- --
---------- ----------- ---------- ----------- -- --- --------- ------
BALANCE, December 31, 1996....... 76,323 22,897 14,321,538 3,831,195 -- -- 6,019,531 1,000
Exercise of stock options and
warrants (unaudited)......... 112,000 28,000 86,960 47,297 -- -- -- --
Conversion of notes and related
interest (unaudited)......... -- -- 3,593,721 6,813,208 -- -- -- --
Issuance of warrants and vested
stock options (unaudited).... -- -- -- -- -- -- -- --
Issuance of preferred stock
(unaudited).................. -- -- 1,062,686 5,844,771 -- -- -- --
Repayment of notes
(unaudited).................. -- -- -- -- -- -- -- --
Net loss (unaudited)........... -- -- -- -- -- -- -- --
---------- ----------- ---------- ----------- -- --- --------- ------
BALANCE, June 30, 1997
(unaudited).................... 188,323 $ 50,897 19,064,905 $16,536,471 -- $-- 6,019,531 $1,000
========== =========== ========== =========== == === ========= ======
<CAPTION>
ADDITIONAL SHAREHOLDER TOTAL
PAID-IN ACCUMULATED NOTE SHAREHOLDERS'
CAPITAL DEFICIT RECEIVABLE DEFICIT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993....... $ -- $ (2,452,536) $ -- $ (1,019,186)
Stock conversion............... -- --
Issuance of preferred stock.... -- -- -- 1,513,856
Retirement of preferred
stock........................ -- -- -- (200,000)
Net loss....................... -- (1,522,260) -- (1,522,260)
---------- ------------ --------- ------------
BALANCE, December 31, 1994....... -- (3,974,796) -- (1,227,590)
Exercise of stock options...... -- -- -- 1,320
Issuance of preferred stock.... -- -- -- 15,000
Net loss....................... -- (1,780,766) -- (1,780,766)
---------- ------------ --------- ------------
BALANCE, December 31, 1995....... -- (5,755,562) -- (2,992,036)
Exercise of stock options and
warrants..................... -- -- -- 23,977
Issuance of preferred stock.... -- -- (847,199) 220,390
Issuance of stock options and
warrants..................... 6,035,452 -- -- 6,035,452
Net loss....................... -- (12,843,763) -- (12,843,763)
---------- ------------ --------- ------------
BALANCE, December 31, 1996....... 6,035,452 (18,599,325) (847,199) (9,555,980)
Exercise of stock options and
warrants (unaudited)......... -- -- -- 75,297
Conversion of notes and related
interest (unaudited)......... -- -- -- 6,813,208
Issuance of warrants and vested
stock options (unaudited).... 453,458 -- -- 453,458
Issuance of preferred stock
(unaudited).................. -- -- -- 5,844,771
Repayment of notes
(unaudited).................. -- -- 435,000 435,000
Net loss (unaudited)........... -- (6,925,181) -- (6,925,181)
---------- ------------ --------- ------------
BALANCE, June 30, 1997
(unaudited).................... $6,488,910 $(25,524,506) $(412,199) $ (2,859,427)
========== ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 60
DONLAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- -------------------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(1,522,260) $(1,780,766) $(12,843,763) $(4,160,667) $(6,925,181)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization........................ 95,740 112,478 874,211 96,731 1,138,201
Expense related to issuance of stock options and
warrants........................................... -- -- 6,035,452 941,540 1,265,729
Changes in operating assets and liabilities--
Accounts receivable................................ -- (80,300) (764,982) (37,912) 33,600
Inventories........................................ (37,788) (158,149) (2,508,806) (884,060) (2,262,668)
Prepaid expenses and other current assets.......... 7,192 (19,441) (50,109) (457,991) (10,263)
Deposits........................................... -- (3,500) (42,889) (42,889) (46,389)
Accounts payable................................... 14,050 (160,070) 2,430,319 958,049 (1,075,786)
Accrued interest and expenses...................... 81,030 353,555 826,937 384,047 1,041,123
----------- ----------- ------------ ----------- -----------
Net cash used in operating activities.......... (1,362,036) (1,736,193) (6,043,630) (3,203,152) (6,841,634)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments.................... -- (1,948,812) (12,470,926) -- (3,859,948)
Redemption of short-term investments................... -- -- 1,948,812 1,948,812 12,470,926
Purchases of property, plant and equipment............. (68,980) (81,854) (5,046,467) (1,178,631) (4,958,021)
Investments in patents................................. (669,258) (172,532) (405,739) (157,593) (123,610)
----------- ----------- ------------ ----------- -----------
Net cash used in investing activities.......... (738,238) (2,203,198) (15,974,320) 612,588 3,529,347
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs............................... -- -- (2,393,399) -- --
Proceeds from issuance of convertible debt, Series C
preferred stock, royalty obligation, shares in a
subsidiary and warrants.............................. 1,017,071 4,807,339 26,050,000 50,000 --
Proceeds from issuance of Series A preferred stock..... 1,040,000 15,000 -- 201,515 5,032,500
Principal repayments of convertible debt............... (100,814) (307,342) (800,000) -- --
Proceeds from bridge financing......................... -- -- 2,600,000 2,600,000 --
Repayment of bridge financing.......................... -- -- (2,600,000) -- --
Net borrowings (repayments) under revolving credit
facility............................................. -- -- 828,400 -- (828,400)
Payment for retirement of preferred stock.............. (200,000) -- -- -- --
Proceeds from the exercise of stock options and
warrants............................................. -- 1,320 11,677 3,026 69,297
Other.................................................. -- -- 29,175 -- --
Loan to shareholder.................................... -- -- (55,000) -- --
Proceeds from repayment of shareholder loan............ 100,000 -- 55,000 -- 435,000
----------- ----------- ------------ ----------- -----------
Net cash provided by financing activities...... 1,856,257 4,516,317 23,725,853 2,854,541 4,708,397
----------- ----------- ------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... (244,017) 576,926 1,707,903 263,977 1,396,110
CASH AND CASH EQUIVALENTS, beginning of period........... 281,322 37,305 614,231 614,231 2,322,134
----------- ----------- ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, end of period................. $ 37,305 $ 614,231 $ 2,322,134 $ 878,208 $ 3,718,244
=========== =========== ============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for--
Interest............................................. $ 18,966 $ 9,071 $ 286,924 $ -- $ 29,065
Taxes................................................ -- -- -- -- --
Noncash financing activities--
Issuance of 40,303 shares of Series A preferred stock
for the purchase of land........................... $ -- $ -- $ 201,515 $ 201,515 $ --
Issuance of 154,035 shares of Series A preferred
stock for note receivable from shareholder......... $ -- $ -- $ 847,199 $ -- $ --
Issuance of 5,625 shares of Series A preferred stock
for compensation................................... $ -- $ -- $ 17,875 $ -- $ --
Issuance of 3,741,407 shares of Series A preferred
stock for conversion of notes payable.............. $ -- $ -- $ -- $ -- $ 7,625,479
=========== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 61
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
Donlar Corporation and Subsidiaries (the "Company") develop and market a
new family of environmentally friendly biodegradable polymers, known as thermal
polyaspartates ("TPA"). During 1996, the Company began manufacturing and
distributing these polymers to agricultural and industrial markets. In the
agricultural market, the products increase a plant's uptake of fertilizer from
the soil and have been focused toward winter wheat, corn and cotton. In the
industrial markets, the products replace nonbiodegradable polyacrylates and have
been focused toward the oil and water treatment, detergent and cleaners, and
personal care fields. The Company sells its products to distributors primarily
in the United States and Europe. The Company was formed on January 8, 1990, and
was in the development stage through December 31, 1994. The year ended December
31, 1995, was the first year during which it was considered an operating
company.
2. RISKS AND UNCERTAINTIES
a. Absence of Operating Profits -- The Company has incurred a net loss in
each year since its founding, and as of June 30, 1997, has an accumulated
deficit of $25,524,506. The Company expects to incur operating losses over the
near term. The Company's ability to achieve profitability will depend on many
factors including the Company's ability to develop, manufacture, introduce and
market commercially acceptable products. There can be no assurance that the
Company will ever achieve a profitable level of operations or if profitability
is achieved, that it can be sustained.
b. Early Stages of Development of the Company's Products -- The Company was
founded in 1990 and until 1996 was engaged principally in research and
development activities. Currently, the Company is in the early stages of
commercialization, has only a limited number of product offerings and potential
product applications are in the early stages of development. As a result, the
Company's TPA products have been sold in limited quantities and there can be no
assurance that a significant market will develop for such products. Therefore,
the Company's failure to develop, manufacture and commercialize TPA products on
a timely and cost-effective basis could have a material adverse effect on the
Company's financial results.
c. Limited Manufacturing Capacity and Experience -- The Company completed
construction of a manufacturing facility in Peru, Illinois during 1997. The
Company's success will depend in part on the Company's ability to manufacture
its products in significant quantities, with consistent quality, at acceptable
costs and on a timely basis. The Company has limited experience in high-volume
manufacturing. The Company also anticipates constructing an L-aspartic acid
manufacturing facility within the next one to three years. In addition, in order
to fully commercialize TPA products cost effectively in certain performance
chemical applications, the Company will need to construct an as yet undesigned
liquid process and derivatives manufacturing facility. No assurance can be given
that the Company can make the transition to high-volume production or construct
and operate an L-aspartic acid facility or a liquid process and derivatives
manufacturing facility on a timely or economical basis.
d. Need for Additional Capital and Uncertainty of Additional Financing --
The Company's future capital requirements depend on many factors which may
result in the Company seeking additional funding through public or private debt
or equity financing. There can be no assurance that additional financing will be
available on acceptable terms or at all.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation -- The consolidated financial statements
include the accounts of Donlar and all entities in which the Company exercises
unilateral control. All significant intercompany balances and transactions have
been eliminated.
b. Cash and Cash Equivalents -- Cash and cash equivalents include cash in
banks and investments with original maturities of up to three months.
F-8
<PAGE> 62
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
c. Short-Term Investments -- The Company invests in Treasury Bills and
certificates of deposit with maturity periods ranging from six to nine months.
Short-term investments are valued at the lower of cost or market and at the
balance sheet date approximate fair market value.
d. Inventories -- Inventories are stated at the lower of cost or market
value, using the first-in, first-out method. Inventories consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- -----------
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Raw material................................. $193,240 $ 263,393 $ 871,480
Finished goods............................... 22,697 2,461,350 4,115,931
-------- ---------- ----------
$215,937 $2,724,743 $4,987,411
======== ========== ==========
</TABLE>
e. Property, Plant and Equipment -- Property, plant and equipment are
stated at cost less accumulated depreciation and amortization. Major
improvements are capitalized and depreciated over their useful lives. Repairs
and maintenance are charged to expense as incurred. Upon sale or retirement, the
related cost and accumulated depreciation are removed from the accounts, and any
gain or loss is recorded in the statement of operations. Depreciation is
determined using the straight-line method for financial reporting purposes.
Leasehold improvements are amortized over the shorter of the life of the asset
or the lease term.
During 1996, the Company changed the estimated useful lives of various
assets. The change in estimate had an immaterial effect on the consolidated
financial statements.
f. Deferred Financing Costs -- Financial costs related to the issuance of
convertible notes payable have been capitalized and are being amortized over the
three-year maturity periods of the debt.
g. Patents -- Costs incurred in patenting intellectual property are
capitalized and amortized over fifteen years using the straight-line method.
h. Revenue Recognition -- Revenues from product sales are recognized when
the product has been shipped.
i. Research and Development -- Costs associated with the research and
development of new products are expensed as incurred.
j. Accounting for Stock-Based Compensation -- In October, 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123 ("Statement 123"), "Accounting for Stock-Based Compensation."
The Company has adopted the disclosure-only provisions of Statement 123 with
respect to its employees' and directors' noncompensatory stock options and
warrants. The expense associated with stock options and warrants issued to
nonemployees and nondirectors is reflected in the consolidated financial
statements in accordance with Statement 123. As permitted by Statement 123, the
intrinsic value of compensatory stock options is reflected in the consolidated
financial statements in accordance with Accounting Principles Board Opinion No.
25.
k. Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
l. Reclassifications -- Certain prior year amounts have been reclassified
to conform to June 30, 1997 presentation.
F-9
<PAGE> 63
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
m. Income Taxes -- The Company provides for income taxes under the asset
and liability method. Under this method, deferred tax assets and liabilities are
recorded based on the differences between the financial statement amounts and
tax bases of assets and liabilities, considering the tax rates in effect when
these differences are expected to reverse.
n. Net Loss Per Common Share -- Net loss per share is based on the weighted
average number of shares of common stock and common stock equivalents
outstanding. Common stock equivalents represent options, warrants, and
convertible stock using the treasury stock method for all periods presented.
Common stock equivalents are not included in the net loss per share calculations
since the effect of their inclusion would be anti-dilutive, except that common
stock and common stock equivalents issued during the twelve month period prior
to the proposed public offering will be included in the net loss per share
calculation, as if they were outstanding for all periods presented using the
treasury stock method, once a price per share is determined.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("Statement 128, "Earnings
per Share.") Adoption of Statement 128 is required for all periods ending after
December 15, 1997, and early adoption is not permitted. This statement will not
have a material impact on the Company's results of operations.
o. Interim Financial Data -- The unaudited balance sheet as of June 30,
1997, the unaudited statement of stockholders' deficit for the six months ended
June 30, 1997, and the unaudited statements of operations and cash flows for the
six months ended June 30, 1996 and 1997, include, in the opinion of management,
all adjustments (consisting of normal and recurring adjustments) necessary to
present fairly the Company's financial position, results of operations and cash
flows. Operating results for the six months ended June 30, 1997, are not
necessarily indicative of the results which may be expected for the year ending
December 31, 1997. The information included in these Notes to Financial
Statements relating to the six months ended June 30, 1996 and 1997, is
unaudited.
4. CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents, short-term
investments and trade accounts receivable.
The Company places its cash and short-term investments with high quality
financial institutions. At times, such investments may be in excess of the FDIC
insurance limit.
The Company currently sells primarily to customers located in the United
States and Europe. The Company reviews a customer's credit history before
extending credit. In addition, the Company typically reviews the financial
strength of its customers and, as a consequence, believes that its trade
accounts receivable risk is limited. During 1996, certain customers had credit
terms such that 25% was due within 30 days and the remainder was due in 25%
increments as product was sold. During 1997 credit terms will be established in
accordance with industry standards. One customer in the agriculture industry
accounted for approximately 0%, 4.0% and 39.2% of net sales as of December 31,
1994, 1995 and 1996, and 38.7% and 29.5% of net sales for the six months ended
June 30, 1996 and 1997, respectively, and 0%, 45.3% and 34.2% of accounts
receivable at December 31, 1995 and 1996, and June 30, 1997, respectively.
F-10
<PAGE> 64
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, along with corresponding estimated useful
lives, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- -----------
DESCRIPTION USEFUL LIFE 1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C>
Land............................ -- $ -- $ 566,782 $ 566,782
Building........................ 30 years -- -- 5,465,367
Laboratory and plant
equipment..................... 5-10 years 395,397 1,512,430 1,590,101
Furniture and fixtures.......... 5-7 years 51,821 201,884 300,527
Leasehold improvements.......... 4-10 years 22,060 102,701 103,920
Construction in progress........ -- 236,027 3,569,489 2,884,610
-------- ---------- -----------
Total property, plant and
equipment.................. 705,305 5,953,286 10,911,307
Less-- Accumulated depreciation
and amortization.............. 314,343 452,616 559,025
-------- ---------- -----------
Property, plant and equipment,
net........................ $390,962 $5,500,670 $10,352,282
======== ========== ===========
</TABLE>
6. REVOLVING CREDIT FACILITY
In February, 1996, the Company obtained a line of credit which allowed for
borrowings up to $1,000,000. The line of credit was personally guaranteed by
certain stockholders of the Company, bore interest at prime plus 1% (9.25% on
December 31, 1996) and expired on March 31, 1997. At December 31, 1996, the
Company had borrowings of $828,400 under the line of credit facility and unused
availability of $171,600. As of June 30, 1997, all borrowings under the line of
credit had been repaid. The Company is currently in negotiations with a
commercial bank for a new line of credit.
7. DEBT
a. Note Payable -- The note payable at December 31, 1995, of $100,000 was
due and paid in August, 1996. The interest rate was 5.25%.
F-11
<PAGE> 65
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
b. Convertible Debt -- Convertible debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- -----------
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Unsecured notes payable, due August 26,
1999, with a variable royalty payment
in lieu of interest, convertible into
6,019,531 shares of Series A and
6,019,531 shares of Series B preferred
stock at December 31, 1996 and June 30,
1997, net of unamortized debt discount
of $3,113,000 and $2,529,332
(unaudited) at December 31, 1996 and
June 30, 1997, respectively (Note
18).................................... $ -- $22,887,000 $23,470,668
Unsecured notes payable, due June, 1997,
bearing interest at the bank's prime
interest rate (8.50% and 8.25% at
December 31, 1995 and 1996,
respectively), adjusted annually at
January 1, convertible into 2,277,900
and 1,640,698 shares, respectively, of
Series A preferred stock (Note 16)..... 1,000,000 700,000 --
Unsecured notes payable, due beginning
March, 1997, bearing interest at 8%,
convertible into 2,245,366 and
2,100,700 shares, respectively, of
Series A preferred stock (Note 16)..... 5,432,339 5,082,339 --
---------- ----------- -----------
$6,432,339 $28,669,339 $23,470,668
========== =========== ===========
</TABLE>
In August, 1996, the Company received $26,000,000 in exchange for (a)
unsecured notes payable which are convertible into shares of Series A and B
preferred stock (b) Series C preferred stock, (c) shares in one of the Company's
subsidiaries, (d) warrants to purchase common stock of the Company and (e)
future royalty payments. The proceeds were allocated to the equity instruments
and liabilities based upon estimated fair market value and resulted in recording
debt discount totaling $3,502,000. The debt discount is being amortized over the
three-year maturity period of the related debt (Note 18).
Included in unsecured notes payable above is $6,432,339, $27,720,339 and
$23,470,668 (unaudited) at December 31, 1995 and 1996, and June 30, 1997,
respectively, in notes which were issued to stockholders.
c. Bridge Financing -- During 1996, the Company obtained $2,600,000 in
bridge financing prior to consummation of the financing transaction described
above. The bridge financing lenders included certain employees, shareholders and
note holders. In connection with the bridge financing, the Company issued
warrants to purchase 553,847 shares of Series A preferred stock at $6.50 per
share. The number of shares and exercise price are subject to change based on
completion of future equity offerings by the Company; the exercise price will be
adjusted to equal the weighted average of all prices paid for future equity
issuances. The exercise price at June 30, 1997 was $4.50 (unaudited). The
warrants are exercisable for a 10-year period. The Company must give the holder
of the warrant ten days notice of the proposed effective date of a public
offering or merger and, if the warrant has not been exercised by the effective
date of the transaction, it shall terminate.
The value of these warrants, totaling $941,540, has been included in
interest expense in the accompanying consolidated statement of operations in
1996.
F-12
<PAGE> 66
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
At December 31, 1996, and June 30, 1997, the Company had Federal tax net
operating loss carryforwards of approximately $10,750,000 and $17,074,000
(unaudited), respectively, which begin to expire in 2007. The provision for
income taxes consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- -----------
1994 1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C>
Current--
Federal..................................... $ -- $ -- $ -- $ --
State....................................... -- -- -- --
--------- --------- ----------- ----------
Total current provision................ -- -- -- --
--------- --------- ----------- ----------
Deferred--
Federal..................................... 517,568 605,460 4,367,00 2,355,000
State....................................... 70,024 81,915 591,000 318,000
--------- --------- ----------- ----------
Total deferred provision............... 587,592 687,375 4,958,00 2,673,00
--------- --------- ----------- ----------
Valuation allowance........................... (587,592) (687,375) (4,958,000) (2,673,000)
--------- --------- ----------- ----------
Total provision for income taxes....... $ -- $ -- $ -- $ --
========= ========= =========== ==========
</TABLE>
A reconciliation of the statutory Federal tax rate to the actual effective
income tax rate for each of the three years ended December 31, 1994, 1995 and
1996, and the six months ended June 30, 1996 and 1997 (unaudited), is as
follows:
<TABLE>
<S> <C>
Statutory rate.............................................. 34.0%
State taxes, net of federal benefit and state credits....... 4.6
Valuation allowance......................................... (38.6)
-----
Effective rate....................................... --%
=====
</TABLE>
The components of the net deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- -----------
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets --
Net tax operating loss
carryforwards...................... $ 1,647,400 $ 4,156,000 $ 6,590,000
Stock options, warrants, and other.... -- 2,395,000 2,629,000
----------- ----------- -----------
Total deferred tax assets..... 1,647,400 6,551,000 9,219,000
----------- ----------- -----------
Deferred tax liabilities --
Property and equipment................ -- (14,000) (50,000)
----------- ----------- -----------
Total deferred tax
liabilities................. -- (14,000) (50,000)
----------- ----------- -----------
Valuation allowance..................... (1,647,400) (6,537,000) (9,169,000)
----------- ----------- -----------
Net deferred taxes............ $ -- $ -- $ --
=========== =========== ===========
</TABLE>
9. SHAREHOLDERS' EQUITY
During January, 1994, the Board of Directors authorized a 5-for-1
conversion of Series A preferred stock for common stock held by the stockholders
of record at that time.
F-13
<PAGE> 67
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, the Company increased the authorized shares of common stock
and Series A preferred stock to 60,000,000 and 38,000,000 shares, respectively.
In addition, the Company authorized 6,020,000 shares of Series B preferred stock
and authorized 6,020,000 and issued 6,019,531 shares of Series C preferred
stock. The Company has reserved 46,000,000 shares of common stock, 6,019,531
shares of Series A preferred stock, and 6,019,531 shares of Series B preferred
stock for the exercise of stock options and warrants and the conversion of notes
and Series A preferred stock.
Series A preferred stock is convertible into shares of common stock at a
rate of one to one, has voting privileges, a stated liquidation preference
amount of $2.25 per share and is entitled to noncumulative dividends which are
declared at the discretion of the Board of Directors. Series B preferred stock
does not have voting privileges or a stated dividend rate, but does have a
liquidation preference amount of $2.11 per share. Series B preferred stock is
retired at the time Series A preferred stock is converted to common stock.
Series C preferred stock has voting privileges, a liquidation preference amount
of $0.000167 per share, and no stated dividend rate. Series C preferred stock is
retired at the time certain convertible noteholders convert their notes to
Series A and Series B preferred stock.
In accordance with the Shareholders Agreement (see Note 18), the Company
has the right of first refusal on all dispositions of stock, except as described
below. All shareholders are required to give the Company 30 days written notice
of their intention to dispose of shares. The written notice must include the
terms and conditions of the proposed disposition. The Company has 30 days to
purchase all or a portion of the shares. If the Company chooses not to purchase
the shares, the shareholder must execute the transaction with the proposed
purchaser within 90 days of the written notice. The Company does not have the
right of first refusal if the shares are being transferred to family members,
family trusts or charitable, educational, fraternal or religious organizations.
In addition, 10% shareholders (as defined) may dispose of a portion of their
ownership without consent of the Company, as long as the fair market value of
the shares or the consideration to be received does not exceed $500,000, subject
to certain restrictions. Beginning in August, 1998, 10% shareholders may
transfer up to 25% of their ownership without the Company's consent, as long as
the prospective purchaser is not a competitor.
10. STOCK OPTIONS AND WARRANTS
a. Stock Options -- In 1994, the Company adopted incentive and nonstatutory
stock option plans (1994 Plans) for employees and consultants and has reserved
3,000,000 shares of common stock and 1,000,000 shares of Series A preferred
stock for issuance under such plans. The plans are administered by the Board of
Directors and provide for the issuance of options to purchase shares of common
stock and Series A preferred stock. Terms of each option, including the exercise
price and vesting period, are determined by the Board of Directors, and in no
event can the life of an option exceed ten years from the date of grant.
Generally, the options vest either immediately or over a five-year period.
F-14
<PAGE> 68
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Activity of the stock option plans is as follows:
<TABLE>
<CAPTION>
SHARES UNDER OPTION
-------------------------------------------------------------------------
COMMON SERIES A PREFERRED
----------------------------------- ----------------------------------
WEIGHTED WEIGHTED
NUMBER EXERCISE AVERAGE NUMBER EXERCISE AVERAGE
OF PRICE EXERCISE OF PRICE EXERCISE
SHARES RANGE PRICE SHARES RANGE PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding as of December 31,
1993......................... 100,000 $.23-$.30 $.24 85,120 $ .44 $ .44
Issued.................... 1,994,676 $.23-$.30 $.28 73,333 $ 3.00 $3.00
Canceled.................. -- -- -- -- -- --
Exercised................. -- -- -- -- -- --
---------- --------
Outstanding as of December 31,
1994......................... 2,094,676 $.23-$.30 $.28 158,453 $.44-$3.00 $1.62
Issued.................... 262,267 $ .30 $.30 138,333 $ 3.00 $3.00
Canceled.................. (6,024) $ .30 $.30 -- -- --
Exercised................. (4,400) $ .30 $.30 -- -- --
---------- --------
Outstanding as of December 31,
1995......................... 2,346,519 $.23-$.30 $.28 296,786 $.44-$3.00 $2.27
Issued.................... 264,972 $ .30 $.30 297,200 $ 5.00 $5.00
Canceled.................. -- -- -- -- -- --
Exercised................. (69,423) $ .30 $.30 (800) $ 3.00 $3.00
---------- --------
Outstanding as of December 31,
1996......................... 2,542,068 $.23-$.30 $.28 593,186 $.44-$5.00 $3.64
Issued.................... 39,272 $ .30 $.30 111,818 $ 5.50 $5.50
Canceled.................. -- -- -- -- -- --
Exercised................. (112,000) $.23-$.30 $.23 (84,960) $ .44 $ .44
---------- ---- -------- ---------- -----
Outstanding as of June 30, 1997
(unaudited).................. 2,469,340 $.23-$.30 $.28 620,044 $.44-$5.50 $4.41
========== ========= ==== ======== ========== =====
Exercisable at December 31,
1996......................... 1,485,367 $.23-$.30 $.28 463,272 $.44-$5.50 $3.04
========== ========= ==== ======== ========== =====
Exercisable at June 30, 1997
(unaudited).................. 1,823,971 $.23-$.30 $.28 446,733 $.44-$5.50 $4.41
========== ========= ==== ======== ========== =====
</TABLE>
The fair value of each option granted in 1995 and 1996 was estimated on the
date of grant based on the Black-Scholes option pricing model assuming among
other things, no dividend yield, a risk-free interest rate of 6.8%, expected
volatility of 55% and expected life of seven years.
The fair value of each option granted during the six months ended June 30,
1997 was estimated on the date of grant based on the Black-Scholes option
pricing model assuming among other things, no dividend yield, a risk-free
interest rate of 6.8%, expected volatility of 55% and expected life of 7 years.
The weighted average fair value of the options granted during 1995 under
the Company's stock option plan, was approximately $.19 and $1.91 for common
stock and Series A preferred stock, respectively. As of December 31, 1995 the
remaining contractual life of all options was approximately 8.6 years.
The weighted average fair value of the options granted during 1996 under
the Company's stock option plan, was approximately $4.82 and $3.21 for common
stock and Series A preferred stock, respectively. As of December 31, 1996, the
remaining contractual life of all options was approximately 7.9 years.
F-15
<PAGE> 69
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average fair value of the options granted during the six
months ended June 30, 1997 under the Company's stock option plan, was
approximately $5.31 and $3.52 (unaudited) for common stock and Series A
preferred stock, respectively. As of June 30, 1997, the remaining contractual
life of all options was approximately 7.1 years.
b. Warrants -- The Company issued warrants during 1996 in connection with
the issuance of convertible notes payable due in 1999. The warrants, if
exercisable, permit the holders to purchase additional shares of common stock,
which, when combined with shares issued and to be issued upon conversion of the
notes and other equity instruments, would equal 49.92% of the then outstanding
common stock. The warrants are exercisable if the Company does not achieve
certain earnings targets beginning in 1998, and on or before the first to occur
of the Royalty Termination Date or an initial public offering as defined in the
agreement. The warrants have no expiration date and are exercisable at $.00001
per share. The warrants terminate on the completion of a public offering as
defined in the Securities Purchase Agreement related to the August, 1996
financing. Management estimated that the warrants would not become exercisable.
Therefore, no value for the warrants was recorded in the accompanying
consolidated financial statements (See Note 18).
The Company has also issued other warrants to purchase common stock and
Series A preferred stock. Warrants to purchase common stock were issued together
with the convertible debt which is due beginning in 1997. During 1996, the
Company offered 147,686 shares of Series A preferred stock and warrants to
purchase 109,647 shares of Series A preferred stock with an exercise price of $5
per share as an incentive for convertible debt holders to convert their notes.
The Company must give the holder of the warrant ten days notice of the proposed
effective date of a public offering or merger and, if the warrant has not been
exercised by the effective date of the transaction, it shall terminate.
During 1996, the Company also issued warrants for 712,299 shares of Series
A preferred stock at an exercise price of $.074 per share to one of its
Directors who is developing pharmaceutical applications for the Company's
products. The warrants expire in ten years. In addition, this Director purchased
154,036 shares of Series A preferred stock in exchange for an $847,199 note due
in March, 1998, collateralized by the shares. During the period ended June 30,
1997, the shareholder paid $435,000 of the note receivable.
F-16
<PAGE> 70
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Warrant activity is as follows:
<TABLE>
<CAPTION>
SHARES UNDER WARRANT
------------------------------------------------------------
COMMON SERIES A PREFERRED
-------------------- -------------------------------------
WEIGHTED
EXERCISE EXERCISE AVERAGE
NUMBER OF PRICE NUMBER OF PRICE EXERCISE
SHARES RANGE SHARES RANGE PRICE
<S> <C> <C> <C> <C> <C>
Outstanding as of December 31, 1994.... -- -- -- -- --
Granted.............................. 271,617 $.30 -- -- --
Canceled............................. -- -- -- -- --
Exercised............................ -- -- -- -- --
------- ----------
Outstanding as of December 31, 1995.... 271,617 $.30 -- -- --
Granted.............................. 2,500 $.30 18,093,909 $.00001-$6.50 $ .20
Canceled............................. -- -- -- -- --
Exercised............................ (2,500) $.30 -- -- --
------- ----------
Outstanding as of December 31, 1996.... 271,617 $.30 18,093,909 $.00001-$6.50 $ .20
Granted.............................. -- -- 1,173,735 $5.00 $5.00
Canceled............................. -- -- -- -- --
Exercised............................ -- -- (2,000) $5.00 $5.00
------- ----------
Outstanding as of June 30, 1997
(unaudited).......................... 271,617 $.30 19,265,644 $.00001-$6.50 $ .23
======= ==== ========== ============= =====
Exercisable at December 31, 1996....... 271,617 $.30 1,266,146 $.07-$6.50 $2.89
======= ==== ========== ============= =====
Exercisable at June 30, 1997
(unaudited).......................... 271,617 $.30 1,373,793 $.07-$6.50 $3.05
======= ==== ========== ============= =====
</TABLE>
The fair value of each warrant in 1996 was estimated on the date of grant
based on the Black-Scholes option pricing model assuming among other things, no
dividend yield, a risk-free interest rate of 6.3%, expected volatility of 55%
and expected life of 7 years.
The fair value of each warrant in 1997 was estimated on the date of grant
based on the Black-Scholes option pricing model assuming, among other things, no
dividend yield, a risk-free interest rate of 6.8%, expected volatility of 55%
and expected life of 7 years.
The weighted average fair value of the Series A preferred warrants granted
for the year ended December 31, 1996, was approximately $.27. As of December 31,
1996, the remaining contractual life of these warrants with an expiration date
was approximately 9.6 years. The weighted average fair value of the common
warrants for the year ended December 31, 1996, was approximately $3.13. As of
December 31, 1996, the remaining contractual life of these warrants was
approximately 7.9 years.
The weighted average fair value of the Series A preferred warrants granted
for the six months ended June 30, 1997 was approximately $.30 (unaudited). As of
June 30, 1997 the remaining contractual life of these warrants with an
expiration date was approximately 9.75 years.
c. Pro Forma Results -- Had the Company accounted for its options and
warrants in accordance with Statement 123, 1995, 1996 and June 30, 1997 pro
forma net loss would have been approximately $1,890,592 and $13,449,392, and
$7,126,976 (unaudited) respectively. Pro forma earnings per share should have
been , and (unaudited) for 1995, 1996 and June 30,
1997, respectively. The pro forma disclosure is not likely to be indicative of
pro forma results which may be expected in future years because of the fact that
options vest over several years, compensation expense is recognized as the
options vest and additional awards may be granted.
F-17
<PAGE> 71
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. BENEFIT PLANS
On January 1, 1996, the Company adopted a 401(k) savings plan. Employees
meeting certain eligibility requirements, as defined, may contribute a
percentage of pretax gross wages up to the legally defined deferral limit. The
Company may make discretionary contributions. As of June 30, 1997, the Company
has not made any contributions to the plan.
12. OPERATING LEASES
The Company leases certain equipment and office space under noncancelable
operating leases that expire through February, 2000. Under the terms of the
leases, the Company is also responsible for the payment of property taxes and
other related expenses. Certain leases contain multiple renewal options covering
additional periods ranging from one to two years. The Company is currently
renegotiating its office space lease, which expired in July, 1997. The lessor
has extended the lease on a month-to-month basis, with monthly rent payments of
$21,981, until a new lease agreement is negotiated. Total rent expense was
$44,291, $52,684 and $160,772 for the years ended December 31, 1994, 1995 and
1996, respectively, and $60,100 and $133,205 (unaudited) for the six months
ended June 30, 1996 and 1997, respectively.
Future minimum lease commitments of the Company under noncancelable
operating leases are as follows at December 31, 1996:
<TABLE>
<S> <C>
1997.............................. $172,049
1998.............................. 26,666
1999.............................. 9,508
2000.............................. 1,040
2001.............................. --
--------
$209,263
========
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
In 1994, the Company entered into a licensing agreement with a shareholder
for the use of patent rights. The licensing agreement requires the Company to
pay $7,500,000 in cumulative royalties. Annual payments are based upon sales
volume of agricultural product except that minimum annual payments of $50,000
are required to be made the earlier of June 1, 1999, or when cumulative sales of
licensed products exceeds $5,000,000. Royalty payments, as a percentage of
sales, are 4% for the first $2,000,000 of royalties, decreasing one percentage
point to a floor of 1% for each $2,000,000 in royalties paid until $7,500,000 in
cumulative royalties is paid. As of June 30, 1997, while royalties have been
accrued, no royalties have been paid.
During 1996, the Company began construction of a new manufacturing facility
in Peru, Illinois. As of June 30, 1997, the Company expects to invest an
additional $1,600,000 to complete construction of the facility in 1997. The
general contractor for the project is a holder of preferred stock and
convertible debt of the Company.
During 1996, the Company entered into a royalty agreement with certain
convertible note holders in connection with the issuance of $26,000,000 (face
value) in convertible debt and other equity instruments. The agreement requires
annual royalty payments, beginning January 1, 1997, equal to 7.28% of net sales.
The royalty payments terminate on the first to occur of (a) an acceptable sale
or public offering as defined in the agreement or (b) any date after December
31, 2000, as of which the net present value of the sum of all royalty payments
plus a hypothetical final payment of $15,600,000, all discounted at a rate of
30%, equals $15,600,000. The estimated fair value of this obligation, plus
imputed interest at 30%, which is subject to adjustment, is included in the
accompanying consolidated balance sheet as a royalty obligation. Upon the
F-18
<PAGE> 72
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consummation of a Qualified Public Offering, as defined, the Company is
obligated to pay an Accelerated Royalty Payment, as defined. (See Note 18).
The Company is a party to a joint research and exclusive distribution
agreement to develop and commercialize technology relating to thermal
polyaspartate. Both parties are required to pay a royalty to the other, based
upon sales of products developed and marketed under the agreement. The
distribution agreement permits the other party to market the Company's existing
products under the other party's trade names and trademarks. The agreement
further commits the other party to the following purchases from the Company in
order to maintain exclusivity: $700,000 in 1997; $1,800,000 in 1998; $3,000,000
in 1999, and prior year's purchases plus 10% for the year 2000 and after.
The Company maintains employment agreements with certain key employees
providing for minimum aggregate annual payments of $520,000. Under the
agreements, the employees are also eligible for cash and stock bonuses. The
Company has also agreed to provide $550,000 in life insurance coverage each for
two of the key employees.
As of June 30, 1997, the Company had commitments to purchase approximately
$1.3 million (unaudited) in raw materials from two overseas suppliers prior to
December 31, 1997.
The Company and Dr. Gerald Gleich, Vice President of Research of its
subsidiary, Donlar Pharmaceuticals Corporation, entered into an agreement in May
1997 whereby the Company purchased certain patents relating to the use of
polyaspartates in a wide variety of allergic conditions. In return for those
patents, Dr. Gleich was granted a 10% interest in Donlar Pharmaceutical
Corporation and the right to receive royalties on sales of products based on
those patents at rates ranging from 0.5% to 2.0%, to a maximum aggregate of $10
million.
14. RELATED-PARTY TRANSACTIONS
One of the Company's common stockholders is a distributor for the Company.
Sales to this customer totaled approximately $0, $1,000 and $844,000 for the
years ended December 31, 1994, 1995 and 1996, and $222,000 and $412,000
(unaudited) for the six months ended June 30, 1996 and 1997, respectively.
Engineering services for the Company's new manufacturing facility in Peru,
Illinois, amounting to approximately $0, $0 and $730,000 as of December 31,
1994, 1995 and 1996, and $120,000 and $1,104,000 (unaudited) as of June 30, 1996
and 1997, respectively, were provided by a holder of convertible notes and
preferred stock. Of these amounts, approximately $0, $352,000 and $428,000
(unaudited) is included in accounts payable as of December 31, 1995 and 1996,
and June 30, 1997, respectively. In September 1997, this preferred shareholder
was issued 83,605 shares of Series A preferred stock in satisfaction of certain
obligations.
The Company paid approximately $0, $118,000, $636,000, $75,000 and $0
during 1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997,
respectively, in fees to a law firm having a partner who has options to purchase
25,000 shares of Series A preferred stock and who is an officer of the Company.
Consulting services amounting to $0, $3,700, $77,000, and $45,000 as of
December 31, 1994, 1995, and 1996, and $1,500 and $45,000 (unaudited) for the
six months ended June 30, 1996 and 1997, respectively, were provided by a
Company in which a Shareholder is a director and owner.
15. SEGMENT INFORMATION
The Company manufactures and sells its TPA products in the agriculture and
performance chemical markets. Assets are not identifiable by segment as all
manufacturing has been done at the Company's pilot
F-19
<PAGE> 73
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plant facility at Bedford Park, Illinois using the same production equipment.
Segment information by industry and geographic area is shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- -------------------------
INDUSTRY DATA 1994 1995 1996 1996 1997
------------- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales
Agriculture................ $ -- $ 906 $ 2,132,721 $ 565,459 $ 1,343,094
Performance Chemicals...... 9,610 21,871 9,746 9,746 43,667
Consolidated............... 9,610 22,777 2,142,467 575,205 1,386,761
Operating Profit
Agriculture................ -- (64,479) (10,571,570) (2,881,874) (4,074,508)
Performance Chemicals...... (1,423,965) (1,449,704) (34,321) (35,276) (281,407)
Consolidated............... (1,423,965) (1,514,183) (10,605,891) (2,917,150) (4,355,915)
Sales
United States.............. -- 906 2,132,721 565,459 1,351,481
Europe..................... 9,610 21,871 9,746 9,746 35,280
Consolidated............... 9,610 22,777 2,142,467 575,205 1,386,761
Operating Profit
United States.............. -- (64,479) (10,571,570) (2,881,874) (4,114,301)
Europe..................... (1,423,965) (1,449,704) (34,321) (35,276) (241,614)
Consolidated............... $(1,423,965) $(1,514,183) $(10,605,891) $(2,917,150) $(4,355,915)
</TABLE>
SUBSEQUENT EVENTS TO DECEMBER 31, 1996
16. SUBSEQUENT EVENT -- CONVERTIBLE NOTES
In March, 1997, unsecured notes payable totaling $5,782,339 and related
interest totaling $1,030,685 were converted into 3,741,407 shares of Series A
preferred stock. As an incentive to the noteholders for early conversion, the
Company granted warrants for 109,647 shares of Series A preferred stock and
issued 147,686 shares of Series A preferred stock. The value of these warrants
and stock, totaling $1,163,141, were expensed during the six months ended June
30, 1997, when the warrants and stock were issued.
17. SUBSEQUENT EVENT -- ISSUANCE OF PREFERRED STOCK (UNAUDITED)
In April, 1997, the Company received $5,032,500 in exchange for 915,000
shares of Series A preferred stock.
SUBSEQUENT EVENTS TO JUNE 30, 1997
18. SUBSEQUENT EVENT -- 1997 FINANCING (UNAUDITED)
In October 1997, the Company and certain investors that provided the
$26,000,000 in financing in August 1996, entered into an Exchange and Amendment
Agreement, pursuant to which, in order to facilitate and in conjunction with the
initial public offering, these investors will relinquish their convertible
subordinated promissory notes and related rights, shares of all series of the
Company's preferred stock, royalty interests, performance based warrants and Ag
Tech Stock, in exchange for which the Company will (a) pay these investors an
aggregate of $12 million cash from the proceeds of the initial public offering,
(b) issue notes in the aggregate principal amount of $11 million bearing
interest at 12% per annum, (c) issue these investors an aggregate of 9,019,531
shares of common stock, and (d) grant to these investors registration rights
with respect to their newly issued common stock. As a result, upon consummation
of the Offering (1) the royalty
F-20
<PAGE> 74
DONLAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obligation (currently estimated to be approximately $4.8 million immediately
prior to the Offering) will be eliminated (2) paid in capital will be reduced by
approximately $23.0 million to reflect the elimination of the warrant (3)
inducement expense of approximately $11.7 million will be recorded (4) a senior
note obligation of $11 million will be recorded (5) $12 million in cash will be
paid to the investors (6) common stock will be increased by (a) approximately
$16,500,000 representing the estimated fair value of the 3,000,000 additional
shares to be issued and (b) approximately $23.5 million representing the
carrying amount of the convertible note issued in 1996 that was convertible into
6,019,531 shares of stock and (7) paid in capital will be reduced by the
unamortized deferred financing costs.
In connection with the Exchange and Amendment Agreement, the Shareholder
Agreement referred to in Note 9 will be terminated.
19. SUBSEQUENT EVENT -- STOCK COMPENSATION PLANS (UNAUDITED)
On October 3, 1997, the Company established a Long-Term Equity Compensation
Plan (the "Plan"), which is effective as of the completion of an initial public
offering. The plan permits the grant of nonqualified stock options, incentive
stock options, stock appreciation rights, restricted stock, performance shares,
and performance units. The Company reserved 1,000,000 shares of Series A
preferred stock for issuance under the Plan. These Series A Preferred Stock
convert to common stock upon completion of an initial public offering. Upon
consummation of the initial public offering, all options to purchase shares of
Series A preferred stock under the 1994 Plans will become options to purchase
the equivalent number of shares of common stock.
20. SUBSEQUENT EVENT -- SUBSIDIARIES (UNAUDITED)
In October, 1997, the Company's Board of Directors authorized the
dissolution of three of the Company's subsidiaries, one of which is subject to
the Company completing an initial public offering. All of the assets and
liabilities of these subsidiaries were or will be distributed to the Company.
21. SUBSEQUENT EVENT -- REVERSE STOCK SPLIT (UNAUDITED)
On , 1997, the Company's Board of Directors approved a
1-for- reverse stock split in the form of a stock dividend effective
immediately prior to the offering contemplated hereby. All common stock and per
share amounts will be adjusted retroactively to give effect to the stock split.
22. SUBSEQUENT EVENT -- IPO REGISTRATION (UNAUDITED)
In October 1997, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission
permitting the Company to sell common stock to the public. Upon consummation of
the initial public offering, all shares of Series A preferred stock will be
converted into the equivalent number of shares of common stock, and all
securities exercisable for Series A preferred stock will become exercisable for
an equivalent number of shares of common stock in each case, subject to the same
vesting terms.
F-21
<PAGE> 75
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.......................... 3
Risk Factors................................ 7
Use of Proceeds............................. 14
Dividend Policy............................. 14
Capitalization.............................. 15
Dilution.................................... 16
Selected Consolidated Financial and
Operating Data............................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 18
Business.................................... 22
Management.................................. 35
Certain Transactions........................ 43
Principal Shareholders...................... 45
Description of Capital Stock................ 46
Shares Eligible for Future Sale............. 48
Underwriting................................ 50
Legal Matters............................... 51
Experts..................................... 51
Additional Information...................... 52
Index to Financial Statements............... F-1
</TABLE>
-------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
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.
================================================================================
================================================================================
SHARES
[DONLAR CORPORATION LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SCHRODER & CO.
, 1997
================================================================================
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Company in connection with the issuance and distribution of the Common Stock
pursuant to the Prospectus contained in this Registration Statement. The Company
will pay all of these expenses.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $20,910.00
NASD Filing Fee............................................. 7,400.00
Nasdaq National Market Application Fee...................... *
Accountants' Fees and Expenses.............................. *
Blue Sky Fees and Expenses.................................. 2,000.00
Legal Fees and Expenses..................................... *
Transfer Agent and Registrar Fees and Expenses.............. *
Printing and Engraving Expenses............................. *
Miscellaneous Expenses...................................... *
----------
Total.................................................. $
==========
</TABLE>
- -------------------------
* To be provided by amendment
All expenses other than the Securities and Exchange Commission Registration
Fee and NASD filing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XII, Section 1 of the Company's Amended and Restated Bylaws
provides that the Company shall indemnify, to the fullest extent to which the
Company is empowered by the Illinois Business Corporation Act of 1983, as
amended, any person who was 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 the fact that such
person is or was a director or officer of the Company, or is or was serving at
the request of the Company as a director or officer of another corporation or
other entity, from and against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding.
The Company's Amended Articles of Incorporation further provide that the
personal liability of the directors of the Company is eliminated to the fullest
extent permitted under the Illinois Business Corporation Act of 1983, as
amended.
The Company expects to obtain an insurance policy that entitles the Company
to be reimbursed for certain indemnity payments it is required or permitted to
make to its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Company has issued the securities set
forth below which were not registered under the Securities Act of 1933, as
amended (the "Securities Act").
1. During 1994 and 1995, the Company issued unsecured convertible
promissory notes in the aggregate principal amount of $5,482,339, bearing
interest at the rate of 8% per annum and due beginning in March 1997, to a group
of investors consisting of employees, directors and shareholders of the Company,
in exchange for advances in the same aggregate principal amount. These sales
were made in reliance on the exemption from registration provided by Section
4(2) of the Securities Act.
2. On June 10, 1996, the Company issued 40,303 shares of Series A Preferred
Stock to Judith Schweickert, at an agreed value of $5.00 per share, for the
purchase from Mrs. Schweickert of the Company's
II-1
<PAGE> 77
real property in Peru, Illinois. These securities were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act.
3. On August 26, 1996, for an aggregate purchase price of $26,000,000, the
Company sold to Willis Stein & Partners L.P., Star Polymers, L.L.C., and RGM/BVM
Limited Partnership Convertible Subordinated Promissory Notes of the Company in
the aggregate principal amount of $26,000,000, convertible into 6,019,531 shares
of Series A Preferred Stock and 6,019,531 shares of Series B Preferred Stock.
These investors also received (i) warrants entitling them to purchase additional
shares of Series A Preferred Stock at a nominal exercise price upon the failure
of the Company to meet certain financial goals during specified time periods and
(ii) 6,019,531 shares of the Company's Series C Preferred Stock. These
securities were issued in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act.
4. On December 23, 1996, the Company issued Dr. Donald R. Sanders a warrant
for the purchase of 712,299 shares of Series A Preferred Stock at an exercise
price of $0.074 per share, in consideration of Dr. Sanders' efforts in
developing pharmaceutical applications for the Company's products. These
securities were issued in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act.
5. On December 23, 1996, the Company sold Dr. Donald R. Sanders 154,036
shares of Series A Preferred Stock at a price of $5.50 per share, in exchange
for a non-interest bearing promissory note from Dr. Sanders in the principal
amount of $847,199, due in March, 1998. These securities were issued in reliance
on the exemption from registration provided by Section 4(2) of the Securities
Act.
6. During 1996, the Company issued warrants to purchase an aggregate of
553,847 shares of Series A Preferred Stock, at an exercise price of $6.50 per
share, to a group consisting of certain employees, shareholders and note holders
of the Company, in exchange for those parties lending the Company the aggregate
principal amount of $2,600,000. These securities were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act.
7. (a) In February and March 1997, $5,782,339 in principal amount of
convertible promissory notes, including $5,082,339 in principal amount of the
promissory notes described in paragraph 1 above and $700,000 in principal amount
of promissory notes also held by employees, directors and shareholders of the
Company, together with accrued and unpaid interest thereon, was converted by the
holders thereof into 3,593,721 shares of Series A Preferred Stock. These
securities were issued in reliance on the exemption from registration provided
by Section 3(a)(9) of the Securities Act.
(b) In February and March 1997, as an inducement to the holders of the
promissory notes described in paragraph 2(a) above to effect the conversion
described in paragraph 2(a) above prior to the maturity date of such promissory
notes, the Company issued such holders warrants for the purchase of an aggregate
of 109,647 shares of Series A Preferred Stock, with an exercise price of $5.00
per share, together with an aggregate of 147,686 shares of Series A Preferred
Stock. These securities were issued in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act.
8. On April 14, 1997, the Company sold an aggregate of 915,000 shares of
Series A Preferred Stock to Tennessee Farmers Life Insurance Company and certain
of its affiliated companies at a purchase price of $5.50 per share, for total
consideration of $5,032,500. These securities were issued in reliance on the
exemption provided by Section 4(2) of the Securities Act.
9. In October 1997, the Company issued 83,605 shares of Series A Preferred
Stock to R.W. Cooper & Associates, Inc. at an agreed price of $5.50 per share,
or a total of $459,827.50 in payment for engineering consulting services
provided. The securities were issued in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act.
10. During the past three years, the Company has issued to certain of its
employees, directors, consultants and advisors options to purchase an aggregate
of 566,571 shares of its Common Stock pursuant to the terms of the Company's
1994 Stock Option Plans at exercise prices ranging from $0.23 to $0.30 per
share. These securities were issued in reliance on the exemption from
registration provided by Rule 701 of the Rules
II-2
<PAGE> 78
and Regulations promulgated under the Securities Act of 1933, as amended. During
the same period, options to purchase a total of 185,823 shares have been
exercised.
11. During the past three years, the Company has issued to certain of its
employees, directors, consultants and advisors options to purchase an aggregate
of 547,351 shares of its Series A Preferred Stock pursuant to the terms of the
Company's 1994 Stock Option Plans at exercise prices ranging from $0.44 to $5.50
per share. These securities were issued in reliance on the exemption from
registration provided by Rule 701 of the Rules and Regulations promulgated under
the Securities Act of 1933, as amended. During the same period, options to
purchase a total of 85,760 shares have been exercised.
II-3
<PAGE> 79
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
1.* Form of Underwriting Agreement.
3.1 Articles of Incorporation dated January 8, 1990.
3.2 Articles of Amendment to Articles of Incorporation dated May
1, 1990.
3.3 Articles of Amendment to Articles of Incorporation dated
June 15, 1990.
3.4 Articles of Amendment to Articles of Incorporation dated
December 14, 1992.
3.5 Articles of Amendment to Articles of Incorporation dated
January 6, 1994.
3.6 Articles of Amendment to Articles of Incorporation dated
August 23, 1996.
3.7* Form of Articles of Amendment to Articles of Incorporation
dated , 1997.
3.8 Amended and Restated Bylaws.
3.9* Form of Amendment to Amended and Restated Bylaws, dated
, 1997.
4.1 Donlar Corporation 1994 Series A Preferred Stock Option
Plan.
4.2 Donlar Corporation 1994 Stock Option Plan.
4.3 Form of Donlar Corporation 1994 Stock Option Plan Stock
Option Agreement.
4.4 The Donlar Corporation Long-Term Equity Compensation Plan
established as of October 3, 1997.
4.5 Form of 1995 Common Stock Purchase Warrant
4.6 Form of 1997 Series A Convertible Preferred Stock Warrant
($5.00 exercise price)
4.7 Form of 1997 Series A Convertible Preferred Stock Warrant
($6.50 exercise price)
5* Opinion of Holleb & Coff as to the legality of the
securities being registered (including consent).
10.1 Employment Agreement between Donlar and J. Larry Sanders
dated August 15, 1995.
10.2 Employment Agreement between Donlar and Bernardo N. Rico
dated July 1, 1996.
10.3 Employment Agreement between Donlar and Larry Koskan dated
July 1, 1996.
10.4 Subscription Agreement among Dr. Gerald Gleich, Donlar, and
Donlar Pharmaceuticals Corporation dated May 23, 1997.
10.5 Agreement between BP Exploration Operating Company Limited
and Donlar dated February, 1996.
10.6 Market Development and Distributorship Agreement between
Donlar and FMC Corporation (UK) Limited dated January 31,
1996.
10.7 Cooperation Agreement between Donlar and BASF
Aktiengesellschaft dated April 3, 1997.
10.8 Joint Technology Agreement between National Starch and
Chemical Company and Donlar dated June 20, 1996.
10.9 Distributor Agreement between Donlar and National Starch and
Chemical Company dated June 20, 1996.
10.10 Vacant Land Option Agreement between Sumidi, Inc. and Donlar
dated April 23, 1996.
10.11 Office Lease between Illinois Institute of Technology and
Donlar dated August 1, 1992.
10.12 Lease Amendment between Illinois Institute of Technology and
Donlar dated August 1, 1992.
10.13* Exchange and Amendment Agreement among Donlar Corporation,
Willis Stein & Partners, L.P., Star Polymers, L.L.C.,
RGM/BVM Limited Partnership and the individual
securityholders named therein, dated as of October , 1997.
11.* Statement regarding computation of per share earnings.
21. Subsidiaries of the Company.
23.1* Consent of .
23.2* Consent of .
23.3* Consent of Holleb & Coff (contained in its opinion filed as
Exhibit 5 hereto).
24. Power of Attorney (included on signature page of
Registration Statement).
27* Financial Data Schedule.
</TABLE>
- ------------------------------
* to be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES
II-4
<PAGE> 80
All schedules are omitted because of absence of conditions under which they
are required or because the required information is included in the Consolidated
Financial Statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes:
(1) To provide the Underwriters at the closing 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.
(2) For purpose of determining any liability under the Securities Act
of 1933, 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 Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this registration statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities
Act of 1933, 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.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Company pursuant to the provisions set forth in Item 14
above, 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. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company 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 Company 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 Securities Act and will be
governed by the final adjudication of such issue.
II-5
<PAGE> 81
SIGNATURES
Pursuant to 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 for filing on Form S-1 and has duly caused this Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, on October 10, 1997, in the City of Bedford Park, State of
Illinois.
DONLAR CORPORATION
By: /s/ LARRY P. KOSKAN
------------------------------------
Larry P. Koskan, President, Chief
Executive Officer and Chairman of
the Board
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Larry P.
Koskan and Bernardo N. Rico, and each of them as his or her true and lawful
attorney-in-fact and agent with full power of substitution to sign on his or her
behalf, individually, and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement and any and all instruments or
documents filed as part of or in connection with this Registration Statement or
the amendments thereto. Each of the undersigned does hereby ratify and confirm
all that said attorney-in-fact, agent, or his or her substitute, does or causes
to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities indicated on October 10, 1997:
<TABLE>
<CAPTION>
SIGNATURE TITLE
<C> <S>
/s/ LARRY P. KOSKAN President, Chief Executive Officer and Chairman of
- --------------------------------------------- the Board of Directors
Larry P. Koskan
/s/ BERNARDO N. RICO Executive Vice President, Secretary and Director
- ---------------------------------------------
Bernardo N. Rico
/s/ GERALD E. NOONAN Vice President, Finance, Chief Financial Officer
- --------------------------------------------- and Treasurer
Gerald E. Noonan
/s/ ROBERT W. COOPER Director
- ---------------------------------------------
Robert W. Cooper
/s/ RICHARD C. LEE Director
- ---------------------------------------------
Richard C. Lee
/s/ DR. ROBERT G. MARTIN Director
- ---------------------------------------------
Dr. Robert G. Martin
/s/ DR. DONALD R. SANDERS Director
- ---------------------------------------------
Dr. Donald R. Sanders
/s/ DANIEL M. GILL Director
- ---------------------------------------------
Daniel M. Gill
/s/ JOHN R. WILLIS Director
- ---------------------------------------------
John R. Willis
</TABLE>
<PAGE> 1
EXHIBIT 3.1
File Number 5579-707-2
STATE OF ILLINOIS
OFFICE OF
THE SECRETARY OF STATE
[SEAL]
WHEREAS, ARTICLES OF INCORPORATION OF
KOSKAN CHEMICAL COMPANY
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE
OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT
OF ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore, I Jim Edgar, Secretary of State of the State of Illinois, by
virtue of the powers vested in me by law, do hereby issue this certificate and
attach hereto a copy of the Application of the aforesaid corporation.
IN TESTIMONY WHEREOF, Thereto set my hand and, cause to be
affixed the Great Seal of the State of Illinois, at the
City of Springfield, this 8TH day of JANUARY, 1990
and of the Independence of the United States the two
hundred and 14TH.
JIM EDGAR
--------------------------
SECRETARY OF STATE
<PAGE> 2
This Space For Use By
JIM EDGAR Secretary of State
SECRETARY OF STATE Date 1-8-90
STATE OF ILLINOIS
License Fee .50
ARTICLES OF INCORPORATION Franchise Tax $ 25.00
Filing Fee $ 75.00
-------
$100.50
Clerk
Pursuant to the provisions of "The Business Corporation Act of 1983",
the undersigned incorporator(s) hereby adopt the following Articles of
Incorporation.
<TABLE>
<S><C>
ARTICLE ONE The name of the corporation is Koskan Chemical Company
-----------------------------------------------------
(Shall contain the word "corporation", "company", "incorporated",
------------------------------------------------------------------------------------------------------------------
"limited", or an abbreviation thereof)
ARTICLE TWO The name and address of the initial registered agent and its
registered office are:
Registered Agent
Robert C. Knuepfer
---------------------------------------------------------------------------------------------------------
First Name Middle Name Last Name
Registered Office
130 East Randolph Drive 2900
---------------------------------------------------------------------------------------------------------
Number Street Suite # (A.P.O. Box alone is not acceptable)
Chicago 60601 Cook
---------------------------------------------------------------------------------------------------------
City Zip Code County
ARTICLE THREE The purpose or purposes for which the corporation is organized are:
If not sufficient space to cover this point, add one or more sheets of this size.
The purpose of the corporation is to engage in any lawful act or activity for
which corporations may be organized under the Illinois Business Corporation Act
of 1983, or Amendments thereof.
</TABLE>
<TABLE>
<S><C>
ARTICLE FOUR Paragraph 1: The authorized shares shall be:
Class *Par Value per share Number of shares authorized
-----------------------------------------------------------------------------------------------------------------
Common n/a 1,000
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Paragraph 2: The preferences, qualifications, limitations, restrictions and the special or relative rights in
respect of the shares of each class are:
If not sufficient space to cover this point, add one or more sheets of this size.
PAID
JAN 9 1990
ARTICLE FIVE The number of shares to be issued initially, and the consideration to be received by the corporation
therefor, are:
*Par Value Number of shares Consideration to be
Class per share proposed to be issued received therefor
-----------------------------------------------------------------------------------------------------------------
Common n/a 1,000 $ 1,000
-----------------------------------------------------------------------------------------------------------------
$
-----------------------------------------------------------------------------------------------------------------
$
-----------------------------------------------------------------------------------------------------------------
$
-----------------------------------------------------------------------------------------------------------------
TOTAL $ 1,000.00
-----------------------
</TABLE>
<PAGE> 3
ARTICLE SIX OPTIONAL
The number of directors constituting the initial board of directors
of the corporation is ______________ and the names and addresses
of the persons who are to serve as directors until the first annual
meeting of shareholders or until their successors be elected and
qualify are:
Name Residential Address
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
ARTICLE SEVEN OPTIONAL
(a) It is estimated that the value of all property $
to be owned by the corporation for the following --------
year wherever located will be:
(b) It is estimated that the value of the property $
to be located within the State of Illinois during --------
the following year will be:
(c) It is estimated that the gross amount of business $
which will be transacted by the corporation during --------
the following year will be:
(d) It is estimated that the gross amount of business $
which will be transacted from places of business --------
in the State of Illinois during the following
year will be:
ARTICLE EIGHT OTHER PROVISIONS
Attach a separate sheet of this size for any other provision to be
included in the Articles of Incorporation, e.g., authorizing
preemptive rights; denying cumulative voting; regulating internal
affairs; voting majority requirements; fixing a duration other than
perpetual; etc.
NAMES & ADDRESSES OF INCORPORATORS
The undersigned incorporator(s) hereby declare(s), under penalties of
perjury, that the statements made in the foregoing Articles of Incorporation are
true.
Dated , 19 .
---------------------- -----
SIGNATURES AND NAMES POST OFFICE ADDRESS
1. /s/ Karen P. Breitenbach 1. 130 E. Randolph Street, Suite 2900
---------------------------- ----------------------------------
Signature Street
Karen P. Breitenbach Chicago, Illinois 60601
---------------------------- ---------------------------------
Name (please print) City/Town State Zip
2. 2.
---------------------------- ---------------------------------
Signature Street
---------------------------- ---------------------------------
Name (please print) City/Town State Zip
3. 3.
---------------------------- ---------------------------------
Signature Street
---------------------------- ---------------------------------
Name (please print) City/Town State Zip
(Signatures must be in ink on original document. Carbon copy, xerox or rubber
stamp signatures may only be used on conformed copies.)
NOTE: If a corporation acts as incorporator, the name of the corporation and
the state of incorporation shall be shown and the execution shall be by its
President or Vice-President and verified by him, and attested by its Secretary
or an Assistant Secretary.
FORM BCA-2.10
File No.
----------------------------
Koskan Chemical Company
====================================
ARTICLES OF INCORPORATION
FEE SCHEDULE
- The initial license fee for a domestic
corporation is computed at the rate of
1/20th of 1 percent (50 cents per $1,000)
of the amount of stated capital and paid-
in surplus, with a minimum of 50 cents.
- The initial franchise tax is assessed at
the rate of 1/10th of 1 percent ($1.00 per
$1,000) on the stated capital and paid-in
surplus represented in this state, with a
minimum of $25.00 and a maximum of
$1,000,000.
- The filing fee is $75.00
The minimum total fees due (license fee +
franchise tax + filing fee) where all the
property and business is in Illinois, or where
the corporation elects to pay on that basis is
$100.50. If you would like the fees computed
for you, please call the Department of Business
Services in Springfield.
RETURN TO:
Department of Business Services
Corporation Division
Secretary of State
Springfield, Illinois 62756
Telephone (217) 782-6961
========================================
<PAGE> 1
EXHIBIT 3.2
File Number 5579 707 2
STATE OF ILLINOIS
OFFICE OF
THE SECRETARY OF STATE
[SEAL]
WHEREAS, ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF
KOSKAN CHEMICAL COMPANY
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE
OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF
ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore, I, Jim Edgar, Secretary of State of the State of Illinois, by
virtue of the powers vested in me by laws, do hereby issue this certificate and
attach hereto a copy of the Application of the aforesaid corporation.
IN TESTIMONY WHEREOF, I hereto set my hand and cause to be
affixed the Great Seal of the State of Illinois, at the
City of Springfield, this 1ST day of MAY A.D. 1990 and
of the Independence of the United States the
two-hundred and 14TH.
JIM EDGAR
---------------------------------
SECRETARY OF STATE
<PAGE> 2
<TABLE>
<S> <C> <C>
BCA-10.30 (Form Rev. Jan. 1986) File # D 5579-707-2
JIM EDGAR
Submit in Duplicate Secretary of State This Space For Use By
State of Illinois Secretary of State
Remit payment in Check or Money Date 5-1-90
Order, payable to "Secretary of ARTICLES OF AMENDMENT License Fee $
State". Franchise Tax $25
DO NOT SEND CASH! Filing Fee
Clerk
</TABLE>
Pursuant to the provisions of "The Business Corporation Act of 1983", the
undersigned corporation hereby adopts these Articles of Amendment to its
Articles of Incorporation.
ARTICLE ONE The name of the corporation is Koskan Chemical Company_______
______________________________________________________(Note 1)
ARTICLE TWO The following amendment of the Articles of Incorporation was
adopted on April 27, 1990 in the manner indicated below. ("X"
one box only.)
[] By a majority of the incorporators, provided no directors were
named in the articles of incorporation and no directors have
been elected; or by a majority of the board of directors, in
accordance with Section 10.10, the corporation having issued
no shares as of the time of adoption of this amendment;
(Note 2)
[] By a majority of the board of directors, in accordance with
Section 10.15, shares having been issued but shareholder action
not being required for the adoption of the amendment;
(Note 3)
[] By the shareholders, in accordance with Section 10.20, a
resolution of the board of directors having been duly adopted
and submitted to the shareholders. At a meeting of
shareholders, not less than the minimum number of votes
required by statute and by the articles of incorporation were
voted in favor of the amendments; (Note 4)
[] By the shareholders, in accordance with Sections 10.20 and 7.10,
a resolution of the board of directors having been duly adopted
and submitted to the shareholders. A consent in writing has
been signed by shareholders having not less than the minimum
number of votes required by statute and by the articles of
incorporation. Shareholders who have not consented in writing
have been given notice in accordance with Section 7.10;
(Note 4)
[X] By the shareholders, in accordance with Sections 10.20 and
7.10, a resolution of the board of directors have been duly
adopted and submitted to the shareholders. A consent in
writing has been signed by all the shareholders entitled to
vote on this amendment;
(Note 4)
(INSERT AMENDMENT)
(Any article being amended is required to be set forth in its entirety.)
(Suggested language for an amendment to change the corporate name is: RESOLVED,
that the Articles of Incorporation be amended to read as follows)
- --------------------------------------------------------------------------------
(NEW NAME) PAID
MAY 2, 1990
All changes other than name, include on page 2
(over)
<PAGE> 3
PAGE 2
RESOLUTION
See attachment
<PAGE> 4
PAGE 3
ARTICLE THREE The manner in which any exchange, reclassification or
cancellation of issued shares, or a reduction of the number
of authorized shares of any class below the number of
issued shares of that class, provided for or effected by
this amendment, is as follows: (if not applicable, insert
"No change")
ARTICLE FOUR (a) The manner in which said amendment effects a change in
the amount of paid-in capital (Paid-in capital replaces the
terms Stated Capital and Paid in Surplus and is equal to
the total of these accounts) is as follows: (if not
applicable, insert "No change")
(b) The amount of paid-in capital (Paid in Capital replaces
the terms Stated Capital and Paid in Surplus and is equal to
the total of these accounts) as changed by this amendment is
as follows: (If not applicable, insert "No change")
BEFORE AMENDMENT AFTER AMENDMENT
Paid-in Capital $______________ $______________
(COMPLETE EITHER ITEM 1 OR 2 BELOW)
(1) The undersigned corporation has caused these articles to be signed by its
duly authorized officers, each of whom affirm, under penalties of perjury, that
the facts stated herein are true.
<TABLE>
<S> <C>
Dated April 27, 1990 Koskan Chemical Company
----------------------------------
(Exact Name of Corporation)
attested by Larry P. Koskan by Larry P. Koskan
----------------------------------------------- -----------------------------------------------
(Signature of Secretary or Assistant Secretary) (Signature of President or Vice President)
Larry P. Koskan, Secretary Larry P. Koskan, President
------------------------------- ------------------------------
(Type or Print Name and Title) (Type or Print Name and Title)
</TABLE>
(2) If amendment is authorized by the incorporators, the incorporators must
sign below.
OR
If amendment is authorized by the directors and there are no officers, then a
majority of the directors or such directors as may be designated by the board,
must sign below.
The undersigned affirms, under penalties of perjury, that the facts stated
herein are true.
Dated ___________________, 19___
______________________________________ _________________________________
______________________________________ _________________________________
______________________________________ _________________________________
______________________________________ _________________________________
<PAGE> 5
PAGE 4
NOTES AND INSTRUCTIONS
NOTE 1: State the true exact corporate name as it appears on the records of
the office of the Secretary of State, BEFORE any amendments herein
reported.
NOTE 2: Incorporators are permitted to adopt amendments ONLY before any shares
have been issued and before any directors have been named or elected.
(Section 10.10)
NOTE 3: Directors may adopt amendments without shareholder approval in only
six instances, as follows:
(a) to remove the names and addresses of directors named in the
articles of incorporation;
(b) to remove the name and address of the initial registered agent and
registered office, provided a statement pursuant to Section 5.10 is
also filed;
(c) to split the issued whole shares and unissued authorized shares by
multiplying them by a whole number, so long as no class or series
is adversely affected thereby;
(d) to change the corporate name by substituting the word "corporation",
"incorporated", "company", "limited", or the abbreviation "corp.",
"inc.", "co.", or "ltd." for a similar word or abbreviation in the
name, or by adding a geographical attribution to the name;
(e) to reduce the authorized shares of any class pursuant to a
cancellation statement filed in accordance with Section 9.05.
(f) to restate the articles of incorporation as currently amended.
(Section 10.15)
NOTE 4: All amendments not adopted under Section 10.10 or Section 10.15 require
(1) that the board of directors adopt a resolution setting forth the
proposed amendment and (2) that the shareholders approve the amendment.
Shareholder approval may be (1) by vote at a shareholders' meeting
(either annual or special) or (2) by consent, in writing, without a
meeting.
To be adopted, the amendment must receive the affirmative vote or
consent of the holders of at least 2/3 of the outstanding shares
entitled to vote on the amendment (but if class voting applies, then
also at least a 2/3 vote within each class is required).
The articles of incorporation may supercede the 2/3 vote requirement
by specifying any smaller or larger vote requirement not less than a
majority of the outstanding shares entitled to vote and not less than a
majority within each class when class voting applies. (Section 10.20)
NOTE 5: When shareholder approval is by written consent, all shareholders must
be given notice of the proposed amendment at least 5 days before the
consent is signed. If the amendment is adopted, shareholders who
have not signed the consent must be promptly notified of the
passage of the amendment. (Sections 7.10 & 10.20)
FORM BCA-10.30
File No. D-5579-707-2
Koskan Chemical Company
ARTICLES OF AMENDMENT
Filing Fee $25.00
Filing Fee for Re-Stated Articles $100.00
Please return to:
Karen P. Breitenbach
Baker & McKenzie
130 East Randolph Drive
Chicago, Illinois 60601
FILED
MAY 01, 1991
SECRETARY OF STATE
RETURN TO:
Department of Business Services
Corporation Division
Secretary of State
Springfield, Illinois 62756
Telephone 217-782-6961
<PAGE> 6
RESOLVED, the Paragraph 1 of Article Four of the Articles of
Incorporation be amended to read as follows:
ARTICLE FOUR
Paragraph 1: The authorized shares shall be
Number of
Class Par value Per Share Shares Authorized
----- ------------------- -----------------
Common None 1,000,000
FURTHER RESOLVED, that Article Eight be added to the Articles of
Incorporation to read as follows:
ARTICLE EIGHT
The holders of shares of each and every class and series in this
corporation shall not be entitled to cumulative voting rights in the election
of directors of this corporation, in any and all circumstances.
<PAGE> 1
EXHIBIT 3.3
File Number 5579-707-2
-----------------
STATE OF ILLINOIS
OFFICE OF
THE SECRETARY OF STATE
WHEREAS, ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF
KOSKAN CHEMICAL COMPANY
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE
OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF
ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore I, Jim Edgar, Secretary of State of the State of Illinois by
virtue of the powers vested in me by law, do hereby issue this certificate and
attach hereto a copy of the Application of the aforesaid corporation.
IN TESTIMONY WHEREOF, I hereto set my hand and cause to be
affixed the Great Seal of the State of Illinois, at the
City of Springfield, the 15th day of June A.D. 1990 and
two-hundred and 14TH.
JIM EDGAR
------------------------------
SECRETARY OF STATE
<PAGE> 2
<TABLE>
<S> <C> <C>
BCA-10.30 (Form Rev. Jan. 1986) File # D 5579-707-2
JIM EDGAR
Submit in Duplicate Secretary of State This Space For Use By
State of Illinois Secretary of State
Remit payment in Check of Money Date 6-15-96
Order, payable to "Secretary of ARTICLES OF AMENDMENT License Fee $
State". Franchise Tax $25
DO NOT SEND CASH! Filing Fee $
Clerk [?]
</TABLE>
Pursuant to the provisions of "The Business Corporation Act of 1983", the
undersigned corporation hereby adopts these Articles of Amendment to its
Articles of Incorporation.
ARTICLE ONE The name of the corporation is ___Koskan Chemical Company_______
________________________________________________________(Note 1)
ARTICLE TWO The following amendment of the Articles of Incorporation was
adopted on June 5, 1990 in the manner indicated below. ("X"
one box only.)
[ ] By a majority of the incorporators, provided no directors were
named in the articles of incorporation and no directors have
been elected; or by a majority of the board of directors,
in accordance with Section 10.10 the corporation having
issued no shares as of the time of adoption of this amendment.
(Note 2)
[ ] By a majority of the board of directors, in accordance with
Section 10.15, shares having been issued but shareholder action
not being required for the adoption of the amendment.
(Note 3)
[ ] By the shareholders in accordance with Section 10.20 a
resolution of the board of directors having been duly adopted
and submitted to the shareholders. At a meeting of
shareholders, not less than the minimum number of votes required
by stalute and by the articles of incorporation were voted in
favor of the amendment.
(Note 4)
[X] By the shareholders, in accordance with Sections 10.20 and 7.10
a resolution of the board of directors having been duly adopted
and submitted to the shareholders. A consent in writing has
been signed by shareholders having not less than the minimum
number of votes required by statute and by the articles of
incorporation. Shareholders who have not consented in writing
have been given notice in accordance with Section 7.10. (Note 4)
[ ] By the shareholders, in accordance with Section 10.20 and 7.10 a
resolution of the board of directors have been duly adopted and
submitted to the shareholders. A consent in writing has been
signed by all the shareholders entitled to vote on this
amendment.
(Note 4)
(INSERT AMENDMENT)
(Any article being amended is required to be set forth in its entirety)
(Suggested language for an amendment to change the corporate name is :
RESOLVED, that the Articles of Incorporation be amended to read as follows:)
DONLAR Corporation
- --------------------------------------------------------------------------------
(NEW NAME)
All changes other than name, include on page 2
(over)
<PAGE> 3
RESOLVED, that Article One of the Articles of Incorporation be amended
to read as follows:
"Article One. The name of the corporation is DONLAR Corporation."
<PAGE> 4
PAGE 3
ARTICLE THREE The manner in which any exchange, reclassification or
cancellation of issued shares, or a reduction of the number
of authorized shares of any class below the number of issued
shares of that class, provided for or effected by this
amendment, is as follows (if not applicable, insert "No
change")
No Change
ARTICLE FOUR (a) The manner in which said amendment effects a change in
the amount of paid-in capital (Paid-in capital replaces the
terms Stated Capital and Paid in Surplus and is equal to the
total of these accounts) is as follows (if not
applicable, insert "No change")
No Change
(b) The amount of paid-in capital (Paid in Capital replaces
the terms Stated Capital and Paid in Surplus and is equal
to the total of these accounts as charged by this amendment
as follows (if not applicable, insert "No change")
No Change
Before Amendment After Amendment
Paid-in Capital $_______________ $_______________
(COMPLETE EITHER ITEM 1 OR 2 BELOW)
(1) The undersigned corporation has caused these articles to be signed by its
duly authorized officers, each of whom affirm, under penalties of perjury,
that the facts stated herein are true.
Dated June 6, 1990 Koskan Chemical Company
--------------------------------------
Print Name of Company
attested by Robert C. Knuepfer by Larry P. Koskan
------------------------ ----------------------------------
(Signature of President or Vice
President)
Robert C. Knuepfer, Asst. Sec Larry P. Koskan, President
----------------------------- ----------------------------------
(Type or Print Name and Title) (Type or Print Name and Title)
(2) If amendment is authorized by the incorporators, the incorporators must
sign below.
OR
If amendment is authorized by the directors and there are no officers, then a
majority of the directors or such directors as may be designated by the board,
must sign below.
The undersigned affirms, under penalties of perjury, that the facts stated
herein are true.
Dated __________________, 19____
________________________________ _________________________________
________________________________ _________________________________
________________________________ _________________________________
________________________________ _________________________________
<PAGE> 5
Page 4
NOTES AND INSTRUCTIONS
NOTE 1 State the true exact corporate name as it appears on the records of the
office of the Secretary of State, BEFORE any amendments herein reported
NOTE 2 Incorporators are permitted to adopt amendments ONLY before any shares
have been issued and before any directors have been named or elected
(Section 10.10)
NOTE 3 Directors may adopt amendments without shareholder approval in only six
instances, as follows
(a) to remove the names and addresses of directors named in the
articles of incorporation.
(b) to remove the name and address of the initial registered agent and
registered office, provided a statement pursuant to Section 5.10
is also filed.
(c) to split the issued whole shares and unissued authorized shares by
multiplying them by a whole number, so long as no class or series is
adversely affected thereby.
(d) to change the corporate name by substituting the word "corporation",
"incorporated", "company", "limited", or the abbreviation "corp.",
"inc.", "co.", or "ltd" for a similar word or abbreviation in the
name, or by adding a geographical attribution to the name.
(e) to reduce the authorized shares of any class pursuant to a
cancellation statement filed in accordance with Section 9.05.
(f) to restate the articles of incorporation as currently amended
(Section 10.15)
NOTE 4 All amendments not adopted under Section 10.10 or Section 10.15 require
(1) that the board of directors adopt a resolution setting forth the
proposed amendment and (2) that the shareholders approve the amendment
Shareholder approval may be (1) by vote at a shareholders' meeting
(either annual or special) or (2) by consent, in writing, without a
meeting
To be adopted, the amendment must receive the affirmative vote or
consent of the holders of at least 2/3 of the outstanding shares
entitled to vote on the amendment (but if class voting applies, then
also at least a 2/3 vote within each class is required)
The articles of incorporation may supercede the 2/3 vote requirement by
specifying any smaller or larger vote requirement not less than a
majority of the outstanding shares entitled to vote and not less than
a majority within each class when class voting applies.
(Section 10.20)
NOTE 5 When shareholder approval is by written consent, all shareholders must
be given notice of the proposed amendment at least 5 days before the
consent is signed. If the amendment is adopted, shareholders who have
not signed the consent must be promptly notified of the passage of the
amendment (Sections 7.10 & 10.20)
FORM BCA-10.30
File No. D-5579-707-2
Koskan Chemical Company
ARTICLES OF AMENDMENT
Filing Fee $25.00
Filing Fee for Re-Stated Articles $100.00
Please return to:
Karen P. Breitenbach
Baker & McKenzie
130 East Randolph Drive
Suite 2900
Chicago, Illinois 60601
FILED
JUN 15, 1990
SECRETARY OF STATE
RETURN TO:
Corporation Department
Secretary of State
Springfield, Illinois 62756
Telephone 217-782-6961
<PAGE> 1
EXHIBIT 3.4
File Number 5579-707-2
STATE OF ILLINOIS
OFFICE OF
THE SECRETARY OF STATE
[SEAL]
WHEREAS, ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF
DONLAR CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE
OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF
ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore, I, George H. Ryan, Secretary of State of the State of Illinois,
by virtue of the powers vested in me by law, do hereby issue this certificate
and attach hereto a copy of the Application of the aforesaid corporation.
IN TESTIMONY WHEREOF, I hereto set my hand and cause to be
affixed the Great Seal of the State of Illinois, at the
City of Springfield, this 14TH day of DECEMBER A.D.
[SEAL] 1992 and of the Independence of the United States the
two-hundred and 17TH.
/s/ GEORGE H. RYAN
---------------------------------
SECRETARY OF STATE
<PAGE> 2
<TABLE>
<S> <C> <C>
Form BCA-10.30 ARTICLES OF AMENDMENT DEC. 16, 1992
(Rev. Jan. 1991) File #5579-707-2
- --------------------------------------------------------------------------------------------------------------------------------
George H. Ray FILED SUBMIT IN DUPLICATE
Secretary of State --------------------------------
Department of Business Services DEC 14 1992 This space for use by
Springfield, IL 62756 GEORGE H. RYAN Secretary of State
Telephone (217) 782-1832 SECRETARY OF STATE Date 11-14-92
Franchise Tax $
Remit payment in check or money Filing Fee $ 25.00
order, payable to "Secretary of State." Penalty $
Approved: [Signature]
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
1. CORPORATE NAME: DONLAR CORPORATION PAID DEC 16 1992
---------------------------------------------------------------------------------------------------------
(Note 1)
2. MANNER OF ADOPTION AND TEXT OF AMENDMENT:
The following amendment of the Articles of Incorporation was adopted on December 1,
1992 in the manner indicated below. ("X one box only)
/ / By a majority of the incorporators, provided no directors were named in the articles of incorporation and no
directors have been elected; or by a majority of the board of directors, in accordance with Section 10.10, the
corporation having issued no shares as of the time of adoption of this amendment;
(Note 2)
/ / By a majority of the board of directors, in accordance with Section 10.15, shares having been issued but
shareholder action not being required for the adoption of the amendment;
(Note 3)
/ / By the shareholders, in accordance with Section 10.20, a resolution of the board of directors having been duly
adopted and submitted to the shareholders. At a meeting of shareholders, not less than the minimum number of
votes required by statute and by the articles of incorporation were voted in favor of the amendment;
(Note 4)
/ / By the shareholders, in accordance with Sections 10.20 and 7.10, a resolution of the board of directors having
been duly adopted and submitted to the shareholders. A consent in writing has been signed by shareholders having
not less than the minimum number of votes required by statute and by the articles of incorporation. Shareholders
who have not consented in writing have been given notice in accordance with Section 7.10;
(Note 4)
/ X / By the shareholders, in accordance with Sections 10.20 and 7.10, a resolution of the board of directors having
been duly adopted and submitted to the shareholders. A consent in writing has been signed by all the shareholders
entitled to vote on this amendment.
(Note 4)
</TABLE>
When amendment effects a name change, insert the new corporate name below.
Use Page 2 for all other amendments.
Article I: The name of the corporation is:
- --------------------------------------------------------------------------------
(NEW NAME)
All changes, other than name, include on page 2
(over)
<PAGE> 3
Text of Amendment
(Any article being amended is required to be set forth in its entirety)
RESOLVED, that Paragraph 1 of Article Four of the Articles of Incorporation be
amended to read as follows:
ARTICLE FOUR
Paragraph 1: The authorized shares shall be
Number of
Class Par Value Per Share Shares authorized
----- ------------------- -----------------
Common None 8,000,000
<PAGE> 4
3. The manner in which any exchange, reclassification or cancellation of issued
shares, or a reduction of the number of authorized shares of any class below
the number of issued shares of that class, provided for or effected by this
amendment, is as follows: (If not applicable, insert "No change")
No Change
4. (a) The manner in which said amendment effects a change in the amount of
paid-in capital (Paid-in capital replaces the terms Stated Capital and
Paid-in Surplus and is equal to the total of these accounts) is as follows:
(If not applicable, insert "No change")
No Change
(b) The amount of paid-in capital (Paid-in Capital replaces the terms
Stated Capital and Paid-in Surplus and is equal to the total of these
accounts) as changed by this amendment is as follows: (If not applicable,
insert "No change")
No Change
Before Amendment After Amendment
Paid-in Capital $_______________ $______________
(COMPLETE EITHER ITEM 5 OR 6 BELOW)
5. The undersigned corporation has caused this statement to be signed by its
duly authorized officers, each of whom affirms, under penalties of perjury,
that the facts stated herein are true.
Dated December 1, 1992 DONLAR CORPORATION
---------------------------- ----------------------------------
(Exact Name of Corporation)
attested by Larry P. Koskan by Larry P. Koskan
---------------------- -------------------------------
(Signature of Secretary (Signature of President
or Assistant Secretary) or Vice President)
Larry P. Koskan Larry P. Koskan
---------------------------------- ----------------------------------
(Type or Print Name and Title) (Type or Print Name and Title)
6. If amendment is authorized by the incorporators, the incorporators must sign
below.
OR
If amendment is authorized by the directors and there are no officers, then
a majority of the directors or such directors as may be designated by the
board, must sign below.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
Dated ___________________, 19___
---------------------------------- ----------------------------------
---------------------------------- ----------------------------------
---------------------------------- ----------------------------------
---------------------------------- ----------------------------------
<PAGE> 5
NOTES AND INSTRUCTIONS
NOTE 1: State the true exact corporation name as it appears on the records of
the records of the office of the Secretary of State, BEFORE any
amendments herein reported.
NOTE 2: Incorporators are permitted to adopt amendments ONLY before any shares
have been issued and before any directors have been named or elected.
(Section 10.10)
NOTE 3: Directors may adopt amendments without shareholder approval in only
six instances, as follows:
(a) to remove the names and addresses of directors named in the
articles of incorporation;
(b) to remove the name and address of the initial registered agent and
registered office, provided a statement pursuant to Section 5.10 is
also filed;
(c) to split the issued whole shares and unissued authorized shares by
multiplying them by a whole number, so long as no class or series
is adversely affected thereby;
(d) to change the corporate name by substituting the word "corporation",
"incorporated", "company", "limited", or the abbreviation "corp.",
"inc.", "co.", or "ltd." for a similar word or abbreviation in the
name, or by adding a geographical attribution to the name;
(e) to reduce the authorized shares of any class pursuant to a
cancellation statement filed in accordance with Section 9.05.
(f) to restate the articles of incorporation as currently amended.
(Section 10.15)
NOTE 4: All amendments not adopted under Section 10.10 or Section 10.15 require
(1) that the board of directors adopt a resolution setting forth the
proposed amendment and (2) that the shareholders approve the amendment.
Shareholder approval may be (1) by vote at a shareholders' meeting
(either annual or special) or (2) by consent, in writing, without a
meeting.
To be adopted, the amendment must receive the affirmative vote or
consent of the holders of at least 2/3 of the outstanding shares
entitled to vote on the amendment (but if class voting applies, then
also at least a 2/3 vote within each class is required).
The articles of incorporation may supercede the 2/3 vote requirement by
specifying any smaller or larger vote requirement not less than a
majority of the outstanding shares entitled to vote and not less than a
majority within each class when class voting applies. (Section 10.20)
NOTE 5: When shareholder approval is by written consent, all shareholders must
be given notice of the proposed amendment at least 5 days before the
consent is signed. If the amendment is adopted, shareholders who
have not signed the consent must be promptly notified of the
passage of the amendment. (Sections 7.10 & 10.20)
The filing fee for articles of amendment - $25.00
The filing fee for restated articles - $100.00
<PAGE> 1
EXHIBIT 3.5
File Number 5579-707-2
STATE OF ILLINOIS
OFFICE OF
THE SECRETARY OF STATE
[SEAL]
WHEREAS, ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF
DONLAR CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE
OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF
ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore, I, George H. Ryan, Secretary of State of the State of Illinois,
by virtue of the powers vested in me by law, do hereby issue this certificate
and attach hereto a copy of the Application of the aforesaid corporation.
IN TESTIMONY WHEREOF, I hereto set my hand and cause to be
affixed the Great Seal of the State of Illinois, at the
City of Springfield, this 6TH day of JANUARY A.D. 1993
[SEAL] and of the Independence of the United States the
two-hundred and 17TH.
/s/ GEORGE H. RYAN
---------------------------------
SECRETARY OF STATE
<PAGE> 2
ARTICLES OF AMENDMENT
FILED
JAN 06 1994
GEORGE H. RYAN
SECRETARY OF STATE
[PAID JAN 11 1994]
Form BCA-10.30 File # 5579-707-2
(Rev. Jan. 1991)
SUBMIT IN DUPLICATE
George H. Ryan
Secretary of State This space for use by
Department of Business Services Secretary of State
Springfield, IL 62756
Telephone (217) 782-6961 Date 1-6-74
Franchise Tax $
Remit payment in check or money Filing Fee $25
order, payable to "Secretary of State." Penalty $
Approved: [Signature]
1. CORPORATE NAME: Donlar Corporation
-----------------------------------------------------------
(Note 1)
2. MANNER OF ADOPTION:
The following amendment of the Articles of Incorporation was adopted on
July 14, 1993 in the manner indicated below. ("X" one box only)
[ ] By a majority of the incorporators, provided no directors were named
in the articles of incorporation and no directors have been elected; or
by a majority of the board of directors, in accordance with Section
10.10, the corporation having issued no shares as of the time of
adoption of this amendment;
(Note 2)
[ ] By a majority of the board of directors in accordance with Section
10.15, shares having been issued by shareholder action not being
required for the adoption of the amendment;
(Note 3)
[XX] By the shareholders, in accordance with Section 10.20, a resolution of
the board of directors having been duly adopted and submitted to the
shareholders. At a meeting of shareholders, not less than the minimum
number of votes required by statute and by the articles of
incorporation were voted in favor of the amendment;
(Note 4)
[ ] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed by
shareholders having not less than the minimum number of votes required
by statute and by the articles of incorporation. Shareholders who have
not consented in writing have been given notice in accordance with
Section 7.10;
(Note 4)
[ ] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed by
all the shareholders entitled to vote on this amendment.
(Note 4)
(INSERT AMENDMENT)
(Any article being amended is required to be set forth in its entirety.)
(Suggested language for an amendment to change the corporate name is RESOLVED,
that the Articles of Incorporation be amended to read as follows:)
NO CHANGE
- --------------------------------------------------------------------------------
(NEW NAME)
All changes other than name, include on page 2
(over)
<PAGE> 3
RESOLUTION
SEE EXHIBIT "A" WHICH IS
ATTACHED HERETO AND INCORPORATED BY
REFERENCE HEREIN.
<PAGE> 4
3. The manner in which any exchange, reclassification or cancellation of issued
shares, or a reduction of the number of authorized shares of any class below
the number of issued shares of that class, provided for or effected by this
amendment, is as follows: (if not applicable, insert "No change")
SEE EXHIBIT "B" WHICH IS ATTACHED HERETO AND INCORPORATED BY REFERENCE
HEREIN.
4. (a) The manner in which said amendment effects a change in the amount of
paid-in capital (Paid-in capital replaces the terms Stated Capital and
Paid-in Surplus and is equal to the total of these accounts) is as follows:
(if not applicable, insert "No change")
NO CHANGE
(b) The amount of paid-in capital (Paid-in Capital replaces the terms Stated
Capital and Paid-in Surplus and is equal to the total of these accounts) as
changed by this amendment is as follows: (if not applicable, insert "No
change")
NO CHANGE
Before Amendment After Amendment
Paid-in Capital $_______________ $______________
(Complete either Item 5 or 6 below)
5. The undersigned corporation has caused this statement to be signed by its
duly authorized officers, each of whom affirms, under penalties of perjury,
that the facts stated herein are true.
<TABLE>
<S><C>
Dated December 7, 1993 Donlar Corporation
------------------------------ ------------------------------------
(Exact Name of Corporation)
attested by Larry P. Koskan by Larry P. Koskan
--------------------------------------------- ----------------------------------------------
(Signature of Secretary on Assistant Secretary) (Signature of President or Assistant Secretary)
Larry Koshan, Secretary Larry Koskan, President
--------------------------------------------- ---------------------------------------------
(Type or Print Name and Title) (Type or Print Name and Title)
</TABLE>
6. If amendment is authorized by the incorporators, the incorporators must sign
below.
OR
If amendment is authorized by the directors and there are no officers, then
a majority of the directors or such directors as may be designated by the
board, must sign below.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
Dated ______________________, 19__
__________________________________ _________________________________
__________________________________ _________________________________
__________________________________ _________________________________
__________________________________ _________________________________
(ILL.-583)
<PAGE> 5
NOTES AND INSTRUCTIONS
NOTE 1: State the true exact corporate name as it appears on the records of the
office of the Secretary of State, BEFORE any amendments herein
reported.
NOTE 2: Incorporators are permitted to adopt amendments ONLY before any shares
have been issued and before any directors have been named or elected.
(Section 10.10)
NOTE 3: Directors may adopt amendments without shareholder approval in only six
instances, as follows:
(a) to remove the names and addresses of directors named in the
articles of incorporation;
(b) to remove the name and address of the initial registered agent and
registered office, provided a statement pursuant to Section 5.10
is also filed;
(c) to split the issued whole shares and unissued authorized shares by
multiplying them by a whole number, so long as no class or series
is adversely affected thereby;
(d) to change the corporate name by substituting the word
"corporation", "incorporated", "company", "limited", or the
abbreviation "corp.", "inc.", "co.", or "ltd." for a similar word
or abbreviation in the name, or by adding a geographical
attribution to the name;
(e) to reduce the authorized shares of any class pursuant to a
cancellation statement filed in accordance with Section 9.05,
(f) to restate the articles of incorporation as currently amended.
(Section 10.15)
NOTE 4: All amendments not adopted under Section 10.10 or Section 10.15 require
(1) that the board of directors adopt a resolution setting forth the
proposed amendment and (2) that the shareholders approve the
amendment.
Shareholder approval may be (1) by vote at a shareholders' meeting
(either annual or special) or (2) by consent, in writing, without a
meeting.
To be adopted, the amendment must receive the affirmative vote or
consent of the holders of at least 2/3 of the outstanding shares
entitled to vote on the amendment (but if class voting applies, then
also at least a 2/3 vote within each class is required).
The articles of incorporation may supercede the 2/3 vote requirement by
specifying any smaller or larger vote requirement not less than a
majority of the outstanding shares entitled to vote and not less than a
majority within each class when class voting applies. (Section 10.20)
NOTE 5: When shareholder approval is by consent, all shareholders must
be given notice of the proposed amendment at least 5 days before the
consent is signed. If the amendment is adopted, shareholders who have
not signed the consent must be promptly notified of the passage of the
amendment. (Sections 7.10 & 10.20)
<PAGE> 6
EXHIBIT "A" TO ARTICLES OF AMENDMENT
OF
DONLAR CORPORATION
RESOLVED, that ARTICLE FOUR and ARTICLE EIGHT of the Articles of
Incorporation of DONLAR CORPORATION are hereby amended to read as follows:
ARTICLE FOUR
The authorized shares shall be:
Par Value Number of
Class Per Share Shares Authorized
- ----- --------- -----------------
Common Stock N/A 25,000,000
Series A Preferred Stock N/A 17,500,000
The preferences, qualifications, limitations, restrictions and the
special or relative rights in respect of the Common Stock and Series A
Preferred Stock are as follows:
1. Dividend Provisions. When and as declared by the corporation's
board of directors, the holders of Series A Preferred Stock shall be entitled
to receive, out of any funds legally available therefor (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of this corporation), dividends at the rate of $0.18
<PAGE> 7
per share per annum, payable in preference to any payment of any dividend on
Common Stock. After payment of such dividends, any additional dividends
declared shall be payable entirely to the holders of Common Stock. The right of
the holders of Series A Preferred Stock to receive dividends shall not be
cumulative, and no right shall accrue to holders of Series A Preferred Stock by
reason of the fact that dividends on such shares are not declared or paid in any
prior year.
2. Liquidation Preference.
(a) Preferred Preference. In the event of any liquidation,
dissolution or winding up of this corporation, either voluntary or involuntary,
the holders of Series A Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets of this corporation to
the holders of Common Stock by reason of their ownership thereof, an amount per
share equal to $2.25 for each outstanding share of Series A Preferred Stock,
plus an amount equal to any declared but unpaid dividends on such share (such
amount being referred to herein as the "Premium"). If upon the occurrence of
such event, the assets and funds thus distributed among the holders of Series A
Preferred Stock shall be insufficient to permit the payment to such holders of
the full Premium, then, the entire assets and funds of this corporation legally
available for distribution shall be distributed ratably among the holders of
Series A Preferred Stock in proportion to the number of shares of such Series A
Preferred Stock owned by each such holder.
After the payment or the setting apart of payment to the
holders of Series A Preferred Stock of the Premium, each share of Common Stock
shall receive pro rata the remaining assets of the corporation.
(b) Mergers. A merger, reorganization, or sale of all or
substantially all of the assets of this corporation in which the shareholders of
this corporation immediately prior to the transaction possess less than 50% of
the voting power of the surviving entity (or its parent) immediately after the
transaction shall be deemed to be a liquidation, dissolution or winding up
within the meaning of this Section 2. Any securities to be delivered to the
holders of Series A Preferred Stock and Common Stock upon merger,
reorganization or sale of substantially all the assets of the corporation shall
be valued as follows:
(i) if traded on a securities exchange, the value
shall be deemed to be the average of the closing prices of the securities on
such exchange over the 30-day period ending three (3) business days prior to
the closing;
-2-
<PAGE> 8
(ii) if actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending three (3) business days prior to the closing; and
(iii) if there is no active public market, the value
shall be the fair market value thereof as determined in good faith by the board
of directors of the corporation.
3. Conversion. The holders of Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible into shares of Common Stock without the payment of any
additional consideration by the holder thereof and, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
the corporation or any transfer agent for the Series A Preferred Stock. Each
share of Series A Preferred Stock shall be convertible into the number of fully
paid and nonassessable shares of Common Stock which results from dividing the
Conversion Price (as hereinafter defined) per share in effect for the Series A
Preferred Stock at the time of conversion into the per share Conversion Value
(as hereinafter defined) of such series. The initial Conversion Price per share
of Series A Preferred Stock shall be $2.25. The per share Conversion Value of
the Series A Preferred Stock shall be $2.25. The initial Conversion Price of
Series A Preferred Stock shall be subject to adjustment from time to time as
provided below. The number of shares of Common Stock into which a share of
Series A Preferred Stock is convertible is hereinafter referred to as the
"Conversion Rate" of the Series A Preferred Stock.
(b) Automatic Conversion. Each share of Series A Preferred
Stock shall be automatically converted into shares of Common Stock at its then
effective Conversion Rate immediately upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the corporation to the public at a per share
price (prior to underwriter commissions and discounts) of not less than $5.00
(appropriately adjusted for any combinations, consolidations or stock dividend,
stock split or other recapitalization) and an aggregate offering price to the
public of not less than $7,500,000.
(c) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate(s) therefor, duly endorsed, at the
office of the corporation or of any transfer agent for the Series A Preferred
Stock and shall give written notice to the corporation at such office that he
elects to convert the same (except that no such written notice of election to
-3-
<PAGE> 9
convert shall be necessary in the event of an automatic conversion pursuant to
Section 3(b) hereof). The corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Series A Preferred Stock
certificate(s) for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender
of the shares of Series A Preferred Stock to be converted (except that in the
case of an automatic conversion pursuant to Section 3(b) hereof such conversion
shall be deemed to have been made immediately prior to the closing of the
offering referred to in Section 3(b)) and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(d) Fractional Shares. In lieu of any fractional shares to which the
holder of Series A Preferred Stock would otherwise be entitled, the corporation
shall pay cash equal to such fraction multiplied by the fair market value of
Series A Preferred Stock as determined by the board of directors of the
corporation. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Series A
Preferred Stock of each holder at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregated conversion.
(e) Adjustment of Conversion Price. The Conversion Price of the Series
A Preferred Stock shall be subject to adjustment from time to time as follows:
(i) If the corporation shall issue any Common Stock other than
"Excluded Stock," as defined below, for a consideration per share less than the
Conversion Price in effect immediately prior to the issuance of such Common
Stock (excluding stock dividends, subdivisions, split-ups, combinations,
dividends or recapitalizations which are covered by Sections 3(e)(iv), (v),
(vi) and (vii)), the Conversion Price in effect after each such issuance shall
thereafter (except as provided in this Section 3(e)) be adjusted to a price
equal to the quotient obtained by dividing:
(A) an amount equal to the sum of
(x) the total number of shares of Common Stock
outstanding (including any shares of Common Stock issuable upon conversion of
all Preferred Stock, or deemed to have been issued pursuant to subdivision (3)
of this clause (1) and to clause (iii) below) immediately prior to such
issuance multiplied by the Conversion Price in effect immediately prior to such
issuance, plus
-4-
<PAGE> 10
(y) the consideration received by the corporation upon
such issuance, by
(B) the total number of shares of Common Stock outstanding
(including any shares of Common Stock issuable upon conversion of all Preferred
Stock or deemed to have been issued pursuant to subdivision (3) of this clause
(i) and to clause (iii) below) immediately prior to such issuance plus the
additional shares of Common Stock issued in such issuance (but not including
any additional shares of Common Stock deemed to be issued as a result of any
adjustment in the Conversion Price resulting from such issuance).
(ii) For purposes of any adjustment of the Conversion Price
pursuant to clause (i) above, the following provisions shall be applicable:
(1) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
after deducting any discounts or commissions paid or incurred by the
corporation in connection with the issuance and sale thereof.
(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 market value thereof as determined by the
board of directors of the corporation, in accordance with generally accepted
accounting treatment; provided, however, that if, at the time of such
determination, the corporation's Common Stock is traded in the over-the-counter
market or on a national or regional securities exchange, such fair market value
as determined by the board of directors of the corporation shall not exceed the
aggregate "Current Market Price" (as defined below) of the shares of Common
Stock being issued.
(3) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock (other than Excluded Stock),
(ii) securities by their terms convertible into or exchangeable for Common
Stock (other than Excluded Stock), or (iii) options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(A) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subdivisions (1) and (2)
above), if any, received by the corporation upon the issuance of
-5-
<PAGE> 11
such options or rights plus the minimum purchase price provided in such options
or rights for the Common Stock covered thereby;
(B) the aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration received by the
corporation for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued dividends), plus
the minimum additional consideration, if any, to be received by the corporation
upon the conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be determined in
the manner provided in subdivisions (1) and (2) above);
(C) on any change in the number of
shares of Common Stock deliverable upon exercise of any such options or rights
or conversion of or exchange for such convertible or exchangeable securities,
or on any change in the minimum purchase price of such options, rights or
securities, other than a change resulting from the antidilution provisions of
such options, rights or securities, the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have obtained had the adjustment
made upon (x) the issuance of such options, rights or securities not exercised,
converted or exchanged prior to such change, as the case may be, been made upon
the basis of such change or (y) the options or rights related to such
securities not converted or exchanged prior to such change, as the case may be,
been made upon the basis of such change; and
(D) on the expiration of any such
options or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price shall forthwith be readjusted to
such Conversion Price as would have obtained had the adjustment made upon the
issuance of such options, rights, convertible or exchangeable securities or
options or rights related to such convertible or exchangeable securities, as
the case may be, been made upon the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such convertible or exchangeable
securities or upon the exercise of the options or rights related to such
convertible or exchangeable securities, as the case may be.
(iii) "Excluded Stock" shall mean:
-6-
<PAGE> 12
(A) all shares of Common Stock issued and outstanding
on the date these Articles of Amendment are filed with the Illinois Secretary
of State;
(B) all shares of Preferred Stock issued and
outstanding on the date these Articles of Amendment are filed with the Illinois
Secretary of State, and all shares of Common Stock into which such Preferred
Stock is convertible;
(C) all shares of Common Stock or Preferred Stock
issued or issuable upon conversion of Convertible Secured Promissory Notes
issued by the corporation on or about July 1992.
(D) all securities issued or issuable to officers,
directors or employees of the corporation, or consultants, suppliers, lessors
or lenders to the corporation, pursuant to any plan or arrangement approved by
the board of directors of the corporation.
All outstanding shares of Excluded Stock (including any
shares issuable upon conversion of all Preferred Stock but excluding shares
reserved for issuance for option plans for which options have not yet been
granted) shall be deemed to be outstanding for all purposes of the computations
of Section 3(e).
(iv) If the number of shares of Common Stock outstanding at any
time after the date hereof is increased by a stock dividend payable in shares
of Common Stock or by a subdivision or split-up of shares of Common Stock,
then, on the date such payment is made or such change is effective, the
Conversion Price of the Series A Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion
of any shares of the Series A Preferred Stock shall be increased in proportion
to such increase of outstanding shares.
(v) If the number of shares of Common Stock outstanding at any
time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then, on the effective date of such combination, the
Conversion Price of the Series A Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion
of any shares of the Series A Preferred Stock shall be decreased in proportion
to such decrease in outstanding shares.
(iv) In case the corporation shall declare a cash dividend
upon its Common Stock payable otherwise than out of retained earnings or shall
distribute to holders of its Common Stock shares of this capital stock (other
than Common Stock), stock or other securities of other persons, evidences of
indebtedness issued by the corporation or other persons, assets (excluding
cash
-7-
<PAGE> 13
dividends) or options or rights (excluding options to purchase and rights to
subscribe for Common Stock or other securities of the corporation convertible
into or exchangeable for Common Stock), then, in each such case, the holders of
shares of Series A Preferred Stock shall, concurrent with the distribution to
holders of Common Stock, receive a like distribution based upon the number of
shares of Common Stock into which the Series A Preferred Stock is convertible.
(vii) In case, at any time after the date hereof, of any
capital reorganization, or any reclassification of the stock of the corporation
(other than as a result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of the corporation with
or into another person (other than a consolidation or merger in which the
corporation is the continuing entity and which does not result in any change in
the Common Stock), or of the sale or other disposition of all or substantially
all the properties and assets of the corporation, the shares of Series A
Preferred Stock shall, after such reorganization, reclassification,
consolidation, merger, sale or other disposition, be convertible into the kind
and number of shares of stock or other securities or property of the
corporation or otherwise to which such holder would have been entitled if
immediately prior to such reorganization, reclassification, consolidation,
merger, sale or other disposition he had converted his shares of Series A
Preferred Stock into Common Stock. The provisions of this clause (vii) shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or other dispositions.
(viii) All calculations under this Section 3 shall be made to
the nearest cent or to the nearest one hundredth (1/100) of a share, as the
case may be.
(ix) For the purpose of any computation pursuant to this
Section 3(e), the "Current Market Price" at any date of one share of Common
Stock, shall be deemed to be the average of the highest reported bid and the
lowest reported offer prices on the preceding business day as furnished by the
National Quotation Bureau, Incorporated (or equivalent recognized source of
quotations); provided, however, that if the Common Stock is not traded in such
manner that the quotations referred to in this clause (ix) are available for
the period required hereunder, Current Market Price shall be determined in good
faith by the board of directors of the corporation.
(f) Minimal Adjustments. No adjustment in the Conversion Price need
be made if such adjustment would result in a change in the Conversion Price of
less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment
-8-
<PAGE> 14
which, on a cumulative basis, amounts to an adjustment of $0.01 or more in the
Conversion Price.
(g) No Impairment. The corporation will not through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 3
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of Preferred Stock
against impairment. This provision shall not restrict the corporation's right
to amend this Statement of Designation with the requisite corporate approval.
(h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Rate pursuant to this Section 3,
the corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The corporation shall, upon written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustment, (ii) the Conversion Rate of such series at the
time in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversions of such holder's shares of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property or to receive any other right, the
corporation shall mail to each holder of Series A Preferred Stock at least ten
(10) days prior to such record date, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend or distribution or
right, and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Series A Preferred Stock such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all
-9-
<PAGE> 15
outstanding shares of Series A Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Series A Preferred
Stock, the corporation will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
(k) Notices. Any notice required by the provisions of this
Section 3 to be given to the holder of shares of Series A Preferred Stock shall
be deemed delivered when deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the corporation.
(l) Reissuance of Converted Shares. No shares of Series A
Preferred Stock which have been converted into Common Stock after the original
issuance thereof shall ever again be reissued and all such shares so converted
shall upon such conversion cease to be a part of the authorized shares of the
corporation.
4. Voting Rights. The holder of each share of Series A Preferred
Stock shall be entitled to notice of any shareholders' meeting in accordance
with the bylaws of the corporation and shall vote with holders of the Common
Stock upon the election of directors and upon any other matter submitted to a
vote of shareholders, except those matters required by law to be submitted to a
class vote. The holder of each share of Series A Preferred Stock shall be
entitled to that number of votes equal to the number of shares of Common Stock
into which each share of Series A Preferred Stock could be converted on the
record date for the vote or consent of shareholders. Fractional votes shall
not, however, be permitted and any fractional voting rights resulting from the
above formula (after aggregating all shares of Series A Preferred Stock held by
each holder) shall be disregarded.
5. Residual Rights. All rights accruing to the outstanding shares
of capital stock not expressly provided for to the contrary herein shall be
vested in the Common Stock.
-10-
<PAGE> 16
ARTICLE EIGHT
The holders of shares of each and every class and series in this
corporation shall not be entitled to cumulative voting rights in the election
of directors of this corporation, in any and all circumstances.
11
<PAGE> 17
EXHIBIT "B" TO ARTICLES OF AMENDMENT
OF
DONLAR CORPORATION
Upon the filing of these Articles of Amendment with the Illinois
Secretary of State, each outstanding shares of the corporation's Common Stock
shall be split up and converted into twenty (20) shares of the corporation's
Series A Preferred Stock.
The current issued shares to be split are 846,154.
-1-
<PAGE> 1
EXHIBIT 3.6
FILE NUMBER 5579-707-2
STATE OF ILLINOIS
OFFICE OF
THE SECRETARY OF STATE
WHEREAS, ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF DONLAR
CORPORATION INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN
FILED IN THE OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS
CORPORATION ACT OF ILLINOIS, IN FORCE JULY 1, A.D. 1984.
NOW THEREFORE, I, GEORGE H. RYAN, SECRETARY OF STATE OF THE STATE OF ILLINOIS,
BY VIRTUE OF THE POWERS VESTED IN ME BY LAW, DO HEREBY ISSUE THIS CERTIFICATE
AND ATTACH HERETO A COPY OF THE APPLICATION OF THE AFORESAID CORPORATION.
IN TESTIMONY WHEREOF, I HERETO SET MY HAND AND CAUSE TO BE AFFIXED THE GREAT
SEAL OF THE STATE OF ILLINOIS, AT THE CITY OF SPRINGFIELD, THIS
23RD DAY OF AUGUST A.D. 1996 AND OF THE INDEPENDENCE OF THE
[SEAL] UNITED STATES THE TWO HUNDRED AND 21ST.
/s/ GEORGE H. RYAN
SECRETARY OF STATE
<PAGE> 2
ARTICLES OF AMENDMENT
FILED
AUG 23 1996
GEORGE H. RYAN
SECRETARY OF STATE
Form BCA-10.30 File # 5579-707-2
(Rev. Jan. 1995)
SUBMIT IN DUPLICATE
George H. Ryan
Secretary of State THIS SPACE FOR USE BY
Department of Business Services SECRETARY OF STATE
Springfield, IL 62756
Telephone (217) 782-1932 Date 8-23-96
Franchise Tax $
Remit payment in check or money Filing Fee $25.00
order, payable to "Secretary of State." Penalty $
The filing fee for articles of Approved: MR
amendment - $25.00
1. CORPORATE NAME: Donlar Corporation
-----------------------------------------------------------
(Note 1)
2. MANNER OF ADOPTION OF AMENDMENT:
The following amendment of the Articles of Incorporation was adopted on
August 22, 1996 in the manner indicated below. ("X" one box only)
[ ] By a majority of the incorporators, provided no directors were named
in the articles of incorporation and no directors have been elected;
(Note 2)
[ ] By a majority of the board of directors, in accordance with Section
10.10, the corporation having issued no shares as of the time of
adoption of this amendment;
(Note 2)
[ ] By a majority of the board of directors, in accordance with Section
10.15, shares having been issued but shareholder action not being
required for the adoption of the amendment;
(Note 3)
[ ] By the shareholders, in accordance with Section 10.20, a resolution of
the board of directors having been duly adopted and submitted to the
shareholders. At a meeting of shareholders, not less than the minimum
number of votes required by statute and by the articles of
incorporation were voted in favor of the amendment;
(Note 4)
[X] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed by
shareholders having not less than the minimum number of votes required
by statute and by the articles of incorporation. Shareholders who have
not consented in writing have been given notice in accordance with
Section 7.10;
(Notes 4 & 5)
[ ] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed by
all the shareholders entitled to vote on this amendment.
(Note 5)
3. TEXT OF AMENDMENT:
a. When amendment effects a name change, insert the new corporate name
below. Use Page 2 for all other amendments.
Article I: The name of the corporation is:
EXPEDITED
- --------------------------------------------------------------------------------
(NEW NAME) AUG 23 1996
SECRETARY OF STATE
All changes other than name, include on page 2
(over)
<PAGE> 3
4. The manner, if not set forth in Article 3b, in which any exchange,
reclassification or cancellation of issued shares, or a reduction of the
number of authorized shares of any class below the number of issued shares
of that class, provided for or effected by this amendment, is as follows:
(If not applicable, insert "No change")
NO CHANGE
5. (a) The manner, if not set forth in Article 3b, in which said amendment
effects a change in the amount of paid-in capital (Paid-in capital replaces
the terms Stated Capital and Paid-in Surplus and is equal to the total of
these accounts) is as follows: (If not applicable, insert "No change")
NO CHANGE
(b) The amount of paid-in capital (Paid-in Capital replaces the terms Stated
Capital and Paid-in Surplus and is equal to the total of these accounts) as
changed by this amendment is as follows: (If not applicable, insert "No
change")
NO CHANGE
Before Amendment After Amendment
Paid-in Capital $_______________ $______________
(COMPLETE EITHER ITEM 6 OR 7 BELOW. ALL SIGNATURES MUST BE IN BLACK INK.)
6. The undersigned corporation has caused this statement to be signed by its
duly authorized officers, each of whom affirms, under penalties of perjury,
that the facts stated herein are true.
<TABLE>
<S> <C>
Dated August 22, 1996 DONLAR CORPORATION
----------------------------------------------------- ------------------------------------------------
(Exact Name of Corporation at date of execution)
attested by Bernardo N. Rico by Bernardo N. Rico
----------------------------------------------- ------------------------------------------------
(Signature of Secretary or Assistant Secretary) (Signature of President or Vice President)
Bernardo N. Rico, Secretary Bernardo N. Rico, Executive Vice President
----------------------------------------------- ------------------------------------------------
(Type or Print Name and Title) (Type or Print Name and Title)
</TABLE>
7. If amendment is authorized pursuant to Section 10.10 by the incorporators,
the incorporators must sign below, and type or print name and title.
OR
If amendment is authorized by the directors pursuant to Section 10.10 and
there are no officers, then a majority of the directors or such directors as
may be designated by the board, must sign below, and type or print name and
title.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
<TABLE>
<S> <C>
Dated , 19
------------------------------------- _____
- ---------------------------------------------------- ----------------------------------------------------
- ---------------------------------------------------- ----------------------------------------------------
- ---------------------------------------------------- ----------------------------------------------------
- ---------------------------------------------------- ----------------------------------------------------
</TABLE>
Page 3
<PAGE> 4
EXHIBIT "A" TO ARTICLES OF AMENDMENT
OF
DONLAR CORPORATION
RESOLVED, that ARTICLE FOUR of the Articles of Incorporation of DONLAR
CORPORATION are hereby amended to read as follows:
ARTICLE FOUR
The authorized shares shall be:
Par Value Number of
Class Per Share Shares Authorized
- ----- --------- -----------------
Common Stock No par 60,000,000
Preferred Stock
Series A Preferred Stock No par 38,000,000
Series B Preferred Stock No par 6,000,000
Series C Preferred Stock No par 6,000,000
The preferences, qualifications, limitations, restrictions and the special
or relative rights in respect of the Common Stock, Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock are as follows:
I. Series A Preferred and Common Stock
1A. Dividends Provisions. When and as declared by the Corporation's board
of directors, the holders of Series A Preferred Stock shall be entitled to
receive, out of any funds legally available therefor (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of this Corporation), dividends when and in the amounts as declared by the
Board of Directors, payable in preference to any payment of any dividend on
Common Stock. The right of the holders of Series A Preferred Stock to receive
dividends shall not be cumulative, and no right shall accrue to holders of
Series A Preferred Stock by reason of the fact that dividends on such shares are
not declared or paid in any prior year. In the event that the Corporation
declares or pays any dividends upon the Common Stock, (whether payable in cash,
securities or other property) other than dividends payable solely in shares of
Common Stock, the Corporation shall also declare and pay to the holders of the
Series A Preferred Stock at the same time that it declares and pays such
dividends to the holders of the Common Stock, the dividends with respect to each
share of Common Stock which is issuable upon conversion of the Series A
Preferred Stock as of the record date for such dividend, or if no record date is
<PAGE> 5
fixed, the date as of which the record holders of Common Stock entitled to such
dividends are to be determined.
1B. Liquidation Preference.
(a) Preferred Preference. In the event of any liquidation,
dissolution or winding up of this Corporation, either voluntary or involuntary,
the holders of Series A Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets of this Corporation to
the holders of Common Stock by reason of their ownership thereof, an amount per
share equal to $2.25 for each outstanding share of Series A Preferred Stock,
plus an amount equal to any declared but unpaid dividends on such share (such
amount being referred to herein as the "Premium"). If upon the occurrence of
such event, the assets and funds thus distributed among the holders of Series A
Preferred Stock and the holders of Series B Preferred Stock pursuant to
Section 2B shall be insufficient to permit the payment to such holders of the
full Premium, then, the entire assets and funds of this Corporation legally
available for distribution shall be distributed ratably among the holders of
Series A Preferred Stock and the holders of Series B Preferred Stock in
proportion to the aggregate Premium allocated to each such holder.
In addition to and after payment in full of all other amounts payable
to the holders of the Series A Preferred Stock under this Section 1B, upon any
liquidation, dissolution or winding up of the Corporation (whether voluntary or
involuntary), the holders of the Series A Preferred Stock shall be entitled to
participate with the holders of Common Stock as a single class in all
distributions of assets of the Corporation with respect to the Common Stock,
with the holders of Series A Preferred Stock and the holders of Common Stock
participating pro rata according to their holdings of Common Stock (with each
holder of Series A Preferred Stock being deemed for such purposes as holding
the number of shares of Common Stock issuable upon conversion thereof prior to
any distribution to such holders under this Section 1B or otherwise).
(b) Mergers. A merger, reorganization, or sale of all or
substantially all of the assets of this Corporation, or sale or other transfer,
or series of related sales or other transfers, of capital stock of this
Corporation, in which the shareholders of this Corporation immediately prior to
the transaction possess less than 50% of the voting power of the surviving
entity (or its parent) immediately after the transaction shall be deemed to be
a liquidation, dissolution or winding up within the meaning of this Section 1B.
Any securities to be delivered to the holders of Series A Preferred Stock and
Common Stock upon merger, reorganization or sale:
(i) if such securities are traded on a securities exchange,
shall be deemed to have a value equal to the average of the closing prices of
the securities on such exchange over the 30-day period ending three (3)
business days prior to the closing;
2
<PAGE> 6
(ii) if such securities are actively traded
over-the-counter, shall be deemed to have a value equal to the average of the
closing bid prices over the 30-day period ending three (3) business days prior
to the closing; and
(iii) if there is no active public market for such
securities, shall be deemed to have a value equal to the fair market value
thereof as determined in good faith by two-thirds (2/3) of the members of the
board of directors of the Corporation provided, that the board of directors
shall promptly notify each of the Corporation's shareholders in writing of any
such determination and if the holders of 30% or more of any class of the
Corporation's capital stock object thereto, such value shall be determined by
an independent appraiser experienced in valuing such type of consideration and
of recognized national standing jointly selected by the Corporation and the
holders of capital stock who have objected to such determination by the board
of directors. The determination of such appraiser shall be final and binding
upon the parties, and the fees and expenses of such appraiser shall be borne by
the Corporation.
1C. Conversion. The holders of Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible into shares of Common Stock without the payment of any
additional consideration by the holder thereof and, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
the Corporation or any transfer agent for the Series A Preferred Stock. Each
share of Series A Preferred Stock shall be convertible into the number of fully
paid and nonassessable shares of Common Stock which results from dividing the
Conversion Price (as hereinafter defined) per share in effect for the Series A
Preferred Stock at the time of conversion into the per share Conversion Value
(as hereinafter defined) of such series. The initial Conversion Price per share
of Series A Preferred Stock shall be $2.25. The per share Conversion Value of
the Series A Preferred Stock shall be $2.25. The initial Conversion Price of
series A Preferred Stock shall be subject to adjustment form time to time as
provided below. The number of shares of Common Stock into which a share of
Series A Preferred Stock is convertible is hereinafter referred to as the
"Conversion Rate" of the Series A Preferred Stock.
(b) Automatic Conversion. Each outstanding share of Series A
Preferred Stock shall be automatically converted into shares of Common Stock at
its then effective Conversion Rate immediately upon the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Corporation to the public at a per
share price (prior to underwriter commissions and discounts) of not less than
$7.50 (appropriately adjusted for any combinations, consolidations or stock
dividend, stock split or other recapitalization) and an aggregate offering
price to the public of not less than $25,000,000.
3
<PAGE> 7
(c) Mechanics of Conversion. Before any Holder of Series
A Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate(s) therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series A Preferred
Stock and shall give written notice to the Corporation at such office that he
elects to convert the same (except that no such written notice of election to
convert shall be necessary in the event of an automatic conversion pursuant to
subsection (b) hereof). The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series A
Preferred Stock certificate(s) for the number of shares of Common Stock to
which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series A Preferred Stock to be converted
(except that in the case of an automatic conversion pursuant to subsection (b)
hereof such conversion shall be deemed to have been made immediately prior to
the closing of the offering referred to in subsection (b)) and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(d) Fractional Shares. In lieu of any fractional shares to
which the holder of Series A Preferred Stock would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the fair market
value of Series A Preferred Stock as determined by the board of directors of
the Corporation. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series A Preferred Stock of each holder at the time converting into Common
Stock and the number of shares of Common Stock issuable upon such aggregate
conversion.
(e) Adjustment of Conversion Price. The Conversion Price
of the Series A Preferred Stock shall be subject to adjustment from time to
time as follows:
(i) If the Corporation shall issue any Common Stock
other than "Excluded Stock," as defined below, for a consideration per share
less than the Conversion Price in effect immediately prior to the issuance of
such Common Stock (excluding stock dividends, subdivisions, split-ups,
combinations, dividends or recapitalizations which are covered by subsections
(e)(iv), (v), (vi) and (vii) of this Section 1C), the Conversion Price in
effect after each such issuance shall thereafter (except as provided in this
subsection (e)) be adjusted to a price equal to the quotient obtained by
dividing:
(A) an amount equal to the sum of
(x) the total number of shares of
Common Stock outstanding (including any shares of Common Stock issuable upon
conversion of all Preferred Stock, or deemed to have been issued pursuant to
subdivision (3) of clause (ii) below) immediately prior to such issuance
multiplied by the Conversion Price in effect immediately prior to such
issuance, plus
4
<PAGE> 8
(y) the consideration received by the Corporation upon
such issuance, by
(B) the total number of shares of Common Stock outstanding
(including any shares of Common Stock issuable upon conversion of all Preferred
Stock or deemed to have been issued pursuant to subdivision (3) of clause (ii)
below) immediately prior to such issuance plus the additional shares of Common
Stock issued in such issuance (but not including any additional shares of
Common Stock deemed to be issued as a result of any adjustment in the
Conversion Price resulting from such issuance).
(ii) For purposes of any adjustment of the Conversion Price pursuant
to clause (i) above, the following provisions shall be applicable:
(1) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
after deducting any discounts or commissions paid or incurred by the
Corporation in connection with the issuance and sale thereof.
(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 market value thereof as determined by the
board of directors of the Corporation, in accordance with generally accepted
accounting treatment; provided, however, that if, at the time of such
determination, the Corporation's Common Stock is traded in the over-the-counter
market or on a national or regional securities exchange, such fair market value
as determined by the board of directors of the Corporation shall not exceed the
aggregate "Current Market Price" (as defined below) of the shares of Common
Stock being issued.
(3) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock (other than Excluded Stock),
(ii) securities by their terms convertible into or exchangeable for Common
Stock (other than Excluded Stock), or (iii) options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(a) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subdivisions (1) and (2)
above), if any, received by the Corporation upon the issuance of such options
or rights plus the minimum purchase price provided on such options or rights
for the Common Stock covered thereby;
(b) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof, shall
5
<PAGE> 9
be deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration received by the Corporation for any such securities and related
options or rights (excluding any cash received on account of accrued interest
or accrued dividends), plus the minimum additional consideration, if any, to be
received by the Corporation upon the conversion or exchange of such securities
or the exercise of any related options or rights (the consideration in each
case to be determined in the manner provided in subdivisions (1) and (2)
above);
(c) on any change in the number of
shares of Common Stock deliverable upon exercise of any such options or rights
or conversion of or exchange for such convertible or exchangeable securities,
or on any change in the minimum purchase price of such options, rights or
securities, other than a change resulting from the antidilution provisions of
such options, rights or securities, the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have obtained had the adjustment
been originally made based upon such changed number upon the issuance of (x)
such options, rights or securities (to the extent not exercised, converted or
exchanged prior to such changes) or (y) the options or rights related to such
securities (to the extent not converted or exchanged prior to such change); and
(d) on the expiration of any such
options or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price shall forthwith be, readjusted to
such Conversion Price as would have been obtained had the adjustment made upon
the issuance of such expired options, rights, convertible or exchangeable
securities or options or rights related to such convertible or exchangeable
securities, as the case may be, been made upon the basis of the issuance of
only the number of shares of Common Stock actually issued upon the exercise of
such options or rights, upon the conversion or exchange of such convertible or
exchangeable securities or upon the exercise of the options or rights related
to such convertible or exchangeable securities prior to their expiration dates,
as the case may be.
(iii) "Excluded Stock" shall mean:
(A) all shares of Common Stock issued and
outstanding on the date these Articles of Amendment are filed with the Illinois
Secretary of State;
(B) all shares of Preferred Stock issued
and outstanding on the date these Articles of Amendment are filed with the
Illinois Secretary of State, and all shares of Common Stock into which such
Preferred Stock is convertible;
(C) all shares of Common Stock or Preferred
Stock issued or issuable upon conversion of any convertible promissory notes,
or upon exercise of any warrant, issued by the Corporation on or prior to
August 26, 1996;
6
<PAGE> 10
(D) all securities issued or issuable to officers,
directors or employees of the Corporation, or consultants, suppliers, lessors
or lenders to the Corporation, pursuant to any stock option plan or arrangement
approved by the board of directors of the Corporation;
(E) all shares of Common Stock issued or issuable upon
(i) exercise of the Warrant as defined in the Securities Purchase Agreement,
dated as of August 26, 1996 among Willis Stein & Partners, L.P., Star Polymers,
L.L.C., Robert G. Martin and the Corporation (the "Purchase Agreement") or (ii)
conversion of the Series A Preferred Stock issued or issuable upon exercise of
the Note (as defined in the Purchase Agreement).
All outstanding shares of Excluded Stock (including any
shares issuable upon conversion of all Preferred Stock but excluding shares
reserved for issuance for option plans for which options have not yet been
granted) shall be deemed to be outstanding for all purposes of the computations
of Section 1C(e)(i).
(iv) If the number of shares of Common Stock outstanding at
any time after the date hereof is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change is effective, the
Conversion Price of the Series A Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion
of any shares of the Series A Preferred Stock shall be increased in proportion
to such increase of outstanding shares.
(v) If the number of shares of Common Stock outstanding at
any time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then, on the effective date of such combination, the
Conversion Price of the Series A Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion
of any shares of the Series A Preferred Stock shall be decreased in proportion
to such decrease in outstanding shares.
(vi) In case the Corporation shall declare a cash dividend
upon its Common Stock payable otherwise than out of retained earnings or shall
distribute to holders of its Common Stock shares of this capital stock (other
than Common Stock), stock or other securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights (excluding options to purchase and rights to
subscribe for Common Stock or other securities of the Corporation convertible
into or exchangeable for Common Stock), then, in each such case, the holders of
shares of Series A Preferred Stock shall, concurrent with the distribution to
holders of Common Stock, receive a like distribution based upon the number of
shares of Common Stock into which the Series A Preferred Stock is convertible.
(vii) In case, at any time after the date hereof, of any
capital reorganization, or any reclassification of the stock of the Corporation
(other than as a result of
7
<PAGE> 11
a stock dividend or subdivision, split-up or combination of shares), or the
consolidation or merger of the Corporation with or into another person (other
than a consolidation or merger in which the Corporation is the continuing entity
and which does not result in any change in the Common Stock), or of the sale or
other disposition of all or substantially all the properties and assets of the
Corporation, the shares of Series A Preferred Stock shall, after such
reorganization, reclassification, consolidation, merger, sale or other
disposition, be convertible into the kind and number of shares of stock or
other securities or property of the Corporation or otherwise to which such
holder would have been entitled if immediately prior to such reorganization,
reclassification, consolidation, merger, sale or other disposition he had
converted his shares of Series A Preferred Stock into Common Stock. The
provisions of this clause (vii) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales or other
dispositions.
(viii) All calculations under this Section 1C shall be
made to the nearest cent or to the nearest one hundredth (1/100) of a share, as
the case may be.
(ix) For the purpose of any computation pursuant to
this subsection (e) of this Section 1C, the "Current Market Price" at any date
of one share of Common Stock, shall be deemed to be the average of the highest
reported bid and the lowest reported offer prices on the preceding business day
as furnished by the National Quotation Bureau, Incorporated (or equivalent
recognized source of quotations); provided, however, that if the Common Stock
is not traded in such manner that the quotations referred to in this clause
(ix) are available for the period required hereunder, Current Market Price
shall be determined in good faith by the board of directors of the Corporation.
(x) Notwithstanding the foregoing, the provisions of
this subsection (e) shall not apply to the distribution by the Corporation of
shares of common stock or any other equity securities of Agricultural
Technologies, Inc.
(f) Minimal Adjustments. No adjustment in the Conversion Price need
be made if such adjustment would result in a change in the Conversion Price of
less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in the Conversion Price.
(g) No Impairment. The Corporation will not through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 1C
and in the taking of all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the holders of Preferred Stock against
impairment. Except as provided herein, this provision shall not restrict the
Corporation's right to amend this Statement of Designation with the requisite
corporate approval.
8
<PAGE> 12
(h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Rate pursuant to this Section 1C,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Rate of such series at the
time in effect, and (iii) the number of shares of Common Stock and the amount,
if any, or other property which at the time would be received upon the
conversions of such holder's shares of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property or to receive any other right, the
Corporation shall mail to each holder of Series A Preferred Stock at least ten
(10) days prior to such record date, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend or distribution or
right, and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Series A Preferred Stock such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series A Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all the outstanding shares of Series A
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
(k) Notices. Any notice required by the provisions of this
Section 1C to be given to the holder of shares of Series A Preferred Stock
shall be deemed delivered when deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his address appearing on the
books of the Corporation.
(l) Reissuance of Converted Shares. No shares of Series A
Preferred Stock which have been converted into Common Stock after the original
issuance thereof shall ever again be reissued and all such shares so converted
shall upon such conversion cease to be a part of the authorized shares of the
Corporation.
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1D. Voting Rights. The holder of each share of Series A Preferred
Stock shall be entitled to notice of any shareholders' meeting in accordance
with the bylaws of the Corporation and shall vote with holders of the Common
Stock upon the election of directors and upon any other matter submitted to a
vote of shareholders, except those matters required by law to be submitted to a
class vote. The holder of each share of Series A Preferred Stock shall be
entitled to that number of votes equal to the number of shares of Common Stock
into which each share of Series A Preferred Stock could be converted on the
record date for the vote or consent of shareholders. Fractional votes shall
not, however, be permitted and any fractional voting rights resulting from the
above formula (after aggregating all shares of Series A Preferred Stock held by
each holder) shall be disregarded.
1E. Residual Rights. All rights accruing to the outstanding shares
of capital stock not expressly provided for to the contrary herein shall be
vested in the Common Stock.
II. Series B Preferred
2A. Dividend Provisions. The holders of Series B Preferred Stock
shall not be entitled to receive dividends.
2B. Liquidation Preference.
(a) Preferred Preference. In the event of any liquidation,
dissolution or winding up of this Corporation, either voluntary or involuntary,
the holders of Series B Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets of this Corporation to
the holders of Common Stock by reason of their ownership thereof, an amount per
share equal to $2.111 for each outstanding share of Series B Preferred Stock
(such amounts being referred to herein as the "Premium"). If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of Series A Preferred Stock and the holders of Series B Preferred Stock
shall be insufficient to permit the payment to such holders of the full
Premium, then, the entire assets and funds of this Corporation legally
available for distribution shall be distributed ratably among the holders of
Series A Preferred Stock and the holders of Series B Preferred Stock in
proportion to the aggregate Premium allocated to each such holder.
(b) Mergers. A merger, reorganization, or sale of all or
substantially all of the assets of this Corporation, or sale or other transfer,
or series of related sales or other transfers, of capital stock of this
Corporation, in which the shareholders of this Corporation immediately prior to
the transaction possess less than 50% of the voting power of the surviving
entity (or its parent) immediately after the transaction shall be deemed to be
a liquidation, dissolution or winding up within the meaning of this Section 2B.
Any securities to be delivered to the holders of Series B Preferred Stock upon
merger, reorganization or sale:
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(i) if such securities are traded on a securities exchange,
shall be deemed to have a value equal to the average of the closing prices of
the securities on such exchange over the 30-day period ending three (3)
business days prior to the closing;
(ii) if such securities are actively traded over-the-counter
shall be deemed to have a value equal to the average of the closing bid prices
over the 30-day period ending three (3) business days prior to the closing; and
(iii) if there is no active public market for such securities,
shall be deemed to have a value equal to the fair market value thereof as
determined in good faith by two-thirds (2/3) of the members of the board of
directors of the Corporation provided, that the board of directors shall
promptly notify each of the Corporation's shareholders in writing of any such
determination and if the holders of 30% or more of any class of the
Corporation's capital stock object thereto, such value shall be determined by
an independent appraiser experienced in valuing such type of consideration and
of recognized national standing jointly selected by the Corporation and the
holders of capital stock who have objected to such determination by the board
of directors. The determination of such appraiser shall be final and binding
upon the parties, and the fees and expenses of such appraiser shall be borne by
the Corporation.
2C. Conversion. The holders of the Series B Preferred Stock shall not
have any conversion rights. Any holder who holds both Series A and Series B
Preferred Stock shall, upon converting its Series A Preferred Stock, surrender
to the Corporation a number of shares of Series B Preferred Stock equal to the
number of Series A Preferred Stock so converted. No shares of Series B
Preferred Stock which have been surrendered to the Corporation in connection
with any such conversion shall ever again be reissued.
2D. Voting Rights. Except as required by law, the holders of the
Series B Preferred Stock shall not have the right to vote on the election of
directors or upon any matter submitted to a vote of the shareholders; provided,
however, such holders shall be entitled to notice of any meetings of the
shareholders in accordance with the bylaws of the Corporation and approve any
amendments to this Section II.
III. Series C Preferred
3A. Dividend Provisions. The holders of Series C Preferred Stock
shall not be entitled to receive dividends.
3B. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of this Corporation, either voluntary or involuntary,
the holders of Series C Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any assets of this Corporation to the
holders of Common Stock by reason of their ownership thereof, an amount per
share equal to $.000167 for each outstanding share of Series C Preferred. A
merger, reorganization, or sale of all or substantially all of the assets of
this Corporation, or sale or other transfer, or series of related sales or
other transfers, of capital stock of this Corporation, in
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which the shareholders of this Corporation immediately prior to the transaction
possess less than 50% of the voting power of the surviving entity (or its
parent) immediately after the transaction shall be deemed to be a liquidation,
dissolution or winding up within the meaning of this Section 3B.
3C. Conversion. The holders of the Series C Preferred Stock shall not
have any conversion rights. Any holder who holds both a convertible
subordinated promissory note (the "Note") issued pursuant to the Purchase
Agreement and Series C Preferred Stock shall, upon converting its Note,
surrender to the Corporation a number of shares of Series C Preferred Stock
equal to the number of Series A Preferred Stock issued upon conversion of the
Notes. No shares of Series C Preferred Stock which have been surrendered to the
Corporation in connection with any such conversion shall ever again be
reissued.
3D. Voting Rights. The holder of each share of Series C Preferred
Stock shall be entitled to notice of any shareholders' meeting in accordance
with the bylaws of the Corporation and shall vote with holders of the Common
Stock upon the election of directors and upon any other matter submitted to a
vote of shareholders, except those matters required by law to be submitted to a
class vote. The holder of each share of Series C Preferred Stock shall be
entitled to that number of votes equal to the number of shares of Common Stock
issuable upon conversion of each share of Series A Preferred Stock issuable
upon conversion of the Notes on the record date for the vote or consent of
shareholders. Fractional votes shall not, however, be permitted and any
fractional voting rights resulting from the above formula (after aggregating
all shares of Series C Preferred Stock held by each holder) shall be
disregarded. The holders of Series C Preferred Stock shall have the right to
elect two (2) directors to the Board, so long as such holders of Series C
Preferred Stock hold less than 30% but more than 10% of the fully diluted
equity of the Corporation outstanding on August 26, 1996 and shall have the
right to elect three (3) directors to the Board so long as such holders hold
more than 30% of the fully diluted equity of the Corporation outstanding on
August 26, 1996.
IV. Amendment. No amendment, modification or waiver shall be directly or
indirectly binding or effective with respect to any provision of Article Four
or Article Eight of the Articles of Incorporation, whether by merger or
consolidation of the Corporation with another corporation or entity or
otherwise, without the prior written consent (which shall be exercised in good
faith) of (a) 66 2/3 of the shareholders of the Corporation entitled to vote on
such matters, (b) a majority of the aggregate number of shares of Series A
Preferred then outstanding pursuant to a conversion(s) of the Convertible
Subordinated Promissory Notes (the "Notes") issued pursuant to the Securities
Purchase Agreement among the Corporation, Willis Stein & Partners, L.P.,
RGM/BVM Limited Partnership and Star Polymers, L.L.C. dated as of August 26,
1996, and (c) the holders of a majority in principal amount of the Notes.
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RESOLVED, that ARTICLE NINE is hereby added in its entirety to the
Articles of Incorporation of DONLAR CORPORATION:
ARTICLE NINE
I. The Corporation shall not, without the approval of at least
two-thirds (2/3) of the members of Corporation's board of directors:
(a) make any capital expenditures (including, without
limitation, payments with respect to capitalized leases, as determined in
accordance with generally accepted accounting principles consistently applied)
which are, in any fiscal year in excess of 125% of the aggregate amount
budgeted for such year as reflected in annual budgets or revisions thereto
approved by the Board;
(b) enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
executive officers, directors or shareholders or Affiliates (as defined below)
or with any individual related by blood, marriage or adoption to any such
individual or with any entity in which any such Person or individual owns a
beneficial interest, except for customary employment arrangements and benefit
programs on reasonable terms and except as otherwise expressly contemplated by
the Securities Purchase Agreement, dated as of August 26, 1996, between the
Corporation, Willis Stein & Partners, L.P., Star Polymers, L.L.C. and Robert G.
Martin (as amended, the "Purchase Agreement") or as otherwise already in effect
prior to the date of the Purchase Agreement and as disclosed on the Affiliated
Transactions Schedule to the Purchase Agreement;
(c) directly or indirectly declare or pay any dividends or
make any distributions upon any of its capital stock or other equity
securities, except for dividends payable in shares of Common Stock issued upon
the outstanding shares of Common Stock except that dividends and distributions
may be declared and paid in any fiscal year; provided, that, the aggregate
amount paid out in any fiscal year does not exceed (i) the lesser of $500,000
or the net income of the Corporation determined in accordance with GAAP for the
immediately preceding calendar year minus (ii) the aggregate amount paid by the
Corporation in the same fiscal year pursuant to paragraph (d); and
(d) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire, any
of the Company's or any Subsidiary's capital stock or other equity securities
(including, without limitation, warrants, options and other rights to acquire
such capital stock or other equity securities) or directly or indirectly
redeem, purchase or make any payments with respect to any stock appreciation
rights, phantom stock plans or similar rights or plans, except repurchases of
stock from employees at purchase prices not in excess of fair market value, as
approved by the Board; provided, that, the aggregate price
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paid in any calendar year will not exceed (i) the lesser of $500,000 or the net
income of the Company determined in accordance with GAAP for the immediately
preceding calendar year minus (ii) the aggregate amount paid by the Company in
the same fiscal year pursuant to paragraph (c).
II. The following definitions shall apply to this Article Nine:
"Affiliates" of any particular Person means any Person which
controls, is controlled by or is under common control with another Person and
Persons which are partners of, or have received distributions of securities
from a partnership holding such securities and for all purposes hereof, each of
the Investors (as defined in the Purchase Agreement) shall be deemed to be an
Affiliate of the others, and the Affiliate of each Investor shall be deemed to
be Affiliate of such other Affiliates.
"GAAP" means generally accepted accounting principles
consistently applied.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination
thereof. For purposes hereof, a Person or Persons shall be deemed to have a
majority ownership interest in a limited liability company, partnership,
association or other business entity if such Person or Persons shall be
allocated a majority of limited liability company, partnership, association or
other business entity gains or losses or shall be or control any managing
director or general partner of such limited liability company, partnership,
association or other business entity.
III. No amendment, modification or waiver shall be directly or
indirectly binding or effective with respect to any provision of Article Four
or Article Eight of the Articles of Incorporation, whether by merger or
consolidation of the Corporation with another corporation or entity or
otherwise, without the prior written consent (which shall be exercised in good
faith) of (a) 66 2/3 of the shareholders of the Corporation entitled to vote on
such matters, (b) a majority of the aggregate number of shares of Series A
Preferred then outstanding pursuant to a conversion(s) of the Convertible
Subordinated Promissory Notes (the "Notes") issued pursuant to the Securities
Purchase Agreement among the Corporation, Willis Stein & Partners, L.P.,
RGM/BVM Limited Partnership and Star Polymers, L.L.C. dated as of August 26,
1996, and (c) the holders of a majority in principal amount of the Notes.
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EXHIBIT 3.8
AMENDED AND RESTATED
BY-LAWS
OF
KOSKAN CHEMICAL COMPANY
(an Illinois corporation)
ARTICLE I
OFFICES
The principal office of the corporation in the State of Illinois shall be
located in the Village of Harvey and County of Cook. The corporation may have
such other offices, either within or without the State of Illinois, as the
business of the corporation may require from time to time.
The office for the registered agent of the corporation required by the
Business Corporation Act of 1983 to be maintained in the State of Illinois may
be, but need not be, identical with the principal office in the State of
Illinois, and the address of the registered office may be changed from time to
time by the board of directors.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders shall
be held on the 1st Tuesday of March in each year, beginning with the year 1990,
at the hour of 9:00 a.m., or at such other time as may be provided in a
resolution of the board of directors, for the purpose of electing directors and
for the transaction of such other business as may come before the meeting. If
the day fixed for the annual meeting shall be a legal holiday, such meeting
shall be held on the next succeeding business day. If the election of directors
shall not be held on the day designated herein for any annual meeting, or at
any adjourment thereof, the board of directors shall cause the election to be
held at a meeting of the shareholders as soon thereafter as conveniently may be.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the president, by the board of directors, or by the holders of not
less than one-fifth of all the outstanding shares of the corporation entitled
to vote on the matter for which the meeting is called.
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SECTION 3. PLACE OF MEETING. The board of directors may designate any
place, either within or without the State of Illinois, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal office of the corporation
in the State of Illinois, except as otherwise provided in Section 5 of this
Article.
SECTION 5. NOTICE OF MEETINGS. Written or printed notice stating the
place, day and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not
less than ten (10) nor more than sixty (60) days before the date of the
meeting, or in the case of a merger, consolidation, share exchange, dissolution
or sale, lease or exchange of assets not less than twenty (20) nor more than
sixty (60) days before the date of the meeting, either personally or by mail,
by or at the direction of the president, or the secretary, or the officer or
persons calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at his or her
address as it appears on the records of the corporation, with postage thereon
prepaid.
SECTION 5. MEETING OF ALL SHAREHOLDERS. If all of the shareholders shall
meet at any time and place, either within or without the State of Illinois, and
consent to the holding of a meeting at such time and place, such meeting shall
be valid without call or notice, and at such meeting any corporate action may
be taken.
SECTION 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors of the corporation may fix in advance a
date as the record date for any such determination of shareholders, such date
in any case to be not more than sixty (60) days and, for a meeting of
shareholders, not less than ten (10) days, or in the case of a merger,
consolidation, share exchange, dissolution or sale, lease or exchange of
assets, not less than twenty (20) days, immediately preceding such meeting. If
no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or shareholders entitled to
receive payment of a dividend, the date on which notice of the meeting is
mailed or the date on which the resolution of the board of directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
<PAGE> 3
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determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this Section,
such determination shall apply to any adjournment thereof.
SECTION 7. VOTING LISTS. The officer or agent having charge of the
transfer book for shares of the corporation shall make, within twenty (20) days
after the record date for a meeting of shareholders or ten (10) days before
such meeting, whichever is earlier, a complete list of the shareholders
entitled to vote at such meeting, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten (10) days prior to such meeting, shall be kept on file at the registered
office of the corporation and shall be subject to inspection by any
shareholder, and to copying at the shareholder's expense, at any time during
usual business hours. Such list shall also be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The original share ledger or
transfer book, or a duplicate thereof kept in this State, shall be prima facie
evidence as to who are the shareholders entitled to examine such list or share
ledger or transfer book or to vote at any meeting of shareholders.
SECTION 8. QUORUM. Unless otherwise provided in the articles of
incorporation, a majority of the outstanding shares of the corporation entitled
to vote on a matter, represented in person or by proxy, shall constitute a
quorum for consideration of such matter at any meeting of shareholders, but in
no event shall a quorum consist of less than one-third of the outstanding
shares entitled to so vote. If less than a majority of the outstanding shares
entitled to vote on a matter are represented at said meeting, a majority of
such shares so represented may adjourn the meeting from time to time without
further notice. If a quorum is present, the affirmative vote of the majority of
the shares represented at the meeting shall be the act of the shareholders,
unless the vote of a greater number or voting by classes is required by The
Business Corporation Act of 1983 or the articles of incorporation. At any
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the original meeting. Withdrawal
of shareholders from any meeting shall not cause failure of a duly constituted
quorum at that meeting.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
appoint a proxy to vote or otherwise act for him or her by signing an
appointment form and delivering it to the person so appointed. No proxy shall
be valid after the expiration of 11 months from the date of its execution
unless otherwise provided in the proxy. Every proxy continues in full force and
effect until revoked by the person executing it prior to the vote
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pursuant thereto, except as otherwise provided in Section 7.50 of The Business
Corporation Act of 1983. Such revocation may be effected by a writing delivered
to the corporation stating that the proxy is revoked or by a subsequent proxy
executed by, or by attendance at the meeting and voting in person by, the
person executing the proxy. The dates contained on the forms of proxy
presumptively determine the order of execution, regardless of the postmark dates
on the envelopes in which they are mailed.
An appointment of a proxy is revocable by the shareholder unless the
appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest in the shares or in the corporation
generally, except as otherwise provided in Section 7.50 of The Business
Corporation Act of 1983.
The death or incapacity of the shareholder appointing a proxy does not
revoke the proxy's authority unless notice of the death or incapacity is
received by the officer or agent who maintains the corporation's share transfer
book before the proxy exercises his or her authority under the appointment.
SECTION 10. VOTING OF SHARES. Except as may be specifically limited or
denied in the articles of incorporation, each outstanding share, regardless of
class, shall be entitled to one vote in each matter submitted to vote at a
meeting of shareholders, and except as specifically provided in Section 8.30 of
The Business Corporation Act of 1983 and Section 8, Article III of these
bylaws, in all elections for directors, every shareholder shall have the right
to vote the number of shares owned by such shareholder for each director
position to be filled. A shareholder may vote either in person or by proxy
subject to the provisions of Section 7.50 of The Business Corporation Act of
1983 of Illinois and these by-laws.
SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of a corporation
held by the corporation in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding shares entitled to vote
at any given time.
Shares registered in the name of another corporation, domestic or foreign,
may be voted by any officer, agent, proxy or other legal representative
authorized to vote such shares under the law of incorporation of such
corporation.
Shares registered in the name of a deceased person, a minor ward or a
person under legal disability may be voted by his or her administrator,
executor, or court appointed guardian, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor, or court
appointed guardian. Shares registered in the name of a trustee may be voted by
him or her, either in person or by proxy.
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Shares registered in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his or her name if authority so
to do is contained in an appropriate order of the court by which such receiver
was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
SECTION 12. As provided in the articles of incorporation, no
shareholder shall have cumulative voting rights with respect to any matter upon
which shareholders are entitled to vote.
SECTION 13. INSPECTORS. At any meeting of shareholders, the chairman of
the meeting may, or upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the validity and
effect of proxies; count all votes and report the results; and do such other
acts as are proper to conduct the election and voting with impartiality and
fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or by
a majority of them if there be more than one inspector acting at such meeting.
If there is more than one inspector, the report of a majority shall be the
report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
SECTION 14. INFORMAL ACTION BY SHAREHOLDERS. Unless otherwise provided
in the articles of incorporation, any action required to be taken at any annual
or special meeting of the shareholders of the corporation, or any other action
which may be taken at a meeting of the shareholders, may be taken without a
meeting and without a vote, if a consent in writing, setting forth the action
so taken, shall be signed (i) if 5 days prior notice of the proposed action is
given in writing to all of the shareholders entitled to vote with respect to
the subject matter thereof, by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voting or (ii) by all of the shareholders entitled to vote with
respect to the subject matter thereof.
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Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given in writing to those
shareholders who have not consented in writing. In the event that the action
which is consented to is such as would have required the filing of a
certificate under any section of The Business Corporation Act of 1983 if such
action had been voted on by the shareholders at a meeting thereof, the
certificate filed under such other section shall state, in lieu of any
statement required by such section concerning any vote of shareholders, that
written consent has been given in accordance with the provisions of Section
7.10 of The Business Corporation Act of 1983, and that written notice has been
given as provided in such Section 7.10.
SECTION 15. VOTING BY BALLOT. Voting on any question or in any election
may be viva voce unless the presiding officer shall order, or the holders of
not less than one-fifth of all the outstanding shares of the corporation shall
demand that voting be by ballot.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors. Directors
need not be residents of Illinois or shareholders of the corporation.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The board of directors of
the corporation shall consist of seven (7) members. The number of directors may
be fixed or changed from time to time, within the aforesaid minimum and
maximum, by the directors or the shareholders without further amendment to
these by-laws.
The terms of all directors expire at the next annual shareholders' meeting
following their election. The term of a director elected to fill a vacancy, or
elected as a result of an increase in the number of directors, expires at the
next annual shareholder's meeting.
Despite the expiration of a director's term, he or she shall continue to
serve until the next meeting of shareholders at which time directors shall be
elected. A decrease in the number of directors does not shorten an incumbent
director's term.
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A director may resign at any time by giving written notice to the board
of directors, its chairman, or to the president or secretary of the corporation.
A resignation is effective when the notice is given unless the notice specifies
a future date. The pending vacancy may be filled before the effective date, but
the successor shall not take office until the effective date.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of
directors shall be held without other notice that this by-law, immediately
after, and at the same place as, the annual meeting of shareholders. The board
of directors may provide, by resolution, the time and place, either within or
without the State of Illinois, for the holding of additional regular meetings
without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the board of
directors may be called by or at the request of the president or a majority of
the directors. The person or persons authorized to call special meetings of the
board of directors may fix any place, either within or without the State of
Illinois, as the place for holding any special meeting of the board of
directors so called.
SECTION 5. NOTICE. Notice of any special meeting shall be given at
least three (3) days previous thereto by written notice delivered personally or
mailed to each director at his business address, or by telegram. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
mail so addressed, with postage thereon prepaid. If notice is given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. Any director may waive notice of any
meeting. The attendance of a director at any meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the board
of directors need to be specified in the notice or waiver of notice of such
meeting.
SECTION 6. QUORUM. A majority of the number of directors fixed by
these by-laws, or in the absence of a by-law fixing the number of directors,
the number stated in the articles of incorporation or named by the
incorporators, shall constitute a quorum for the transaction of business at any
meeting of the board of directors unless a greater number is specified by the
articles of incorporation, but if less than a quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice. If the corporation has a variable range board of
directors, a quorum shall consist of a majority of the directors then in
office, but not less than a
<PAGE> 8
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majority of the minimum number of directors specified for the variable range of
the board unless the articles of incorporation or these by-laws specify a
greater number.
SECTION 7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless the act of a greater number is required by the articles of
incorporation.
SECTION 8. VACANCIES. Any vacancy occurring in the board of directors,
including a vacancy occurring as the result of the removal of a director, and
any directorship to be filled by reason of an increase in the number of
directors may be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose; provided, however, that the
board of directors may fill vacancies arising between the meetings of
shareholders by reason of an increase in the number of directors or otherwise.
A director elected by the shareholders to fill a vacancy by reason of an
increase or otherwise shall hold office for the balance of the term for which
he or she was elected. A director appointed by the board to fill a vacancy by
reason of an increase or otherwise shall serve until the next meeting of
shareholders at which directors are to be elected.
SECTION 9. INFORMAL ACTION BY DIRECTORS. Unless specifically prohibited
by the articles of incorporation, any action required to be taken at a meeting
of the board of directors of the corporation, or any other action which may be
taken at a meeting of the board of directors or of any committee thereof, may
be taken without a meeting if a consent in writing, setting forth the action
so taken, shall be signed by all directors entitled to vote with respect to
the subject matter thereof, or by all members of such committee, as the case
may be. Any such consent signed by all directors or all the members of such
committe shall have the same effect as a unanimous vote, and may be stated as
such in any document filed with the Secretary of State or anyone else.
The consent shall be evidenced by one or more written approvals, each of
which sets forth the action taken and bears the signature of one or more
directors. All the approvals evidencing the consent shall be delivered to the
secretary to be filed in the corporate records. The action taken shall be
effective when all the directors have approved the consent unless the consent
specifies a different effective date.
SECTION 10. COMPENSATION. The board of directors, by the affirmative
vote of a majority of directors then in office, and irrespective of any
personal interest of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the corporation as
directors, officers
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or otherwise notwithstanding any director conflict of interest. By resolution of
the board of directors, the directors may be paid their expenses, if any, of
attendance at each meeting of the board.
SECTION 11. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
dissent by certified or registered mail to the secretary of the corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
SECTION 12. ATTENDANCE BY CONFERENCE TELEPHONE. Members of the board of
directors or any committee of the board of directors may participate in and act
at any meeting of such board or committee through the use of a conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in such a
meeting shall constitute attendance and presence in person at the meeting of the
person or persons so participating for all purposes including fulfilling the
requirements of Sections 6 and 7 hereof.
SECTION 13. COMMITTEES. A majority of the directors may create one or
more committees and appoint members of the board to serve on the committee or
committees. Each committee shall have two or more members, who serve at the
pleasure of the board.
Unless the appointment by the board of directors requires a greater number,
a majority of any committee shall constitute a quorum and a majority of a quorum
is necessary for committee action. A committee may act by unanimous consent in
writing without a meeting and, subject to the provisions of the by-laws or
action by the board of directors, the committee by majority vote of its members
shall determine the time and place of meetings and the notice required therefor.
To the extent specified by the board of directors or in the articles of
incorporation, each committee may exercise the authority of the board of
directors under Section 1 of Article III of these by-laws; provided, however, a
committee may not: (1) authorize distributions; (2) approve or recommend to
shareholders any act which requires shareholder approval; (3) fill vacancies on
the board or on any of its committees; (4) elect or remove officers or fix the
compensation of any member of the committee; (5) adopt, amend or repeal these
by-laws; (6) approve
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a plan of merger not requiring shareholder approval; (7) authorize or approve
reacquisition of shares, except according to a general formula or method
prescribed by the board; (8) authorize or approve the issuance or sale, or
contract for sale, of shares or determine the designation and relative rights,
preferences, and limitations of a series of shares, except that the board may
direct a committee to fix the specific terms of the issuance or sale or
contract for sale or the number of shares to be allocated to particular
employees under an employee benefit plan; or (9) amend, alter, repeal, or take
action inconsistent with any resolution or action of the board of directors
when the resolution or action of the board of directors provides by its terms
that it shall not be amended, altered or repealed by action of a committee.
SECTION 14. REMOVAL OF DIRECTORS. One or more of the directors may be
removed, with or without cause, at a meeting of shareholders by the affirmative
vote of the holders of a majority of the outstanding shares then entitled to
vote at an election of directors, provided, however, that if a director is
elected by a class or series of shares, he or she may be removed only by the
shareholders of that class or series, except that no director shall be removed
at a meeting of shareholders unless the notice of such meeting shall state that
a purpose of the meeting is to vote upon the removal of one or more directors
named in the notice. Only the named director or directors may be removed at
such meeting.
SECTION 15. DIRECTOR CONFLICT OF INTEREST.
(a) If a transaction is fair to the corporation at the time it is
authorized, approved, or ratified, the fact that a director of the corporation
is directly or indirectly a party to the transaction is not grounds for
invalidating the transaction.
(b) In a proceeding contesting the validity of a transaction described
in subsection (a), the person asserting validity has the burden of proving
fairness unless:
(1) the material facts of the transaction and the director's interest
or relationship were disclosed or known to the board of directors or a
committee of the board and the board or committee authorized, approved or
ratified the transaction by the affirmative votes of a majority of
disinterested directors, even though the disinterested directors be less than a
quorum; or (2) the material facts of the transaction and the director's
interest or relationship were disclosed or known to the shareholders entitled
to vote and they authorized, approved or ratified the transaction without
counting the vote of any shareholder who is an interested director.
<PAGE> 11
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The presence of the director who is directly or indirectly a party to the
transaction described in subsection (a), or a director who is otherwise not
disinterested, may be counted in determining whether a quorum is present but
may not be counted when the board of directors or a committee of the board
takes action on the transaction.
For purposes of this Section, a director is "indirectly" a party to a
transaction if the other party to the transaction is an entity in which the
director has a material financial interest or of which the director is an
officer, director or general partner.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall consist of a
chairman of the board, a president, a treasurer, and a secretary, and such vice
presidents, assistant treasurers, assistant secretaries or other officers or
agents as may be elected and appointed by the board of directors. Any two or
more offices may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Vacancies may be filled or new
offices created and filled at any meeting of the board of directors. Each
officer shall hold office until his successor shall have been duly elected and
shall have qualified or until his death or until he shall resign or shall have
been removed in the manner hereinafter provided. Election or appointment of an
officer or agent shall not of itself create contract rights.
SECTION 3. REMOVAL. Any officer or agent may be removed by the board of
directors whenever in its judgment the best interests of the corporation would
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
<PAGE> 12
SECTION 5. CHAIRMAN OF THE BOARD OF DIRECTORS. The chairman of the
board of directors, who shall be elected from among the directors, shall
preside at all meetings of the shareholders and of the board of directors; and
shall perform such other duties as from time to time may be assigned to him by
the board of directors.
SECTION 6. PRESIDENT. The president shall be the chief executive
officer and the chief operating officer of the corporation; shall supervise and
control the formation of corporate policies and long range corporate planning
for the corporation. Subject to the direction and control of the board of
directors, he shall be in charge of the business of the corporation; he shall
see that the resolutions and directions of the board of directors are carried
into effect except in those instances in which that responsibility is
specifically assigned to some other person by the board of directors; and, in
general, he shall discharge all duties incident to the office of president and
such other duties as may be prescribed by the board of directors or the
chairman of the board of directors from time to time. In the absence of the
chairman of the board of directors or in the event of his refusal or
inability to act, he shall preside at all meetings of the shareholders and of
the board of directors. Except in those instances in which the authority to
execute is expressly delegated to another officer or agent of the corporation
or a different mode of execution is expressly prescribed by the board of
directors of these by-laws, he may execute for the corporation certificates for
its shares, and any contracts, deeds, mortgages, bonds, or other instruments
which the board of directors has authorized to be executed, and he may
accomplish such execution either under or without the seal of the corporation
and either individually or with the secretary, any assistant secretary, or any
other officer thereunto authorized by the board of directors, according to the
requirements of the form of the instrument. He may vote all securities which
the corporation is entitled to vote except as and to the extent such authority
shall be vested in a different officer or agent of the corporation by the board
of directors.
SECTION 7. THE VICE PRESIDENTS. In the absence of the president or in
the event of his inability or refusal to act, the vice president (or in the
event there be more than one vice president, the vice presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform 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. Any vice president may sign, with the secretary or an assistant
secretary, certificates for shares of the corporation and shall perform such
other duties as from time to time may be assigned to him by the president or by
the board of directors.
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SECTION 8. THE TREASURER. If required by the board of directors, the
treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the board of directors shall determine.
He shall: (a) have charge and custody of and be responsible for all funds and
securities of the corporation; receive and give receipts for moneys due and
payable to the corporation from any source whatsoever, and deposit all such
moneys in the name of the corporation in such banks, trust companies or other
depositaries as shall be selected in accordance with the provisions of Article
V of these by-laws; and (b) in general perform all the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the president or by the board of directors.
SECTION 9. THE SECRETARY. The secretary shall: (a) keep the minutes of
the shareholders' and of the board of directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all certificates for shares
prior to the issue thereof and to all documents, the execution of which on
behalf of the corporation under its seal is duly authorized in accordance with
the provisions of these by-laws; (d) keep a register of the post office address
of each shareholder which shall be furnished to the secretary by such
shareholder; (e) sign with the president, or a vice president, certificates for
shares of the corporation, the issue of which shall have been authorized by
resolution of the board of directors; (f) have general charge of the share
transfer books of the corporation; (g) shall have the authority to certify the
by-laws, resolutions of the shareholders and board of directors and committees
thereof, and other documents to the corporation as true and correct thereof;
and (h) in general perform all duties incident to the office of secretary and
such other duties as from time to time may be assigned to him by the president
or by the board of directors.
SECTION 10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
assistant treasurers shall respectively, if required by the board of directors,
give bonds for the faithful discharge of their duties in such sums and with
such sureties as the board of directors shall determine. The assistant
secretaries as thereunto authorized by the board of directors may sign with the
president or a vice president certificates for shares of the corporation, the
issue of which shall have been authorized by a resolution of the board of
directors. The assistant treasurers and assistant secretaries, in general,
shall perform such duties as shall be assigned to them by the treasurer or the
secretary, respectively, or by the president or the board of directors.
<PAGE> 14
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SECTION 11. SALARIES. The salaries of the officers shall be fixed from
time to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The board of directors may authorize any officer
or officers, agent or agents to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, any such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notices or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the board of directors
may select.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 1. SHARES REPRESENTED BY CERTIFICATES AND UNCERTIFICATED
SHARES. Shares of the corporation shall be represented by certificates or shall
be uncertificated shares.
Certificates representing shares of the corporation shall be signed by
the appropriate officers and may be sealed with the seal or a facsimile of the
seal of the corporation. If a certificate is countersigned by a transfer agent
or registrar, other than the corporation or its employee, any other signatures
may be facsimile. Each certificate representing shares shall be consecutively
numbered or otherwise identified, and shall also state the name of the person
to whom issued, the number and class of
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shares (with designation of series, if any), the date of issue, and that the
corporation is organized under Illinois law. If the corporation is authorized
to issue shares of more than one class or of series within a class, the
certificate shall also contain such information or statement as may be required
by law.
Unless prohibited by the articles of incorporation, the board of directors
may provide by resolution that some or all of any class or series of shares
shall be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until the certificate has been surrendered to the
corporation. Within a reasonable time after the issuance or transfer of
uncertificated shares, the corporation shall send the registered owner thereof a
written notice of all information that would appear on a certificate. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of uncertificated shares shall be identical to those of the holders of
certificates representing shares of the same class and series.
The name and address of each shareholder, the number and class of shares
held and the date on which the shares were issued shall be entered on the books
of the corporation. The person in whose name shares stand on the books of the
corporation shall be deemed the owner thereof for all purposes as regards the
corporation.
SECTION 2. LOST CERTIFICATES. If a certificate representing shares has
allegedly been lost or destroyed, the board of directors may in its discretion,
except as may be required by law, direct that a new certificate be issued upon
such indemnification and other reasonable requirements as it may impose.
SECTION 3. TRANSFERS OF SHARES. Transfer of shares of the corporation
shall be recorded on the books of the corporation. Transfer of shares
represented by a certificate, except in the case of a lost or destroyed
certificate, shall be made on surrender for cancellation of the certificate for
such shares. A certificate presented for transfer must be duly endorsed by the
holder of record thereof or his duly authorized legal representative accompanied
by proper guaranty of signature and other appropriate assurances that the
endorsement is effective. Transfer of an uncertificated share shall be made upon
receipt by the corporation of an instruction from the registered owner thereof
or by his duly authorized legal representative accompanied by proper guaranty of
signature. The instruction shall be in writing or a communication in such form
as may be agreed upon in writing by the corporation.
<PAGE> 16
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ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors.
ARTICLE VIII
DISTRIBUTIONS
The board of directors may from time to time authorize, and the
corporation may make, distributions to its shareholders subject to any
restrictions in the articles of incorporation and the limitations provided for
in The Business Corporation Act of 1983.
ARTICLE IX
SEAL
The board of directors may adopt a corporate seal which shall be in the
form of a circle and shall have inscribed thereon the name of the corporation
and the words "Corporate Seal, Illinois."
ARTICLE X
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the provisions
of these by-laws or under the provisions of the articles of incorporation or
under the provisions of The Business Corporation Act of 1983, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Attendance at any meeting shall constitute waiver of
notice thereof unless the person at the meeting objects to the holding of the
meeting because proper notice was not given.
ARTICLE XI
AMENDMENTS
Unless reserved to the shareholders in the articles of incorporation,
these by-laws may be amended or repealed by an
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affirmative vote of at least three-fourths (75%) of the board of directors of
the corporation.
ARTICLE XII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation
shall, to the fullest extent to which it is empowered to do so by The Business
Corporation Act of 1983 or any other applicable law, as may from time to time
be in effect, indemnify any person who was 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 the fact that he
is or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding.
SECTION 2. CONTRACT WITH THE CORPORATION. The provisions of this Article
XII shall be deemed to be a contract between the corporation and each director
or officer who serves in any capacity at any time while this Article XII and
the relevant provisions of The Business Corporation Act of 1983 or other
applicable law, if any, are in effect, and any repeal or modification of any
such law or of this Article XII shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought or threatened
based in whole or in part upon any such state of facts.
SECTION 3. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Persons who are not
covered by the foregoing provisions of this Article XII and who are or were
employees or agents of the corporation, or are or were serving at the request
of the corporation as employees or agents of another corporation, partnership,
joint venture, trust or other enterprise, may be indemnified to the extent
authorized at any time or from time to time by the board of directors.
SECTION 4. OTHER RIGHTS OF INDEMNIFICATION. The indemnification provided
or permitted by this Article XII shall not be deemed exclusive of any other
rights to which those indemnified may be entitled by law or otherwise, and
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 such person.
<PAGE> 18
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SECTION 5. LIABILITY INSURANCE. The corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this Article XII.
SECTION 6. If the corporation has paid indemnity or has advanced expenses
to a director, officer, employee or agent, the corporation shall report the
indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders meeting.
SECTION 7. The provisions of this article shall be interpreted and
applied in accordance with subsections 8.75(i) and (j) of The Business
Corporation Act of 1983, as amended from time to time.
ARTICLE XIII
DECISIONS REQUIRING TWO-THIRDS VOTE.
The following actions by the Board of Directors shall require the
affirmative vote of at least two-thirds of the members of the Board: (A) the
merger or consolidation of the Company with another corporation; (B) the sale
or other disposition of all or substantially all of the assets of the Company;
(C) the dissolution or liquidation of the Company; (D) the acquisition by the
Company of a controlling interest in, or substantially all of the assets of
another corporation or entity; and (E) the initial public offering of
securities of the Company.
AMENDED AND READOPTED JUNE 9, 1992
<PAGE> 19
EXHIBIT A
AMENDMENT TO THE
AMENDED AND RESTATED BYLAWS
OF
DONLAR CORPORATION,
an Illinois corporation formerly known as
Koskan Chemical Company
RESOLVED, that the first sentence of Section 2 of Article III is hereby
deleted in its entirety and the following is substituted thereof:
The board of directors of the corporation shall consist of eight (8)
members.
FURTHER RESOLVED, that Section 2 of Article III is hereby amended by
adding the following sentence in its entirety to the end of the first paragraph:
Certain directors shall be elected or appointed only in accordance with the
Third Amended and Restated Shareholders' and Noteholders' Agreement, dated
as of August ___, 1996, among the corporation, the shareholders and certain
noteholders (as amended, modified, supplemented or restated from time to
time, the "Shareholders' Agreement"). The election and appointment of
directors to directorships which are not to be filled in accordance with
the Shareholders' Agreement shall be governed by the provisions of these
by-laws.
FURTHER RESOLVED, that Section 8 of Article III is hereby deleted in
entirety and the following is substituted in lieu thereof:
SECTION 8. VACANCIES.
(a) Any vacancy occurring in the board of directors, including a
vacancy occurring as the result of the removal of a director, shall be
filled by the party who has the right to fill the directorship pursuant to
the Shareholders' Agreement.
(b) Any directorship which is not to be filled in conjunction with the
Shareholders' Agreement, including directorships to be filled by reason of
an increase in the number of directors subsequent to August ___, 1996 and
any subsequent vacancies in such directorships, may be filled by election
at an annual meeting or at a special meeting of shareholders called for
that purpose; provided, however that the board of directors may fill such
vacancies when they arise between the meetings of shareholders. A director
elected by the shareholders to fill a vacancy pursuant to this paragraph
(b) shall hold office for the balance of the term for which he or she was
elected. A director appointed by the board to fill a vacancy pursuant to
this paragraph (b) shall serve until the next meeting of shareholders at
which directors are to be elected.
<PAGE> 20
FURTHER RESOLVED, that Section 13 of Article III is hereby amended by
inserting the following sentence in its entirety following the last paragraph
in such Section:
Any audit committee of the board of directors shall contain at least
one representative designated by the holder of ten percent (10%) or
more of the fully-diluted equity of the corporation.
FURTHER RESOLVED, that Section 14 of Article III is hereby deleted in
its entirety and the following is substituted in lieu thereof:
SECTION 14. REMOVAL OF DIRECTORS.
(a) Directors may be removed only by shareholders who have
the right to appoint such directors pursuant to the Shareholders'
Agreement.
(b) Any director who was not elected or appointed pursuant
to the Shareholders' Agreement may be removed, with or without cause,
at a meeting of the shareholders by the affirmative vote of the holders
of a majority of the outstanding shares then entitled to vote at an
election of directors; provided, however, that if a director is elected
by a class or series of shares, he or she may be removed only by the
shareholders of that class or series, except that no director shall be
removed at a meeting of shareholders unless the notice of such meeting
shall state that a purpose of the meeting is to vote upon the removal
of one or more directors named in the notice. Only the named director
or directors may be removed at such meeting.
<PAGE> 1
EXHIBIT 4.1
DONLAR CORPORATION
1994 SERIES A PREFERRED STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1994 Series A Preferred
Stock Option Plan (the "Plan") are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to Employees and Consultants of the Company and its Subsidiaries and
to promote the success of the Company's business. Options granted under the
Plan may be incentive stock options (as defined under Section 422 of the Code)
or non-statutory stock options, as determined by the Administrator at the time
of grant of an option and subject to the applicable provisions of Section 422 of
the Code, as amended, and the regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board of
Directors in accordance with of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Donlar Corporation, an Illinois corporation.
(g) "Consultant" means (i) any person, including an advisor, who
is engaged by the Company or any Parent or Subsidiary to render consulting
advisory services and is compensated for such services; and (ii) any director
of the Company whether compensated for such services or not. If and in the
event the Company registers any class of any equity security pursuant to the
Exchange Act, the term Consultant shall thereafter not include directors who
are not compensated for their services or are paid only a director's fee by the
Company.
(h) "Continuous Status as an Employee or Consultant" means that
the employment or consulting relationship with the Company, any Parent or
Subsidiary is not interrupted or terminated. 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 or (ii) transfers between locations of the
Company or between the Company, any Parent, any Subsidiary, or any successor.
A leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave. For purposes of Incentive Stock Options,
no such leave may exceed 90 days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract, including Company policies. If
reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 91st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option.
<PAGE> 2
(i) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any date, the value of Series
A Preferred Stock determined as follows:
(i) If the Series A Preferred 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, its Fair Market Value
shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Series A Preferred Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for
the Series A Preferred Stock on the last market trading day prior to the day of
determination, or;
(iii) In the absence of an established market for the Series
A Preferred Stock, the Fair Market Value thereof shall be determined in good
faith by the Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
(o) "Optioned Stock" means the Series A Preferred Stock subject to
an Option.
(p) "Optionee" means an Employee or Consultant who receives an
Option.
(q) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(r) "Series A Preferred Stock" means the Series A Preferred Stock
of the Company.
(s) "Share" means a share of the Series A Preferred Stock, as
adjusted in accordance with Section 11 below.
(t) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
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<PAGE> 3
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is One Million (1,000,000) shares of Series A Preferred
Stock. The shares may be authorized, but unissued, or reacquired Series A
Preferred Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan.
Should the Company reacquire Shares which were issued pursuant
to the exercise of an Option, such Shares shall not become available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Initial Plan Procedure. Prior to the date, if any, upon which the
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a committee appointed by the Board.
(b) Plan Procedure after the Date, if any, upon which the Company
becomes subject to the Exchange Act.
(i) Administration with Respect to Directors and Officers.
With respect to grants of Options to Employees who are also officers or
directors of the Company, the Plan shall be administered by (A) the Board if
the Board may administer the Plan in compliance with rule 16b-3 promulgated
under the Exchange Act or any successor thereto ("Rule 16b-3") with respect to
a plan intended to qualify thereunder as a discretionary plan, or (B) a
committee designated by the Board to administer the Plan, which committee shall
be constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder
as a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors
nor officers.
(iii) Administration with Respect to Consultants and Other
Employees. With respect to grants of Options to Employees or Consultants who
are neither directors nor officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option plans, if
any, of state corporate and securities laws, of the Code, and of any applicable
stock exchange (the "Applicable Laws"). Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members
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<PAGE> 4
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the
Series A Preferred Stock is listed, the Administrator shall have the authority,
in its discretion:
(i) to determine the Fair Market Value of the Series A
Preferred Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Series A Preferred
Stock to be covered by each such award 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 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 the Shares relating
thereto, based in each case on such factors as the Administrator in its sole
discretion, shall determine;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(e) instead of Series A
Preferred Stock;
(viii) reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Series A Preferred
Stock covered by such Option has declined since the date the Option was
granted;
(ix) to provide for the early exercise of Options for the
purchase of unvested Shares, subject to such terms and conditions as the
Administrator may determine; and
(x) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
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<PAGE> 5
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option
agreement (the "Option Agreement") as either an Incentive Stock Option or a
Nonstatutory Stock Option. However, notwithstanding such designations, for
those Incentive Stock Options exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) with underlying shares having an aggregate Fair Market Value
exceeding $100,000, such excess shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options
shall be taken into account in the order in which they were granted, and the
Fair Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship
at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated
in the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Option shall be five (5) years form the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of
the grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110%
of the Fair Market Value per Share on the date of grant.
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<PAGE> 6
(B) granted to any Employee other than an Employee described in
the preceding paragraph, the per Share exercise price shall be no less than 100%
of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option the per share
exercise price shall be determined by the Administrator.
(b) 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
Administrator (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 (x) 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, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) authorization from the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator 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, (7) any
combination of the foregoing methods of payment, or (8) such other consideration
and method of payment for the issuance of Shares to the extent permitted under
Applicable Laws. In making its determination as to the type of consideration to
accept, the Board shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) 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. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
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<PAGE> 7
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon
termination of an Optionee's Continuous Status as an Employee or Consultant,
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 specified in the
Option Agreement, and only to the extent that the Optionee was entitled to
exercise it at the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement). In
the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three months following the Optionee's termination. In
the case of an Incentive Stock Option, such period of time for exercise shall
not exceed three months from the date of termination. Notwithstanding the
above, in the event of an Optionee's change in status from Consultant to
Employee or Employee to Consultant, an Option held by the Optionee shall not
automatically terminate solely as a result of such change in status. However,
an Incentive Stock Option shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option on
the day that is three months and one day following such change of status. If,
at the date of termination, the Optionee is not entitled to exercise his or her
entire Option, the Shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified by the Administrator, the Option
shall terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, Optionee may, but only within twelve (12) months from the date
of such termination (but in no event later than the expiration date of the term
of such Option as set forth in the Option Agreement), exercise the Option to
the extent otherwise entitled to exercise it at the date of such termination;
provided, however, that if such disability is not a "disability" as such term
is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically convert to a
Nonstatutory Stock Option on the day three months and one day following such
termination. To the extent that Optionee is not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee,
the Option may be exercised at any time within twelve (12) months following 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), by the Optionee's estate or by a
person who has acquired the right to exercise the Option by bequest or
inheritance, but only to the extent that the Optionee was entitled to exercise
the Option at the date of death. If, at the time of death, the Optionee was not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the Plan. If,
after death, the Optionee's estate or a person who has acquired the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
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<PAGE> 8
(e) Buyout Provisions. The Administrator 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 Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
(f) Rule 16b-3. Options granted to persons subject to
Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall 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.
10. NON-TRANSFERABILITY OF OPTIONS. Options 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.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of shares of Series A
Preferred Stock covered by each outstanding Option, and the number of shares of
Series A Preferred 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 Series A Preferred Stock covered by each such outstanding Option,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Series A Preferred Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Series A
Preferred Stock, or any other increase or decrease in the number of issued
shares of Series A Preferred 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 Series A Preferred Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of all or substantially all of
the assets of the Company:
(i) Options. The Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation. In the event that such 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 of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the Optionee that the Option shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and the Option shall
terminate
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<PAGE> 9
upon the expiration of such period. For the purposes of this paragraph, the
Option shall be considered assumed if, following the merger, the option confers
the right to purchase, for each Share of Optioned Stock subject to the Option
immediately prior to the merger, the consideration (whether stock, cash, or
other securities or property) received in the merger or asset sale by holders
of Series A Preferred 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 asset
sale was not solely capital stock of the successor corporation or its Parent,
the Administrator 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 capital stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Series A
Preferred Stock in the merger or asset sale.
(ii) Shares Subject to Repurchase Option. Any Shares subject to
a repurchase option of the Company shall be exchanged for the consideration
(whether stock, cash, or other securities or property) received in the merger
or asset sale by the holders of Series A Preferred Stock for each Share held on
the effective date of the transaction, as described in the preceding paragraph.
If the Optionee receives shares of stock of the successor corporation or a
parent or subsidiary of such successor corporation in exchange for Shares
subject to a repurchase option, such exchanged shares shall continue to be
subject to the repurchase option as provided in the Restricted Stock Purchase
Agreement.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option
shall, for all purposes, be the date on which the Administrator makes the
determination granting such Option, or such other date as is determined by the
Board. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
a. Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law
or regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
b. Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee
and the Board, which agreement must be in writing and signed by the Optionee
and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares
may then be listed, and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
<PAGE> 10
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
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.
16. AGREEMENTS. Options shall be evidenced by written agreements
in such form as the Board shall approve from time to time.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject
to approval by the shareholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such shareholder approval shall be
obtained in the degree and manner required under applicable state and federal
law and the rules of any stock exchange upon which the Series A Preferred Stock
is then listed.
18. COMPANY'S RIGHT OF FIRST REFUSAL. Shares subject to Options
issued pursuant to this Plan shall be subject to a right of first refusal in
favor of the Company or its successors and assigns as set forth in the option
agreement and/or exercise notice relating to such Options.
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<PAGE> 1
EXHIBIT 4.2
DONLAR CORPORATION
1994 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1994 Stock Option Plan
(the "Plan") are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to
Employees and Consultants of the Company and its Subsidiaries and to promote the
success of the Company's business. Options granted under the Plan may be
incentive stock options (as defined under Section 422 of the Code) or
nonstatutory stock options, as determined by the Administrator at the time of
grant of an option and subject to the applicable provisions of Section 422 of
the Code, as amended, and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board of
Directors in accordance with of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Donlar Corporation, an Illinois corporation.
(g) "Consultant" means (i) any person, including an advisor, who
is engaged by the Company or any Parent or Subsidiary to render consulting
advisory services and is compensated for such services; and (ii) any director
of the Company whether compensated for such services or not. If and in the
event the Company registers any class of any equity security pursuant to the
Exchange Act, the term Consultant shall thereafter not include directors who
are not compensated for their services or are paid only a director's fee by the
Company.
(h) "Continuous Status as an Employee or Consultant" means that
the employment or consulting relationship with the Company, any Parent or
Subsidiary is not interrupted or terminated. 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 or (ii) transfers between locations of the
Company or between the Company, any Parent, any Subsidiary, or any successor.
A leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave. For purposes of Incentive Stock Options,
no such leave may exceed 90 days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract, including Company policies. If
reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 91st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option.
<PAGE> 2
(i) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "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, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
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; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
(o) "Optioned Stock" means the Common Stock subject to an Option.
(p) "Optionee" means an Employee or Consultant who receives an Option.
(q) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(r) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 11 below.
(s) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
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<PAGE> 3
3. Stock Subject to the Plan. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is Three Million (3,000,000) shares of Common Stock. The
shares may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan.
Should the Company reacquire Shares which were issued pursuant to
the exercise of an Option, such Shares shall not become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Initial Plan Procedure. Prior to the date, if any, upon which
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a committee appointed by the Board.
(b) Plan Procedure after the Date, if any, upon which the Company
becomes subject to the Exchange Act.
(i) Administration with Respect to Directors and Officers.
With respect to grants of Options to Employees who are also officers or
directors of the Company, the Plan shall be administered by (A) the Board if
the Board may administer the Plan in compliance with Rule 16b-3 promulgated
under the Exchange Act or any successor thereto ("Rule 16b-3") with respect to
a plan intended to qualify thereunder as a discretionary plan, or (B) a
committee designated by the Board to administer the Plan, which committee shall
be constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder
as a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
(iii) Administration with Respect to Consultants and Other
Employees. With respect to grants of Options to Employees or Consultants who
are neither directors nor officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option plans, if
any, of state corporate and securities laws, of the Code, and of any applicable
stock exchange (the "Applicable Laws"). Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
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<PAGE> 4
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the
Common Stock is listed, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to determine whether and to what extent Options are granted
hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award 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 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 the Shares relating
thereto, based in each case on such factors as the Administrator in its sole
discretion, shall determine;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(e) instead of Common Stock;
(viii) reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock covered by such
Option has declined since the date the Option was granted;
(ix) to provide for the early exercise of Options for the
purchase of unvested Shares, subject to such terms and conditions as the
Administrator may determine; and
(x) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
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<PAGE> 5
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option
agreement (the "Option Agreement") as either an Incentive Stock Option or a
Nonstatutory Stock Option. However, notwithstanding such designations, for
those Incentive Stock Options exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) with underlying shares having an aggregate Fair Market Value
exceeding $100,000, such excess shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or here right or the
Company's right to terminate his or her employment or consulting relationship
at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. Term of Option. The term of each Option shall be the term stated
in the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
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<PAGE> 6
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option the per share
exercise price shall be determined by the Administrator.
(b) 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 Administrator (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 (x) in the case of Shares
acquired upon exercise of an Option have owned by the Optionee for more than
six months on the date of surrender, and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) authorization from the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to
the exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as delivery to the Company of the sale or loan
proceeds required to pay the exercise price, (7) any combination of the
foregoing methods of payment, or (8) such other consideration and method of
payment for the issuance of Shares to the extent permitted under Applicable
Laws. In making its determination as to the type of consideration to accept,
the Board shall consider if acceptance of such considerations may be reasonably
expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise: Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option 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, consist of any consideration and method of payment allowable under
Section 8(b) 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. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in Section 11 of the Plan.
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<PAGE> 7
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon
termination of an Optionee's Continuous Status as an Employee or Consultant,
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 specified in the
Option Agreement, and only to the extent that the Optionee was entitled to
exercise it at the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three months following the Optionee's termination. In
the case of an Incentive Stock Option, such period of time for exercise shall
not exceed three months from the date of termination. Notwithstanding the
above, in the event of an Optionee's change in status from Consultant to
Employee or Employee to Consultant, an Option held by the Optionee shall not
automatically terminate solely as a result of such change in status. However,
an Incentive Stock Option shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option on
the day that is three months and one day following such change of status. If,
at the date of termination, the Optionee is not entitled to exercise his or her
entire Option, the Shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her option within the time specified by the Administrator, the
Option shall terminate, and the Shares covered by such option shall revert to
the Plan.
(c) Disability of Optionee. In the event of termination of a
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, Optionee may, but only within twelve (12) months from the date
of such termination (but in no event later than the expiration date of the term
of such option as set forth in the Option Agreement), exercise the Option to
the extent otherwise entitled to exercise it at the date of such termination;
provided, however, that if such disability is not a "disability" as such term
is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically convert to a
Nonstatutory Stock Option on the day three months and one day following such
termination. To the extent that Optionee is not entitled to exercise the
Option at the date of termination, or if optionee does not exercise such Option
to the extent so entitled within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following 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), by the Optionee's estate or by a
person who has acquired the right to exercise the Option by bequest or
inheritance, but only to the extent that the Optionee was entitled to exercise
the Option at the date of death. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the Plan. If,
after death, the Optionee's estate or a person who has acquired the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such option shall revert to the Plan.
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<PAGE> 8
(e) Buyout Provisions. The Administrator 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 Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
(f) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall 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.
10. Non-Transferability of Options. Options may not be sold,
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.
11. Adjustments Upon Changes in Capitalization or Merger.
(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, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of all or substantially
all of the assets of the Company;
(i) Options. The Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation. In the event that such 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 of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Board shall notify the Optionee that the Option shall be fully exercisable for
a period of fifteen (15) days from the date of such notice, and the Option
shall terminate
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<PAGE> 9
upon the expiration of such period. For the purposes of this paragraph, the
Option shall be considered assumed if, following the merger, the option confers
the right to purchase, for each Share of Optioned Stock subject to the Option
immediately prior to the merger, the consideration (whether stock, cash, or
other securities or property) received in the merger or asset sale 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 asset
sale was not solely common stock of the successor corporation or its Parent,
the Administrator 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 asset sale.
(ii) Shares Subject to Repurchase Option. Any Shares
subject to a repurchase option of the Company shall be exchanged for the
consideration (whether stock, cash, or other securities or property) received
in the merger or asset sale by the holders of Common Stock for each Share held
on the effective date of the transaction, as described in the preceding
paragraph. If the Optionee receives shares of stock of the successor
corporation or a parent or subsidiary of such successor corporation in exchange
for Shares subject to a repurchase option, such exchanged shares shall continue
to be subject to the repurchase option as provided in the Restricted Stock
Purchase Agreement.
12. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date on which the Administrator makes the
determination granting such Option, or such other date as is determined by the
Board. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a
manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee
and the Board, which agreement must be in writing and signed by the Optionee
and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
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<PAGE> 10
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of the law.
15. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
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.
16. Agreements. Options shall be evidenced by written agreements in
such form as the Board shall approve from time to time.
17. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and
the rules of any stock exchange upon which the Common Stock is listed.
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<PAGE> 1
EXHIBIT 4.3
DONLAR CORPORATION
1994 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Donlar
Corporation 1994 Stock Option Plan (the "Plan") shall have the same defined
meanings in this Stock Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address:
_______________________
_______________________
_______________________
_______________ (the "Optionee") has been granted an option to purchase
______ Stock of the Company, subject to the terms and conditions of the Plan and
this Stock Option Agreement, as follows:
DATE OF GRANT: ________
VESTING COMMENCEMENT DATE: ________
EXERCISE PRICE PER SHARE: $ ________
TOTAL NUMBER OF SHARES GRANTED: ________
TOTAL EXERCISE PRICE: $ ________
TYPE OF OPTION: Incentive Stock Option
-
- Nonstatutory Stock Option
TERM/EXPIRATION DATE: ________
VESTING SCHEDULE: Subject to Optionee's continued employment or
consulting relationship with the Company, this Option shall vest and may be
exercised, in whole or in part, in accordance with the following schedule:
______ Shares - ________
______ Shares - ________
______ Shares - ________
______ Shares - ________
______ Shares - ________
______ Shares - ________
______ Shares - ________
______ Shares - ________
<PAGE> 2
TERMINATION PERIOD: This Option may be exercised for three months
after termination of employment or consulting relationship, except as set
out in Sections 6, 7 and 8 of this Stock Option Agreement and as provided
in the Plan, but in no event later than the Term/Expiration Date as
provided above.
II AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant in Section I of this
Agreement (the "Notice of Grant") an option (the "Option") to purchase a
number of shares of Common Stock (the "Shares") set forth in the Notice of
Grant, at the exercise price per share set forth in the Notice of Grant
(the "Exercise Price") subject to the terms, definitions and provisions of
the Plan, which is incorporated herein by reference. In the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Stock Option Agreement, the terms and conditions of the
Plan shall prevail.
If designated an Incentive Stock Option ("ISO"), this Option is
intended to qualify as an Incentive Stock Option as defined in Section 422
of the Code. However, if this Option is intended to be an Incentive Stock
Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION. This Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant
and with the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
(a) This Option may not be exercised for a fraction of a
share.
(b) In the event of Optionee's death, disability or other
termination of employment or consulting relationship, the exercisability of
the Option is governed by Sections 6, 7 and 8 below, subject to the
limitation contained in subsection 2(i)(c) below.
(c) In no event may this Option be exercised after the date
of expiration of the term of this Option as set forth in the Notice of
Grant.
(ii) Method of Exercise. This Option shall be exercisable by
written notice (in the form attached as Exhibit A) which shall state the
election to exercise the Option, the number of Shares in respect of which
the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such shares
of Common Stock as may be required by the Company pursuant to the
provisions of the Plan. Such written notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by
payment of the Exercise Price. The Option shall be deemed to be exercised
upon receipt by the Company of such written notice accompanied by the
Exercise Price.
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant
provisions of law and the requirements of any stock exchange or national
market system upon which the Shares may then be traded. Assuming such
compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised
with respect to such Shares.
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<PAGE> 3
3. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), at the time this
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, deliver to the Company
his Investment Representation Statement in the form attached hereto as Exhibit
B.
4. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company
which (A) in the case of Shares acquired pursuant to the exercise of a Company
stock option, have been owned by the Optionee for more than six (6) months on
the date of surrender and (B) have a fair market value on the date of surrender
equal to the Exercise Price of the Shares as to which the Option is being
exercised; or
(iv) to the extent authorized by the Company, delivery of a
properly executed exercise notice together with such other documentation as the
Administrator 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.
5. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule
under Part 207 of Title 12 of the Code of Federal Regulations (Regulation G) as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
6. Termination of Relationship. In the event of termination of
Optionee's consulting relationship or Continuous Status as an Employee,
Optionee may, to the extent otherwise so entitled at the date of such
termination (the "Termination Date"), exercise this Option during the
Termination Period set out in the Notice of Grant. To the extent that Optionee
was not entitled to exercise this Option at the date of such termination, or if
Optionee does not exercise this Option within the time specified herein, the
Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his or her total and permanent disability
(as defined in Section 22(e)(3) of the Code), Optionee may, but only within
twelve (12) months from the date of such termination (but in no event later
than the expiration date of the term of such Option as set forth in the Notice
of Grant), exercise the Option to the extent he is otherwise entitled to
exercise it at the date of such termination. If such disability is not a
"disability" as such term is defined in Section 22(e)(3) of the Code, in the
case of an ISO such ISO shall cease to be treated as an ISO and will be treated
for tax purposes as an NSO on the ninety-first (91st) day following such
termination. To the extent that Optionee is not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
to the extent so entitled within the time specified herein, the Option shall
terminate.
-3-
<PAGE> 4
8. Death of Optionee. In the event of the termination of Optionee's
Continuous Status as an Employee or Consultant as a result of the death of
Optionee, the Option may be exercised, at any time within twelve (12) months
following the date of death (but in no event later than the Term/Expiration
Date of this Option set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent the Optionee was entitled to
exercise the Option at the date of death. To the extent that Optionee was
not entitled to exercise the Option at the date of termination, or if
Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of
descent or distribution and my be exercised during the lifetime of Optionee
only by him. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
10. Term of Option. This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option. The
limitations set out in Section 7 of the Plan regarding Options designated as
Incentive Stock Options granted to more than ten percent (10%) shareholders
shall apply to this Option.
11. Tax Consequences. Some of the federal tax consequences relating
to this Option, as of the date of this Option, are set forth below. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) Exercising the Option.
(a) Exercise of an NSO. If this Option does not qualify as
an ISO, the Optionee may incur regular federal income tax liability upon
exercise. The Optionee will be treated as having received compensation
income (taxable at ordinary income tax rates) equal to the excess, if any,
of the fair market value of the Exercised Shares on the date of exercise
over their aggregate Exercise Price. If the Optionee is an employee, the
Company will be required to withhold from his or her compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal
to a percentage of this compensation income at the time of exercise.
(b) Exercise of an ISO. If this Option qualifies as an
ISO, the Optionee will have no regular federal income tax liability upon
its exercise, although the excess, if any, of the fair market value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price
will be treated as an adjustment to the alternative minimum tax for federal
tax purposes and may subject the Optionee to alternative minimum tax in the
year of exercise.
(ii) Disposition of Shares.
(a) NSO. If the Optionee holds NSO Shares for at least
one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(b) ISO. If the Optionee holds ISO Shares (I) for at least
one year after exercise and (II) two years after the grant date, then any
gain realized on disposition of the Shares will be treated as long-
-4-
<PAGE> 5
term capital gain for federal income tax purposes. If the Optionee disposes of
ISO Shares within one year after exercise or two years after the grant date,
any gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the excess, if any, of the
LESSER OF (A) the difference between the FAIR MARKET VALUE OF THE SHARES
ACQUIRED ON THE DATE OF EXERCISE and the aggregate Exercise Price or (B) the
difference between the SALE PRICE of such Shares and the aggregate Exercise
Price.
(iii) Notice of Disqualifying Disposition of ISO Shares. If
the Optionee sells or otherwise disposes of any of the Shares acquired pursuant
to an ISO on or before the later of (a) two years after the grant date or (b)
one year after the exercise date, then the Optionee shall immediately notify the
Company in writing of such disposition. The Optionee agrees that he or she may
be subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THIS OPTION IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT BY THE
COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS STOCK OPTION AGREEMENT, NOR IN THE PLAN WHICH IS INCORPORATED
HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO
CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT
INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
By Optionee's signature and the signature of the Company's
representative below, Optionee and the Company agree that this Option is
granted under and governed by the terms and conditions of the Plan and this
Stock Option Agreement. Optionee has reviewed the Plan and this Stock Option
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Stock Option
(REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-5-
<PAGE> 6
Agreement and fully understands all provisions of the Plan and this Stock Option
Agreement. Optionee hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Administrator upon any questions
relating to the Plan and this Stock Option Agreement.
Dated:
---------
DONLAR CORPORATION,
an Illinois corporation
By:
--------------------------------
Its:
--------------------------------
OPTIONEE
--------------------------------
(Signature)
--------------------------------
(Please Print Name)
--------------------------------
(Please Print Address)
--------------------------------
-6-
<PAGE> 7
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Stock Option Agreement. In consideration
of the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and the Stock Option Agreement, the undersigned hereby
agrees to be irrevocably bound by the terms and conditions of the Plan and this
Stock Option Agreement and further agrees that any community property interest
shall be similarly bound. The undersigned hereby appoints the undersigned's
spouse as the attorney-in-fact for the undersigned with respect to any
amendment or exercise of rights under the Plan or this Stock Option Agreement.
--------------------------------------
(Spouse of Optionee Signature)
--------------------------------------
(Please Print Spouse's Name)
-7-
<PAGE> 8
EXHIBIT A
STOCK OPTION AGREEMENT
EXERCISE NOTICE
Donlar Corporation
Moffett Campus
6502 South Archer Avenue
Bedford Park, Illinois 60501-9998
Attention: Chief Financial Officer
1. EXERCISE OF OPTION. Effective as of today, ______________, 19__,
the undersigned ("Optionee") hereby elects to exercise Optionee's option
to purchase ___________ shares of the Common Stock (the "Shares") of Donlar
Corporation (the "Company") under and pursuant to the Company's 1994 Stock
Option Plan, as amended (the "Plan") and the [ ] Incentive [ ] Nonstatutory
Stock Option Agreement dated _________________ (the "Stock Option Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee
has received, read and understood the Plan and the Stock Option Agreement and
agrees to abide by and be bound by their terms and conditions. Optionee
represents that Optionee is purchasing the Shares for Optionee's own account
for investment and not with a view to, or for sale in connection with, a
distribution of any of such Shares.
3. RIGHTS AS SHAREHOLDER. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), 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. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 11 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Optionee shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions
of this Agreement, and Optionee shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for
transfer or cancellation.
4. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by
Optionee or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section (the "Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the bona fide cash price or other consideration for which
the Holder proposes to transfer the Shares (the "Offered Price"), and the
Holder shall offer the Shares at the Offered Price to the Company or its
assignee(s).
<PAGE> 9
(b) Exercise of Right of First Refusal. At any time within
thirty (30) days after receipt of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in
accordance with subsection (c) below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the
Company (or, in the case of repurchase by an assignee, to the assignee), or by
any combination thereof within 30 days after receipt of the Notice or in the
manner and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section, then the Holder
may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer
is consummated within 120 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the
contrary contained in this Section notwithstanding, the transfer of any
or all of the Shares during the Optionee's lifetime or on the Optionee's death
by will or intestacy to the Optionee's immediate family or a trust for the
benefit of the Optionee's immediate family shall be exempt from the provisions
of this Section. "Immediate Family" as used herein shall mean spouse, lineal
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares 90 days after the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act").
5. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
A-2
<PAGE> 10
6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) Legends. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the
Shares together with any other legends that may be required by state or federal
securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY
THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY
OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.
SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING
ON TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
7. MARKET STANDOFF AGREEMENT. Optionee hereby agrees that if so
requested by the Company or any representative of the underwriters in
connection with any registration of the offering of any securities of the
Company under the 1933 Act, Optionee shall not sell or otherwise transfer any
Shares or other securities of the Company during the 180-day period following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall only apply to
the first two registration statements of the Company to become effective under
the Securities Act which include securities to be sold on behalf of the Company
to the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such 180-day period.
8. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
A-3
<PAGE> 11
9. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the
Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Board or committee shall be final and
binding on the Company and on Optionee.
10. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois excluding
that body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
11. NOTICES. Any notice required or permitted hereunder shall
be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit in the United States mail by certified mail, with
postage and fees prepaid, addressed to the other party at its address as shown
below beneath its signature, or to such other address as such party may
designate in writing from time to time to the other party.
12. FURTHER INSTRUMENTS. The parties agree to execute such
further instruments and to take such further action as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
13. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
14. ENTIRE AGREEMENT. The Plan and Stock Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Stock Option
Agreement constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and is governed by Illinois law except
for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: DONLAR CORPORATION
By:
- ----------------------------------- ------------------------------------
(Signature)
Its:
- ----------------------------------- ------------------------------------
(Print Name)
Address: Address:
- ----------------------------------- Moffet Campus
6502 South Archer Avenue
- ----------------------------------- Bedford Park, EL 60501-9998
A-4
<PAGE> 12
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY: DONLAR CORPORATION
SECURITY: ____ STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
securities. Optionee is acquiring these securities for investment for
Optionee's own account only and not with a view to, or for resale in connection
with, any "distribution" thereof within the meaning of the Securities Act of
1933, as amended (the "Securities Act").
(b) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona
fide nature of Optionee's investment intent as expressed herein. In this
connection, Optionee understands that, in the view of the Securities and
Exchange Commission, the statutory basis for such exemption may be unavailable
if Optionee's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to
register the Securities. Optionee understands that the certificate evidencing
the Securities will be imprinted with a legend which prohibits the transfer of
the Securities unless they are registered or such registration is not required
in the opinion of counsel satisfactory to the Company and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of exercise of the Option by the Optionee,
such exercise will be exempt from registration under the Securities Act. In the
event the Company later becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), ninety (90) days thereafter (or such longer period as any
market stand-off agreement may require) the securities exempt under Rule 701
may be resold, subject to the satisfaction of certain of the conditions
specified by Rule 144, including among other things: (1) the
<PAGE> 13
sale being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Exchange Act); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, and the amount of securities
being sold during any three month period not exceeding the limitations
specified in Rule 144(e), if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of exercise of the Option, then the securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things: (1) the resale occurring not less than two years after the
party has purchased, and made full payment for, within the meaning of Rule 144,
the securities to be sold; and, in the case of an affiliate, or of a
non-affiliate who has held the securities less than three years, (2) the
availability of certain public information about the Company, (3) the sale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Exchange Act) and (4) the amount of securities being sold during any three
month period not exceeding the specified limitations stated therein, if
applicable.
(d) Optionee agrees, in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to sell, make
short sale of, loan, grant any options for the purchase of, or otherwise
dispose of any shares of Common Stock of the Company held by Optionee (other
than those shares included in the registration) without the prior written
consent of the Company or the underwriters managing such initial underwritten
public offering of the Company's securities for one hundred eighty (180) days
from the effective date of such registration and (2) further agrees to execute
any agreement reflecting (1) above as may be requested by the underwriters at
the time of the public offering. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact
that Rules 144 and 701 are not exclusive, the Staff of the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rules 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers
or sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk. Optionee understands that no
assurances can be given that any such other registration exemption will be
available in such event.
Signature of Optionee:
-----------------------------------------------
Date:
---------------------------
B-2
<PAGE> 1
EXHIBIT 4.4
THE DONLAR CORPORATION
LONG-TERM EQUITY COMPENSATION PLAN
(ESTABLISHED AS OF OCTOBER 3, 1997)
Page
Article 1. Establishment, Objectives, and Duration . . . . . . . . . . . 1
Article 2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
Article 3. Administration . . . . . . . . . . . . . . . . . . . . . . . . 4
Article 4. Shares Subject to the Plan and Maximum Awards . . . . . . . . 5
Article 5. Eligibility and Participation . . . . . . . . . . . . . . . . 6
Article 6. Stock Options . . . . . . . . . . . . . . . . . . . . . . . . 6
Article 7. Stock Appreciation Rights . . . . . . . . . . . . . . . . . . 8
Article 8. Restricted Stock . . . . . . . . . . . . . . . . . . . . . . . 10
Article 9. Performance Units and Performance Shares . . . . . . . . . . . 11
Article 10. Performance Measures . . . . . . . . . . . . . . . . . . . . . 13
Article 11. Beneficiary Designation . . . . . . . . . . . . . . . . . . . 14
Article 12. Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Article 13. Rights of Employees . . . . . . . . . . . . . . . . . . . . . 14
Article 14. Amendment, Modification, Termination,
and Adjustments . . . . . . . . . . . . . . . . . . . . . . . 14
Article 15. Payment of Plan Awards and Conditions Thereon . . . . . . . . 15
Article 16. Withholding . . . . . . . . . . . . . . . . . . . . . . . . . 16
Article 17. Indemnification . . . . . . . . . . . . . . . . . . . . . . . 17
Article 18. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Article 19. Legal Construction . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE> 2
ARTICLE 1. ESTABLISHMENT, OBJECTIVES, AND DURATION
1.1. ESTABLISHMENT OF THE PLAN. Donlar Corporation, an Illinois
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "The Donlar Corporation
Long-Term Equity Compensation Plan" (hereinafter referred to as the "Plan"),
as set forth in this document. The Plan permits the grant of Nonqualified
Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted
Stock, Performance Shares, and Performance Units.
Subject to approval by the Company's stockholders, the Plan shall
become effective as of October 3, 1997 (the "Effective Date") and shall remain
in effect as provided in Section 1.3 hereof.
1.2. OBJECTIVES OF THE PLAN. The objectives of the Plan are to
optimize the profitability and growth of the Company through incentives which
are consistent with the Company's goals and which link the personal interests
of Participants to those of the Company's stockholders; to provide Participants
with an incentive for excellence in individual performance; and to promote
teamwork among Participants.
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract, and retain the services of Participants who
make significant contributions to the Company's success and to allow
Participants to share in the success of the Company.
1.3. DURATION OF THE PLAN. The Plan shall commence on the
Effective Date, as described in Section 1.1 hereof, and shall remain in effect,
subject to the right of the Board of Directors to amend or terminate the Plan
at any time pursuant to Article 14 hereof, until all Shares subject to it shall
have been purchased or acquired according to the Plan's provisions. However,
in no event may an Award be granted under the Plan on or after October 3, 2007.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below, and when the meaning is intended, the initial letter of the
word shall be capitalized:
2.1. "AFFILIATE" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations of the Exchange Act.
2.2. "AWARD" means, individually or collectively, a grant under
this Plan of Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Shares, or Performance
Units.
<PAGE> 3
2.3. "AWARD AGREEMENT" means an agreement entered into by the
Company and each Participant setting forth the terms and provisions applicable
to Awards granted under this Plan.
2.4. "BENEFICIAL OWNER" OR "BENEFICIAL OWNERSHIP" shall have the
meaning ascribed to such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.
2.5. "BOARD" OR "BOARD OF DIRECTORS" means the Board of
Directors of the Company.
2.6. "CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
2.7. "COMMITTEE" means any committee appointed by the Board to
administer the Plan, as specified in Article 3 herein.
2.8. "COMPANY" means Donlar Corporation, an Illinois
corporation, including any and all Subsidiaries and Affiliates, and any
successor thereto as provided in Article 18 herein.
2.9. "COVERED EMPLOYEE" means a Participant who, as of the date
of vesting and/or payout of an Award, as applicable, is one of the group of
"covered employees," as defined in the regulations promulgated under Code
Section 162(m), or any successor statute.
2.10. "DIRECTOR" means any individual who is a member of the
Board of Directors of the Company or any Subsidiary or Affiliates.
2.11. "DISABILITY" shall have the meaning ascribed to such term
in the Participant's governing long-term disability plan, or if no such plan
exists, at the discretion of the Committee.
2.12. "EFFECTIVE DATE" shall have the meaning ascribed to such
term in Section 1.1 hereof.
2.13. "EMPLOYEE" means any full-time, active employee of the
Company or its Subsidiaries or Affiliates. Directors who are not employed by
the Company shall not be considered Employees under this Plan.
2.14. "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor act thereto.
2.15. "FAIR MARKET VALUE" shall be determined by the Committee
where the Shares are not publicly traded and thereafter on the basis of the
closing sale price at which Shares have been sold regular way on the principal
securities exchange on which the Shares are traded or, if there is no such sale
on the relevant date, then on the last previous day on which there was such a
sale, provided that Fair Market Value for any initial grants made under the
Plan concurrent with or contingent upon the consummation of the
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initial public offering of Shares in 1997 will be at a price equal to the
initial public offering price of Shares covered by such initial public
offering.
2.16. "FREESTANDING SAR" means an SAR that is granted
independently of any Options, as described in Article 7 herein.
2.17. "INCENTIVE STOCK OPTION" OR "ISO" means an option to
purchase Shares granted under Article 6 herein and which is designated as an
Incentive Stock Option and which is intended to meet the requirements of Code
Section 422.
2.18 "INSIDER" shall mean an individual who is, on the relevant
date, an officer, director, or ten percent (10%) beneficial owner of any class
of the Company's equity securities that is registered pursuant to Section 12 of
the Exchange Act, all as defined under Section 16 of the Exchange Act.
2.19. "NONEMPLOYEE DIRECTOR" shall mean a Director who is not also an
Employee.
2.20. "NONQUALIFIED STOCK OPTION" OR "NQSO" means an option to
purchase Shares granted under Article 6 herein and which is not intended to
meet the requirements of Code Section 422.
2.21. "OPTION" means an Incentive Stock Option or a Nonqualified
Stock Option, as described in Article 6 herein.
2.22. "OPTION PRICE" means the price at which a Share may be
purchased by a Participant pursuant to an Option.
2.23. "PARTICIPANT" means an Employee who has been selected to
receive an Award or who has outstanding an Award granted under the Plan.
2.24. "PERFORMANCE-BASED EXCEPTION" means the performance-based
exception from the tax deductibility limitations of Code Section 162(m).
2.25. "PERFORMANCE SHARE" means an Award granted to a
Participant, as described in Article 9 herein.
2.26. "PERFORMANCE UNIT" means an Award granted to a Participant,
as described in Article 9 herein.
2.27. "PERIOD OF RESTRICTION" means the period during which the
transfer of Shares of Restricted Stock is limited in some way (based on the
passage of time, the achievement of performance goals, or upon the occurrence
of other events as determined by the Committee, at its discretion), and the
Shares are subject to a substantial risk of forfeiture, as provided in Article
8 herein.
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2.28. "PERSON" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) thereof.
2.29. "RESTRICTED STOCK" means an Award granted to a Participant
pursuant to Article 8 herein.
2.30. "RETIREMENT" shall have the meaning ascribed to such term
in the Company's tax-qualified retirement plan.
2.31. "SHARES" means the shares of common stock of the Company.
2.32. "STOCK APPRECIATION RIGHT" OR "SAR" means an Award, granted
alone or, in connection with a related Option, designated as an SAR, pursuant
to the terms of Article 7 herein.
2.33. "SUBSIDIARY" means any corporation, partnership, joint
venture, or other entity in which the Company has a majority voting interest
(including all divisions, affiliates, and related entities).
2.34. "TANDEM SAR" means an SAR that is granted in connection
with a related Option pursuant to Article 7 herein, the exercise of which shall
require forfeiture of the right to purchase a Share under the related Option
(and when a Share is purchased under the Option, the Tandem SAR shall similarly
be canceled).
ARTICLE 3. ADMINISTRATION
3.1. THE COMMITTEE. The Plan shall be administered by a
committee appointed by the Board. After the initial public offering of Shares
in 1997, the Plan shall be administered by the Compensation Committee of the
Board consisting of not less than two (2) Directors who meet the "outside
director" requirements of Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Exchange Act and the requirements of Code Section 162(m),
or by any other committee appointed by the Board, provided the members of such
committee meet such requirements.
3.2. AUTHORITY OF THE COMMITTEE. Except as limited by law or by
the Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select Employees who
shall participate in the Plan; determine the sizes and types of Awards;
determine the terms and conditions of Awards in a manner consistent with the
Plan; construe and interpret the Plan and any agreement or instrument entered
into under the Plan; establish, amend, or waive rules and regulations for the
Plan's administration; and (subject to the provisions of Article 15 herein)
amend the terms and conditions of
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any outstanding Award to the extent such terms and conditions are within the
discretion of the Committee as provided in the Plan. Further, the Committee
shall make all other determinations which may be necessary or advisable for the
administration of the Plan. As permitted by law, the Committee may delegate its
authority as identified herein.
3.3. DECISIONS BINDING. All determinations and decisions made by
the Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive, and binding on all
persons, including the Company, its stockholders, Employees, Participants, and
their estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1. NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to Sections
4.2 and 4.3 herein, the maximum number of Shares with respect to which Awards
may be granted to Participants under the Plan shall be one million (1,000,000)
shares of Series A Preferred Stock (which shall convert to Common Stock upon
the occurrence of the Company's initial public offering), any or all of which
may be issued under Article 6 as Options. Shares issued under the Plan may be
either authorized but unissued Shares, treasury Shares, or any combination
thereof.
4.2. LAPSED AWARDS. If any Award granted under this Plan is
canceled, terminates, expires, or lapses for any reason (with the exception of
the termination of a Tandem SAR upon exercise of the related Option, or the
termination of a related Option upon exercise of the corresponding Tandem SAR),
any Shares subject to such Award again shall be available for the grant of an
Award under the Plan.
4.3. ADJUSTMENTS. In the event of any change in corporate
capitalization such as a stock split, or a corporate transaction such as any
merger, consolidation, separation, including a spin-off, or other distribution
of stock or property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Code Section 368)
or any partial or complete liquidation of the Company, such adjustment shall be
made in the number and class of Shares which may be delivered under Section
4.1, in the number and class of and/or price of Shares subject to outstanding
Awards granted under the Plan, and in the Award limits set forth in subsections
4.1(a), 4.l(b), and 4.l(c), as may be determined to be appropriate and
equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; provided, however, that the number of Shares subject to
any Award shall always be a whole number.
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ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1. ELIGIBILITY. Persons eligible to participate in this Plan
include officers and certain key salaried Employees of the Company with
potential to contribute to the success of the Company or its Subsidiaries,
including Employees who are members of the Board.
5.2. ACTUAL PARTICIPATION. Subject to the provisions of the
Plan, the Committee may, from time to time, select from all eligible Employees
those to whom Awards shall be granted, and shall determine the nature and
amount of each Award.
ARTICLE 6. STOCK OPTIONS
6.1. GRANT OF OPTIONS. Subject to the terms and provisions of
the Plan, Options may be granted to Participants in such number, and upon such
terms, and at any time and from time to time as shall be determined by the
Committee.
6.2. AWARD AGREEMENT. Each Option grant shall be evidenced by
an Award Agreement that shall specify the Option Price, the duration of the
Option, the number of Shares to which the Option pertains, and such other
provisions as the Committee shall determine. The Award Agreement also shall
specify whether the Option is intended to be an ISO within the meaning of Code
Section 422, or an NQSO, whose grant is intended not to fall under the
provisions of Code Section 422.
6.3. OPTION PRICE. The Option Price for each grant of an Option
which is intended to be an ISO under this Plan shall be at least equal to one
hundred percent (100%) of the Fair Market Value of a Share on the date the
Option is granted. The Option Price for each grant of an Option which is
intended to be an NQSO under the Plan shall be determined by the Committee.
6.4. DURATION OF OPTIONS. Each Option granted to a Participant
shall expire at such time as the Committee shall determine at the time of
grant; provided, however, that no Option shall be exercisable later than the
tenth (lOth) anniversary date of its grant and provided further that no Option
shall be exercisable later than the fifth (5th) anniversary date of its grant
for an ISO granted to a Participant, who at the time of such grant, owns stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company.
6.5. EXERCISE OF OPTIONS. Options granted under this Article 6
shall be exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve, which need not be
the same for each grant or for each Participant.
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6.6. PAYMENT. Options granted under this Article 6 shall be
exercised by the delivery of a written notice of exercise to the Company,
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent; or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price); or (c) by a combination of
(a) and (b).
The Committee may also allow cashless exercise as permitted under
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
Subject to any governing rules or regulations, as soon as practicable
after receipt of a written notification of exercise and full payment, the
Company shall deliver to the Participant, in the Participant's name, Share
certificates in an appropriate amount based upon the number of Shares purchased
under the Option(s).
6.7. RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may
impose such restrictions on any Shares acquired pursuant to the exercise of an
Option granted under this Article 6 as it may deem advisable, including,
without limitation, restrictions under applicable federal securities laws,
under the requirements of any stock exchange or market upon which such Shares
are then listed and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
6.8. TERMINATION OF EMPLOYMENT. Each Participant's Option Award
Agreement shall set forth the extent to which the Participant shall have the
right to exercise the Option following termination of the Participant's
employment with the Company. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award Agreement entered
into with each Participant, need not be uniform among all Options issued
pursuant to this Article 6, and may reflect distinctions based on the reasons
for termination of employment.
6.9. NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may
be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the
laws of descent and
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distribution. Further, all ISOs granted to a Participant
under the Plan shall be exercisable during his or her
lifetime only by such Participant or the Participant's legal
representative (to the extent permitted under Code Section
422).
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided
in a Participant's Award Agreement, no NQSO granted under
this Article 6 may be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated, other than by will
or by the laws of descent and distribution. Further,
except as otherwise provided in a Participant's Award
Agreement, all NQSOs granted to a Participant under this
Article 6 shall be exercisable during his or her lifetime
only by such Participant or the Participant's legal
representative.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1. GRANT OF SARS. Subject to the terms and conditions of the
Plan, SARs may be granted to Participants at any time and from time to time as
shall be determined by the Committee. The Committee may grant Freestanding
SARs, Tandem SARs, or any combination of these forms of SAR.
The Committee shall have complete discretion in determining the number
of SARs granted to each Participant (subject to Article 4 herein) and,
consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such SARs.
The grant price of a Freestanding SAR shall equal the Fair Market
Value of a Share on the date of grant of the SAR. The grant price of Tandem
SARs shall equal the Option Price of the related Option.
7.2. EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for
all or part of the Shares subject to the related Option upon the surrender of
the right to exercise the equivalent portion of the related Option. A Tandem
SAR may be exercised only with respect to the Shares for which its related
Option is then exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one
hundred percent (100%) of the difference between the Option Price of the
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underlying ISO and the Fair Market Value of the Shares subject to the
underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem
SAR may be exercised only when the Fair Market Value of the Shares subject to
the ISO exceeds the Option Price of the ISO.
7.3. EXERCISE OF FREESTANDING SARS. Freestanding SARs may be
exercised upon whatever terms and conditions the Committee, in its sole
discretion, imposes upon them.
7.4. SAR AGREEMENT. Each SAR grant shall be evidenced by an
Award Agreement that shall specify the grant price, the term of the SAR, and
such other provisions as the Committee shall determine.
7.5. TERM OF SARS. The term of an SAR granted under the Plan
shall be determined by the Committee, in its sole discretion; provided,
however, that such term shall not exceed ten (10) years.
7.6. PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a
Participant shall be entitled to receive payment from the Company in an amount
determined by multiplying:
(a) The difference between the Fair Market Value of a Share on
the date of exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is
exercised.
At the discretion of the Committee, the payment upon SAR exercise may
be in cash, in Shares of equivalent value, or in some combination thereof. The
Committee's determination regarding the form of SAR payout shall be set forth
in the Award Agreement pertaining to the grant of the SAR.
7.7. TERMINATION OF EMPLOYMENT. Each SAR Award Agreement shall
set forth the extent to which the Participant shall have the right to exercise
the SAR following termination of the Participant's employment with the Company
and/or its subsidiaries. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award Agreement entered
into with Participants, need not be uniform among all SARs issued pursuant to
the Plan, and may reflect distinctions based on the reasons for termination of
employment.
7.8. NONTRANSFERABILITY OF SARS. Except as otherwise provided
in a Participant's Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, all SARs granted to a
Participant
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under the Plan shall be exercisable during his or her lifetime only by such
Participant or the Participant's legal representative.
ARTICLE 8. RESTRICTED STOCK
8.1. GRANT OF RESTRICTED STOCK. Subject to the terms and
provisions of the Plan, the Committee, at any time and from time to time, may
grant Shares of Restricted Stock to Participants in such amounts as the
Committee shall determine.
8.2. RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant
shall be evidenced by a Restricted Stock Award Agreement that shall specify the
Period(s) of Restriction, the number of Shares of Restricted Stock granted, and
such other provisions as the Committee shall determine.
8.3. TRANSFERABILITY. Except as provided in this Article 8, the
Shares of Restricted Stock granted under the Plan may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated until the end of the
applicable Period of Restriction established by the Committee and specified in
the Restricted Stock Award Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion and set forth
in the Restricted Stock Award Agreement. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be available
during his or her lifetime only to such Participant or the Participant's legal
representative.
8.4. OTHER RESTRICTIONS. Subject to Article 11 herein, the
Committee shall impose such other conditions and/or restrictions on any Shares
of Restricted Stock granted pursuant to the Plan as it may deem advisable
including, without limitation, a requirement that Participants pay a stipulated
purchase price for each Share of Restricted Stock, restrictions based upon the
achievement of specific performance goals (Company-wide, divisional, and/or
individual), time-based restrictions on vesting following the attainment of the
performance goals, and/or restrictions under applicable federal or state
securities laws.
The Company may retain the certificates representing Shares of
Restricted Stock in the Company's possession until such time as all conditions
and/or restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 8, Shares of 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 applicable
Period of Restriction.
8.5. VOTING RIGHTS. Participants holding Shares of Restricted
Stock granted hereunder may be granted the right to
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exercise full voting rights with respect to those Shares during the Period of
Restriction.
8.6. DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Participants holding Shares of Restricted Stock granted hereunder
may be credited with regular cash dividends paid with respect to the underlying
Shares while they are so held. The Committee may apply any restrictions to the
dividends that the Committee deems appropriate. Without limiting the
generality of the preceding sentence, if the grant or vesting of Restricted
Shares granted to a Covered Employee is designed to comply with the
requirements of the Performance-Based Exception, the Committee may apply any
restrictions it deems appropriate to the payment of dividends declared with
respect to such Restricted Shares, such that the dividends and/or the
Restricted Shares maintain eligibility for the Performance-Based Exception.
8.7. TERMINATION OF EMPLOYMENT. Each Restricted Stock Award
Agreement shall set forth the extent to which the Participant shall have the
right to receive unvested Restricted Shares following termination of the
Participant's employment with the Company. Such provisions shall be determined
in the sole discretion of the Committee, shall be included in the Award
Agreement entered into with each Participant, need not be uniform among all
Shares of Restricted Stock issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination of employment; provided,
however, that except in the cases of terminations by reason of death or
Disability, the vesting of Shares of Restricted Stock which qualify for the
Performance-Based Exception and which are held by Covered Employees shall occur
at the time they otherwise would have, but for the employment termination.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1. GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of
the Plan, Performance Units and/or Performance Shares may be granted to
Participants in such amounts and upon such terms, and at any time and from time
to time, as shall be determined by the Committee.
9.2. VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit
shall have an initial value that is established by the Committee at the time of
grant. Each Performance Share shall have an initial value equal to the Fair
Market Value of a Share on the date of grant. The Committee shall set
performance goals in its discretion which, depending on the extent to which
they are met, will determine the number and/or value of Performance
Units/Shares that will be paid out to the Participant. For purposes of this
Article 9, the time period during which the performance goals must be met shall
be called a "Performance Period."
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9.3. EARNING OF PERFORMANCE UNITS/SHARES. Subject to the terms
of this Plan, after the applicable Performance Period has ended, the holder of
Performance Units/Shares shall be entitled to receive payout on the number and
value of Performance Units/Shares earned by the Participant over the
Performance Period, to be determined as a function of the extent to which the
corresponding performance goals have been achieved.
9.4. FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES.
Payment of earned Performance Units/Shares shall be made in a single lump sum
following the close of the applicable Performance Period. Subject to the terms
of this Plan, the Committee, in its sole discretion, may pay earned Performance
Units Shares in the form of cash or in Shares (or in a combination thereof)
which have an aggregate Fair Market Value equal to the value of the earned
Performance Units/Shares at the close of the applicable Performance Period.
Such Shares may be granted subject to any restrictions deemed appropriate by
the Committee. The determination of the Committee with respect to the form of
payout of such Awards shall be set forth in the Award Agreement pertaining to
the grant of the Award.
At the discretion of the Committee, Participants may be entitled to
receive any dividends declared with respect to Shares which have been earned in
connection with grants of Performance Units and/or Performance Shares, but not
yet distributed to Participants (such dividends shall be subject to the same
accrual, forfeiture, and payout restrictions as apply to dividends earned with
respect to Shares of Restricted Stock, as set forth in Section 8.6 herein). In
addition, Participants may, at the discretion of the Committee, be entitled to
exercise their voting rights with respect to such Shares.
9.5. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT. Unless determined otherwise by the Committee and set forth in the
Participant's Award Agreement, in the event the employment of a Participant is
terminated by reason of death, Disability, or Retirement during a Performance
Period, the Participant shall receive a payout of the Performance Units/Shares
which is prorated, as specified by the Committee in its discretion.
Payment of earned Performance Units/Shares shall be made at a time
specified by the Committee in its sole discretion and set forth in the
Participant's Award Agreement. Notwithstanding the foregoing, with respect to
Covered Employees who retire during a Performance Period, payments shall be
made at the same time as payments are made to Participants who did not
terminate employment during the applicable Performance Period.
9.6. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event
that a Participant's employment terminates for any reason other than those
reasons set forth in Section 9.5 herein, all
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Performance Units/Shares shall be forfeited by the Participant to the Company
unless determined otherwise by the Committee, as set forth in the Participant's
Award Agreement.
9.7. NONTRANSFERABILITY. Except as otherwise provided in a
Participant's Award Agreement, Performance Units/Shares may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, a Participant's rights
under the Plan shall be exercisable during the Participant's lifetime only by
the Participant or the Participant's legal representative.
ARTICLE 10. PERFORMANCE MEASURES
Unless and until the Committee proposes for shareholder vote and
shareholders approve a change in the general performance measures set forth in
this Article 10, the attainment of which may determine the degree of payout
and/or vesting with respect to Awards to Covered Employees which are designed
to qualify for the Performance-Based Exception, the performance measure(s) to
be used for purposes of such grants shall be chosen from among net income
either before or after taxes, market share, customer satisfaction, profits,
share price, earnings per share, total shareholder return, return on assets,
return on equity, operating income, return on capital or investments, or
economic value added (including, but not limited to, any or all of such
measures in comparison to the Company's competitors, the industry, or some
other comparator group).
The Committee shall have the discretion to adjust the determinations
of the degree of attainment of the pre-established performance goals; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception, and which are held by Covered Employees, may not be adjusted upward
(the Committee shall retain the discretion to adjust such Awards downward).
In the event that applicable tax and/or securities laws change to
permit Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
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ARTICLE 11. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively)
to whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, the Participant's beneficiary shall be
paid to the Participant's estate.
ARTICLE 12. DEFERRALS
The Committee may permit or require a Participant to defer such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option or SAR, the lapse or waiver of restrictions with respect to Restricted
Stock, or the satisfaction of any requirements or goals with respect to
Performance Units/Shares. If any such deferral election is required or
permitted, the Committee shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
ARTICLE 13. RIGHTS OF EMPLOYEES
13.1. EMPLOYMENT. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any Participant's
employment at any time, nor confer upon any Participant any right to continue
in the employ of the Company.
13.2. PARTICIPATION. No Employee shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to
be selected to receive a future Award.
ARTICLE 14. AMENDMENT, MODIFICATION, TERMINATION, AND ADJUSTMENTS
14.1. AMENDMENT, MODIFICATION, AND TERMINATION. Subject to the
terms of the Plan, the Board, upon recommendation of the Committee, may at any
time and from time to time, alter, amend, suspend or terminate the Plan in
whole or in part.
14.2. ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL
OR NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual
or nonrecurring events (including, without limitation, the events described in
Section 4.3 hereof) affecting the Company or the financial statements of the
Company or
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of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan; provided that unless the Committee
determines otherwise, no such adjustment shall be authorized to the extent that
such authority would be inconsistent with the Plan or Awards meeting the
requirements of Section 162(m) of the Code, as from time to time amended.
14.3. AWARDS PREVIOUSLY GRANTED. Notwithstanding any other
provision of the Plan to the contrary (but subject to Section 14.2 hereof), no
termination, amendment, or modification of the Plan shall adversely affect in
any material way any Award previously granted under the Plan without the
written consent of the Participant holding such Award.
14.4. COMPLIANCE WITH CODE SECTION 162(m). At all times when Code
Section 162(m) is applicable, all Awards granted under this Plan shall comply
with the requirements of Code Section 162(m); provided, however, that in the
event the Committee determines that such compliance is not desired with respect
to any Award or Awards available for grant under the Plan, then compliance with
Code Section 162(m) will not be required. In addition, in the event that
changes are made to Code Section 162(m) to permit greater flexibility with
respect to any Award or Awards available under the Plan, the Committee may,
subject to this Article 14, make any adjustments it deems appropriate.
ARTICLE 15. PAYMENT OF PLAN AWARDS AND CONDITIONS THEREON
15.1. EFFECT OF COMPETITIVE ACTIVITY. Anything contained in the
Plan to the contrary notwithstanding, if the employment of any Participant
shall terminate, for any reason other than death, while any Award to such
Participant is outstanding hereunder, and such Participant has not yet received
the Shares covered by such Award or otherwise received the full benefit of such
Award, such Participant, if otherwise entitled thereto, shall receive such
Shares or benefit only if, during the entire period from the date of such
Participant's termination to the date of such receipt, such Participant shall
have earned out such Award by (i) making himself or herself available, upon
request, at reasonable times and upon a reasonable basis, to consult with,
supply information to, and otherwise cooperate with the Company or any
Subsidiary or Affiliate thereof with respect to any matter that shall have been
handled by him or her or under his or her supervision while he or she was in
the employ of the Company or of any Subsidiary or Affiliate thereof; and (ii)
refraining from engaging in any activity that is directly or indirectly in
competition with any activity of the Company or any Subsidiary or Affiliate
thereof.
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<PAGE> 17
15.2. NONFULFILLMENT OF COMPETITIVE ACTIVITY CONDITIONS; WAIVERS
UNDER THE PLAN. In the event of a Participant's nonfulfillment of any
condition set forth in Section 15.1 hereof, such Participant's rights under any
Award shall be forfeited and canceled forthwith; provided, however, that the
nonfulfillment of such condition may at any time (whether before, at the time
of, or subsequent to termination of employment) be waived by the Committee upon
its determination that in its sole judgment there shall not have been and will
not be any substantial adverse effect upon the Company or any Subsidiary or
Affiliate thereof by reason of the nonfulfillment of such condition.
15.3. EFFECT OF INIMICAL CONDUCT. Anything contained in the Plan
to the contrary notwithstanding, all rights of a Participant under any Award
shall cease on and as of the date on which it has been determined by the
Committee that such Participant at any time (whether before or subsequent to
termination of such Participant's employment) acted in manner inimical to the
best interests of the Company or any Subsidiary or Affiliate thereof.
ARTICLE 16. WITHHOLDING
16.1. TAX WITHHOLDING. The Company shall have the power and the
right to deduct or withhold, or require a Participant to remit to the Company,
an amount sufficient to satisfy federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of this Plan.
16.2. SHARE WITHHOLDING. With respect to withholding required
upon the exercise of Options or SARs, upon the lapse of restrictions on
Restricted Stock, or upon any other taxable event arising as a result of Awards
granted hereunder, Participants may elect, subject to the approval of the
Committee, to satisfy the withholding requirement, in whole or in part, by
having the Company withhold Shares having a Fair Market Value on the date the
tax is to be determined equal to the minimum statutory total tax which could be
imposed on the transaction. All such elections shall be irrevocable, made in
writing, and signed by the Participant, and shall be subject to any
restrictions or limitations that the Committee, in its sole discretion, deems
appropriate.
ARTICLE 17. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified and held harmless by the Company against and
from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or
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<PAGE> 18
she may be a party or in which he or she may be involved by reason of any
action taken or failure to act under the Plan and against and from any and all
amounts paid by him or her in settlement thereof, with the Company's approval,
or paid by him or her in satisfaction of any judgment in any such action, suit,
or proceeding against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf. The foregoing
right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
ARTICLE 18. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the
business and/or assets of the Company.
ARTICLE 19. LEGAL CONSTRUCTION
19.1. GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine, the
plural shall include the singular, and the singular shall include the plural.
19.2. SEVERABILITY. In the event any provision of the Plan shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
19.3. REQUIREMENTS OF LAW. The granting of Awards and the
issuance of Shares under the Plan shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
19.4. SECURITIES LAW COMPLIANCE. With respect to Insiders,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of the Plan or action by the Committee fails to so comply,
it shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
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<PAGE> 19
19.5. GOVERNING LAW. To the extent not preempted by federal law,
the Plan, and all agreements hereunder, shall be construed in accordance with
and governed by the laws of the State of Illinois.
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<PAGE> 1
EXHIBIT 4.5
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN
STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER
OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
STOCK PURCHASE WARRANT
To Purchase Shares of Common Stock of
DONLAR CORPORATION
For value received, Donlar Corporation, an Illinois corporation (the
"Company"), hereby grants to_____________________ (the "Holder"), and its
assigns, the right to purchase, on or prior to __________, 2005, from the
Company up to _______ shares of the Company's Common Stock at $0.30 per share
(the "Purchase Price"). The aggregate purchase price under this Warrant is $___
(the "Aggregate Purchase Price"). The number of shares for which this Warrant
is initially exercisable shall be equal to the Aggregate Purchase Price divided
by the Purchase Price; subject to adjustment as provided below.
This Warrant is issued pursuant to the Note and Warrant Purchase Agreement
dated __________, 1995 (as amended and in effect from time to time, the
"Purchase Agreement") and is subject to its terms and conditions.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company
referred to in paragraph 2(a) below, by the registered holder hereof (the
"Holder") in person or by duly authorized attorney, upon surrender of this
Warrant and the Assignment Form attached hereto properly endorsed.
2. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are
exercisable by the Holder, in whole or in part, at any time before the close of
business on ____, 2005 by the surrender of this Warrant and the Notice of
Exercise attached hereto duly executed at the Bedford Park office of the
Company (or such other office or agency of the Company as it may designate in
writing to the Holder at the address of the Holder appearing on the
books of the Company), and upon payment of the Purchase Price of the shares
thereby purchased (by cash, check, or cancellation of indebtedness of the
Company to the Holder, if any, at the time of exercise in an amount equal to
the purchase price of the shares thereby purchased); whereupon
<PAGE> 2
the Holder shall be entitled to receive a certificate for the number of shares
of Common Stock so purchased. The Company agrees that upon due exercise of
this Warrant by the Holder, the shares so purchased shall be and be deemed to
be issued to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant is exercised.
(b) In lieu of the cash payment set forth in paragraph 2(a)
above, the Holder shall have the right ("Conversion Right") to convert this
Warrant in its entirety (without payment of any kind) into that number of
shares of Common Stock equal to the quotient obtained by dividing the Net Value
(as defined below) of the Shares by the Fair Market Value (as defined below) of
one share of Common Stock. As used herein, (A) the Net Value of the Shares
means the aggregate Fair Market Value of the shares of Common Stock subject to
this Warrant minus the Aggregate Purchase Price and (B) the Fair Market Value
of one share of Common Stock means:
(i) if the exercise is in connection with a
registered public offering of the Company's shares, the Fair Market Value of
one share of Common Stock means the initial "Price to Public" specified in the
final prospectus with respect to the offering;
(ii) if the exercise is in connection with a Merger
Transaction (as defined in paragraph 9(a) below), the Fair Market Value of one
share of Common Stock means the value received by the holders of the Company's
Common Stock pursuant to such Merger Transaction; and
(iii) in all other cases, the Fair Market Value of one
share of Common Stock shall be determined in good faith by the Company's Board
of Directors.
(c) Certificates for shares purchased hereunder shall be
delivered to the Holder within a reasonable period of time after the date on
which this Warrant is exercised.
(d) The Company covenants that all shares of Common Stock
which may be issued upon the exercise of this Warrant will be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
3. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon the exercise
of this Warrant, an amount equal to such fraction multiplied by the current
Purchase Price at which each share may be purchased hereunder shall be paid in
cash to the Holder.
4. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued
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<PAGE> 3
in the name of the Holder or in such name or names as may be directed by the
Holder; provided however that in the event certificates for shares of Common
Stock are to be issued in a name other than the name of the Holder, this
Warrant when surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the Holder; provided further that upon
any transfer involved in the issuance or delivery of any certificates for
shares of Common Stock, the Company may require reimbursement for any transfer
tax.
5. No Rights as Shareholders. This Warrant does not entitle
the Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof.
6. Exchange and Registry of Warrant. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the above-mentioned
office or agency of the Company, for a new Warrant of like tenor and dated as
such exchange. The Company shall maintain at such office or agency a registry
showing the name and address of the Holder. This Warrant may be surrendered for
exchange, transfer or exercise, in accordance with its terms, at such office or
agency of the Company, and the Company shall be entitled to rely in all
respects, prior to written notice to the contrary, upon such registry.
7. Loss, Theft, Destruction or Mutilation of Warrant. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of such Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.
8. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday or a Sunday or shall be a legal
holiday, then such action may be taken or such right may be exercised on the
next succeeding day not a legal holiday.
9. Adjustment and Termination.
(a) Early Termination on Merger or Public Offering. If at
any time the Company proposes to (i) merge with or into any other corporation,
effect a reorganization, or sell or convey all or substantially all of its
assets to any other entity in a transaction in which the shareholders of the
Company immediately before the transaction own immediately after the
transaction less than a majority of the outstanding voting securities of the
surviving entity (or parent) (a "Merger Transaction"), or (ii) effect a firm
commitment underwritten public offering of its Common Stock at a per share
price (prior to underwriter commissions and discounts) of not less than Five
Dollars ($5.00) (appropriately adjusted for any combination, consolidation or
stock dividend, stock split or other recapitalization) and an aggregate
offering price to the public of not less than Seven Million Five Hundred
Thousand ($7,500,000), then the Company shall give the Holder of this Warrant
ten (10) days notice of the proposed effective date of the
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<PAGE> 4
transaction and, if the Warrant had not been exercised by the effective date
of the transaction, it shall terminate.
(b) Reclassification, etc. If the Company at any time shall,
by subdivision, combination or reclassification of securities or otherwise,
change any of the securities to which purchase rights under this Warrant exist
into the same or a different number of securities of any class, or classes,
the shares of Common Stock or other securities for which this Warrant is
exercisable shall thereafter be convertible into the kind and number of shares
of stock or other securities or property of the Company or otherwise to which
the Holder would have been entitled if immediately prior to such change the
Holder had acquired the shares of Common Stock or other securities for which
this Warrant is exercisable. If shares of the Company's Common Stock or other
securities purchasable hereunder are subdivided or combined into a greater or
smaller number of shares, the Purchase Price under this Warrant shall be
proportionately reduced in case of subdivision of shares or proportionately
increased in the case of combination of shares. No adjustment on account of
cash dividends or interest on the Company's Common Stock or other securities
purchasable hereunder will be made to the Purchase Price under this Warrant.
(c) Notice of Adjustment. Upon any adjustment of the
securities issuable upon exercise of this Warrant, the Purchase Price for the
shares, and/or any increase or decrease in the number of shares purchasable
upon the exercise of this Warrant, the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the Holder at the
address of the Holder as shown on the books of the Company.
(d) Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock or other securities purchasable hereunder a sufficient
number of shares to provide for the issuance of Common Stock or other
securities upon the exercise of any purchase rights under this Warrant.
10. Miscellaneous.
(a) Issue Date. The provisions of this Warrant shall be
construed and shall be given effect in all respects as if it had been issued
and delivered by the Company of the date hereof. This Warrant shall be binding
upon any successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of the State of Illinois and for all purposes shall be
construed in accordance with and governed by the laws of said state.
(b) Restrictions. The Holder, by acceptance hereof, makes the
representations of an Investor under Section 3 of the Purchase Agreement and
shall confirm such representations upon any exercise of this Warrant. The
Holder acknowledges that all shares purchased by him pursuant to this Warrant
shall be subject to the terms and conditions of the amended and Restated
Shareholders Agreement dated May 23, 1993 as amended from time to time and
including any successor agreement (the "Shareholders Agreement"), which
provides for certain restrictions on the transfer of Company shares. The Holder
acknowledges that the securities
4
<PAGE> 5
acquired upon the exercise of this Warrant may have restrictions upon their
resale imposed by state and federal securities laws in addition to those
imposed by the Shareholders Agreement.
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of the same is sought.
(d) Notices. All notices, reports and other communications
required or permitted hereunder shall be in writing and may be delivered in
person, by telecopy with written confirmation, overnight delivery service or
U.S. mail, in which event it may be mailed by first-class, certified or
registered, postage prepaid, addressed to the Holder at its address as shown on
the books of the Company or to the Company at 6502 South Archer Avenue, Bedford
Park, Illinois 60501, Attention: Chief Executive Officer.
Each such notice, report or other communication shall for all purposes
under this Warrant be treated as effective or having been given when delivered
if delivered personally or, if sent by mail, at the earlier of its receipt or
five days after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid, or, if sent by telecopier with written confirmation, at the earlier
of (i) 24 hours after confirmation of transmission by the sending telecopier
machine or (ii) delivery of written confirmation.
Dated: _____________, 1995
DONLAR CORPORATION
By: _______________________________
Larry P. Koskan, President
5
<PAGE> 6
ASSIGNMENT FORM
(To assign the foregoing Warrant,
execute this Form and supply the required information.
Do not use this Form to purchase shares).
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto:
______________________________________________________________________________
(Please Print)
whose address is _____________________________________________________________
(Please Print)
and whose Social Security or other Taxpayer Identification Number is:_________
the foregoing Warrant and all rights thereunder,
hereby constituting and appointing ___________________________________________
to transfer said Warrant on the books of the Company, with full power of
substitution in the premises.
Dated: _______________________, ____
Holder's Signature: _____________________
Holder's Name: __________________________
Holder's Address: _______________________
_______________________
Signature Guaranteed: _________________________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company or by a
member of the National Association of Securities Dealers, Inc. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
6
<PAGE> 7
NOTICE OF EXERCISE
To: Donlar Corporation
6502 South Archer Avenue
Bedford Park, Illinois 60501
(1) The undersigned hereby elects to purchase ____________________
shares of Common Stock (the "Shares") of Donlar Corporation pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing the
Shares in the name of the undersigned or in such other name as is specified
below:
_________________________________
(Print Name)
_________________________________
(Print Address)
_________________________________
(3) The undersigned confirms that the Shares are being acquired for
the account of the undersigned for investment only and not with a view to, or
for resale in connection with, the distribution thereof and that the undersigned
has no present intention of distributing or selling the Shares.
____________________________ ________________________________
(Date) (Signature)
________________________________
(Print Name)
7
<PAGE> 1
EXHIBIT 4.6
Warrant No. 1997A-__25
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN
STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER
OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE
IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
STOCK PURCHASE WARRANT
To Purchase Shares of Series A Convertible Preferred Stock of
DONLAR CORPORATION
For value received, Donlar Corporation, an Illinois corporation (the
"Company"), hereby grants to ________________________________________________
_____________________________________________________________________________
__________________________ (the "Holder"), and its assigns, the right to
purchase, on or prior to the tenth anniversary of the date hereof, from the
Company _______________________________ (________) shares (subject to
adjustment as provided below) of the Company's Series A Convertible Preferred
Stock (the "Preferred Stock") at Five Dollars ($5.00) per share (subject to
adjustment as provided below) (the "Purchase Price"). The aggregate purchase
price under this Warrant is ____________________________________________
($__________) (subject to adjustment as provided below) (the "Aggregate Warrant
Amount"). The number of shares for which this Warrant is exercisable shall be
equal to the Aggregate Warrant Amount divided by the Purchase Price.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company
referred to in paragraph 2(a) below, by the registered holder hereof in person
or by duly authorized attorney, upon surrender of this Warrant and the
Assignment Form attached hereto properly endorsed.
2. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are
exercisable by the Holder, in whole or in part, at any time before the close of
business on the tenth anniversary of the date hereof by the surrender of this
Warrant and the Notice of Exercise attached hereto duly executed at the Bedford
Park office of the Company (or such other office or agency of the Company as it
may designate in writing to the Holder at the address of the Holder
<PAGE> 2
appearing on the books of the Company), and upon payment of the Purchase Price
of the shares thereby purchased (by cash, check or cancellation of indebtedness
of the Company to the Holder, if any, at the time of exercise in an amount
equal to the purchase price of the shares thereby purchased); whereupon the
Holder shall be entitled to receive a certificate for the number of shares of
Preferred Stock so purchased. The Company agrees that upon due exercise of this
Warrant by the Holder, the shares so purchased shall be and be deemed to be
issued to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant is exercised.
(b) In lieu of the cash payment set forth in paragraph 2(a) above, the
Holder shall have the right ("Conversion Right") to convert this Warrant in its
entirety (without payment of any kind) into that number of shares of Preferred
Stock equal to the quotient obtained by dividing the Net Value of the Shares
(as defined below) by the Fair Market Value (as defined below) of one share of
Preferred Stock. As used herein, (A) the Net Value of the Shares means the
aggregate Fair Market Value (as defined below) of the shares of Preferred Stock
subject to this Warrant minus the Aggregate Warrant Amount and (B) the Fair
Market Value of one share of Preferred Stock means:
(i) if the exercise is in connection with a registered public
offering of the Company's shares, the Fair Market Value of one share of
Preferred Stock means the initial "Price to Public" for Common Stock specified
in the final prospectus with respect to the offering; provided that one share
of Preferred Stock converts into one share of Common Stock, and if adjustments
have been made to this conversion ratio, the Fair Market Value of one share of
Preferred Stock shall be proportionately adjusted.
(ii) if the exercise is in connection with a Merger
Transaction (as defined in paragraph 9(a) below), the Fair Market Value of one
share of Preferred Stock means the value received by the holders of the
Company's Common Stock pursuant to such Merger Transaction; provided that one
share of Preferred Stock converts into one share of Common Stock, and if
adjustments have been made to this conversion ratio, the Fair Market Value of
one share of Preferred Stock shall be proportionately adjusted; and
(iii) in all other cases, the Fair Market Value of one share
of Preferred Stock shall be determined in good faith by the Company's Board of
Directors.
(c) Certificates for shares purchased hereunder shall be delivered to
the Holder within a reasonable period of time after the date on which this
Warrant is exercised.
(d) The Company covenants that all shares of Preferred Stock that may
be issued upon the exercise of this Warrant will be
2
<PAGE> 3
duly authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon the exercise
of this Warrant, an amount equal to such fraction multiplied by the current
Purchase Price at which each share may be purchased hereunder shall be paid in
cash to the Holder.
4. Charges, Taxes and Expenses. Issuance of certificates for shares
of Preferred Stock upon the exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by the Holder;
provided however that in the event certificates for shares of Preferred Stock
are to be issued in a name other than the name of the Holder, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the Holder; provided further that upon any transfer
involved in the issuance or delivery of any certificates for shares of
Preferred Stock, the Company may require reimbursement for any transfer tax.
5. No Rights as Shareholders. This Warrant does not entitle the
Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof.
6. Exchange and Registry of Warrant. This Warrant is exchangeable,
upon the surrender hereof by the Holder at the above-mentioned office or agency
of the Company, for a new Warrant of like tenor and dated as of the date
hereof. The Company shall maintain at such office or agency a registry showing
the name and address of the Holder. This Warrant may be surrendered for
exchange, transfer or exercise, in accordance with its terms, at such office
or agency of the Company, and the Company shall be entitled to rely in all
respects, prior to written notice to the contrary, upon such registry. The
Company may require an opinion of counsel in form and substance satisfactory to
the Company to the effect that any proposed transfer is in compliance with the
Act and any applicable state securities laws.
7. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon
3
<PAGE> 4
surrender and cancellation of such Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor and dated as of the date hereof, in lieu
of this Warrant.
8. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
9. Adjustment and Termination.
(a) Early Termination on Merger or Public Offering. If at any time
the Company proposes to (i) merge with or into any other corporation, effect a
reorganization or sell or convey all or substantially all of its assets to any
other entity in a transaction in which the shareholders of the Company
immediately before the transaction own immediately after the transaction less
than a majority of the outstanding voting securities of the surviving entity
(or parent) (a "Merger Transaction"), or (ii) effect a firm commitment
underwritten public offering of its Common Stock at a per share price (prior to
underwriter commissions and discounts) of not less than Five Dollars ($5.00)
(approximately adjusted for any combination, consolidation or stock dividend,
stock split or other recapitalization) and an aggregate offering price to the
public of not less than Seven Million Five Hundred Thousand Dollars
($7,500,000), then the Company shall give the Holder of this Warrant ten (10)
days notice of the proposed effective date of the transaction and, if the
Warrant had not been exercised by the effective date of the transaction, it
shall terminate.
(b) Reclassification, etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities to which purchase rights under this Warrant exist into
the same or a different number of securities of any class, or classes, the
shares of Preferred Stock or other securities for which this Warrant is
exercisable shall thereafter be convertible into the kind and number of shares
of stock or other securities or property of the Company or otherwise to which
the Holder would have been entitled if immediately prior to such change the
Holder had acquired the shares of Preferred Stock or other securities for which
this Warrant is exercisable. If shares of the Preferred Stock or other
securities purchasable hereunder are subdivided or combined into a greater or
smaller number of shares, the Purchase Price under this Warrant shall be
proportionately reduced in case of subdivision of shares or proportionately
increased in the case of combination of shares. No adjustment on account of
cash dividends or interest on the Preferred Stock or other securities
purchasable hereunder will be made to the Purchase Price under this Warrant.
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<PAGE> 5
(c) Notice of Adjustment. Upon any adjustment of the securities
issuable upon exercise of this Warrant, the Purchase Price for the shares,
and/or any increase or decrease in the number of shares purchasable upon the
exercise of this Warrant, the Company shall give written notice thereof, by
first class mail, postage prepaid, addressed to the Holder at the address of the
Holder as shown on the books of the Company.
(d) Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Preferred Stock (and Common Stock into which the Preferred Stock is
convertible) or other securities purchasable hereunder a sufficient number of
shares to provide for the issuance of Preferred Stock or other securities upon
the exercise of any purchase rights under this Warrant.
10. Representations and Warranties of Holder. Holder represents and
warrants to the Company upon the acquisition of this Warrant, and upon exercise
of this Warrant, as follows:
(a) Investment Experience. Holder is either an accredited
investor within the meaning of Regulation D prescribed by the Securities and
Exchange commission pursuant to the Act, or (by virtue of Holder's experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company) Holder is capable of evaluating the merits and
risks of Holder's investment in the Company and has the capacity to protect
Holder's own interests.
(b) Investment Intent. Holder is acquiring this Warrant for
investment for Holder's own account and not with a view to, or for resale in
connection with, any distribution thereof. Holder understands that this Warrant,
and any Preferred Stock as may be issued upon exercise of this Warrant
(together, the "Securities"), have not been registered under the Act by reason
of a specific exemption from the registration provisions of the Act that depends
upon, among other things, the bona fide nature of the investment intent as
expressed herein.
(c) Speculative Investment. Holder understands that the
Securities are speculative and that investment in the Securities involves a high
degree of risk. Investor represents and warrants to the Company that he can bear
the economic risk of an investment in the Securities for an indefinite period
and that he is able to withstand a total loss of his investment.
(d) Rule 144. Holder acknowledges that the Securities must be
held indefinitely unless subsequently registered under the Act, or unless an
exemption from such registration is available. Holder is aware of the provisions
of Rules 144 and 144A promulgated under the Act that permit limited resale of
securities purchased in
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<PAGE> 6
a private placement subject to the satisfaction of certain conditions.
(e) Discussions with Management. Holder has had an opportunity to
discuss the Company's business, management and financial affairs with the
Company's management and to review the Company's facilities.
(f) Transfer Among Affiliates. Without in any way limiting the
representations set forth in this paragraph 9, Holder may transfer all or any
portion of the Securities to his partners or affiliated funds if the Company and
its counsel are satisfied that the transfer is exempt from the registration
requirements of federal and applicable state securities laws.
11. Miscellaneous.
(a) Issue Date. The provisions of this Warrant shall be construed and
shall be given effect in all respects as if it had been issued and delivered by
the Company on the date hereof. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of the State of Illinois and for all purposes shall be construed
in accordance with and governed by the laws of said state.
(b) Restrictions. The Holder acknowledges that all shares purchased
by him pursuant to this Warrant shall be subject to the terms and conditions of
the Second Amended and Restated Shareholders Agreement dated December 30, 1994
as amended from time to time and including any successor agreement (the
"Shareholders Agreement"), which provides for certain restrictions on the
transfer of Company shares. The Holder acknowledges that the securities
acquired upon the exercise of this Warrant may have restrictions upon their
resale imposed by state and federal securities laws in addition to those
imposed by the Shareholders Agreement.
(c) Modification and Waiver. This Warrant and any provisions hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
Holder agrees that this Warrant may be modified and amended, and any term or
provision can be waived, upon action taken in writing by a majority-in-interest
of the then outstanding shares subject to Warrants of this 1997A Series, and
Holder agrees to be bound by any such modification, amendment or waiver, upon
receipt of written notice of same.
(d) Notices. All notices, reports and other communications required
or permitted hereunder shall be in writing and may be delivered in person, by
telecopy with written confirmation, overnight delivery service or U.S. mail, in
which event it may be mailed by first-class, certified or registered,
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postage prepaid, addressed to the Holder at its address as shown on the books of
the Company or to the Company at 6502 South Archer Avenue, Bedford Park,
Illinois 60501, Attention: Chief Executive Officer.
Each such notice, report or other communication shall for all purposes
under this Warrant be treated as effective or having been given when delivered
if delivered personally or, if sent by mail, at the earlier of its receipt or
five days after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
aforesaid, or, if sent by telecopier with written confirmation, at the earlier
of (i) 24 hours after confirmation of transmission by the sending telecopier
machine or (ii) delivery of written confirmation.
[Signature Page Follows]
7
<PAGE> 8
Dated: __________________________
DONLAR CORPORATION
By: ______________________________
Its: President
8
<PAGE> 9
ASSIGNMENT FORM
(To assign the foregoing Warrant,
execute this Form and supply the required information.
Do not use this Form to purchase shares.)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto:
- ------------------------------------------------------------------------------
(Please Print)
whose address is -------------------------------------------------------------
(Please Print)
and whose Social Security or other Taxpayer Identification Number is:
- ------------------------------------------------------------------------------
the foregoing Warrant and all rights thereunder, hereby constituting and
appointing ___________________________________________________________________
to transfer said Warrant on the books of the Company, with full power of
substitution in the premises.
Dated:________________________________________________
Holder's Signature: __________________________________
Holder's Name: _______________________________________
Holder's Address: ____________________________________
____________________________________
Signature Guaranteed: ________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company or by a
member of the National Association of Securities Dealers, Inc. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
9
<PAGE> 10
NOTICE OF EXERCISE
To: Donlar Corporation
6502 South Archer Avenue
Bedford Park, Illinois 60501
(1) The undersigned hereby elects to purchase __________ shares of Series
A Convertible Preferred Stock (the "Shares") of Donlar Corporation pursuant to
the terms of the attached Warrant, and tenders herewith payment of the purchase
price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing the Shares
in the name of the undersigned or in such other name as is specified below:
___________________________________________________
(Print Name)
___________________________________________________
(Print Address)
___________________________________________________
(3) The undersigned confirms that the Shares are being acquired for the
account of the undersigned for investment only and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned
has no present intention of distributing or selling the Shares.
___________________________________________________
(Date)
___________________________________________________
(Signature)
___________________________________________________
(Print Name)
10
<PAGE> 1
EXHIBIT 4.7
Warrant No. 19971I-____
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN
STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER
OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
STOCK PURCHASE WARRANT
To Purchase Shares of Series A Convertible Preferred Stock of
DONLAR CORPORATION
For value received, Donlar Corporation, an Illinois corporation (the
Company,) hereby grants to ____________________________________________________
(the "Holder"), and its assigns, the right to purchase, on or prior to the
tenth anniversary of the date hereof , from the Company________________________
(______)shares (subject to adjustment as provided below) of the Company's
Series A Convertible Preferred Stock (the "Preferred Stock") at Six Dollars and
50/100 ($6.50) per share (subject to adjustment as provided below) (the
"Purchase Price"). The aggregate purchase price under this Warrant is _______
_________________________________________________and 00/100 Dollars ($_________
(subject to adjustment as provided below) (the "Aggregate Warrant Amount").
The number of shares for which this Warrant is exercisable shall be equal to
the Aggregate Warrant Amount divided by the Purchase Price,
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company
referred to in paragraph 2(a) below, by the registered holder hereof in person
or by duly authorized attorney, upon surrender of this warrant and the
Assignment Form attached hereto properly endorsed.
2. Exercise-of-Warrant.
(a) The purchase rights represented by this Warrant are
exercisable by the Holder, in whole or in part, at any time before the close of
business on the tenth anniversary of the date hereof by the surrender of this
Warrant and the Notice of Exercise attached hereto duly executed at the Bedford
Park office of the Company (or such other office or agency of the Company as it
may designate in writing to the Holder at the address of the Holder
<PAGE> 2
appearing on the books of the Company), and upon payment of the Purchase Price
of the shares thereby purchased (by cash, check or cancellation of indebtedness
of the Company to the Holder, if any, at the time of exercise in an amount
equal to the purchase price of the shares thereby purchased); whereupon the
Holder shall be entitled to receive a certificate for the number of shares of
Preferred Stock so purchased. The Company agrees that upon due exercise of
this Warrant by the Holder, the shares so purchased shall be and be deemed to
be issued to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant is exercised,
(b) In lieu of the cash payment set forth in paragraph 2
(a) above, the Holder shall have the right ("Conversion Right") to convert
this Warrant in its entirety (without payment of any kind) into that number of
shares of Preferred Stock equal to the quotient obtained by dividing the Net
Value of the Shares (as defined below) by the Fair Market Value (as defined
below) of one share of Preferred Stock. As used herein, (A) the Net value of
the Shares means the aggregate Fair Market Value (as defined below) of the
shares of Preferred Stock subject to this Warrant minus the Aggregate Warrant
Amount and (B) the Fair Market Value of one share of Preferred Stock means:
(i) if the exercise is in connection with a
registered public offering of the Company's shares, the Fair Market Value of
one share of Preferred Stock means the initial "Price to Public" for Common
Stock specified in the final prospectus with respect to the offering;
provided that one share of Preferred Stock converts into one share of Common
Stock, and if adjustments have been made to this conversion ratio, the Fair
Market Value of one share of Preferred Stock shall be proportionately adjusted.
(ii) if the exercise is in connection with a
merger Transaction (as defined in paragraph 9(a) below), the Fair Market Value
of one share of Preferred Stock means the value received by the holders of the
Company's Common Stock pursuant to such Merger Transaction; provided that one
share of Preferred Stock converts into one share of Common Stock, and if
adjustments have been made to this conversion ratio, the Fair Market Value of
one share of Preferred Stock shall be proportionately adjusted; and
(iii) in all other cases, the Fair Market Value of one
share of Preferred Stock shall be determined in good faith by the Company's
Board of Directors,
(c) Certificates for shares purchased hereunder shall be
delivered to the Holder within a reasonable period of time after the date on
which this Warrant is exercised.
(d) The Company covenants that all shares of Preferred
Stock that may be issued upon the exercise of this Warrant will be
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<PAGE> 3
duly authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon the exercise
of this Warrant, an amount equal to such fraction multiplied by the current
Purchase Price at which each share may be purchased hereunder shall be paid in
cash to the Holder.
4. Charges, Taxes and Expenses. Issuance of certificates for
shares of Preferred Stock upon the exercise of this Warrant shall be made
without charge to the Holder for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the Holder or in such name or names as may be directed by the
Holder; provided however that in the event certificates for shares of Preferred
Stock are to be issued in a name other than the name of the Holder, this
Warrant when surrendered for exercise shall be accompanied by the Assignment
Form attached hereto duly executed by the Holder; provided further that upon
any transfer involved in the issuance or delivery of any certificates for
shares of Preferred Stock, the Company may require reimbursement for any
transfer tax.
5 . No Rights as Shareholders, This Warrant does not entitle the
Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof.
6. Exchange and Registry of Warrant. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the above-mentioned
office or agency of the Company, for a new Warrant of like tenor and dated as
of the date hereof. The Company shall maintain at such office or agency a
registry showing the name and address of the Holder. This Warrant may be
surrendered for exchange, transfer or exercise, in accordance with its terms,
at such office or agency of the Company, and the Company shall be entitled to
rely in all respects, prior to written notice to the contrary, upon such
registry. The Company may require an opinion of counsel in form and substance
satisfactory to the Company to the effect that any proposed transfer is in
compliance with the Act and any applicable state securities laws.
7. Loss, Theft, Destruction or Mutilation of Warrant. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it,, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon
3
<PAGE> 4
surrender and cancellation of such Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor and dated as of the date hereof, in
lieu of this Warrant.
8. Saturdays, Sunday, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
9. Adjustment and Termination.
(a) Early Termination on Merger or Public Offering. If at
any time the Company proposes to (i) merge with or into any other corporation,
effect a reorganization or sell or convey all or substantially all of its
assets to any other entity in a transaction in which the shareholders of the
Company immediately before the transaction own immediately after the
transaction less than a majority of the outstanding voting securities of the
surviving entity (or parent) (a "Merger Transaction"), or (ii) effect a firm
commitment underwritten public offering of its Common Stock at a per
share price (prior to underwriter commissions and discounts) of not less than
Five Dollars ($5.00) (appropriately adjusted for any combination,
consolidation or stock dividend, stock split or other recapitalization) and an
aggregate offering price to the public of not less than Seven Million Five
Hundred Thousand Dollars ($7,500,000), then the Company shall give the
Holder of this Warrant ten (10) days notice of the proposed effective date of
the transaction and, if the Warrant had not been exercised by the effective
date of the transaction, it shall terminate.
(b) Reclassification, etc. If the Company at any time
shall, by subdivision, combination or reclassification of securities or
otherwise, change any of the securities to which purchase rights under this
Warrant exist into the same or a different number of securities of any class,
or classes, the shares of Preferred Stock or other securities for which this
Warrant is exercisable shall thereafter be convertible into the kind and number
of shares of stock or other securities or property of the Company or otherwise
to which the Holder would have been entitled if immediately prior to such
change the Holder had acquired the shares of Preferred Stock or other
securities for which this Warrant is exercisable. If shares of the Preferred
Stock or other securities purchasable hereunder are subdivided or combined into
a greater or smaller number of shares, the Purchase Price under this Warrant
shall be proportionately reduced in case of subdivision of shares or
proportionately increased in the case of combination of shares. No adjustment
on account of cash dividends or interest on the Preferred Stock or other
securities purchasable hereunder will be made to the Purchase Price under this
Warrant.
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<PAGE> 5
(c) Notice of Adjustment. Upon any adjustment of the
securities issuable upon exercise of this warrant, the Purchase Price for the
shares, and/or any increase or decrease in the number of shares purchasable
upon the exercise of this Warrant, the company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the Holder at the
address of the Holder as shown on the books of the Company.
(d) Authorized Shares. The Company covenants that during
the period the Warrant is outstanding, it will reserve from its authorized and
unissued Preferred Stock (and Common Stock into which the Preferred Stock is
convertible) or other securities purchasable hereunder a sufficient number of
shares to provide for the issuance of Preferred Stock or other securities upon
the exercise of any purchase rights under this Warrant.
10. Representations and Warranties of Holder. Holder represents
and warrants to the company upon the acquisition of this Warrant, and upon
exercise of this Warrant, as follows:
(a) Investment Experience. Holder is either an
accredited investor within the meaning of Regulation D prescribed by the
Securities and Exchange Commission pursuant to the Act, or (by virtue of
Holder's experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company) Holder is
capable of evaluating the merits and risks of Holder's investment in the
Company and has the capacity to protect Holder's own interests.
(b) Investment Intent. Holder is acquiring this Warrant
for investment for Holder's own account and not with a view to, or for resale
in connection with, any distribution thereof. Holder understands that this
Warrant, and any Preferred Stock as may be issued upon exercise of this Warrant
(together, the "Securities"), have not been registered under the Act by
reason of a specific exemption from the registration provisions of the Act
that depends upon, among other things, the bona fide nature of the investment
intent as expressed herein.
(c) Speculative Investment. Holder understands that
the Securities are speculative and that investment in the Securities involves a
high degree of risk. Investor represents and warrants to the Company that he
can bear the economic risk of an investment in the Securities for an indefinite
period and that he is able to withstand a total lose of his investment.
(d) Rule 144. Holder acknowledges that the Securities
must be held indefinitely unless subsequently registered under the Act, or
unless an exemption from such registration is available. Holder is aware of
the provisions of Rules 144 and 144A promulgated under the Act that permit
limited resale of securities purchased in
5
<PAGE> 6
a private placement subject to the satisfaction of certain conditions.
(e) Discussions with Management. Holder has had an
opportunity to discuss the Company's business, management and financial affairs
with the Company's management and to review the Company's facilities.
(f) Transfer Among Affiliates. Without in any way
limiting the representations set forth in this paragraph 9, Holder may transfer
all or any portion of the Securities to his partners or affiliated funds if the
Company and its counsel are satisfied that the transfer is exempt from the
registration requirements of federal and applicable state securities laws.
11. Miscellaneous.
(a) Issue Date. The provisions of this Warrant shall be
construed and shall be given effect in all respects as if it had been issued
and delivered by the Company on the date hereof. This Warrant shall be binding
upon any successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of the State of Illinois and for all purposes shall be
construed in accordance with and governed by the laws of said state.
(b) Restrictions, The Holder acknowledges that all shares
purchased by him pursuant to this Warrant shall be subject to the terms and
conditions of the Second Amended and Restated Shareholders Agreement dated
December 30, 1994 as amended from time to time and including any successor
agreement (the "Shareholders Agreement"), which provides for certain
restrictions on the transfer of Company shares. The Holder acknowledges that
the securities acquired upon the exercise of this Warrant may have restrictions
upon their resale imposed by state and federal securities laws in addition to
those imposed by the Shareholders Agreement.
(c) Modification and Waiver. This Warrant and any
provisions hereof may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which enforcement of the same
is sought. Holder agrees that this Warrant may be modified and amended, and
any term or provision can be waived, upon action taken in writing by a
majority-in-interest of the then outstanding shares subject to Warrants of this
1997I Series, and Holder agrees to be bound by any such modification, amendment
or waiver, upon receipt of written notice of same.
(d) Notices. All notices, reports and other
communications required or permitted hereunder shall be in writing and may be
delivered in person, by telecopy with written confirmation, overnight delivery
service or U.S. mail, in which event it may be mailed by first-class,
certified or registered,
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<PAGE> 7
postage prepaid, addressed to the Holder at its address as shown on the books
of the Company or to the Company at 6502 South Archer Avenue, Bedford Park,
Illinois 60501, Attention: Chief Executive Officer.
Each such notice, report or other communication shall for all
purposes under this Warrant be treated as effective or having been given when
delivered if delivered personally or, if sent by mail, at the earlier of its
receipt or five days after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid, or, if sent by telecopier with written confirmation, at
the earlier of (i) 24 hours after confirmation of transmission by the sending
telecopier machine or (ii) delivery of written confirmation.
[Signature Page Follows]
7
<PAGE> 8
Dated: February 24, 1997
DONLAR CORPORATION
By:________________________________
Its: President
8
<PAGE> 9
ASSIGNMENT FORM
(To assign the foregoing Warrant,
execute this Form and supply the required information.
Do not use this Form to purchase shares.)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto:
________________________________________________________________________________
(Please Print)
whose address is________________________________________________________________
(Please Print)
and whose Social Security or other Taxpayer Identification Number
is:_____________________________________________________________________________
the foregoing Warrant and all rights thereunder, hereby constituting and
appointing______________________________________________________________________
to transfer said Warrant on the books of the Company, with full power of
substitution in the premises.
Dated:_______________________________________________
Holder's Signature:__________________________________
Holder's Name:_______________________________________
Holder's Address:____________________________________
____________________________________
Signature Guaranteed:________________________________
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company or by a
member of the National Association of Securities Dealers, Inc. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
9
<PAGE> 10
NOTICE OF EXERCISE
To: Donlar Corporation
6502 South Archer Avenue
Bedford Park, Illinois 60501
(1) The undersigned hereby elects to purchase ________________________
shares of Series A Convertible Preferred Stock (the "Shares") of Donlar
Corporation pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price in full, together with all applicable
transfer taxes, if any.
(2) Please issue a certificate or certificates representing the
Shares in the name of the undersigned or in such other name as is specified
below:
_____________________________________________________________
(Print Name)
_____________________________________________________________
(Print Address)
_____________________________________________________________
(3) The undersigned confirms that the Shares are being acquired
for the account of the undersigned for investment only and not with a view to,
or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or selling the Shares.
_____________________________________________________________
(Date)
_____________________________________________________________
(Signature)
_____________________________________________________________
(Print Name)
10
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement is made this 15th day of August 1995, by and
between DONLAR CORPORATION, an Illinois corporation (the "Company"), having a
principal place of business at Moffett Campus, 6502 South Archer Avenue,
Bedford Park, Illinois, and J. LARRY SANDERS (or the "Employee"). In
consideration of the mutual covenants and agreements set forth herein, the
parties agree as follows:
SECTION 1. EMPLOYMENT DURATION
1.01 The Company agrees to employ the Employee as Vice-President and
General Manager of Amilar International, a division of Donlar Corporation,
subject to the terms hereof. The Employee agrees to be so employed for a
period beginning on the 15th day of August 1995 and, subject to the terms
hereof, terminating on August 15, 2000.
SECTION 2. DUTIES
2.01 The duties of the Employee shall be those of a vice-president and
general manager level involved in all tasks related to the management of Amilar
International. Specific duties include the formulation and implementation of
the strategic plan, achievement of sales goals and development of Amilar's
pro-active infrastructure and such other duties as determined by the Chief
Executive Officer and the Board of Directors.
2.02 The Employee shall devote his entire productive time, ability and
attention to the business of the Company during the term of this Agreement.
The Employee shall not directly or indirectly render any services of a
business, commercial or professional nature to any other person or
organization, whether for compensation or otherwise, without the prior written
consent of the Board of Directors or CEO, other than normal activities in the
community. Notwithstanding the above, the Employee may be a passive investor
in businesses which do not constitute Conflicting Interests (as defined in
Section 10.02) to the Company, provided that the Employee engages in these
investment activities on his own personal time. As of the date hereof, the
Employee has disclosed to the Company that he is a passive investor in business
enterprises involving a) a urea volitalization inhibitor, b) a foliar
fertization compound, and c) an off-flavor control for catfish ponds. Employee
hereby represents and warrants that he is not, nor will be during the term set
forth in Section 10, a shareholder, partner, director, officer, agent or
consultant of any entity constituting a Conflicting Interest to the Company.
SECTION 3. COMPENSATION
3.01 Base Salary. As compensation for his full-time employment during
this Agreement, the Employee shall be paid a
<PAGE> 2
minimum base salary of $160,000 per year, payable semi-monthly. Base salary
increases shall be reviewed annually and shall be based on performance at the
discretion of the Board of Directors. Each successive year shall commence on
the anniversary date of this Agreement.
3.02 Incentive Bonus-Cash. In addition to the base salary described in
Section 3.01, the Employee shall be eligible to receive annual incentive cash
bonuses. The cash incentive bonuses shall be calculated and be a function of
Amilar's level of performance in realizing certain management, development,
sales and earnings goals established by the Board of Directors from year to
year. All determination as to achievement of goals and calculation of amount
of bonus shall be made by the Board of Directors in its sole discretion.
3.03 Stock Options
(a) Basic Grant. The Company hereby grants to you, effective on the
execution of this Agreement, options (the "Options") to purchase a total of
50,000 shares of Common Stock (the "Option Shares"), at the purchase price
determined as provided herein, pursuant to the terms and conditions of that
certain Stock Option Agreement attached hereto as Exhibit A, and in all
respects subject to the terms, definitions and provisions of the Company's 1994
Stock Option Plan (the "Plan"). Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings herein.
(b) Form of Options. The Options are intended to provide for the maximum
preferential treatment accorded "incentive stock options" under Section 422A of
the Internal Revenue Code of 1986, as amended (the "Code") and otherwise
conforming to the provisions herein set forth. To the extent that the
aggregate fair market value of Option Shares with respect to which Options
designated as incentive stock options are exercisable for the first time during
any calendar year (under all plans of the Company) exceeds $100,000 (determined
in accordance with Section 422A(d) of the Code), such Options shall be treated
as nonstatutory stock options.
(c) Price. The exercise price per share for the Option Shares shall be
$0.30, being the fair market value of the shares as determined by the Board of
Directors on the date hereof. The price shall be payable, in cash, with a
note, or in shares, against delivery to you of certificates evidencing the
shares purchased, subject to such other reasonable procedures, including
procedures relating to compliance with state and federal securities laws.
(d) Vesting of Options. You shall have the right to exercise the Options
to purchase the Option Shares according to the following schedule:
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<PAGE> 3
YEARS AFTER GRANTING DATE PERCENTAGE EXERCISABLE
------------------------- ----------------------
1 20%
2 20%
3 20%
4 20%
5 20%
As an incentive to the Employee, if total sales of Amilar International are
above $10 million between August 15, 1997 and August 15, 1998, then at the end
of year 3, all of the remaining Options shall be exercisable.
(e) Expiration of Options. Each vested installment of the Options shall
expire, if not exercised prior to the expiration of 60 months from the date on
which such installment shall have first vested pursuant to the preceding
paragraph.
(f) Private Offering. Neither the granting of the Options hereunder, nor
the offering or sale of shares to you pursuant to this Agreement or such
Options, has been registered under the Securities Act of 1933, as amended or
qualified or registered under the securities laws of any state. Accordingly,
such shares are subject to severe restrictions on transfer, including without
limitation, a legend substantially to the following effect:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
OFFERED, SOLD OR DELIVERED IN THE ABSENCE OF
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM."
SECTION 4. INSURANCE BENEFITS
4.01 The Employee, spouse and eligible dependents shall be included, to
the extent eligible, in the hospital, surgical medical and dental benefits plan
as well as long-term disability and life insurance plan, if any, adopted by the
Company from time to time.
SECTION 5. REIMBURSEMENT OF EMPLOYEE EXPENSES
5.01 The Employee is authorized to incur reasonable business expenses for
promoting the business of the Company, including expenditures for
entertainment, food and travel. The Company will reimburse the Employee from
time to time for all business expenses provided the Employee presents to the
Company documentation evidencing such expenditures in a form sufficient to
withstand scrutiny under the Code, including, but not limited to, (a) the
receipt for the expenditure; (b) the time, place and designation of the type of
entertainment, travel or other expense; and (c) the business reason for the
expenditure and the nature of the business benefit derived.
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<PAGE> 4
SECTION 6. TERMINATION; SEVERANCE BENEFITS
6.01 Termination. The following shall apply with respect to termination
of employment and severance benefits.
(a) Voluntary Resignation; Termination For Cause. If the Employee's
employment terminates by reason of the Employee's voluntary resignation, or if
the Employee is terminated for Cause, then the Employee shall not be entitled
to receive severance or other benefits except for those provided for by
applicable law. If the Employee voluntarily terminates Employee's employment,
all obligations, salary or otherwise, to the Employee shall cease as of the
date of voluntary resignation, except as provided by applicable law; but this
Agreement shall otherwise remain in full force and effect. Notwithstanding
anything to the contrary contained herein, the Employee's employment may be
terminated by the Company for cause, and all obligations, salary or otherwise,
of the Company to the Employee shall cease as of the date of termination,
except as provided by applicable law; but this Agreement shall otherwise remain
in full force and effect.
(b) Disability; Death. If the Company terminates the Employee's
employment as a result of the Employee's Disability, or such employment is
terminated due to the death of the Employee, all obligations, salary or
otherwise, to the Employee cease as of the date of death or Disability, but the
Employee shall be entitled to receive severance or benefits (if any) as may
then be established under the Company's then existing severance and benefit
plans and policies at the time of such termination. Notwithstanding anything
to the contrary contained herein, the Employee's employment may be terminated
due to Disability. Termination resulting from Disability may only be effected
after at least 30 days' written notice by the Company of its intention to
terminate the Employee's employment. In the event that the Employee resumes
the performance of substantially all of his duties hereunder before the
termination of his employment becomes effective, the notice of intent to
terminate due to Disability shall automatically be deemed to have been revoked.
6.02 Options. Upon a voluntary resignation or termination for cause, the
unexercised portion of any stock option held by the Employee under the Plan,
whether vested or not, shall automatically be cancelled and the Employee or the
Employee's representative, as the case may be, shall have no right to exercise
all or any portion of such stock option. Upon termination of Employment due to
death or Disability, the unexercised and unvested portion of any stock option
held by the Employee or the Employee's representative, as the case may be,
shall be governed by the Plan.
6.03 Definitions. The following terms referred to in this Section 6
shall have the following meanings:
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<PAGE> 5
(a) Cause. "Cause" shall mean (i) any act of personal dishonesty taken by
the Employee in connection with his responsibilities as an employee and
intended to result in substantial personal enrichment of the Employee, (ii) the
conviction of a felony, (ii) a willful act by the Employee which constitutes
gross misconduct and which is injurious to the Company, and (iv) continued
violations by the Employee of the Employee's obligations under Section 2 of
this Agreement which are demonstrably willful and deliberate on the Employee's
part after there has been delivered to the Employee a written demand for
performance from the Company which describes the basis for the Company's belief
that the Employee has not substantially performed his duties.
(b) Disability. "Disability" shall mean that the Employee has been unable
to perform his duties under this Agreement as the result of his incapacity due
to physical or mental illness, and such inability, at least 12 weeks after its
commencement, is determined to be total and permanent by a physician selected
by the Company or its insurers and acceptable to the Employee or the Employee's
legal representative (such agreement as to acceptability not to be unreasonably
withheld).
SECTION 7. SUCCESSORS
7.01 Company's Successors. Any successor to the Company (whether direct
or indirect and whether by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company 's business and/or
assets shall assume the obligations under this Agreement and agree expressly to
perform the obligations under this Agreement in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this Section
7.01 or which becomes bound by the terms of this Agreement by operation of law.
SECTION 8. NOTICE
8.01 General. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be personally delivered or mailed by
U.S. registered or certified mail, return receipt requested and postage
prepaid; and the actual date of receipt, as shown by the receipt therefor,
shall determine the time at which notice was given. In the case of the
Employee, mailed notices shall be addressed to him at the home address which he
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its Secretary.
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SECTION 9. PROPRIETARY INFORMATION
9.01 Proprietary Information Agreement. As a condition precedent to
Employee's employment with the Company pursuant to this Agreement, Employee
shall enter into the Proprietary Information Agreement attached hereto as
Exhibit C (the "Proprietary Information Agreement"). The Proprietary
Information Agreement shall be in addition to any similar agreement previously
executed by the Employee in connection with any prior work performed by the
Employee for the Company and shall supersede any such prior agreement as of the
date hereof.
SECTION 10. NON-COMPETITION
10.01 During his employment with the Company and for a period of two
years thereafter, the Employee shall not become employed by or act on behalf of
any other person, corporation or firm which is engaged in any business related
to the manufacturing and marketing of proteins to the agricultural market, or
any activity similar to or competitive with that of the Company, unless such
employment or activity has been approved in advance in writing by the Board of
Directors of the Company.
10.02 During his employment with the Company and for a period of two
years thereafter, the Employee shall not acquire or retain, either directly or
indirectly, any conflicting interest in or in connection with (x) any person,
corporation or firm with which the Company does business, or (y) any person,
corporation or firm which seeks to do business with the Company, or (z) any
person, corporation or firm with which the Company competes, unless prior
written authorization therefor is given by the Board of Directors of the
Company. For purposes of this paragraph "conflicting interest" shall mean:
(a) any financial interest in any such person, corporation or firm
referred to in (x), (y) or (z) above;
(b) any interest had, directly or indirectly, in any contract or other
business transaction to which the Company is a party, which may result in
monetary value to the Employee, or, to the extent known by the Employee, to any
member of his family; or
(c) performing working or rendering services for, or serving as director
or officer of or consultant to, permitting the Employee's name to be used in
any fashion that would tend to indicate a business connection with, any such
person, corporation or firm referred to in (x), (y) or (z) above, outside the
normal course of the Employee's employment with the Company.
The Employee shall notify the Company in writing within 3 days of his
acquisition of any conflicting interest.
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<PAGE> 7
SECTION 11. MISCELLANEOUS
11.01 Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision of the
same condition or provision at any other time.
11.02 Entire Agreement. This Agreement, the Stock Option Agreement, the
Proprietary Information Agreement and the Letter dated July 10, 1995 (attached
as Exhibit D hereto) represent the entire agreement of the parties and shall
supersede any and all previous contracts, arrangements or understandings
between the Company and Employee with respect to the subject matter hereof.
11.03 No Assignment of Benefits. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or
other creditor's process, and any action in violation of this Section 11.03
shall be void.
11.04 Employment Taxes. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
11.05 Assignment by Company. The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company.
11.06 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
11.07 Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.
11.08 Invalid or Unenforceable Provisions. The invalidity or
unenforceability of any particular provision or provisions of this Agreement
shall not affect the other provisions hereof and the Agreement shall be
construed in all respects as if such invalid or unenforceable provision or
provisions were omitted.
11.09 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois applicable to agreements
to be performed entirely within such State, without regard to the conflicts of
law principles of such State.
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<PAGE> 8
IN WITNESS WHEREOF, the parties have affixed their signatures the day and
year first above written.
J. LARRY SANDERS, Employee DONLAR CORPORATION, Company
J. LARRY SANDERS
- -------------------------- By: /s/
--------------------------
Its: President
-8-
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement is made this 1st day of July, 1996, by and
between DONLAR CORPORATION, an Illinois corporation (the "Company"), having a
principal place of business at Moffett Campus, 6502 South Archer Avenue,
Bedford Park, Illinois 60501, and BERNARDO N. RICO (RICO or the "Employee").
In consideration of the compensation agreed to and the mutual covenants and
agreements set forth herein, the parties agree as follows:
EMPLOYMENT; DURATION
1.01 The Company agrees to employ Rico as Executive Vice-President of the
Company, and Rico agrees to be so employed for a period of five (5) years
beginning on the 1st day of July, 1996, provided, however, that the Employee
shall have the option to renew this Agreement for an additional two (2) years,
if this Agreement has not earlier terminated, by giving notice of renewal not
more than ninety (90) days and not less than sixty (60) days prior to the
termination of the five (5) year employment period.
DUTIES
2.01 The duties of the Employee shall be those of an executive
vice-president and officer involved in all the tasks involved in managing the
business of the Company. Rico shall be given all executive powers and
authority that are reasonably required to enable him to efficiently perform his
duties. Rico shall also perform such reasonable duties as shall be determined
from time to time by the Chief Executive Officer and by the Company's Board of
Directors.
2.02 The Employee shall devote his entire productive time, ability and
attention to the business of the Company during the term of this Agreement.
The Employee shall not directly or indirectly render any services of a
business, commercial or professional nature to any other person or
organization, whether for compensation or otherwise, without the prior written
consent of the Company.
COMPENSATION
3.01 Base salary. As compensation for his full-time employment under this
Agreement, RICO shall be paid a base salary of ONE HUNDRED SEVENTY-FIVE
THOUSAND DOLLARS ($175,000.00) per year, payable semi-monthly. The
Compensation Committee of the Board of Directors of the Company shall review
Employee's performance periodically and in its sole discretion may award
increases in base salary from time to time.
3.02 Incentive Bonus-Cash. The Compensation Committee of the Company's
Board of Directors in its sole discretion from time to time may adopt cash
bonus programs and may grant cash bonuses to Employee in any amount such
Compensation Committee in its sole
<PAGE> 2
discretion deems appropriate in recognition of full or partial attainment of
goals established under such programs.
3.03 Incentive Bonus - Stock option. In addition to the base salary and
the discretionary cash incentive bonuses set forth above, RICO shall also be
eligible to receive as compensation for his continued employment options to
purchase common shares of the Company as an incentive bonus. Any stock option
bonus shall be calculated and be a function of the Employee's level of
performance in realizing certain business goals established by the Compensation
Committee of the Board of Directors from year to year. These annual stock
option incentive bonuses shall be earned by the degree of goal achievement
obtained by the Employee and the Company in the areas of Company business
specified by the Compensation Committee.
DISABILITY
4.01 The Company shall pay to the Employee full compensation during any
period or periods of disability not exceeding two (2) years in aggregate
duration.
INSURANCE BENEFITS
5.01 The Company agrees to include the Employee in the hospital, surgical
and medical benefit plan adopted by the Company from time to time. In
addition, the Company will provide the Employee with term life insurance
coverage in the face amount of $500,000.00 throughout the employment term.
REIMBURSEMENT OF EMPLOYEE EXPENSES
6.01 The Employee is authorized to incur reasonable business expenses for
promoting the business of the Company, including expenditures for
entertainment, food and travel. The Company will reimburse the Employee from
time to time for all business expenses provided the Employee presents to the
Company (a) receipts for the expenditure; (b) the time, place and designation
of the type of entertainment, travel or other expense; (c) the business reason
for the expenditure and the nature of the business benefit derived; and (d)
such other information or evidence as the Company may reasonably require.
PROPRIETARY RIGHTS
7.01 Disclosure. The Employee shall disclose promptly to the Board of
Directors of the Company any and all inventions, trade secrets, discoveries and
improvements, whether patentable or unpatentable, conceived or made by the
Employee during the period of employment and related to the present or future
business or activities of the Company, and hereby assigns and agrees to assign
all his interest therein to the Company. Whenever requested to do so by the
Company, the Employee shall execute any and all applications, assignments or
other instruments which the Company shall deem necessary to apply for and
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<PAGE> 3
obtain Letters Patent of the United States or any foreign country or to
otherwise protect the Company's interest in such inventions, discoveries or
improvements. It is understood that the provisions of paragraph 1 of this
Agreement do not apply to an invention for which no equipment, supplies,
facility, or trade secret information of the Company was used and which was
developed entirely on the Employee's own time, unless (a) the invention relates
to (i) the business of the Company, or (ii) the Company's actual or
demonstrably anticipated research and development, or (b) the invention results
from any work performed by the Employee for the Company.
7.02 Confidentiality. During his employment with the Company or at any
time thereafter, the Employee will neither disclose to others nor use for his
own benefit or for the benefit of others any confidential proprietary
information, including trade secrets, know-how or other secret data, of any
technical, commercial or other nature which pertains to any of the present or
future business of the Company or of any of its subsidiaries or affiliates, and
which is acquired by the Employee during the period of his employment with the
Company, except to the extent that such disclosure or use is necessary in the
ordinary course of the Employee's performance of his duties as an employee of
the Company.
7.03 Return of Materials. Upon termination of the Employee's employment
with the Company, the Employee shall deliver to the Company all drawings,
blueprints, manuals, letters, reports, notes, memoranda, notebooks, records,
and any other documents and reproductions thereof kept by the Employee or in
the possession of the Employee whether or not prepared by the Employee, which
have been used in or pertain to any activities of the Company, including but
not limited to the work done by the Employee during the course of his
employment, and which are concerned with confidential proprietary information,
including devices, machines, products, processes, methods, compositions,
formulas, customer lists, business techniques and methods, and purchasing and
sales information and operations of the Company.
7.04 Restrictions. If the Company has trade secrets or other confidential
data of any third party under an agreement including restrictions on
disclosure, which restrictions are known to the Employee, the Employee shall
not, without the written consent of such third party and the Company, at any
time infringe such restrictions.
7.05 Prior Skills and Knowledge. It is understood that the provisions of
paragraphs 7.01 through 7.04 of this Agreement do not, in any way, restrict the
Employee from using either the skills and knowledge which the Employee brought
with him to the Company, or the general knowledge publicly known in the
Company's industry or related industries, which the Employee acquires during
his employment with the Company.
NON-COMPETITION
8.01 During his employment with the Company and for a period of two (2)
years thereafter, the Employee shall not become employed by or act on behalf of
any other person,
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<PAGE> 4
corporation or firm which is engaged in any business or activity similar to or
competitive with that of the Company, unless such employment or activity has
been approved in advance in writing by the Chairman of the Board of the
Company.
8.02 During his employment with the Company and for a period of two (2)
years thereafter, the Employee shall not acquire or retain, either directly or
indirectly, any conflicting interest in or in connection with any person,
corporation or firm with which the Company does business, or any person,
corporation or firm which seeks to do business with the Company, or any person,
corporation or firm with which the Company competes, unless prior written
authorization therefor is given by the Chairman of the Board of the Company.
For purpose of this paragraph, "conflicting interest" shall mean:
(a) any financial interest in a person, corporation or firm;
(b) any interest had, directly or indirectly, in any contract or other
business transaction to which the Company is a party, which may result in
monetary value to the Employee or, to the extent known by the Employee, to
any member of his family; or
(c) performing work or rendering services for, or serving as a director
or officer of or consultant to, or permitting the Employee's name to be
used in any fashion that would tend to indicate a business connection
with, any person, corporation or firm, outside the normal course of the
Employee's employment with the Company.
The Employee shall notify the Company in writing within three (3) days of
his acquisition of any conflicting interest.
SEVERANCE BENEFITS
9.01 Termination Following A Change of Control. If the Employee's
employment terminates at any time within 12 months after a Change of Control,
then the Employee shall be entitled to receive severance benefits as follows:
(a) Voluntary Resignation; Termination For Cause. If the Employee's
employment terminates by reason of the Employee's voluntary resignation (and is
not an Involuntary Termination), or if the Employee is terminated for Cause,
then the Employee shall not be entitled to receive severance or other benefits
except for those (if any) as may then be established under the Company's then
existing severance and benefits plans and policies at the time of such
termination.
(b) Involuntary Termination. If the Employee's employment is
terminated as a result of Involuntary Termination other than for Cause, then
the Employee shall be entitled to receive severance pay in an amount equal to
the Employee's Base Compensation for the twenty-four-calendar month period
immediately preceding the Termination Date. Any
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<PAGE> 5
severance payments to which the Employee is entitled pursuant to this section
shall be paid in a lump sum within thirty (30) days of the Termination Date.
(c) Disability; Death. If the Company terminates the Employee's
employment as a result of the Employee's Disability, or Employee's employment
is terminated due to the death of the Employee, then such termination shall be
treated as if it were an voluntary resignation and severance and other
benefits, if any, shall be provided in accordance with paragraph (a) above.
9.02 Termination Apart from Change of Control. In the event the
Employee's employment is terminated for any reason either prior to the
occurrence of a Change of Control or after the 12-month period following a
Change of Control, then the Employee shall be entitled to receive severance and
any other benefits only as may then be established under the Company's existing
severance and benefit plans and policies at the time of such termination.
9.03 Options. Upon a Change of Control the unvested portion of any stock
option held by the Employee under the Plan shall automatically be accelerated
and the Employee or the Employee's representative, as the case may be, shall
have the right to exercise all or any portion of such stock option, in addition
to any portion of the option exercisable prior to the Change of Control.
9.04 Definitions. The following terms referred to in this Section 10
shall have the following meanings:
(a) Change of Control. "Change of Control" shall mean that the six
members of the Company's Board of Directors as of the date of this Agreement
cease for any reason to constitute a majority of the Company's Board of
Directors; provided, however, that if a Director dies or voluntarily resigns or
retires from the Board of Directors and a successor director is chosen by the
Board of Directors, the successor so chosen shall be deemed for purposes of
this Section 9.04(a) to have been a director on the date of this Agreement.
(b) Involuntary Termination. "Involuntary Termination" shall mean
(i) without the Employee's express written consent, the assignment to the
Employee of any duties or the reduction of the Employee's duties, either of
which results in a significant diminution in the Employee's position or
responsibilities with the Company in effect immediately prior to such
assignment, or the removal of the Employee from such position and
responsibilities; (ii) without the Employee's express written consent, a
substantial reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to the Employee
immediately prior to such reduction; (iii) a reduction by the Company in the
Base Compensation of the Employee as in effect immediately prior to such
reduction, other than a bonus reduction resulting from application of a bonus
formula or plan on a basis that is consistent with prior practice; (iv) a
material
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<PAGE> 6
reduction by the Company in the kind or level of employee benefits to which
the Employee is entitled immediately prior to such reduction with the result
that the Employee's overall benefits package is significantly reduced; (v) the
relocation of the Employee to a facility or a location more than 25 miles from
the Employee's then present location, without the Employee's express written
consent; (vi) any purported termination of the Employee by the Company which is
not effected for Disability or for Cause, or any purported termination for
which the grounds relied upon are not valid; (vii) the failure of the Company
to obtain the assumption of this Agreement by any successors contemplated in
Section 12.0 below; or (viii) any purported termination of the Employee's
employment by the Company which is not effected pursuant to a notice of
termination satisfying the requirements of Section 11.01 below, and for
purposes of this Agreement, no such purported termination shall be effective
unless it complies with Section 10.02 below.
(c) Cause. "Cause" shall mean (i) any act of personal dishonesty
taken by the Employee in connection with his responsibilities as an employee
and intended to result in substantial personal enrichment of the Employee;
(ii) the conviction of a felony; (iii) a willful act by the Employee which
constitutes gross misconduct and which is injurious to the Company; and (iv)
continued violations by the Employee of the Employee's obligations under
Section 2 of this Agreement which are demonstrably willful and deliberate on
the Employee's part after there has been delivered to the Employee a written
demand for performance from the Company which describes the basis for the
Company's belief that the Employee has not substantially performed his duties.
(d) Disability. "Disability" shall mean that the Employee has been
unable to perform the essential functions of his job under this Agreement
after reasonable accommodations as the result of his incapacity due to physical
or mental illness, and such inability, at least 26 weeks after its
commencement, is determined to be total and permanent by a physician selected
by the Company or its insurers and acceptable to the Employee or the Employee's
legal representative (such agreement as to acceptability not to be unreasonably
withheld). Termination resulting from Disability may only be effected after at
least 30 days' written notice by the Company of its intention to terminate the
Employee's employment. In the event that the Employee resumes the performance
of the essential functions of his job hereunder before the termination of his
employment becomes effective, the notice of intent to terminate shall
automatically be deemed to have been revoked.
(e) Termination Date. "Termination Date" shall mean (i) if this
Agreement is terminated by the Company for Disability, 30 days after
notice of termination is given to the Employee (provided that the Employee
shall not have returned to the performance of the Employee's duties on a
full-time basis during such 30-day period), (ii) if the Employee's employment
is terminated by the Company for any other reason, the date on which a notice
of termination is given, provided that if within 30 days after the Company
gives the Employee notice of termination, the Employee notifies the Company
that a dispute exists concerning the termination, the Termination Date shall be
the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by final
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<PAGE> 7
judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been perfected), or
(iii) if the Agreement is terminated by the Employee, the date on which the
Employee delivers the notice of termination to the Company.
NOTICES
10.01 All notices, offers and acceptances hereunder shall be in writing
and shall be deemed to be communicated when delivered in person or deposited in
the United States mail, postage prepaid, by certified or registered mail,
addressed to the party concerned at the address appearing in the stock records
of the Company or at such other or additional place as such party may designate
by notice given in accordance with the provisions hereof to the other party
hereto.
10.02 Notice of Termination. Any termination by the Company for
Disability or Cause, or by the Employee as a result of a voluntary resignation
or an Involuntary Termination shall be communicated by a notice of termination
to the other party hereto given in accordance with this Section 10. Such
notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provisions so indicated,
and shall specify the termination date (which shall be not more than 30 days
after the giving of such notice). The failure by the Employee to include in
the notice any fact or circumstance which contributes to a showing of
Involuntary Termination shall not waive any right of the Employee hereunder or
preclude the Employee from asserting such fact or circumstance in enforcing his
rights hereunder.
11.0 Assignment. Neither this Agreement nor any rights or obligations of
any party hereunder shall be assignable without the prior written consent of
the other party hereto, except that the Company may assign this Agreement upon
the transfer of substantially all its assets to an affiliated company.
12.0 Benefit. This Agreement shall be binding upon and inure to the
benefit of the parties, their heirs, personal representatives, successors and
assigns.
13.0 Invalid or Unenforceable Provisions. The invalidity or
unenforceability of any particular provision or provisions of this Agreement
shall not affect the other provisions hereof and this Agreement shall be
construed in all respects as if such invalid or unenforceable provision or
provisions were omitted.
14.0 Limitation on Payments. In the event any payments or benefits
payable to the Employee under this Agreement or otherwise are determined by the
Company to constitute "parachute payments" within the meaning of Section
280G(b)(2)(A) of the Code, then the Company shall reduce the total payments and
benefits payable under this Agreement until the Company determines that the
total of all "parachute payments" (as defined in Section 280G(b)(2)(A) of the
Code but without regard to clause (ii) thereof) payable to the Employee are no
more than 2.99 times the Employee's "base amount" (as defined in Section
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<PAGE> 8
280G(b)(3) of the Code). The determination as to whether a payment constitutes
a "parachute payment" and the computation of the 2.99 limitation shall be
purely within the discretion of the Company and shall be conclusive and binding
on the Company and the Employee; provided, however, that the Employee may
specify by written notice which payments or benefits under this Agreement shall
be reduced so as to meet the requirements of this Section 14.0.
15.0 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the state of Illinois.
IN WITNESS WHEREOF, the parties have affixed their signatures the day and
year first above written.
BERNARDO N. RICO DONLAR CORPORATION
BERNARDO N. RICO By: /s/
- ---------------------- ----------------------
Employee Employer
-8-
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement is made this 1st day of July, 1996, by and
between DONLAR CORPORATION, an Illinois corporation (the "Company"), having a
principal place of business at Moffett Campus, 6502 South Archer Avenue,
Bedford Park, Illinois 60501, and LARRY KOSKAN (KOSKAN or the "Employee"). In
consideration of the compensation agreed to and the mutual covenants and
agreements set forth herein, the parties agree as follows:
EMPLOYMENT; DURATION
1.01 The Company agrees to employ KOSKAN as President and Chief Executive
officer of the Company, and KOSKAN agrees to be so employed for a period of
five (5) years beginning on the 1st day of July, 1996, provided, however, that
the Employee shall have the option to renew this Agreement for an additional
two (2) years, if this Agreement has not earlier terminated, by giving notice
of renewal not more than ninety (90) days and not less than sixty (60) days
prior to the termination of the five (5) year employment period.
DUTIES
2.01 The duties of the Employee shall be those of a president and chief
executive officer of the Company. KOSKAN shall be given all executive powers
and authority that are reasonably required to enable him to efficiently perform
his duties. KOSKAN shall also perform such reasonable duties as shall be
determined from time to time by the Company's Board of Directors, so long as
those duties are not inconsistent with those of chief executive officer.
2.02 The Employee shall devote his entire productive time, ability and
attention to the business of the Company during the term of this Agreement.
The Employee shall not directly or indirectly render any services of a
business, commercial or professional nature to any other person or
organization, whether for compensation or otherwise, without the prior written
consent of the Company.
COMPENSATION
3.01 Base salary. As compensation for his full-time employment under this
Agreement, KOSKAN shall be paid a base salary of ONE HUNDRED EIGHTY-FIVE
THOUSAND DOLLARS ($185,000.00) per year, payable semi-monthly. The
Compensation Committee of the Board of Directors of the Company shall review
Employee's performance periodically and in its sole discretion may award
increases in base salary from time to time.
3.02 Incentive Bonus-Cash. The Compensation Committee of the Company's
Board of Directors in its sole discretion from time to time may adopt cash
bonus programs and may grant cash bonuses to Employee in any amount such
Compensation Committee in its sole
<PAGE> 2
discretion deems appropriate in recognition of full or partial attainment of
goals established under such programs.
3.03 Incentive Bonus - Stock option. In addition to the base salary and
the discretionary cash incentive bonuses set forth above, KOSKAN shall also be
eligible to receive as compensation for his continued employment options to
purchase shares of the Company as an incentive bonus. Any stock option bonus
shall be calculated and be a function of the Employee's level of performance in
realizing certain business goals established by the Compensation Committee of
the Board of Directors from year to year. These annual stock option incentive
bonuses shall be earned by the degree of goal achievement obtained by the
Employee and the Company in the areas of Company business specified by the
Compensation Committee.
DISABILITY
4.01 The Company shall pay to the Employee full compensation during any
period or periods of disability not exceeding two (2) years in aggregate
duration.
INSURANCE BENEFITS
5.01 The Company agrees to include the Employee in the hospital, surgical
and medical benefit plan adopted by the Company from time to time. In
addition, the Company will provide the Employee with term life insurance
coverage in the face amount of $500,000.00 throughout the employment term.
REIMBURSEMENT OF EMPLOYEE EXPENSES
6.01 The Employee is authorized to incur reasonable business expenses for
promoting the business of the Company, including expenditures for
entertainment, food and travel. The Company will reimburse the Employee from
time to time for all business expenses provided the Employee presents to the
Company (a) receipts for the expenditure; (b) the time, place and designation
of the type of entertainment, travel or other expense; (c) the business reason
for the expenditure and the nature of the business benefit derived; and (d)
such other information or evidence as the Company may reasonably require.
PROPRIETARY RIGHTS
7.01 Disclosure. The Employee shall disclose promptly to the Board of
Directors of the Company any and all inventions, trade secrets, discoveries and
improvements, whether patentable or unpatentable, conceived or made by the
Employee during the period of employment and related to the present or future
business or activities of the Company, and hereby assigns and agrees to assign
all his interest therein to the Company. Whenever requested to do so by the
Company, the Employee shall execute any and all applications, assignments or
other instruments which the Company shall deem necessary to apply for and
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<PAGE> 3
obtain Letters Patent of the United States or any foreign country or to
otherwise protect the Company's interest in such inventions, discoveries or
improvements. It is understood that the provisions of paragraph 7.01 of this
Agreement do not apply to an invention for which no equipment, supplies,
facility, or trade secret information of the Company was used and which was
developed entirely on the Employee's own time, unless (a) the invention relates
to (i) the business of the Company, or (ii) the Company's actual or
demonstrably anticipated research and development, or (b) the invention results
from any work performed by the Employee for the Company.
7.02 Confidentiality. During his employment with the Company or at any
time thereafter, the Employee will neither disclose to others nor use for his
own benefit or for the benefit of others any confidential proprietary
information, including trade secrets, know-how or other secret data, of any
technical, commercial or other nature which pertains to any of the present or
future business of the Company or of any of its subsidiaries or affiliates, and
which is acquired by the Employee during the period of his employment with the
Company, except to the extent that such disclosure or use is necessary in the
ordinary course of the Employee's performance of his duties as an employee of
the Company.
7.03 Return of Materials. Upon termination of the Employee's employment
with the Company, the Employee shall deliver to the Company all drawings,
blueprints, manuals, letters, reports, notes, memoranda, notebooks, records,
and any other documents and reproductions thereof kept by the Employee or in
the possession of the Employee whether or not prepared by the Employee, which
have been used in or pertain to any activities of the Company, including but
not limited to the work done by the Employee during the course of his
employment, and which are concerned with confidential proprietary information,
including devices, machines, products, processes, methods, compositions,
formulas, customer lists, business techniques and methods, and purchasing and
sales information and operations of the Company.
7.04 Restrictions. If the Company has trade secrets or other confidential
data of any third party under an agreement including restrictions on
disclosure, which restrictions are known to the Employee, the Employee shall
not, without the written consent of such third party and the Company, at any
time infringe such restrictions.
7.05 Prior Skills and Knowledge. It is understood that the provisions of
paragraphs 7.01 through 7.04 of this Agreement do not, in any way, restrict the
Employee from using either the skills and knowledge which the Employee brought
with him to the Company, or the general knowledge publicly known in the
Company's industry or related industries, which the Employee acquires during
his employment with the Company.
NON-COMPETITION
8.01 During his employment with the Company and for a period of two (2)
years thereafter, the Employee shall not become employed by or act on behalf of
any other person,
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<PAGE> 4
corporation or firm which is engaged in any business or activity similar to or
competitive with that of the Company, unless such employment or activity has
been approved in advance in writing by two-thirds of the Board of the Company.
8.02 During his employment with the Company and for a period of two (2)
years thereafter, the Employee shall not acquire or retain, either directly or
indirectly, any conflicting interest in or in connection with any person,
corporation or firm with which the Company does business, or any person,
corporation or firm which seeks to do business with the Company, or any person,
corporation or firm with which the Company competes, unless prior written
authorization therefor is given by two-thirds of the Board of the Company. For
purpose of this paragraph, "conflicting interest" shall mean:
(a) any financial interest in a person, corporation or firm;
(b) any interest had, directly or indirectly, in any contract or other
business transaction to which the Company is a party, which may result in
monetary value to the Employee or, to the extent known by the Employee,
to any member of his family; or
(c) performing work or rendering services for, or serving as a director
or officer of or consultant to, or permitting the Employee's name to be
used in any fashion that would tend to indicate a business connection
with, any person, corporation or firm, outside the normal course of the
Employee's employment with the Company.
The Employee shall notify the Company in writing within three (3) days of
his acquisition of any conflicting interest.
SEVERANCE BENEFITS
9.01 Termination. If the Employee's employment terminates at any time,
then the Employee shall be entitled to receive severance benefits as follows:
(a) Voluntary Resignation. If the Employee's employment terminates by
reason of the Employee's voluntary resignation (and is not an Involuntary
Termination), then the Employee shall not be entitled to receive severance or
other benefits except for those (if any) as may then be established under the
Company's then existing severance and benefits plans and policies at the time
of such termination.
(b) Involuntary Termination. If the Employee's employment is
terminated as a result of Involuntary Termination, then the Employee shall be
entitled to receive severance pay in an amount equal to the Employee's Base
Compensation for the twenty-four-calendar month period immediately preceding
the Termination Date. Any severance payments to which the Employee is entitled
pursuant to this section shall be paid in a lump sum within thirty (30) days of
the Termination Date.
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<PAGE> 5
(c) Disability; Death. In addition to the benefits contained in
Section 4.01 hereof, if the Company terminates the Employee's employment as a
result of the Employee's Disability, or Employee's employment is terminated due
to the death of the Employee, then such termination shall be treated as if it
were an Involuntary Termination and severance and other benefits, if any, shall
be provided in accordance with paragraph (b) above.
9.02 Options. Upon an Involuntary Termination, the unvested portion of
any stock option held by the Employee under the Plan shall automatically be
accelerated and the Employee or the Employee's representative, as the case may
be, shall have the right to exercise all or any portion of such stock option,
in addition to any portion of the option exercisable prior to the Involuntary
Termination. Upon a voluntary termination, the vesting of any unvested portion
of any stock option held by the Employee under the Plan shall be governed by
the Plan.
9.03 Definitions. The following terms referred to in this Section 9 shall
have the following meanings:
(a) Involuntary Termination. "Involuntary Termination" shall mean (i)
without the Employee's express written consent, the assignment to the Employee
of any duties or the reduction of the Employee's duties, either of which
results in a significant diminution in the Employee's position or
responsibilities with the Company in effect immediately prior to such
assignment, or the removal of the Employee from such position and
responsibilities; (ii) without the Employee's express written consent, a
substantial reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to the Employee
immediately prior to such reduction; (iii) a reduction by the Company in the
Base Compensation of the Employee as in effect immediately prior to such
reduction, other than a bonus reduction resulting from application of a bonus
formula or plan on a basis that is consistent with prior practice; (iv) a
material reduction by the Company in the kind or level of employee benefits to
which the Employee is entitled immediately prior to such reduction with the
result that the Employee's overall benefits package is significantly reduced;
(v) the relocation of the Employee to a facility or a location more than 25
miles from the Employee's then present location, without the Employee's express
written consent; (vi) any purported termination of the Employee by the Company;
(vii) the failure of the Company to obtain the assumption of this Agreement by
any successors contemplated in Section 12.0 below; or (viii) any purported
termination of the Employee's employment by the Company which is not effected
pursuant to a notice of termination satisfying the requirements of Section
10.02 below, and for purposes of this Agreement, no such purported termination
shall be effective unless it complies with Section 10.02 below.
(b) Disability. "Disability" shall mean that the Employee has been
unable to perform the essential functions of his job under this Agreement after
reasonable accommodations as the result of his incapacity due to physical or
mental illness, and such inability, at least 26 weeks after its commencement,
is determined to be total and permanent
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<PAGE> 6
by a physician selected by the Company or its insurers and acceptable to the
Employee or the Employee's legal representative (such agreement as to
acceptability not to be unreasonably withheld). Termination resulting from
Disability may only be effected after at least 30 days' written notice by the
Company of its intention to terminate the Employee's employment. In the event
that the Employee resumes the performance of the essential functions of his job
hereunder before the termination of his employment becomes effective, the
notice of intent to terminate shall automatically be deemed to have been
revoked.
(c) Termination Date. "Termination Date" shall mean (i) if this
Agreement is terminated by the Company for Disability, 30 days after notice of
termination is given to the Employee (provided that the Employee shall not have
returned to the performance of the Employee's duties on a full-time basis
during such 30-day period), (ii) if the Employee's employment is terminated by
the Company for any other reason, the date on which a notice of termination is
given, provided that if within 30 days after the Company gives the Employee
notice of termination, the Employee notifies the Company that a dispute exists
concerning the termination, the Termination Date shall be the date on which the
dispute is finally determined, either by mutual written agreement of the
parties, by final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected), or (iii) if the Agreement is terminated by the Employee, the
date on which the Employee delivers the notice of termination to the Company.
NOTICES
10.01 All notices, offers and acceptances hereunder shall be in writing
and shall be deemed to be communicated when delivered in person or deposited in
the United States mail, postage prepaid, by certified or registered mail,
addressed to the party concerned at the address appearing in the stock records
of the Company or at such other or additional place as such party may
designate by notice given in accordance with the provisions hereof to the
other party hereto.
10.02 Notice of Termination. Any termination by the Company or by the
Employee as a result of a voluntary resignation or an Involuntary Termination
shall be communicated by a notice of termination to the other party hereto
given in accordance with this Section 10. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provisions so indicated, and shall specify the
termination date (which shall be not more than 30 days after the giving of such
notice). The failure by the Employee to include in the notice any fact or
circumstance which contributes to a showing of Involuntary Termination shall
not waive any right of the Employee hereunder or preclude the Employee from
asserting such fact or circumstance in enforcing his rights hereunder.
11.0 Assignment. Neither this Agreement nor any rights or obligations of
any party hereunder shall be assignable without the prior written consent of
the other party hereto,
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<PAGE> 7
except that the Company may assign this Agreement upon the transfer of
substantially all its assets to an affiliated company.
12.0 Benefit. This Agreement shall be binding upon and inure to the
benefit of the parties, their heirs, personal representatives, successors and
assigns.
13.0 Invalid or Unenforceable Provisions. The invalidity or
unenforceability of any particular provision or provisions of this Agreement
shall not affect the other provisions hereof and this Agreement shall be
construed in all respects as if such invalid or unenforceable provision or
provisions were omitted.
14.0 Limitation on Payments. In the event any payments or benefits
payable to the Employee under this Agreement or otherwise are determined by the
Company to constitute "parachute payments" within the meaning of Section
280G(b)(2)(A) of the Code, then the Company shall reduce the total payments and
benefits payable under this Agreement until the Company determines that the
total of all "parachute payments" (as defined in Section 280G(b)(2)(A) of the
Code but without regard to clause (ii) thereof) payable to the Employee are no
more than 2.99 times the Employee's "base amount" (as defined in Section
280G(b)(3) of the Code). The determination as to whether a payment constitutes
a "parachute payment" and the computation of the 2.99 limitation shall be
purely within the discretion of the Company and shall be conclusive and binding
on the Company and the Employee; provided, however, that the Employee may
specify by written notice which payments or benefits under this Agreement shall
be reduced so as to meet the requirements of this Section 14.0.
15.0 Amendments. No amendment, modification, restatement or supplement
may be made to this Agreement without the prior consent of the majority of the
members of the Compensation Committee of the Board of Directors of the Company.
16.0 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the state of Illinois.
* * * * *
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<PAGE> 8
IN WITNESS WHEREOF, the parties have affixed their signatures the day and
year first above written.
LARRY KOSKAN DONLAR CORPORATION
/s/ Larry P. Koskan By: /s/
- -------------------- --------------------------
Employee Employer Secretary
-8-
<PAGE> 1
EXHIBIT 10.4
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "Agreement") is entered into as of May
23, 1997 by and among Dr. Gerald Gleich, an individual residing in the State of
Minnesota ("Gleich"), Donlar Corporation, an Illinois corporation ("Donlar" and
together with Gleich, collectively, "Investors" and individually, "Investor")
and Donlar Pharmaceuticals Corporation, an Illinois corporation (the
"Company").
The parties hereto agree as follows:
1. SUBSCRIPTION FOR SHARES. Upon the basis of the representations and
warranties, for the consideration, and subject to the terms and conditions set
forth in this Agreement, (a) the Company agrees to sell to Donlar and Donlar
hereby irrevocably subscribes and agrees to purchase nine hundred (900) shares
of common stock of the Company ("Common Stock") and (b) the Company agrees to
sell to Gleich and Gleich hereby irrevocably subscribes and agrees to purchase
one hundred (100) shares of Common Stock in the manner as set forth in this
Section:
(a) The consideration for the Common Stock to be purchased by
Donlar shall be $500,000.00, payable in cash on a schedule to be
determined by the Company's Board of Directors based upon the
Company's cash flow requirements.
(b) The consideration for the Common Stock to be purchased by
Gleich shall be the assignment to the Company of all right, title
and interest in and to those three certain patents listed in
Schedule A attached hereto and by this reference made a part hereof
(the "Patents"). Gleich shall transfer to the Company, and warrants
to the Company that he will transfer, the full and unencumbered
right, title and interest in and to each of the Patents, free and
clear of any and all defects, limitations, liens, claims,
encumbrances, leases, licenses, royalty interests, claims or
interests of any kind, nature or description.
(c) Donlar and Gleich shall each transfer the consideration for
their respective Common Stock upon notice from the Company. The
Company shall issue one or more certificates for such shares
forthwith upon receipt of such consideration.
2. STOCKHOLDERS' AGREEMENT. The Common Stock shall be subject to and held
in accordance with the terms and conditions of that certain Stockholders'
Agreement, in the form of Exhibit A attached hereto and by this reference
made a part hereof (the "Stockholders' Agreement").
<PAGE> 2
3. AGREEMENTS REGARDING CERTAIN MATTERS AFFECTING THE COMPANY.
(a) MANAGEMENT. Gleich, Donlar and the Company agree that, until
the Reopen Date (as herein defined), the Company will be operated in
accordance with the following provisions:
(i) Dr. Donald Sanders, or another individual
designated by Donlar, will be the President and Chief
Executive Officer of the Company.
(ii) Gleich will be the Vice President and Director of
Research of the Company.
(iii) Eric M. Fogel will be the Secretary of the
Company.
(iv) Gerald Noonan will be the Treasurer of the
Company.
For purposes of this Section 3, the term "Reopen Date" means the
earliest to occur of (i) the date Gleich ceases to be employed by
the Company, (ii) the date the Value of the Company (as defined in
Section 5) exceeds $5,000,000, or (iii) May 31, 1999.
(b) Sales-Based Bonus. Gleich shall be paid a royalty for each
fiscal year of the Company, calculated upon the Company's net sales
in that fiscal year. "Net Sales" for this purpose means sums
actually collected by the Company from the sale of its products,
excluding taxes, freight, insurance and similar add-on amounts.
Refunds, returns, allowances and similar adjustments with respect to
collected amounts shall be taken into account in the fiscal year in
which the adjustment is granted, as a subtraction from that year's
net sales. No royalties shall be paid until the net sales of the
Company reach $30 million in a fiscal year.
The royalty amount shall be calculated from the following schedule:
Net Sales for a Given Fiscal Year Royalty Rate
--------------------------------- ------------
(1) After first reaching an 0.5% (on all net
aggregate of $30,000,000 of sales of $30
net sales in any fiscal year million or less)
(2) After reaching in the aggregate 1.0% (on all net
$60,000,000 of net sales in sales over $30
the fiscal year, in addition million, but less
to (1) than $60 million)
2
<PAGE> 3
(3) After reaching in the aggregate 1.5% (on all net
$90,000,000 of net sales, in sales over $60
addition to (1) and (2) million, but less
than $90 million)
(4) On all additional net sales 2.0% (on all net
in the fiscal year over sales over $90
$90,000,000, in addition to million)
(1), (2) and (3)
The maximum aggregate amount of bonuses that will be paid to Gleich
pursuant to this Section 3(b) is $10,000,000.00. Once an aggregate
amount of $10,000,000.00 has been paid to Gleich pursuant to this
Section 3(b), no further bonuses will be payable to Gleich pursuant
to this Section 3(b). These amounts are transferrable to Dr.
Gleich's estate or trusts for the benefit of Dr. Gleich's immediate
family (i.e., children, parents, spouse).
Payments for any fiscal year pursuant to this Section 3(b) will be
made within sixty (60) days after the end of such fiscal year or,
if later, within ten (10) days after the completion of the
accounting and audit, if any, for that fiscal year.
(c) RETURN OF PATENTS. Upon the occurrence of an Elective
Withdrawal Event (as herein defined), the Company shall give Gleich
written notice ("Occurrence Notice") of the Elective Withdrawal
Event's occurrence. For a period of twenty (20) days after the
Occurrence Notice is transmitted by the Company, Gleich shall have
the right to elect to exchange all of his shares of stock in the
Company for a quitclaim assignment of the Patents. To exercise
such right, Gleich must deliver written notice of exercise
("Exercise Notice") to the Company. The Exercise Notice must be
received by the Company on or before 11:59 p.m. on the twentieth
(20th) day after the Company transmits the Occurrence Notice.
If Gleich so elects to exchange his shares for the Patents, a
closing shall be held at the Company's principal executive offices
at 10:00 a.m. on the thirtieth (30th) day after the Company
transmits the Occurrence Notice, or at such other time, date and
place as Gleich and the Company may agree. At the closing, Gleich
shall assign to the Company all shares of the Company Gleich then
owns, free and clear of any and all defects, limitations, liens,
claims, encumbrances and interests of third parties whatsoever,
with full warranties of title. The Company shall assign to Gleich
by quitclaim assignment all of the Company's right, title and
interest, if any, in and to the Patents, without warranties of
title.
3
<PAGE> 4
For purposes of this Agreement, the term "Elective Withdrawal
Event" means any of the following:
(i) A decision by the Company's Board of Directors to terminate
the Company's operations and not to attempt to sell or
license the Patents.
(ii) A decision by the Company's Board of Directors, having
already terminated the Company's operations, to abandon
efforts to sell or license the Patents.
(iii) A determination by the Company's Board of Directors that the
Company no longer desires to practice the Patents, that the
Company does not need to retain ownership of the Patents for
the protection of the Company's actual and anticipated
activities, and that the Company does not wish to attempt to
sell or license the Patents.
Notwithstanding the foregoing, any of the Patents are then
subject to licenses that have not expired or terminated, no Elective
Withdrawal Event shall be deemed to have occurred until all such
licenses shall have expired or been terminated, with all royalties
and license fees, if any, being applied to the Company's expenses
and then distributed as the case may be.
(d) Grant Matters. Gleich shall receive an additional equity
interest in the Company (in the form of additional Common Stock) in
consideration of securing research grants to the Company. For each
$100,000 of aggregate research grants secured by Gleich for the
Company on or before December 31, 1999 (up to a maximum aggregate
research grant total of $1,000,000), Gleich shall receive an
additional 0.5% equity interest in the Company. This equity shall
not be factored into the calculations required by Section 5(a).
If the terms of any grant secured by Gleich for the Company require
Gleich to be paid compensation in connection with the grant, Gleich
will return to the Company the compensation so paid as additional
contributions to capital on a tax-neutral basis to Gleich (i.e.,
after subtracting Federal and State income taxes that Gleich must
pay by reason of receipt of such compensation), unless Gleich, by
virtue of his efforts for the Company, suffers a reduction in
compensation from other sources and needs all or part of the grant
compensation to offset this loss.
4
<PAGE> 5
4. PURPOSES OF THE COMPANY; CERTAIN RELATED PARTY TRANSACTIONS; CERTAIN
RIGHTS OF NATIONAL STARCH.
(a) The purposes of the Company are and shall be to test and
commercially develop pharmaceutical products utilizing polyaspartic
acids, and all purposes reasonably related or incidental thereto.
The Company shall enter into a fifty-year requirements contract with
Donlar for Donlar to supply the Company's requirements for
pharmaceutical quality polyaspartic acid. The terms and provisions
of such contract shall be subject to approval by the Company's Board
of Directors.
(b) Pursuant to certain agreements and arrangements between
Donlar and National Starch and Manufacturing Company ("National
Starch"), pharmaceutical products or certain aspects thereof are
classified as "shared fields" as to which Donlar is obligated to
provide certain information to National Starch and to offer National
Starch certain opportunities such as but not limited to the
opportunity to market and develop products within National Starch's
areas of interest. These rights, as set forth in Donlar's
agreements with National Starch from time to time, are referred to
collectively as the "National Starch Rights". The National Starch
Rights are binding upon Donlar, and Donlar agrees to apprise the
Company from time to time as to the scope and import of the
National Starch Rights. The Company acknowledges and agrees that
it will abide by the requirements of the National Starch Rights in
the same manner as Donlar would be required to, if Donlar were
directly carrying on the activities being carried on by the
Company.
5. ANTI-DILUTION RIGHTS.
(a) The Company and Donlar agree that (i) at any time
when the Value of the Company (as herein defined) is less than
Five Million Dollars ($5,000,000), Gleich's Interest in the
Company (as herein defined) shall not be reduced below ten
percent (10%) by the issuance of stock of the Company.
However, issuances of stock options or stock pursuant to
employee stock ownership plans or comparable employee
incentive plans, that are properly approved by the Board of
Directors, or issuances of stock, warrants, options and the
like issued to consultants or researchers in lieu of fees,
that are properly approved by the Board of Directors shall be
dilutive to Gleich's Interest and the interest of every other
shareholder.
(b) For purposes of this Agreement, the term "Value
of the Company" means in the case of a proposed issuance of
stock of the Company for cash,
5
<PAGE> 6
property, services already rendered or other valuable
consideration, the pre-money valuation of the Company as
reasonably determined by the Company's Board of Directors
that forms the basis for the issuance of such stock.
(c) For purposes of this Section 5, Gleich's Interest in the
Company at any time shall be a percentage, calculated by
dividing the number of shares of Common Stock then owned by
Gleich (assuming that any convertible shares owned by Gleich
were converted to Common Stock) divided by the number of
shares of Common Stock then issued and outstanding (assuming
that any issued and outstanding convertible shares were
converted to Common Stock).
(d) If a proposed transaction would violate Section 5(a), the
Company may nevertheless proceed with the transaction (i) if
Gleich consents thereto, or (ii) if the Company issues to
Gleich at the time of the transaction additional shares of the
Company of sufficient number and value such that Gleich's
Interest in the Company (if Section 5(a)(i) applies)
immediately after the transaction, is no less than his
Interest in the Company, whichever is applicable, as the same
existed immediately prior to the transaction.
(f) In any future offering of equity securities of the Company to
investors, Gleich shall have the preemptive right to acquire a
portion of such equity securities equal to his then-existing
Interest in the Company, on the same terms such equity
securities are to be offered to investors. The Company shall
give Gleich written notice of any such offering and the terms
thereof, and Gleich shall have ten (10) days from the date
such notice is given to exercise his preemptive right, such
exercise to be accomplished by delivering to the Company
written notice of exercise. The foregoing preemptive right is
intended only to apply to future equity financing transactions
for the Company and not to apply to equity securities issued
in connection with a merger or acquisition, or to equity
securities issued as compensation, bonuses or under employee
stock, option or benefit plan programs.
6. REPRESENTATIONS AND WARRANTIES OF DONLAR. Donlar hereby represents and
warrants to the Company as follows (with the understanding that the Company is
relying materially on such representations and warranties in entering into and
performing this Agreement):
6
<PAGE> 7
(a) Donlar is a corporation duly organized, validly existing and
in good standing under the laws of Illinois. Donlar has all
requisite power and authority to carry out the transactions
contemplated by this Agreement.
(b) No representations or warranties have been made to Donlar by
the Company or by any officer, director, agent or employee thereof
(collectively, the "Company Affiliates") other than those
representations specifically set forth in this Agreement. Donlar
has not relied upon any representation or warranty of the Company
Affiliates, except as set forth in this Agreement, in making its
investment decision to tender this Agreement for purchase of Common
Stock. Donlar has conducted such investigation of the Company as
Donlar has deemed necessary or desirable and has relied on Donlar's
own legal, financial and business advisors and consultants in
analyzing the data provided to Donlar.
(c) Donlar is an "accredited investor," as that term is defined
in Rule 501 of Regulation D promulgated by the Securities and
Exchange Commission under the Securities Act of 1933 ("Securities
Act").
(d) The Common Stock hereby subscribed for is being acquired by
Donlar in good faith solely for Donlar's own account, for investment
purposes only, and not with a view to resale, distribution,
subdivision, or fractionalization thereof. Donlar agrees that the
Common Stock will not be transferred except in compliance with the
Securities Act and applicable state securities laws and the
restrictions of the Stockholders' Agreement. Donlar is not
participating, directly or indirectly, in a distribution of the
Common Stock and will not take, or cause to be taken, any action
that would cause any of such parties to be deemed an "underwriter"
of such Common Stock as defined in Section 2(11) of the Securities
Act. Donlar understands that any sale, transfer, pledge,
hypothecation or other disposition of the Common Stock may require
in some states specific approval by the appropriate governmental
agency in such states.
(e) No person has made any direct or indirect representation or
warranty of any kind to Donlar with respect to the economic return
which may accrue to Donlar, and Donlar has consulted with its own
tax counsel and other advisors with respect to an investment in the
Company.
(f) Donlar is aware of and understands that the Common Stock has
not been registered under the Securities Act or any of the
applicable state securities laws, in reliance on an exemption
therefrom for private offerings.
7
<PAGE> 8
(g) There are no claims for brokerage commissions, finders' fees
or similar compensation in connection with the purchase of the
Common Stock based on any arrangement or agreement binding upon
Donlar.
(h) None of the representations or warranties contained in this
Section 6 contains any untrue statement of a material fact or omits
a material fact necessary to make such statements contained herein
not misleading.
7. REPRESENTATIONS AND WARRANTIES OF GLEICH. Gleich hereby represents and
warrants to the Company as follows (with the understanding that the Company is
relying materially on such representations and warranties in entering into and
performing this Agreement):
(a) Gleich is a bona fide resident in the State of Minnesota, is
legally competent to execute this Agreement, and does not currently
intend to change residence to another state.
(b) No representations or warranties have been made to Gleich by
the Company or by any officer, director, agent or employee thereof
(collectively, the "Company Affiliates") other than those
representations specifically set forth in this Agreement. Gleich
has not relied upon any representation or warranty of the Company
Affiliates, except as set forth in this Agreement, in making his
investment decision to tender this Agreement for purchase of Common
Stock. Gleich has conducted such investigation of the Company as
Gleich has deemed necessary or desirable and has relied on Gleich's
own legal, financial and business advisors and consultants in
analyzing the data provided to Gleich.
(c) Gleich is an "accredited investor," as that term is defined
in Rule 501 of Regulation D promulgated by the Securities and
Exchange Commission under the Securities Act.
(d) The Common Stock hereby subscribed for is being acquired by
Gleich in good faith solely for Gleich's own account, for investment
purposes only, and not with a view to resale, distribution,
subdivision, or fractionalization thereof. Gleich agrees that
the Common Stock will not be transferred except in compliance
with the Securities Act and applicable state securities laws and
the restrictions of the Stockholders' Agreement. Gleich is not
participating, directly or indirectly, in a distribution of the
Common Stock and will not take, or cause to be taken, any action
that would cause any of such parties to be deemed an "underwriter"
of such Common Stock as defined in Section 2(11) of the Securities
Act. Gleich understands that any sale, transfer, pledge,
8
<PAGE> 9
hypothecation or other disposition of the Common Stock may require
in some states specific approval by the appropriate governmental
agency in such states.
(e) No person has made any direct or indirect representation or
warranty of any kind to Gleich with respect to the economic return
which may accrue to Gleich, and Gleich has consulted with his own
tax counsel and other advisors with respect to an investment in the
Company.
(f) Gleich is aware of and understands that the Common Stock has
not been registered under the Securities Act or any of the
applicable state securities laws, in reliance on an exemption
therefrom for private offerings.
(g) There are no claims for brokerage commissions, finders' fees
or similar compensation in connection with the purchase of the
Common Stock based on any arrangement or agreement binding upon
Gleich.
(h) None of the representations or warranties contained in this
Section 7 contains any untrue statement of a material fact or omits
a material fact necessary to make such statements contained herein
not misleading.
8. INDEMNIFICATION.
(a) Donlar hereby agrees to indemnify, defend, and hold harmless
the Company and all of its directors, officers, employees, attorneys
and agents (collectively, the "Indemnified Parties") from and
against any and all losses, claims, damages, liabilities, costs and
expenses whatsoever due to or arising out of a breach of any
representation, warranty, covenant or agreement of such party
contained in this Agreement, the Stockholders' Agreement or in any
other document furnished by Donlar in connection with this
transaction, or arising out of the resale or distribution by
Donlar of the Common Stock or any portion thereof in violation of
the Securities Act or any applicable state securities or "Blue Sky"
laws, including, without limitation, any and all attorneys' fees,
costs, and other amounts reasonably incurred by any of them in
investigating, preparing or defending against any claim, litigation
or other legal action, threatened or initiated. Donlar
acknowledges that if it threatens or initiates any such claim,
litigation or other legal action against any of the Indemnified
Parties, Donlar will be liable for any such attorneys' fees, costs
and other amounts in connection therewith that are established to
have been due to or to have arisen out of any such breach of
representation, warranty, covenant or agreement by Donlar.
9
<PAGE> 10
(b) Gleich hereby agrees to indemnify, defend, and hold harmless
Donlar and the Company and all of their respective directors,
officers, employees, attorneys and agents (collectively, the
"Indemnified Parties") from and against any and all losses, claims,
damages, liabilities, costs and expenses whatsoever due to or
arising out of a breach of any representation, warranty, covenant or
agreement of such party contained in this Agreement, the
Stockholders' Agreement or in any other document furnished by Gleich
in connection with this transaction, or arising out of the resale or
distribution by Gleich of the Common Stock or any portion thereof in
violation of the Securities Act or any applicable state securities
or "Blue Sky" laws, including, without limitation, any and all
attorneys' fees, costs, and other amounts reasonably incurred by any
of them in investigating, preparing or defending against any claim,
litigation or other legal action, threatened or initiated. Gleich
acknowledges that if he threatens or initiates any such claim,
litigation or other legal action against any of the Indemnified
Parties, Gleich will be liable for any such attorneys' fees, costs
and other amounts in connection therewith that are established to
have been due to or to have arisen out of any such breach of
representation, warranty, covenant or agreement by Gleich.
(c) The Investors acknowledge that their representations and
warranties are made herein with the intent that they may be relied
upon by the Indemnified Parties not only in determining the
suitability of Investors' purchase of the Common Stock, but also to
protect the Indemnified Parties against such attorneys' fees, costs
and other amounts due to or arising out of either Investor's breach
of any of such representations or warranties, even if such amounts
are incurred in response to a claim, litigation or other legal
action threatened or initiated by such Investor.
(d) The Company hereby agrees to indemnify, defend and hold
harmless the Investors from and against any and all losses, claims,
damages, liabilities, costs and expenses whatsoever due to or
arising out of a breach of any representation, warranty, covenant or
agreement of the Company contained in this Agreement or the
Stockholders' Agreement, including, without limitation, any and all
attorneys's fees, costs, and other amounts reasonably incurred by
them in investigating, preparing or defending against any claim,
litigation or other legal action threatened or initiated.
9. REIMBURSEMENT OF CERTAIN EXPENSES. Upon receipt of Gleich's capital
contribution as provided in Section 1(b) hereof, the Company will pay Gleich
the sum of Thirty Seven Thousand Dollars ($37,000.00) as a reimbursement of the
estimated aggregate amount of expenses incurred and to be incurred by Gleich in
10
<PAGE> 11
securing the Patents and transferring ownership of the Patents to the Company.
10. MISCELLANEOUS
(a) TAXPAYER IDENTIFICATION NUMBER. Investors verify under
penalties of perjury that the Taxpayer Identification Numbers or
Social Security Numbers shown herein opposite their respective names
are true, correct and complete.
(b) IRREVOCABILITY. Investors hereby acknowledge and agree,
subject to the limitations contained herein, that the subscription
hereunder is irrevocable, that Investors are not entitled to cancel,
terminate or revoke this Agreement or any agreements of Investors
hereunder.
(c) BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective
successors and permitted assigns; provided, that no assignment of
this Agreement or of any rights or obligations hereunder may be made
by any party (by operation of law or otherwise) without the prior
written consent of the other parties and any attempted assignment
shall be void and of no force or effect. Nothing in this Agreement
shall create or be deemed to create any third party beneficiary
rights in any person or entity not party to this Agreement.
(d) HEADINGS. The headings, titles and subtitles herein are for
convenience of reference only and shall not in any manner affect the
construction or interpretation of any of the provisions hereof.
(e) ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding of the parties hereto with respect to
the subject matter hereof and no representations, promises,
agreements or understandings, written or oral, not contained herein
shall be of any force or effect.
(f) MUTUAL CONTRIBUTION. The parties to this Agreement and their
counsel have mutually contributed to its drafting. Consequently, no
provision of this Agreement shall be construed against any party on
the ground that such party drafted the provision or caused it to be
drafted.
(g) NOTICES. Except as provided otherwise herein, all notices
referred to herein shall be in writing and will be delivered by (i)
registered or certified mail, return receipt requested and postage
prepaid, (ii) reputable overnight courier service, charges prepaid,
or (iii) telecopier (and confirmed by return facsimile) and will be
deemed to have been given when so mailed or sent (i) to the Company,
at its principal executive offices and
11
<PAGE> 12
(ii) to Investors, at each Investor's address as it appears in the
stock records of the Company (unless otherwise indicated by such
Investor).
(h) AMENDMENT. Neither this Agreement nor any provisions hereof
shall be waived, modified, discharged or terminated except by an
instrument in writing signed by the party against whom any such
waiver, modification, discharge or termination is sought.
Notwithstanding the foregoing, no waiver by the Company of any
breach by Investor of any representation, warranty, acknowledgement
or agreement shall in any manner be deemed to be a waiver by the
Company of any rights granted to it under federal or state
securities laws.
(i) FURTHER ASSURANCES. Each party hereto agrees to execute any
further documents, agreements or instruments, and to perform any
further acts and deeds, that may be necessary to carry out the terms
and provisions of this Agreement.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, PERFORMED
AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY THE INTERNAL LAWS
OF THE STATE OF ILLINOIS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICTS OF LAW THEREOF.
(k) VENUE. ANY ACTION OR PROCEEDING TO ENFORCE ANY PROVISION OF,
OR BASED ON ANY RIGHT ARISING OUT OF, THIS AGREEMENT SHALL BE
BROUGHT AGAINST ANY OF THE PARTIES IN STATE OR FEDERAL COURTS
LOCATED IN CHICAGO, ILLINOIS AND EACH OF THE PARTIES HEREBY CONSENTS
TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS (AND OF THE APPROPRIATE
APPELLATE COURTS) IN ANY SUCH ACTION OR PROCEEDING AND WAIVES ANY
OBJECTION TO VENUE LAID THEREIN; PROVIDED, THAT AN ACTION TO ENFORCE
A JUDGMENT OBTAINED IN ANY SUCH COURTS MAY BE BROUGHT IN ANY
APPROPRIATE VENUE.
(l) SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective
and valid under applicable law, but if any provision of this
Agreement shall be prohibited or invalid under such law, such
provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or this Agreement.
(m) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same agreement.
(n) ARBITRATION. Should a dispute arise among any of the
parties, the parties shall submit to non-binding
12
<PAGE> 13
arbitration in the City of Chicago pursuant to the commercial rules
of the American Arbitration Association.
[Signature Page Follows]
13
<PAGE> 14
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
5 day of August 199 .
- ---- --- -------, -
INVESTOR:
Number of Shares subscribed Gerald J. Gleich
for: 100 -------------------------------------
Dr. Gerald Gleich
Address: 799 SW 3rd St
------------------------
Rochester, MN 55902-2979
------------------------
507-282-0177
------------------------
Telecopier
------------------------
Social Security No.: ###-##-####
---------------
INVESTOR: DONLAR CORPORATION
Number of Shares subscribed By:
for: 900 ----------------------------------
Its:
---------------------------------
Address:
----------------------------
------------------------
------------------------
Telecopier:
------------------------
FEIN:
-------------------------------
COMPANY:
DONLAR PHARMACEUTICALS, INC.
By:
----------------------------------
Its:
---------------------------------
Address:
----------------------------
------------------------
------------------------
Telecopier:
------------------------
14
<PAGE> 15
SCHEDULE A
Patents to be Assigned to the Company by Gleich
1. United States Patent no. _____________ issued ______________, 199_.
2. United States Patent no. _____________ issued ______________, 199_.
3. United States Patent no. _____________ issued ______________, 199_.
15
<PAGE> 16
EXHIBIT A
STOCKHOLDERS' AGREEMENT
16
<PAGE> 1
EXHIBIT 10.5
THIS AGREEMENT by and between BP EXPLORATION OPERATING COMPANY LIMITED having
an office at the BP Research & Engineering Centre, Chertsey Road,
Sunbury-on-Thames, Middlesex, TW16 7LN, England ("BPX") and DONLAR CORPORATION
having an office at Moffett Campus, 6502 S. Archer Avenue, Bedford Park,
Illinois 60501-9998 USA ("DONLAR") hereinafter sometimes referred to
individually as "PARTY" and collectively as "Parties".
WITNESSETH:
WHEREAS DONLAR possesses confidential information, know-how and patents
relating to methods of manufacturing polyamino acids, particularly polyaspartic
acid, their compositions and subsequent end uses.
WHEREAS BPX and DONLAR entered into an Agreement effective 15 December 1994
under which BPX and DONLAR collaborated in the evaluation of polyaspartic acid
hydrogels manufactured by DONLAR's processes, in applications where BPX desires
to control water and gas shut off in hydrocarbon reservoirs, and
WHEREAS BPX and DONLAR now wish to extend the term of that Agreement and to
broaden its scope to include the evaluation of polyaspartates as hydrate
inhibitors, wax inhibitors and drag reducers in pipelines and associated
equipment used in conjunction with hydrocarbon reservoirs.
NOW THEREFORE the PARTIES agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 AFFILIATE means a company or corporation or other entity
which directly or indirectly controls or is
controlled by a PARTY hereto including
the ultimate holding company corporation
or other entity of such a PARTY and any
company corporation or other entity
controlled by such ultimate holding
company corporation or other entity.
In the definition of "Affiliate" the words
"controls" and "controlled" mean the ability
to exercise the majority voting power of a
company corporation or entity and a
reference to the voting power in such a
company corporation or entity is a
reference to the maximum number of votes
that might be cast at a general meeting
thereof.
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February 16, 1996
<PAGE> 2
1.2. "BPX KNOW-HOW" shall mean information, including technical
and economic information, relating to
BPX's oil and gas fields and reservoirs
and the operation thereof.
1.3 "DONLAR KNOW-HOW" shall mean information, including technical
and economic information, relating to
methods of manufacturing polyamino
acids, particularly polyaspartic acid,
compositions and end uses thereof.
1.4 "PATENTS" shall mean all US patents issued to
DONLAR and all patents and patent
applications, continuations, continuations-
in-part, divisions, reissues and extensions
thereof, related to DONLAR KNOW-HOW.
1.5 "PRODUCT" shall mean polyaspartic acid formulations
manufactured using DONLAR KNOW-HOW.
1.6 "FIELD" shall mean the use of PRODUCT in the
control of water and gas shut off in
hydrocarbon reservoirs as hydrate
inhibitors, wax inhibitors and drag reducers
in pipelines and associated equipment.
1.7 "EFFECTIVE DATE" shall be the date of the last signature of this
Agreement.
ARTICLE 2 - EVALUATION
2.1 DONLAR agrees to use its reasonable and diligent efforts to provide
PRODUCT to BPX for evaluation in the FIELD during the term of this
Agreement.
2.2 DONLAR agrees to use its reasonable and diligent efforts to modify PRODUCT
such that an optimum performance criteria may be made based on BPX shared
evaluation results at no cost to BPX for laboratory samples.
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Page 2
February 16, 1996
<PAGE> 3
2.3 BPX agrees to work with DONLAR exclusively during the term of this
Agreement in the evaluation of polyaspartic acid hydrogels in the FIELD.
Services provided by BPX or DONLAR during the evaluation will be at their
own costs. BPX agrees that all PRODUCT provided by DONLAR hereunder shall
be used only for investigational purposes relating to the use of such
PRODUCTS in the FIELD, and BPX agrees that it shall not, nor shall it
allow any third parties to, analyze the composition or attempt to derive
the structure or manufacturing processes for such PRODUCTS.
ARTICLE 3 - TERM AND TERMINATION
3.1 Unless terminated earlier by the mutual written consent of both DONLAR and
BPX, the term of the Agreement shall be for a period of twelve (12) months
from the EFFECTIVE DATE.
3.2 This Agreement may be extended for another twelve (12) months upon written
consent of both DONLAR and BPX.
ARTICLE 4 - CONFIDENTIALITY
4.1 BPX shall keep confidential all DONLAR KNOW-HOW. The obligation of
confidence shall not apply to:
(a) DONLAR KNOW-HOW which, at the time of the disclosure, BPX can
demonstrate was in the public domain;
(b) DONLAR KNOW-HOW which, after disclosure, becomes part of the public
domain, by publication or otherwise, other than by BPX;
(c) DONLAR KNOW-HOW which BPX can demonstrate, by written
documentation, was in BPX'S possession at the time of disclosure
and was not acquired directly or indirectly from DONLAR; or
(d) DONLAR KNOW-HOW which has been, is now or is hereafter,
furnished or made known to BPX by a third party who had the
right to disclose such information without restrictions and who did
not derive the information improperly from DONLAR.
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Page 3
February 16, 1996
<PAGE> 4
4.2 DONLAR shall keep confidential all BPX KNOW-HOW. The obligation of
confidence shall not apply to:
(a) BPX KNOW-HOW which, at the time of the disclosure, DONLAR
can demonstrate was in the public domain;
(b) BPX KNOW-HOW which, after disclosure, becomes part of the
public domain, by publication or otherwise, other than by
DONLAR;
(c) BPX KNOW-HOW which DONLAR can demonstrate, by written
documentation, was in DONLAR'S possession at the time of
disclosure and was not acquired directly or indirectly from BPX; or
(d) BPX KNOW-HOW which has been, is now or is hereafter,
furnished or made known to DONLAR by a third party who had
the right to disclose such information without restrictions and who
did not derive the information improperly from BPX.
4.3 Each party shall treat as confidential all CONFIDENTIAL INFORMATION of the
other party, shall not use such CONFIDENTIAL INFORMATION except as
expressly set forth herein or otherwise authorised in writing, shall
implement reasonable procedures to prohibit the disclosure, duplication,
misuse or removal of the other party's CONFIDENTIAL INFORMATION and shall
not disclose such CONFIDENTIAL INFORMATION to any third party except as
may be necessary and required in connection with the rights and
obligations of such party under this Agreement, and subject to
confidentiality obligations at least as protective as those set forth
herein. Without limiting the foregoing, each of the parties shall use
at least the same procedures and degree of care which it uses to prevent
the disclosure of its own confidential information of like importance to
prevent the disclosure of CONFIDENTIAL INFORMATION disclosed to it by the
other party under this Agreement, but in no event less than reasonable
care.
4.4 The obligation of confidence under this Article shall remain in effect for
a period of ten (10) years from the EFFECTIVE DATE, regardless of the
expiration or termination of this Agreement for any reason.
4.5 DONLAR and BPX may disclose to third parties certain information related to
PRODUCT, KNOW-HOW and the FIELD only if written consent is provided.
Provisions of the disclosure must include confidentiality of DONLAR
KNOW-HOW at least as stringent as found in this Agreement. In addition,
DONLAR's involvement in the evaluation shall be made known to the third
party. BPX may also disclose to AFFILIATES information related to
PRODUCT, DONLAR KNOW-HOW and the FIELD provided that such disclosure is
made on terms at least as stringent as found in this Agreement.
4.6 Any breach of the restrictions contained in this Section 4 is a breach of
this Agreement which will cause irreparable harm to either PARTY entitling
such party to injunctive relief in addition to all legal remedies.
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Page 4
February 16, 1996
<PAGE> 5
ARTICLE 5 - INTELLECTUAL PROPERTY RIGHTS
5.1 Each PARTY shall retain the ownership of data and information which:
(i) was in its possession prior to the EFFECTIVE DATE; or
(ii) was developed or otherwise acquired by that PARTY as a result of
activities carried out independently of this Agreement and without
referring to the CONFIDENTIAL INFORMATION supplied by the other
PARTY.
5.2 The PARTIES anticipate the possible development of intellectual property
rights derived from the evaluation and work under this Agreement.
Ownership of an invention made, arising out of and relating to the work
and any intellectual property or other proprietary rights relating thereto
shall, subject to the rights of any third party, and unless otherwise
agreed by the PARTIES, be vested in DONLAR provided that all costs
associated with the acquisition of such proprietary rights as aforesaid
shall be for the sole account of DONLAR. To the extent any such
intellectual property rights vest in BPX or its AFFILIATES or contractors,
BPX agrees that it shall assign (or caused to be assigne) and does hereby
assign to DONLAR all right, title and interest in and to any such
intellectual property rights. To ensure that DONLAR can keep track of any
intellectual property that might arise out of the development effort
contemplated under this Agreement, BPX agrees that it shall inform DONLAR
of any inventions discovered or first reduced to practice under this
Agreement.
5.3 In the event that the invention relates to the use of the PRODUCT in the
FIELD, BPX and its AFFILIATES shall be entitled to non-exclusive world-
wide royalty free license under any PATENT or other form of proprietary
right relating to such invention to use such invention in the FIELD. For
the avoidance of doubt such rights shall extend to use by any contractor
acting on behalf of BPX or its AFFILIATES and to any third party
associated with BPX or its AFFILIATES in a bona fide joint venture activity
with BPX related to the exploration for and/or exploitation of
hydrocarbons.
ARTICLE 6 - COMMERCIAL SUPPLY OF PRODUCT
6.1 To the extent not otherwise precluded by regulations of the EEC, BPX
hereby grants DONLAR a right of first refusal to enter into a supply
agreement providing for DONLAR to supply BPX, its AFFILIATES and any
contractor doing work for either of the foregoing all of their requirements
for PRODUCT for a period extending from the date of exercise through up
to three (3) years following termination of this Agreement.
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Page 5
February 16, 1996
<PAGE> 6
6.2 DONLAR shall use reasonable endeavors to give priority to meet BPX (or its
AFFILIATES) reasonable requirements for the supply of PRODUCT for use in
the FIELD from time to time on fair and reasonable terms including a
price equal to DONLAR'S then current selling price for the time being and
for this purpose DONLAR may subcontract in part or in whole or establish
manufacture under license as the case may be to supplement its own
capacity.
6.3 Any supply agreement as referred to Article 6.1 will provide that in the
event DONLAR may become unable or unwilling on any occasion to meet the
reasonable requirement of BPX or an AFFILIATE for PRODUCT then BPX or an
Affiliate shall then have the right to manufacture itself, or, at its
option, to have PRODUCT manufactured by a third party contractor to meet
its requirements for use of the same and DONLAR shall grant any such
royalty bearing license as may be required to the third party contractor
for such time as DONLAR is unable or unwilling to meet the reasonable
requirements of BPX or an AFFILIATE as aforesaid and shall indemnify and
hold harmless that BPX or an AFFILIATE and/or its contractor from suit for
infringement of any DONLAR'S intellectual property rights. BPX or an
AFFILIATE shall procure from any proposed third party contractor a binding
undertaking to preserve the confidentiality of all data and information
in connection with the PRODUCT and to use any and all such data or
information only to fulfil the specific order of BPX or an AFFILIATE
pursuant to this Article 6.3.
6.4 It is understood and agreed that nothing in this Agreement shall
prevent either DONLAR or BPX from working alone or together with a third
party in research and development of the control of water and gas shut off
in hydrocarbon reservoirs.
ARTICLE 7 - NATURE OF MATERIALS
7.1 It is acknowledged that all materials provided to BPX by DONLAR hereunder
are provided "AS IS" and are to be used by BPX for investigational purposes
only. DONLAR makes no warranties, express, implied, statutory or
otherwise, of any kind, and DONLAR specifically disclaims any implied
warranties of non-infringement, merchantability and fitness for a
particular purpose. The materials are chemical substances with known
properties and their ingredients are not specifically listed in the
federal water pollution control act, are not covered by the clean air act,
and are not ordinarily hazardous so long as individuals handle these
materials in accordance with the recommended safety precautions as
indicated in the product safety data sheet.
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Page 6
February 16, 1996
<PAGE> 7
ARTICLE 8 - LAW
8.1 This Agreement shall be construed and governed by the laws of the State of
New York, USA.
BP EXPLORATION OPERATING DONLAR CORPORATION
COMPANY LIMITED
M W Preuveneers Larry P. Koskan
- ----------------------------- -------------------------
SIGNATURE SIGNATURE
M W PREUVENEERS LARRY P KOSKAN
- ----------------------------- -------------------------
TYPED NAME TYPED NAME
COMMERCIAL MANAGER PRESIDENT
- ----------------------------- -------------------------
TITLE TITLE
16/2/96 2/28/96
- ------------------------------ -------------------------
DATE DATE
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Page 7
February 16, 1996
<PAGE> 1
EXHIBIT 10.6
MARKET DEVELOPMENT AND DISTRIBUTORSHIP AGREEMENT
This Agreement is made as of the 31st day of January, 1996, by and between
Donlar Corporation ("DONLAR"), an Illinois Corporation, having its principal
office at 6502 S. Archer Road, Bedford Park, Illinois, U.S.A 60501, and FMC
CORPORATION (UK) LIMITED, Process Additives Division ("FMC"), a company
registered in England and Wales No. 259569, having its principal office at
Tenax Road, Trafford Park, Manchester M17 1WT, United.
BACKGROUND
DONLAR has developed and manufactures certain proprietary biodegradable
polyaspartic polymers ("Products"), which may have certain applications within
the oilfield industry ("Field"). The Products and Field are more specifically
described in Schedule A. DONLAR lacks the established market presence required
for successful development and marketing of Products in the Field and does not,
at this time, intend to develop such a presence. FMC is recognized as a leading
manufacturer and distributor of high performance polymers within the Field.
Both DONLAR and FMC desire for FMC to be appointed DONLAR's exclusive
distributor of Products in the Field under the terms of this Agreement.
Intending to be legally bound, the parties agree as follows:
AGREEMENT
1. Distributorship
A. Exclusive Appointment. Under the terms and conditions of this
Agreement, DONLAR appoints FMC its sole and exclusive worldwide
distributor for the sale of Products in the Field and FMC accepts such
appointment. FMC's retention of its exclusive distributor status is
conditioned on its purchase from DONLAR of the following quantity of
Products during the indicated calendar years:
Calendar Year Minimum Purchase Quantity
------------- -------------------------
1996 15 metric tonnes
1997 180 metric tonnes
1998 550 metric tonnes
1999 1750 metric tonnes
2000 2500 metric tonnes
Should FMC fail to meet such minimum in any year, it will nevertheless
retain its exclusive status if it can provide DONLAR with reasonable
demonstration of its ability to meet the required minimum for the next
calendar year. To this end FMC may present to DONLAR forecasted or budgeted
sales of Product with supporting documentation. Beginning in 1997, should
the above Minimum Purchase Quantities not be met due to any shortfall in
Product availability then FMC shall retain its exclusive distribution
rights under this Agreement, the
<PAGE> 2
Minimum Purchase Quantity in the following year shall automatically be
decreased by the same percentage as the shortfall bears to Minimum Purchase
Quantity for that year, and FMC and DONLAR shall confer as to whether the
Minimum Purchase Quantity for subsequent years should be revised downward.
B. Nature of Relationship. It is agreed that the relationship between
DONLAR and FMC shall be that of a seller and a buyer and that this
Agreement shall not constitute an appointment of FMC as DONLAR's agent or
legal representative for any purpose whatsoever.
C. Activities. FMC is not authorized to distribute the Products for use
in any applications outside of the Field. Moreover, for so long as FMC
retains its exclusive distributor status under this Agreement, FMC will not
purchase from any source other than DONLAR, manufacture or sell for use in
the Field any readily biodegradable (as defined in Schedule C) polymer
products with physical characteristics similar to Products. The preceding
sentence does not preclude FMC from continuing to manufacture and/or
distribute for use in the Field any products which it currently offers.
During the term of this Agreement, FMC shall be free to offer or sell, and
DONLAR shall not offer nor sell, Products to any person or company residing
anywhere throughout the world.
D. FMC Compensation. FMC's sole compensation for distribution of
Products shall consist of the difference between FMC's purchase price and
selling price of Products.
2. Order and Delivery
A. Demand Forecast. On or before October 31 of each year during the
term of this Agreement, FMC shall provide DONLAR with a nonbinding estimate
of its purchase quantities of Products for the subsequent year. FMC shall
also provide DONLAR with a nonbinding estimate of the purchase quantity and
delivery schedule of Products for each calendar quarter at least one month
prior to the beginning of such calendar quarter.
B. Purchase Orders. The purchase quantity and the delivery schedule of
individual sales contracts shall be agreed and confirmed in writing by both
parties pursuant to purchase orders or releases against this Agreement. No
shipments shall be made prior to such written confirmation. This written
confirmation shall finally fix the purchase quantity and the delivery
schedule of the individual sales contracts.
C. Delivery. Terms of delivery of the Products to FMC shall be DDP,
FMC's Trafford Park, UK, facility, (INCOTERMS 1994), unless otherwise
mutually agreed in writing. DONLAR shall also be responsible for any other
taxes or other governmental charges imposed in connection with putting
Products in FMC's possession in the United Kingdom. All deliveries shall be
accompanied by a certificate containing the lot numbers, drum numbers,
certificates of analysis and the analytical approval dates for the
shipment. Ownership of and the risk of loss on Products shall pass to FMC
from DONLAR upon delivery to FMC on such terms.
Page - 2
<PAGE> 3
3. Price. The price for Products during the 1996 calendar year is set
forth on Schedule A. On or before December 1 of each year, DONLAR shall
propose a price schedule for the upcoming calendar year. Any agreed upon
price schedule must be in writing and signed by both parties. If the parties
are unable to agree on the effective price schedule by January 1 of that
upcoming calendar year, then either party may by written notice to the
other party terminate this Agreement under Section 6B(i) below and, until
such termination is effective, the price schedule for the prior year shall
apply to all Product sold to FMC. Under no circumstances shall DONLAR
exercise control over, influence, or be consulted regarding the prices for
FMC's sales of Products.
4. Payment. Payment shall be made by FMC to DONLAR in British Pounds Sterling
by electronic transfer within sixty (60) days from the delivery date of
Products pursuant to Section 2C (hereinafter referred to as "Delivery Date")
for all Products meeting the applicable specifications set forth in
Schedule B.
5. Market Development Activities.
A. FMC. FMC intends to market the Products under FMC's "Bellasol" trade
names. FMC will use its best efforts and bear all of its costs (including
all advertising) to promote and enhance the sale of the Products in the
Field. FMC will provide and maintain at its own expense facilities and
qualified personnel sufficient to provide a high standard of service in the
sale of Products to its customers in the Field and sufficient inventories
to meet its customers' needs. FMC shall comply with all applicable laws and
regulations during the course of performance of this Agreement and in
related activities, including registering this Agreement and any Product
where required. FMC shall bear costs of any testing required in connection
with such Product registration, but FMC retains ultimate discretion to
determine whether to undertake registration and associated costs in any
particular jurisdiction (i.e., will costs be justified by the anticipated
market opportunities there).
B. DONLAR. DONLAR shall sell Products to FMC meeting the applicable
specifications set forth in Schedule B and shall use reasonable diligence
to deliver Products to FMC pursuant to the individual sales contracts
agreed and confirmed in accordance with Section 2B, but shall not be
responsible for delay in delivery, or failure to deliver, any Products sold
hereunder for reasons which are beyond its reasonable control. DONLAR shall
furnish FMC on an ongoing basis with appropriate technical information and
product support in its possession to enable FMC to effectively market the
Products in the Field. DONLAR will also share with FMC (and represents that
it is so entitled to do) applicable Product technical and applications
information generated by or with British Petroleum ("BP") relating to the
Field, and will promptly inform BP of FMC's exclusive status under this
Agreement.
C. Joint Activity. The parties intend to work closely together and to
keep each other regularly informed of activities related to the Field that
may be pertinent to the Products. Each fall the parties shall review market
conditions, marketing strategy, Product requirements, long-range
Page - 3
<PAGE> 4
marketing plans and prices for the next year. In addition, FMC shall
keep DONLAR informed on a quarterly basis (or more frequently if the
parties so desire) regarding (i) FMC sales efforts and Product sales
effectuated, (ii) customer feedback on Products, (iii) status of Product
application testing, environmental testing and registrations, and (iv)
development or activity of products competitive with the Products. DONLAR
shall keep FMC informed on a regular basis of development or activity of
products competitive with the Products. The parties shall inform the other
party immediately of any potential injurious effects or side effects to
humans, other living creatures or the environment of any nature whatsoever
that could occur from the distribution, handling, storage or use of any of
the Products.
6. Term and Termination.
A. Term. The term of this Agreement shall commence as of the date first
above written and shall continue in full force and effect through December
31, 2000, and shall automatically thereafter renew for an additional five
(5) year term, unless at any time terminated pursuant to Section 6B.
B. Termination. This Agreement may be terminated prior to the
expiration of the term (or renewal term) specified in section 6A, in any of
the following:
(i) By either party, upon 120 days' prior written notice to the
other party.
(ii) If either party enters or is placed in bankruptcy, receivership or
liquidation, is nationalized, becomes insolvent or makes an
assignment for the benefit of its creditors, the other party may
terminate this Agreement forthwith by giving written notice of such
termination to the party.
(iii) By either party if the other party is in material breach or
default of any obligation required hereunder and such breach or
default has not been remedied within sixty (60) days after
receipt of written notice describing such breach or default.
C. Post Expiration/Termination Delivery of Product. If this Agreement
expires pursuant to Section 6A or is terminated pursuant to Sections 6B(i)
or 6B(iii), DONLAR's obligation to deliver Products shall be limited to the
delivery on the individual sales contracts agreed and confirmed prior to
such expiration or termination date. If this Agreement is terminated
pursuant to Section 6B(ii), the individual sales contracts then existing
but not performed shall be automatically cancelled.
D. Consequences of Expiration/Termination. Neither party, by reason of
the termination or expiration of this Agreement, shall be liable to the
other party for compensation, reimbursement or damages because of the
loss of goodwill, anticipated sales or prospective profits, or because of
expenditures, investments or other matters related to the performance
hereunder or to the business of the parties.
Page - 4
<PAGE> 5
E. Continuing Obligations. Neither termination nor expiration of this
Agreement shall relieve either party from the duty to discharge in full all
obligations accrued or due under this Agreement prior to the date of
termination or expiration.
7. Warranties and Representations.
A. Products. DONLAR warrants that Products delivered hereunder shall
meet the applicable product specifications, which is shown in Schedule B,
for twelve (12) months from the respective Delivery Date. DONLAR warrants
that it has previously disclosed to FMC all material information relating
to health, safety and environmental aspects of handling, storing and using
in the Field the Products, and that such information (including, without
limitation material safety data sheets for the Products) is true, complete
and accurate to the best of DONLAR's knowledge.
B. Technology and Exclusive Rights. DONLAR warrants and represents to
FMC that (i) it possesses full rights, title and interest in and to any and
all patents, know-how and other property rights in every jurisdiction
throughout the world which may be necessary to make, distribute and use the
Products in the Field throughout the world (and hereby grants FMC and its
customers a license to practice the same throughout the duration of this
Agreement), and (ii) DONLAR's grant of any and all rights in this Agreement
to FMC and the disclosure of information hereunder does not breach or
violate any other agreement or obligation of confidentiality between DONLAR
and a third party, nor any governmental prohibitions.
C. Exclusion. Except for the above, DONLAR makes no representation or
warranty with respect to Products sold hereunder, whether express or
implied, including, but not limited to, any implied warranty of
merchantability or fitness for a particular purpose.
8. Patents; Trademarks and Confidentiality.
A. Patents. Each party shall promptly notify the other party in writing
with respect to any claim of infringement or alleged infringement of
patent, know-how or other intellectual property rights that may be brought
by a third party with respect to the manufacture, distribution or use of
the Products in the Field. DONLAR shall defend, indemnify and hold harmless
FMC against any claims of infringement or alleged infringement of patent,
know-how or other intellectual property right that may be brought by a third
party with respect to the distribution and/or use of Products in the Field
(except for claims respecting FMC trademarks).
B. Trademarks. FMC shall be free to use its own marks, names or trade
dress in connection with distribution of Products for use in the Field, and
DONLAR shall have no interest in and shall not register or use any mark,
name or trade dress of FMC. FMC shall defend, indemnify and hold harmless
DONLAR against any claims of infringement or alleged infringement of any
mark, name or trade dress that may be brought by a third party with
respect to FMC's distribution of Products in the Field.
Page - 5
<PAGE> 6
C. Confidentiality. The provisions of that certain Confidential and
Non-Analysis Disclosure Agreement dated July 26, 1994 and amended by letter
dated September 29, 1994 shall continue to apply to any confidentiality
designated disclosures from either party to the other party in connection
with performance hereunder.
9. Disputes. In the event of any dispute or difference of opinion
between the parties arising out of or in connection with this Agreement or
with regard to performance of any obligation hereunder by either party,
both parties shall use their best efforts to settle such dispute or
difference of opinion amicably through consultations. Unless otherwise
agreed in writing, if after six (6) months after any request for
consultations, the parties have failed to reach a settlement, any dispute,
controversy or claim arising out of or relating to this contract, or the
breach, termination or invalidity thereof, shall be finally settled by an
arbitration in accordance with the then current rules of the American
Arbitration Association. The number of arbitrators shall be three (3)
appointed in accordance therewith, at least one of which arbitrators being
named by each party. The place of arbitration shall be Philadelphia,
Pennsylvania, U.S.A. The language to be used in the arbitral proceedings
shall be English. Judgment on the award may be entered in any court having
jurisdiction over the parties.
10. Miscellaneous.
A. Notices. Any notice required or permitted herein may be hand delivered,
telexed, telecopied, cabled, mailed or air couriered, properly addressed to
the party at the address and attention set forth below or at the last known
address given by such party to the other party, and shall be deemed
effective upon receipt by the addressee (or under tender of delivery if the
addressee refuses delivery).
If to DONLAR If to FMC:
______________ Tenax Road
______________ Trafford Park
______________ Manchester M17 lWT, United Kingdom
Attn:_________ Attn: Marketing Executive,
Fax:__________ Process Industries, Water
Additives Business
Fax: 0161-875-3175
B. Waiver. A waiver of a breach of any of the provisions of this
Agreement shall not be deemed to be a waiver of any succeeding breach of the
same or any other provision of this Agreement.
C. Applicable Law. The construction, performance and completion of this
Agreement shall be governed by the laws of Illinois, U.S.A. The
unenforceability or invalidity of any provision of this Agreement shall not
affect the enforceability or validity of any other provisions of this
Agreement.
Page - 6
<PAGE> 7
D. Assignment. Neither party may assign this Agreement or any right,
interest or obligation under this Agreement without the prior written
consent of the other party and any purported assignment without such consent
shall be void and ineffective. Notwithstanding the preceding provision,
either party may assign its rights and delegate its performance hereunder,
in whole or in part, to any affiliated company, to any successor in interest
or transferee of that portion of its business that is directly involved in
the performance of this Agreement.
E. Entirety; Prior Agreements. This Agreement supersedes any and all
existing agreements, whether written or oral, between the parties relating
to the distribution of Products and all such prior agreements are hereby
deemed terminated by mutual consent of the parties. This Agreement,
including its Schedules, constitutes the full understanding of the parties
and a complete and exclusive statement of the terms of their agreement on
the subject matter hereof. No terms, conditions, understanding or agreement
purporting to modify or vary the term of this Agreement shall be binding
unless hereafter made in writing and signed by the party to be bound. No
modification shall be affected by the acknowledgment or acceptance of
purchase order or shipping instruction forms containing terms or conditions
at variance with those set forth herein.
F. Headings. The headings used in this Agreement are for convenience of
reference only and shall not be construed to limit, alter or modify this
Agreement in any regard.
G. Disclosure. The parties acknowledge that either party might be
required by law to disclose the existence of this Agreement or its terms and
conditions to governmental agencies or authorities throughout the world and
consent to any such disclosure.
Page - 7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written above.
DONLAR CORPORATION FMC CORPORATION (UK) LIMITED
BY: Bernardo N. Rico BY: Geoffrey F. Hignett
---------------------- --------------------------
Name: Bernardo N. Rico Name: G. Hignett
Title: Executive Vice President Title: Business Director
Page - 8
<PAGE> 9
SCHEDULE A
TO THE MARKET DEVELOPMENT AND DISTRIBUTION AGREEMENT
BETWEEN
DONLAR CORPORATION AND FMC CORPORATION (UK) LIMITED
Products
Sodium polyaspartate CAS No. 94525-01-6
Chemical Name: Poly-a, B-D, L-aspartic acid, sodium salt
Synonyms: Sodium Polyaspartate
L-Aspartic Acid, Homopolymer, Sodium Salt
Description: Anionic Amino Acid Polymer
Field
Applications in the oil field industry including
- - Metal corrosion inhibition
- - Downhole and topside inorganic scale inhibition
1996 Price for Products:
Volume Price U.S. Equivalent*
(metric tonnes) L./kg. ($lb.)
<15 1.317 (0.92)
15-50 1.260 (0.88)
51-200 1.174 (0.82)
>200 1.145 (0.80)
* using exchange rate of US $/L, 1.54
The price in the above price schedule which corresponds to the cumulative TOTAL
volume FMC has purchased during the entire year shall apply to all actual
metric tonnes of Products purchased that year. For administrative convenience,
the invoiced price FMC pays during the year shall be based on its forecast
demand. On or before January 31 of the next year the parties shall determine if
the actual total volume of Products FMC purchased was in a different
volume/price category and recalculate the total purchase price FMC should have
paid on such total volume, and the party owing any money to the other party
based on this recalculation shall remit such difference.
Page - 9
<PAGE> 10
SCHEDULE B
TO THE MARKET DEVELOPMENT AND DISTRIBUllON AGREEMENT
BETWEEN
DOLLAR CORPORATION AND FMC CORPORATION (UK) LIMITED
Products' Specifications
Common Chemical Name: Sodium Polyaspartate, S12-21
Colour: Yellow to Amber
Specific Gravity: 1.27-1.29 at 23 degrees C ASTMD-1298
pH (neat): 9.0-10.0 at 23 degrees C ASTM E-70
Flash Point:- None (PMCC) ASTM D-93
Actives: 39-42% polymer salt in an aqueous solution
Freeze Point: -10 degrees to -15 degrees C
Refractive Index: 1.41-1.43 at 20 degrees C
Solubility in Water: Very soluble
Form: Liquid
Product Specifications for other sodium polyaspartates will be agreed upon
Page - 10
<PAGE> 11
SCHEDULE C
TO THE MARKET DEVELOPMENT AND DISTRIBUTION AGREEMENT
BETWEEN
DONLAR CORPORATION AND FERRIC CORPORATION (UK) LIMITED
A product is defined as readily biodegradable if the following pass rates are
achieved in the following industry recognized OECD tests.
OECD Test No. Pass %
301A 70
301B 60
301C 60
301D 60
301E 70
301F 60
Page - 11
<PAGE> 1
EXHIBIT 10.7
COOPERATION AGREEMENT
This is a Cooperation Agreement between
Donlar Corporation (hereinafter called "Donlar") having an office at Bedford
Park, Illinois, U.S.A.,
and
BASF Aktiengesellschaft (hereinafter called "BASF") having
an
office at 67056 Ludwigshafen, Germany.
WITNESSETH
WHEREAS, Donlar owns patents and know how about the application of
polyaspartate products which are produced and marketed by Donlar in North
America (the "Products") in the agricultural field as a nutrient absorption
enhancer; and
WHEREAS, BASF has vast experience in the production, sales and application of
fertilizers and is able to test the effect of the Products as a nutrient
absorption enhancer in field trials under European and other geographic
conditions; and
WHEREAS, Donlar is interested in carrying out these trials to gain results
under different climatic and soil conditions to optimize Product sales and
application; and
WHEREAS, BASF agrees to conduct these field trials initially in Germany during
the year 1997 and upon positive results in other regions to be defined during
the remaining 5 year term of this Agreement; and
<PAGE> 2
WHEREAS, Donlar offers to BASF then mutual exclusive distributorship for the
Products in Europe, and then on a region - by - region basis outside North
America (USA, Canada and Mexico), wherever BASF decides after consultation with
Donlar, that there is market potential and where BASF possesses or is able to
establish the necessary marketing and distribution facilities for the Products
as a nutrient absorption enhancer. "Mutual exclusive distributorship" means
that Donlar is the exclusive supplier of Products to BASF, and BASF is the
exclusive distributor of Product (except for North America and those regions
where BASF declines distributorship); and
WHEREAS, Donlar and BASF desire to engage in a mutually beneficial business
relationship based on close cooperation and frequent communication;
NOW THEREFORE, in consideration of the mutual terms and agreements hereinafter
set forth, the parties hereto do hereby agree as follows:
1. TECHNICAL COOPERATION
1.1. The parties shall cooperate in the development of the Products as a
nutrient absorption enhancer in the agricultural field (hereinafter referred to
as the "Agreement Field") according to the following division of work:
a) DONLAR
aa) Donlar shall disclose to BASF during the term of this Agreement all its
present and future technical and commercial expertise and know how in the
Agreement Field in
<PAGE> 3
written and if necessary in oral form and grant BASF experts access to all
relevant data.
bb) Donlar shall exercise its best efforts to speedily react on all suggestions
made by BASF as a result of its field trials with the Products and adjust the
Products to the requirements of the crops and the environmental, legal,
applicational, commercial etc. requirements of the prospective markets.
b) BASF
aa) BASF shall disclose to Donlar during the term of this Agreement all its
present and future technical and commercial expertise and know how in the
Agreement Field correspondingly to Donlar's obligation.
bb) BASF shall carry out first in Germany and then in other regions outside
North America in priority sequence of their market potential, field trials of
the Products with crops jointly identified by the parties. The cost incurred by
BASF in 1997 for such trials shall be borne by BASF.
If the Scientific Analysis for 1997 indicates that the results are less than
satisfactory, the parties shall decide whether to terminate this Agreement or
continue testing for one more year. If the parties renew testing for one more
year the cost for the field trials of the Products in the different countries
shall be equally shared by the parties.
1.2. The schedule for the cooperation in 1997 is attached hereto as Appendix 1.
If, during the period of cooperation, the results of individual phases of this
work require changes in the schedule the parties shall determine any such
changes on a case-by-case basis.
<PAGE> 4
1.3. The parties shall establish an Executive Committee consisting of two
members from Donlar and two members from BASF. One member from each group shall
be of "officer" rank. The Executive Committee, operating through majority vote,
shall decide all research projects, all research protocols, all business plans
and resolve any problems. The Executive Committee shall meet or conference once
per month, at alternating host sites.
1.4. Donlar shall be permitted to assist in and inspect all trials, to insure
proper application and methodology.
1.5. The parties shall inform each other regularly of the results of their work
on the AGREEMENT FIELD.
1.6. Each party shall retain sole responsibility for its work. If one of the
parties contracts a third party to carry out its work, it does so in its own
name and at its own expense, and will ensure that proper confidentiality
arrangements are in place.
1.7. The parties shall carry out with utmost care and diligence all tasks
pursuant to this Agreement. They shall base their work on the latest state of
the art in science and technology that they have achieved.
2. ORGANIZATION OF TRIAL AND DEVELOPMENT WORK
2.1 BASF shall test the Product on multiple crops and in multiple geographical
soil conditions. Each year new crops and new geographies and soil conditions
shall be identified for testing.
2.2 At the end of each crop growing season a detailed scientific analysis shall
be conducted on each test crop
<PAGE> 5
with respect to yield data, maturation, nutritional analysis, size of plant and
applicational method (the "Scientific Analysis"). The Scientific Analysis shall
be completed within two months after each crop growing season.
2.3 BASF will regularly report on its observations with regard to the test
crops and the parties will discuss the consequences for the adaptation of the
Products. Donlar will keep BASF informed on all its development work and will
exercise its best efforts to satisfy all reasonable demands of BASF with regard
to the adjustment of the Products to the physical and commercial requirements.
3. COMMERCIAL COOPERATION
3.1 Based on the results of the Scientific Analysis, the parties shall conduct
a commercial feasibility study and decide whether the Product is "Viable" for
commercial development for a particular crop in a particular region. This
determination shall be made within one month after the preparation of the
Scientific Analysis. "Viable" means that the Product has the potential to
produce an acceptable return to the grower for a particular crop, given the
fertility practices and yield data of the particular market and region, has the
potential to be successfully marketed in the particular region with acceptable
profit for both parties, and has the potential to be successfully registered
for use and sale in the region with the appropriate regulatory authorities.
3.2 If the parties believe that the Product is Viable in a particular region,
then, within three months after the determination of Viability, the parties
shall agree on the terms and conditions of the mutually exclusive
distributorship of BASF of the Products in the respective region.
<PAGE> 6
Any such sole distributorship agreement shall be valid for a fixed
period of 5 years starting with the first commercial sale of the Products for
application as a nutrient absorption enhancer in the respective region and
shall thereafter be automatically extended for further periods of 2 years
unless terminated by either party by giving six (6) months prior notice to the
end of the initial term or each subsequent term.
Unless the parties agree otherwise the profits resulting from the sale
of the Products in the Agreement Field shall be equally shared. In order to
properly assess the profit each party shall disclose to the other party or a
neutral chartered accountant firm acceptable to the other party its cost
incurred in manufacturing, marketing and selling the Products.
The marketing policy will be decided by BASF upon consultation with Donlar.
Donlar will exercise its best efforts to ensure that the Products are available
in sufficient quantities to meet the demand of the markets developed by BASF.
3.3 Products that are deemed to be Viable by the parties shall be registered
for sale and use in the appropriate regions. Registrations shall be filed in
the appropriate regulatory offices within three months after the determination
of Viability.
3.4 If Donlar believes that, after giving BASF one crop growing season for
testing or if BASF rejects to carry out such field trials, the Product is
Viable for a particular region, and BASF believes, that it is not Viable
Donlar shall have the right to commercially exploit the Product in
<PAGE> 7
such region, provided Donlar does not infringe on any trademark, design mark or
service mark of any BASF product.
3.5 Joint inventions made by employees of both parties shall be the entitlement
of both parties in equal parts. Unless the parties agree otherwise, joint
inventions shall be applied for in the name of both parties. Before their
filing the parties will reach an agreement in particular about the wording of
these applications and the countries in which they will apply for property
rights. Licenses to third parties shall be awarded by mutual consent between
the parties. Affiliated companies as defined by 15 Aktiengesetz (German
Corporation) Act and the U.S. Securities Exchange Act) are not considered to be
third parties. In countries in which a party is not interested in applying for
and/or maintaining such property rights, the other party shall be entitled to
proceed alone in its own name and at its own expense.
The parties expect and presume that all inventions will be joint
inventions. If a party believes that it has made the invention independently
from the know how disclosed to it by the other party, it shall have the burden
of proof for the fact that its invention was not derived from the proprietory
information received from the other party.
3.6 The parties shall grant each other licenses under any patents obtained for
their inventions made independently from the other party in the AGREEMENT
FIELD. The license fee shall be the lesser of 2 % of the net sales value of the
licensed product or a lower license fee obtained from an unaffiliated third
party.
4. SECRECY AND PUBLICITY
<PAGE> 8
4.1. The parties shall ensure that its employees or third parties carrying out
the work under this Agreement keep confidential any and all technical know-how
and information to which the supplying party gives them direct or indirect
access under this Agreement. They shall also ensure that no access to such
information is granted to third parties without the supplying party's prior
written consent. This secrecy obligation shall not apply to technical know-how
and information
- - of which the receiving party already had prior knowledge, and which did not
come directly or indirectly from the supplying party, or from a third party
under confidentiality with the supplying party,
- - which is of public knowledge, provided that it became public knowledge
without a violation of this secrecy obligation,
- - which becomes legally available to the receiving party without an
obligation to maintain secrecy,
- - which the supplying party, through express written consent, has allowed to
be passed on or made known.
4.2. The parties shall ensure that any manuscripts that their employees might
prepare for publication, in which they report results of the research work
under this Agreement, are submitted to the other party for review at least six
(6) weeks prior to publication, so that an application for patent rights for
any inventions contained therein may be made in good time, and so that it may
be ensured that such publications do not contain any information which is
subject to the maintenance of secrecy pursuant to Article 4.1 above.
<PAGE> 9
4.3. Neither of the parties shall generate any press releases or otherwise
induce media coverage concerning their cooperation under this Agreement without
first obtaining the other party's written consent to any such press releases or
the contents of any such media coverage.
5. EFFECTIVE DATE AND TERM
5.1 This Agreement shall come into effect retroactively on March 1, 1997 under
the condition precedent that the board of directors of BASF and Donlar, as
required, have approved it, which approval shall be communicated forthwith to
the other party. Each party may rescind this Agreement if the condition
precedent has not been fulfilled by the end of May 1997.
This Agreement shall remain in force for five (5) years and terminate on
February 28, 2002; provided, however, that either party may terminate it at the
end of 1997, if it is not satisfied from the trial tests carried out in 1997
that the Products are Viable, or the parties have not agreed on a mutually
exclusive distributorship agreement for the Products in Europe, unless the
parties decide to extend the testing period for one more year; provided however
that if Donlar terminates this Agreement because it thought the Products not
Viable it shall give BASF the right of first refusal for its distributorship,
if Donlar later on decides to market the Products in the Agreement Field.
5.2. During the term of this Agreement, the Agreement can be terminated by one
party upon a breach by the other party of any of the terms and conditions of
this Agreement.
5.3. Notwithstanding anything to the contrary contained herein, the Secrecy
obligations contained in Section 4
<PAGE> 10
above shall expire ten (10) years after the termination of this Agreement.
6. Force Majeure
Events or circumstances over which the parties have no control, especially all
cases of force majeure, shall release the parties from fulfilling their
obligations hereunder during the duration of the event and to the extent of its
effects.
7. Amendments
7.1. If one or more provisions of this Agreement should be invalid for any
reason, the validity of the remaining provisions of this Agreement shall not be
affected. The parties agree to replace such invalid provisions in the Agreement
with new, valid provisions that correspond as closely as possible to the
intended purpose of this Agreement.
7.2. Any amendments or supplements to this Agreement shall be effective only if
agreed to in writing by both parties.
8. Governing Law
This Agreement shall be construed according to the laws of the United Kingdom.
9. Arbitration
Any disputes arising from this Agreement shall be settled under the provisions
regarding conciliation procedures of the Conciliation and Arbitration Rules
established by the London Chamber of Commerce. In the event that conciliation
procedure fails, the case shall be submitted to the court
<PAGE> 11
of Arbitration of the London Chamber of Commerce for final decision pursuant to
the said Conciliation and Arbitration Rules.
Frankfurt the 3rd day of April 1997
BASE Aktiengesellschaft Donlar Corporation
Jeff Erhardt von Sponeck Bernando Rico
Erhardt von Sponeck Rico
<PAGE> 1
EXHIBIT 10.8
JOINT TECHNOLOGY AGREEMENT
THIS AGREEMENT dated as of June 20, 1996, by and between National
Starch and Chemical Company, with its principal offices at 10 Finderne Avenue,
Bridgewater, New Jersey 08807 ("NSC"), and Donlar Corporation, with its
principal offices at 6502 South Archer Avenue, Bedford Park, Illinois 60501
("Donlar").
RECITALS
Donlar holds patents and know-how relating to the composition,
manufacture and use of homopolymers and copolymers of thermal polyaspartate
(TPA). National Starch is experienced in the development and marketing of
polymers for use in certain industries and markets where derivatives of TPA may
offer high-value solutions for end users.
Donlar and National Starch desire to enter into this Agreement for the
purpose of developing and commercializing technology relating to derivatives of
TPA in accordance with the terms of this Agreement.
ARTICLE I
DEFINITIONS. For the purposes of this Agreement, the following terms
have the following definitions:
(i) National Starch Fields. Textile treatment water
treatment/corrosion control, industrial dispersants,
detergents, cleaning products for industry and institutions,
personal care including hair, skin and dental products,
adhesives and paper products, including wet and dry ends,
tissue and towel.
(ii) Donlar Fields. Agriculture, superabsorbents and oilfield
chemicals.
(iii) Shared Fields. Pharmaceuticals.
(iv) TPA. Homopolymers and copolymers of thermal polyaspartates.
(v) PSI. Polysuccinimide intermediate used to produce TPA.
(vi) Products. Derivatives of TPA and derivatives of PSI other than
TPA, which Products are developed by NSC and/or Donlar pursuant
to written protocol established by the Executive Committee and
any modifications of protocol which may be made in writing from
time to time under and during the term of this Agreement by the
Executive Committee and delivered according to Article IX.
(vii) Joint Technology. All inventions, patentable or otherwise,
trade secrets, discoveries, ideas, writings, know-how, and
other advances or findings which are directed to the Products,
processes for manufacturing the Products or end-uses of the
Products in those specific fields of use included within the
respective National Starch and Donlar Fields, and which are
developed by NSC and/or Donlar under and during the term of
this Agreement.
(viii) Purpose. To develop and commercialize Products and Joint
Technology.
<PAGE> 2
(ix) Party-owned Technology. That technology related to Products
which One Party possesses prior to the effective date of this
Agreement or develops and/or acquires independently of the
Other Party subsequent to the effective date of this Agreement,
and which is disclosed under and during the term of this
Agreement.
(x) Net Sales. Gross revenues from the sale of Products, net of
freight, insurance, transfer taxes and similar expenses, less
any returns and allowances.
(xi) Gross Margin. Sales price less cost of raw material and
manufacturing.
ARTICLE II
POWERS, RIGHTS AND DUTIES OF
THE EXECUTIVE COMMITTEE AND THE PARTIES
Section 2.1. The Parties will form an Executive Committee consisting of
either four or six members, as the Parties may determine from time to time.
Each Party will appoint 50% of the members to the Executive Committee.
Executive Committee decisions require the affirmative concurrence of at least a
majority of the members of the Executive Committee. Decisions of the Executive
Committee will be memorialized in writing.
Section 2.2. The Executive Committee will meet on a schedule it
determines, but at least quarterly. Unless otherwise agreed by a majority of
the Executive Committee, meeting sites will alternate between Donlar's office
in Bedford Park, Illinois and National Starch's office in Bridgewater, New
Jersey.
Section 2.3. The Executive Committee shall endeavor to structure the
research and development activities such that each Party, on the average over
time, makes contributions of resources roughly equal to that contributed by the
other Party. Resources may include cash, the use of personnel, and operating
expenses with respect to research and development activities.
Section 2.4. Should any dispute relating to the Purpose arise between
the Parties, the Parties will direct the Executive Committee to attempt to
resolve the dispute and will give the Executive Committee a reasonable period
of time to attempt to do so. Should the Executive Committee be unable to
resolve the dispute within a reasonable time, either Party may terminate this
Agreement as provided in Article VIII.
Section 2.5. The Parties shall utilize their best efforts to comply
with the decisions of the Executive Committee.
Section 2.6. Among other things, the Executive Committee will be
responsible for the following matters:
(a) Identifying, establishing and approving research and
development activities and evaluating progress and results of
research and development activities.
(b) Establishing what resources may be required in order to conduct
the Purpose efficiently and allocating to each Party their
respective fair contribution of such resources.
(c) Developing and administering a patent strategy regarding Joint
Technology, including without limitation, determinations as to
whether and in which jurisdictions to seek patent protection,
the Party responsible for preparing, filing and prosecuting
patent applications,
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<PAGE> 3
maintenance of patents around the world, enforcement/defense of
patents, and expenses accrued in conducting the patent strategy.
(d) Establishing royalty rates with respect to any rights and
licenses granted to either Party under this Agreement and from
time to time adjusting such royalty rates according to Articles
IX and X.
ARTICLE III
TECHNOLOGY RIGHTS
Section 3.1. The Parties agree that all Joint Technology and the rights
associated therewith will be owned jointly by the Parties, whether or not the
Joint Technology is developed jointly by personnel of both Parties or
independently by personnel of one Party.
Section 3.2. Donlar hereby grants to National the worldwide, exclusive
right and license to use Joint Technology in order to make, have made, sell,
offer to sell and use Products in the National Fields, subject to the
provisions of Article IV; provided that, the rights and licenses granted
hereunder shall become nonexclusive upon the tenth anniversary of the
expiration or termination of this Agreement.
Section 3.3. National hereby grants Donlar the worldwide, exclusive
right and license to use Joint Technology anywhere in the world in order to
make, have made, sell, offer to sell and use Products in the Donlar Fields,
subject to the provisions of Article IV; provided that, the rights and licenses
granted hereunder shall become nonexclusive upon the tenth anniversary of the
expiration or termination of this Agreement.
Section 3.4. Each Party hereby grants to the Other Party the worldwide,
exclusive right and license to use Party-owned Technology in order to make,
have made, sell, offer to sell and use Products in the Party's respective
Fields as defined in Article I, subject to the provisions of Article IV;
provided that, the rights and licenses granted hereunder shall become
nonexclusive upon the tenth anniversary of the expiration or termination of
this Agreement.
Section 3.5. Each Party shall have the nonexclusive right to utilize
Joint Technology in the Shared fields.
Section 3.6. Except as provided in Section 3.6.(b), the rights of the
parties in patents directed to the Joint Technology shall be governed by United
States Code Title 35.
(a) With respect to patent applications and patents directed to
Joint Technology, the Parties shall share equally in expenses
relating thereto and shall jointly own all right, title and
interest in any patent issuing thereon. Such expenses shall
include, without limitation, United States Patent and Trademark
Office fees incurred in the filing, prosecution and granting
thereof, or opposition of any foreign patent application or
patent, including costs and expenses of foreign patent agents
or foreign patent office fees, and any taxes, annuities or
maintenance fees required on any pending U.S. or foreign
applications or on any U.S. or foreign patents issued thereon.
The expenses further shall include any U.S. Patent and
Trademark Office fees incurred in reexamination or reissue of
such patents or in any interference proceeding to which such
patents may be subjected.
(b) In the event that one Party elects not to share equally in the
expenses relating to a particular application or patent
directed to the Joint Technology, or fails at any time to
render payment of such expenses, then all right, title and
interest in any such patent
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<PAGE> 4
application or any patent issuing thereon shall be deemed to be
the exclusive property of the other Party, and the Party
electing not to share equally in the noted expenses shall, at
the expense of the other Party, cooperate with the other Party,
or any person to whom the other Party may have assigned its
rights in any such applications or patents, in securing for the
other party or such assignee any applications or patents which
the other Party may seek anywhere in the world, and the Party
electing not to share equally in the expenses and persons
employed by or otherwise engaged by the Party shall, at the
expense of the other Party, execute, acknowledge and deliver to
the other Party or the other Party's assignee all instruments
which the other Party shall reasonably require, give evidence
and do all things which are necessary or desirable to enable
the other Party or its assignee to file and prosecute
applications for, and to acquire, maintain and enforce in all
countries, all letters patent covering such Joint Technology.
ARTICLE IV
ROYALTY PAYMENTS
Section 4.1. In consideration for the rights and licenses granted under
Article III, One Party shall pay directly to the Other Party a royalty equal to
five (5) percent of the One Party's Net Sales of Products in the One Party's
respective Fields and in the Shared Fields.
Section 4.2. The obligations to pay royalty under Section 4.1. shall
expire ten (10) years after the date of expiration or termination of this
Agreement.
Section 4.3. Royalty payments shall be remitted on a quarterly basis
with a statement setting forth the amount of royalty due. Quarter periods
hereunder shall run in any calendar year as follows: January 1-March 31, April
1-June 30, July 1-September 30 and October 1-December 30. The statement and
accompanying royalty payment shall be remitted not more than thirty (30) days
after the end of the quarter for which the royalty payment is due.
Section 4.4. Each Party will allow reasonable access to its records
during ordinary business hours by a mutually agreed upon auditor/accountant to
review the calculation of the royalty payments. Any such inspection shall be at
expense of the Party requesting the audit and any report prepared by the
auditor/accountant shall be considered as Confidential Information and governed
by Article VI.
ARTICLE V
COOPERATION AND INDEMNIFICATION
Section 5.1. Conduct of Business. Each Party shall participate as is
reasonably necessary and as is requested by the Executive Committee in the
conduct of the Purpose. Nothing in this Agreement shall preclude the employment
of any agent or third party (whether or not such agent or third party is
affiliated with or in any way related to any Party) to manage or provide
services to the Purpose subject to the approval and control of the Executive
Committee.
Section 5.2. Donlar agrees to defend, indemnify and hold harmless
National Starch, its agents or employees from and against all claims, actions,
judgments, losses and expenses, including attorney fees, sustained or incurred
by National Starch, its agents or employees which arises or results from (1)
the performance, failure to perform, or improper performance of work under this
Agreement by Donlar or any other breach by Donlar of the terms and provisions
of this Agreement, (2) Donlar's receipt,
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<PAGE> 5
possession, handling, processing, manufacturing, packaging or shipment of any
raw materials, intermediates and/or Products, (3) any violation or alleged
violation by Donlar of any federal, state or local statutes, ordinances,
orders, rules, regulations or directives applicable to the receipt, possession,
handling, processing, manufacturing, packaging or shipment of the Products or
any raw materials or intermediates used in the manufacture of the Product or
the disposal of any waste or by-product arising or resulting form the
manufacture of the Products, (4) any negligent or willful act or omission of
Donlar, its employees, subcontractors or agents, or (5) the generation,
handling, storage, treatment or disposal of any solid or liquid waste or
by-products arising or resulting from the manufacture of the Products.
Section 5.3. National Starch agrees to defend, indemnify and hold
Donlar, its agents or employees harmless from and against all claims, actions,
judgments, losses and expenses, including attorney fees, sustained or incurred
by Donlar, its agents or employees which arises or results from (1) the
performance, failure to perform, or improper performance of work under this
Agreement by National or any other breach by National of the terms and
provisions of this Agreement, (2) National's receipt, possession, handling,
processing, manufacturing, packaging or shipment of any raw materials,
intermediates and/or Products, (3) any violation or alleged violation by
National of any federal, state or local statutes, ordinances, orders, rules,
regulations or directives applicable to the receipt, possession, handling,
processing, manufacturing, packaging or shipment of the Products or any raw
materials or intermediates used in the manufacture of the Product or the
disposal of any waste or by-product arising or resulting form the manufacture
of the Products, or (4) any negligent or willful act or omission of National,
its employees, subcontractors or agents, or (5) the generation, handling,
storage, treatment or disposal of any solid or liquid waste or by-products
arising or resulting from the manufacture of the Products.
ARTICLE VI
CONFIDENTIALITY
Section 6.1. Confidential information disclosed in tangible form will
be conspicuously marked to identify its ownership, for example by the following
legend:
"CONFIDENTIAL - PROPERTY OF <NAME OF PARTY>".
The confidentiality of Confidential Information disclosed in
non-tangible form, such as oral or visual disclosures, must be confirmed in
writing within thirty (30) days of such disclosure.
Section 6.2. Each Party will preserve the other Party's Confidential
Information in strict confidence and safeguard its confidentiality in
accordance with good industrial operating practice and with the same care and
protections that the Party accords to its own confidential proprietary
information.
Section 6.3. Neither Party will use the Confidential Information of the
other Party except for the performance of the Purpose.
Section 6.4. Confidential Information shall include all proprietary and
Confidential Information pursuant to Section 6.1, including but not limited to
all technical information relating to the Products, processes for manufacturing
the Products and end uses of the Products, and customer names or related
business information of either Party.
Section 6.5. The obligations of confidentiality specified in this
Article shall not apply to any Confidential Information which (1) is at the
time of disclosure, or thereafter becomes other than through the fault of the
receiving party, generally available to the public, (2) was known to the
receiving party prior to the disclosure thereof by the other party, (3) is
disclosed to the receiving party by a third party
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<PAGE> 6
who is not thereby in breach of any confidentiality obligation to the other
party with respect thereto, or (4) is independently developed by the receiving
party as evidenced by its records.
Section 6.6. The provisions of this Article shall survive the
termination or expiration of this Agreement.
ARTICLE VII
TERM
The Term of this Agreement commences of the date of execution and
continues for a period of ten (10) years thereafter, unless terminated
previously by either Party according to Article VIII hereof.
ARTICLE VIII
TERMINATION
Section 8.1. This Agreement shall terminate on the first to occur of
the following dates:
(i) The date of expiration of the term of this Agreement pursuant to
Article VII.
(ii) Sixty (60) days after the date of the institution of bankruptcy
proceedings against either Party, provided that the bankruptcy proceeding is
not terminated within the sixty (60) days.
(iii) By express written agreement of both Parties.
(iv) By either Party upon giving the other Party written notice of its
intent to terminate not less than sixty (60) days prior to such termination
date.
(v) One Party breaches any material term or condition of this Agreement
and fails to remedy the breach within sixty (60) days after being given notice
thereof by the other Party.
Section 8.2. For purposes of this Agreement, the "bankruptcy proceeding"
shall be: (a) the filing of an application by such Party for, or a consent to,
the appointment of a trustee of the Party's assets; (b) the filing by such Party
of a voluntary petition in bankruptcy or the filing of a pleading in any court
of record admitting in writing to inability to pay debts as they come due; (c)
the making by such Party of a general assignment for the benefit of creditors;
(d) the filing by such Party of an answer admitting the material allegations of,
or consenting to, or defaulting in answering, a bankruptcy petition filed
against such Party in any bankruptcy proceeding; or (e) the entry of an order,
judgment or decree by any court of competent jurisdiction adjudicating such
Party as bankrupt or appointing a trustee of such Party's assets, which order,
judgment or decree continues unstayed and in effect for any period of sixty
(60) days.
Section 8.3. Termination of this Agreement shall not release either
Party from any liability which at the time of termination has already accrued to
the other Party or which thereafter may accrue in respect of any act or omission
prior to such termination, nor shall any such termination hereof affect in any
way the survival of any right, duty or obligation of the other Party which is
expressly stated elsewhere in this Agreement to survive termination hereof.
Section 8.4. The provisions of Articles III, IV, V and VI shall survive
the termination or expiration of this Agreement.
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<PAGE> 7
Section 8.5. Upon termination or expiration of this agreement, the
parties will have the following rights/obligations.
(a) For a time period of ten (10) years, commencing on the date of
termination or expiration of this Agreement, National agrees to
purchase its entire requirement of TPA and/or PSI from Donlar and
Donlar agrees to supply National with National's entire requirement of
TPA and/or PSI. Should Donlar fail for any reason to supply National
its entire requirement of TPA and PSI, then Donlar grants to National a
royalty-free license under any rights which Donlar may possess and
which may be necessary for National to make or have made those
quantities of TPA and/or PSI which are required to fulfill National's
entire requirement of TPA and PSI.
(b) The price at which Donlar sells and National purchases TPA
and/or PSI pursuant to Section 8.5 (a) is to be negotiated and agreed
upon in good faith by the parties hereto within thirty (30) days of
such termination or expiration and adjusted annually thereafter as set
forth below. Should the parties not agree upon a price within the
thirty (30) days of such termination or expiration, then the price is
to be set at the current or most recent price at which National is or
was purchasing TPA and/or PSI and adjusted annually thereafter as set
forth below.
(i) In the event that National has purchased TPA and/or PSI
over the previous twelve (12) month period, the price will be
calculated to be the current or most recent price at which
National is or was purchasing TPA and/or PSI, adjusted to
reflect the actual cost pass-through of aspartic acid and/or
maleic anhydride used to prepare the TPA and/or PSI.
(ii) In the event that National has purchased TPA but has
not purchased PSI over the previous twelve (12) month period,
the price of PSI will be calculated such that the Percent Gross
Margin for the PSI will be the same as the Percent Gross Margin
for that particular TPA which is produced or would be produced
from the PSI.
(iii) In the event that National has purchased PSI but has
not purchased TPA over the previous twelve (12) month period,
the price of TPA will be calculated such that the Percent Gross
Margin for the TPA will be the same as the Percent Gross Margin
for that particular PSI from which the TPA is produced or would
be produced.
(iv) In the event that National has purchased neither TPA
nor PSI over the previous twelve (12) month period, the price
will be based upon the price of the TPA and/or PSI which Donlar
has sold the largest quantity of over the previous twelve (12)
month period.
(c) Notwithstanding Sections 8.5.(a) and 8.5.(b), at all times, the
price at which Donlar sells and National purchases a particular TPA
and/or PSI pursuant to Section 8.5 shall be no more than the lowest
price at which Donlar sells a TPA and/or PSI having equivalent chemical
and physical properties to any third party; and Donlar hereby agrees to
sell the particular TPA and/or PSI to National at the lowest price at
which Donlar sells a TPA and/or PSI having equivalent chemical and
physical properties to any third party.
Section 8.6. Each Party will allow reasonable access to its records
during ordinary business hours by a mutually agreed upon auditor/accountant to
review and verify the calculation of the prices of TPA and/or PSI. Any such
inspection shall be at expense of the Party requesting the audit and any report
prepared by the auditor/accountant shall be considered as Confidential
Information and governed by Article VI.
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<PAGE> 8
ARTICLE IX
NOTICES
Section 9.1. All notices and demands required or permitted under this
Agreement shall be in writing and may be sent by certified, registered or first
class mail, postage prepaid, or delivered to the Parties personally or by
messenger, courier, overnight express, telecopy, telex or other electronic
means, or other commercially customary means of delivery, at their addresses as
shown beneath their respective signatures to this Agreement. Any Party may
specify a new address for service of notice by notifying the other Party in
writing of such new address, which change shall become effective upon receipt
of such notice by the Party to whom the notice is directed.
Section 9.2. Any notice or other communication required or permitted
under this Agreement shall be deemed to have been duly given (i) on the date of
delivery, if delivered personally (or upon tender of deliver, if deliver of the
notice is refused), (ii) on the business day after dispatch by documented
overnight delivery service such as Federal Express, if sent in such manner, or
(iii) on the date of transmission by telecopy or telex or other means of
electronic transmission, if so transmitted, provided that a confirmation copy
of any such electronic transmission is sent no later than the business day
following the day of electronic transmission by documented overnight delivery
service or first class mail, postage prepaid.
ARTICLE X
AMENDMENT OF THE AGREEMENT
This Agreement may be amended in any respect only upon the joint
written consent of the Parties.
ARTICLE XI
MISCELLANEOUS
Section 11.1. This Agreement constitutes the entire agreement between
the Parties with respect to its subject matter. It supersedes any prior
agreement or understanding between them, and it may not be modified or amended
in any manner other than as set forth in Article X of this Agreement.
Section 11.2. This Agreement and the rights and duties of the Parties
shall be governed by and interpreted in accordance with the laws of the State
of Illinois.
Section 11.3. Except as herein otherwise specifically provided, this
Agreement and all rights, obligations and liabilities arising hereunder shall
be binding upon and inure to the benefit of the Parties and their successors
and assigns.
Section 11.4. Wherever from the context it appears appropriate, each
term stated in either the singular or the plural shall include the singular and
the plural, and pronouns stated in either the masculine, the feminine or the
neuter gender shall include the masculine, the feminine and the neuter.
Section 11.5. Captions contained in this Agreement are inserted only as
a matter of convenience and in no way define, limit or extend the scope or
intent of this Agreement or any provisions hereof.
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<PAGE> 9
Section 11.6. 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 to which it is held invalid shall not be
affected thereby and shall continue to be binding and in force.
Section 11.7. In the event either of the parties by reason of an Act of
God, including fire, windstorm and flood; by inability to obtain raw materials,
supplies, fuel or power, by work stoppage caused by strike or other labor
dispute; by governmental prohibitions; or by any other cause unrelated to acts
or omissions of the party suffering such disability, suffers the inability to
perform all or any portion of its obligations under this Agreement, except for
payment of invoices, then the party suffering such disability shall be excused
from such performance for so long as such event causes such inability to
perform. Such party affected by any such event shall immediately notify the
other party and indicate the expected duration of such interruption.
Section 11.8. This Agreement shall not be assigned or transferred by
Donlar or NSC by operation of law or otherwise, whether in whole or in part,
without the prior written consent of NSC or Donlar, respectively, which consent
will not be unreasonably withheld.
Section 11.9. At any time or from time to time on and after the date of
this Agreement, each party shall, at the request of the other party (i) deliver
to the requesting party such records, data or other documents consistent with
the provisions of this Agreement, (ii) execute, and deliver or cause to be
delivered, all such assignments, consents, documents or further instruments of
transfer or license, and (iii) take or cause to be taken all such other
actions, as the requesting party may reasonably deem necessary or desirable in
order for the requesting party to obtain the full benefits of this Agreement
and the transactions contemplated hereby.
Section 11.10. Donlar and National Starch shall at all times and for
all purposes under this Agreement be considered independent contractors.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective noted dates.
DONLAR CORPORATION NATIONAL STARCH AND CHEMICAL
COMPANY
By: Larry P. Koskan By: Eugene Elzy
------------------------------ -------------------------------------
EUGENE IZY
VICE PRESIDENT
GENERAL MANAGER,
TITLE: President TITLE:RESINS AND SPECIALTY CHEMICALS
--------------------------- ----------------------------------
DATE: June 20, 1996 DATE: June 21, 1996
--------------------------- -----------------------------------
ADDRESS FOR NOTICE: ADDRESS FOR NOTICE:
6502 SOUTH ARCHER AVENUE 10 FINDERNE AVENUE
BEDFORD PARK, IL 60501 BRIDGEWATER, NJ 08807
Attn: Mr. Larry Koskan Attn: Mr. Eugene Elzy
Mr. Bernardo Rico Mr. Carmine P. Iovine
Mr. Win C. Cooke
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<PAGE> 1
EXHIBIT 10.9
DISTRIBUTOR AGREEMENT
THIS AGREEMENT dated as of June 20, 1996, 1996 between Donlar Corporation
("Donlar") and National Starch and Chemical Company ("National Starch").
The parties hereto agree as follows:
1. Appointment of National Starch. Donlar appoints National Starch as
Donlar's world-wide exclusive distributor of Donlar's homopolymers of
thermal polyaspartate products initially as set forth on Appendix A
("Products") to the exclusion of Donlar in the following fields: textile
pre-treatment, water treatment/corrosion control, industrial dispersants,
detergents, cleaning products for industry and institutions, industrial
dispersants, personal care including hair, skin and dental products,
adhesives, and paper products - wet and dry ends, tissue and towel
(collectively, the "Exclusive Fields"). Donlar also appoints National
Starch its non-exclusive distributor of the Products in the
pharmaceuticals field (the "Non-Exclusive Field"). The Exclusive Fields
and Non-Exclusive Field are collectively herein referred to as the
"Fields". National Starch will use its best efforts to promote sales of
Products in the Fields. Donlar retains and from time to time may grant
marketing and distribution rights in the Products to third parties in all
fields other than the Exclusive Fields, including but not limited to
agriculture, pharmaceuticals, super absorbents and oilfield chemicals.
National Starch will not knowingly distribute Products for use in any
applications other than the Fields.
Appendix A shall be amended from time to time during the term of this
Agreement to add any thermal polyaspartate products developed by Donlar
during the term of this Agreement which was not theretofore included in
Appendix A. Any such amendment of Appendix A shall also include the
mutually agreed initial price and volume for such Product. Appendix B
shall also be amended to set forth the Specifications for any such
Product.
2. Prices and Terms of Sale for Products. The prices for Products are as set
forth on the Price Schedule attached hereto as Appendix A . Sixty days
prior to the end of each year commencing with the year ending December 31,
1996, the parties will commence negotiations for a new Price List for the
Products. If the parties are unable in good faith to agree upon a new
Price List by December
<PAGE> 2
31 of any year, this Agreement will continue for one additional year and
the prices theretofore in effect shall continue during such additional
one year period. If the parties have not reached agreement on the prices
for the Products at the end of such additional year this Agreement shall
terminate automatically on that date.
All Products purchased hereunder by National Starch shall be pursuant to
the terms and conditions as set forth herein and in National Starch's
purchase order with respect to any such order for Products. Any terms,
conditions, or provisions in any other documents shall be null and void
and of no force and effect.
Upon Donlar's receipt of orders for the purchase of Products hereunder,
Donlar shall sell and deliver such quantities of the Products as National
Starch may from time to time order.
3. Specifications, Quality, Title and Ability to Manufacture. Donlar
represents and warrants that (i) all Products manufactured, packaged and
delivered by Donlar will meet the specifications set forth in Appendix B
attached hereto (the "Specifications"), (ii) the Products will be of good
and merchantable quality, (iii) Donlar has the necessary expertise and
equipment to manufacture, handle, package and ship the Products and (iv)
National Starch shall receive good and marketable title to the Products
free of any claims, liens or encumbrances.
4. Tradenames and Trademarks. Donlar acknowledges and agrees that (i) the
Products will be sold under National Starch's tradenames and trademarks
(ii) that National Starch is the sole owner of such trademarks and trade
names, (iii) Donlar shall not, throughout the term hereof or thereafter,
use such tradenames or trademarks or any one confusingly similar thereto,
except in connection with the solicitation of orders for National Starch.
Donlar agrees not to use in its commercial name any of the tradenames or
trademarks, or a tradename or trademark confusingly similar thereto and,
not to file in any country, directly or indirectly, an application for
registration of such tradenames or trademarks.
5. Purchase Targets and Extension or Termination of Agreement.
(a) The purchase targets for National Starch during the term of this
Agreement (excluding from such purchases for each year the total
amount of purchases by Henkel from Donlar for use in the Fields
during the twelve months preceding the date of this Agreement) are
as follows:
<PAGE> 3
(i) From the date of this Agreement through
December 31, 1996: $-0-.
(ii) Calendar year 1997: $700,000.
(iii) Calendar year 1998: $1,800,000.
(iv) Calendar year 1999: $3,000,000.
(v) The dollar sales volume for calendar year
2000 and each calendar year thereafter
shall be the sales volume in the prior
calendar year plus 10% of such amount.
(b) If sales of Products through December 31, 1997, 1998 or 1999 are less
than 85% of the target sales for such calendar year plus shortfalls,
if any, from the prior calendar year, the parties will promptly meet
to review the reasons for the shortfall and National Starch will
propose a marketing plan for achieving its goals in the succeeding
calendar year plus any such shortfall.
(c) If the sales of Product to National Starch in any year commencing
calendar year 1998 are less than seventy five percent (75%) of the
target sales for such year as set forth in Section 5 (a) above:
(i) Donlar may convert National Starch's distribution rights
herein granted to non-exclusive if Donlar reasonably believes
that National Starch's marketing proposal does not represent
a sufficient commitment of marketing resources to achieve the
next calendar year target to be effective at the end of the
next calendar year; and
(ii) National Starch may terminate this Agreement except
as to any outstanding purchase order if it reasonably
believes that the market potential for the Products or
Derivatives, as applicable, in the Fields is insufficient to
permit the sales targets set forth in Section 5 (a) to be
achieved with a reasonable level of marketing effort.
6. Term of Agreement. The term of this Agreement begins on the date it is
signed and continues through December 31, 1999. This Agreement shall
continue thereafter unless terminated by either party upon the giving to
the other party of not less than one year prior written notice provided,
however Donlar may not terminate this Agreement
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<PAGE> 4
pursuant to this Section 6 if National Starch has purchased at least
seventy five percent (75%) of the target purchases as set forth in
Section 5 (a)(v) above in the calendar year preceding the date of any
such notice.
7. Marketing Support. National Starch will develop technical and
applications information on the Products for the Fields and prepare
appropriate literature to support the marketing of the Products in the
Fields, all at National Starch's expense. National Starch will bear all
expenses it incurs in marketing and supporting Products in the Fields,
including advertising costs.
8. Communications and Reporting. National Starch will inform Donlar
regarding (a) customer feedback, (b) status and results of applications
testing, (c) competitive developments, and (d) other developments that
affect or may in the future affect sales of the Products in the Fields.
Donlar shall promptly communicate to National Starch all leads and
inquiries received by Donlar regarding the purchase of Products in the
Fields.
9. Information Sharing; Confidentiality. Each party will provide the other
party, in confidence, with technical information and marketing information
regarding Products, that is necessary to the other party's effective
performance of its functions under this Agreement.
Confidential information disclosed in tangible form will be conspicuously
marked to identify its ownership, for example by the following legend:
"CONFIDENTIAL - PROPERTY OF <NAME OF OWNER>".
Each party will preserve the other party's confidential information in
strict confidence and safeguard its confidentiality in accordance with
good industrial operating practice and with the same care and protection
that the party accords to its own confidential proprietary information.
Neither party will use the confidential information of the other party
except to perform this Agreement.
Confidential information shall include all proprietary and confidential
information, whether disclosed in tangible or non-tangible form,
including but not limited to all technical information relating to the
Products, processes for manufacturing the Products and end uses of the
Products, and customer names or related business information.
- 4 -
<PAGE> 5
The obligations of confidentiality specified in this Paragraph 11 shall
not apply to any Confidential Information which (1) is at the time of
disclosure or thereafter becomes, other than through the fault of the
receiving party, generally available to the public, (2) was known to the
receiving party prior to the disclosure thereof by the other party, (3)
is disclosed to the receiving party by a third party who is not thereby
in breach of any confidentiality obligation to the other party with
respect thereto, or (4) is independently developed by the receiving party
as evidenced by its records.
Donlar will keep confidential and not disclose to any person or entity
that Donlar is manufacturing and supplying the Products to National
Starch, except insurance or regulatory or other governmental agencies or
bodies or investors or potential investors in Donlar requesting said
information, or in the event the same is to be disclosed pursuant to
court order.
The provisions of Paragraph 10 shall survive the termination or
expiration of this Agreement.
10. Environmental and Safety. Donlar acknowledges that the Products and raw
materials used in the manufacture thereof contain hazardous or toxic
substances. Donlar shall at all times operate and maintain its plant in
compliance with all applicable federal, state, and local health, safety
and environmental laws and regulations governing the manufacture, handling
and packaging of the raw materials and/or the Products as well as all
other federal, state or local laws, rules, regulations, directives or
orders applicable to the manufacture of the Products. Donlar shall adhere
to all pertinent warnings or instructions of the manufacturers of any
materials used in the manufacture of the Products and undertake all
pertinent employee training programs to ensure compliance with any such
instructions. Donlar shall permit a qualified Health and Safety
representative of National Starch access to its plant during normal
business hours at any time during the term of this Agreement on reasonable
advance notice to verify compliance with the provisions of this Section
12.
Nothing in this Agreement shall be construed as requiring Donlar to
manufacture any Product when doing so would cause Donlar to be in
violation of any applicable health, safety or environmental laws or
regulations now or
- 5 -
<PAGE> 6
hereafter in effect.
11. Quality Control; Samples; Sample Retention. Donlar shall, at its expense,
perform quality control testing in accordance with its normal procedures
to ensure the Products meet the Specifications. Donlar shall have the
right to have any quality control testing which Donlar is not capable of
itself performing, performed by outside contractors acceptable to National
Starch.
Prior to shipment of any Products Donlar shall send to National Starch's
quality control department at NSC's facilities at ______________,
_______________ or such other location as National Starch may designate a
certificate of analysis of, and sample from, each such shipment of
Products. If National Starch determines that any such sample does not
meet the Specifications, National Starch will promptly notify Donlar of
the specific nature of such failure. Any such Product which does not meet
its Specifications shall be returned to Donlar at Donlar's sole cost and
expense. Donlar shall have access to one-half of the sample relating to
such returned Product for the purpose of submitting such sample to an
independent testing organization.
Donlar shall retain a sample from each batch for not less than one year.
Batch records and production records identifying lots of raw materials
used in the manufacture of a batch of Product shall be retained by Donlar
for three years.
12. Insurance. Donlar shall carry Workers' Compensation insurance coverage at
statutory limits, Employer's Liability insurance coverage in the amount of
$250,000 each accident; Comprehensive General Liability insurance coverage
with a Combined Single Limit-Bodily Injury and Property Damage of $1
million including contractual liability insurance coverage; naming
National Starch as an additional insured, covering the Product. Donlar
shall furnish National Starch with a certificate of insurance evidencing
such coverages and limits and containing a provision which requires the
insurer to use reasonable efforts to give NSC not less than 30 days prior
written notice in the event of cancellation of the insurance policy.
13. Indemnification. Donlar agrees to defend, indemnify and hold harmless
National Starch, its agents or employees from and against all claims,
actions, judgments, losses and expenses, including attorney's fees,
sustained or incurred by National Starch, its agents or employees
- 6 -
<PAGE> 7
which arises or results from (1) the performance, failure to perform or
improper performance of work under this agreement by Donlar or any other
breach by Donlar of the terms and provisions of this Agreement, (2)
Donlar's receipt, possession, handling, processing, manufacturing,
packaging or shipment of any raw materials, intermediates and/or the
Products, (3) the failure of any Product to meet the Specifications, (4)
any violation or alleged violation by Donlar of any federal, state or
local statutes, ordinances, orders, rules, regulations or directives
applicable to the receipt, possession, handling, processing,
manufacturing, packaging or shipment of the Products or any raw materials
or intermediates used in the manufacture of the Product or the disposal
of any waste or by-product arising or resulting from the manufacture of
the Products, (5) any negligent or willful act or omission of Donlar, its
employees, subcontractors or agents, or (6) the generation, handling,
storage, treatment or disposal of any solid or liquid waste or
by-products arising or resulting from the manufacture of the Products.
National Starch agrees to defend, indemnify and hold Donlar, its agents
or employees harmless from and against all claims, actions, judgements,
losses and expenses, including attorney fees, sustained or incurred by
Donlar, its agents or employees which arises or results from (1) the
performance, failure to perform or improper performance of work under
this agreement by National or any other breach by National of the terms
and provisions of this Agreement, (2) National's receipt, possession,
handling or shipment of any Products which conform to the Specifications,
(3) any violation or alleged violation by National of any federal, state
or local statutes, ordinances, orders, rules, regulations or directives
applicable to the receipt, possession, handling or shipment of the
Products which conform to the Specifications, or (4) any negligent or
willful act or omission of National, its employees, subcontractors or
agents.
14. Independent Contractors. Donlar and National Starch shall at all times
and for all purposes under this Agreement be considered independent
contractors. Manufacture of the Products shall at all times be under the
exclusive control and responsibility of Donlar.
15. Binding Effect; Entire Agreement; Amendment; Assignment. This Agreement
is binding upon the parties and their respective successors and assigns,
but may not be assigned by a party without the written consent of the
other party. This Agreement may not be modified or
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<PAGE> 8
amended except by an instrument in writing signed by both parties. Any
inconsistency or conflict between the terms of this Agreement and any
purchase order, invoice or other communication shall be solely governed
by the terms of this Agreement. This Agreement is the entire agreement
between the parties hereto with regard to the subject matter hereof and
supersedes all prior discussions, arrangements or agreements between the
parties relating thereto.
16. Force Majeure. In the event either of the parties by reason of an act of
God, including fire, windstorm and flood; by inability to obtain raw
materials, supplies, fuel or power; by work stoppage caused by strike or
other labor dispute; by governmental prohibitions; or by any other cause
unrelated to acts or omissions of the party suffering such disability,
suffers the inability to perform all or any portion of its obligations
under this Agreement, except for payment of invoices, then the party
suffering such disability shall be excused from such performance for so
long as such event causes such inability to perform. Such party affected
by any such event shall immediately notify the other party and indicate
the expected duration of such interruption. However, if the ability of a
party to perform substantially all of its material obligations under this
Agreement is interrupted for a period of three months or more, the other
party may elect to terminate this Agreement.
17. General Provisions. The law of Illinois, U.S.A. will govern this
Agreement and the performance of the parties. Each party's address for
notice is set forth below the party's signature and may be changed from
time to time by notice to the other party. Notices are to be given in
writing and may be delivered by any customary commercial means including
postal service, facsimile, and air courier. Notices are effective upon
receipt by the addressee (or upon tender of delivery if the addressee
refuses delivery).
18. Assignment. This Agreement shall not be assigned or transferred by either
party by operation of law or otherwise, whether in whole or in part,
without the prior written consent of the other party, which consent will
not be unreasonably withheld. Donlar may not assign or subcontract any
obligation required to be performed hereunder by Donlar without the prior
written consent of National Starch.
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
Donlar Corporation National Starch and Chemical
Company
By: Larry P. Koskan By: Eugene Elzy
------------------------- -----------------------------
Name and Title: President Name and Title: Vice President
------------ -----------------
Address: Address:
6502 South Archer Avenue 10 Finderne Avenue
Bedford Park, IL 60501 Bridgewater, NJ 08807
Attn: Mr. Larry Koskan Attn: Mr. Eugene Elzy
Mr. Bernardo Rico Mr. Carmine P. Iovine
Mr. Win C. Cooke
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<PAGE> 10
APPENDIX A
Initial prices for 1996 shall be agreed upon on a case-by-case basis.
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<PAGE> 1
EXHIBIT 10.10
VACANT LAND OPTION AGREEMENT
THIS VACANT LAND OPTION AGREEMENT (the "Option Agreement") is made and
entered into as of the 23rd day of April, 1996, by and between SUMIDI, INC., an
Illinois corporation ("Seller"), and DONLAR CORPORATION, an Illinois
corporation ("Purchaser"):
W I T N E S S E T H:
WHEREAS, Seller holds fee simple title to that certain tract of vacant
land consisting of approximately seventy-seven and 315/1000ths (77.315) acres
located north of May Road, south of Peru Rail and east of East First Road in
the City of Peru, LaSalle County, Illinois, which tract of land is legally
described in Exhibit A attached hereto and made a part hereof (the "Property");
and
WHEREAS, Seller desires to grant to Purchaser, and Purchaser desires
to acquire from Seller, an option to purchase the Property on the terms and
conditions herein set forth;
NOW, THEREFORE, for and in consideration of the Option Payments, as
hereinafter defined, and the covenants and agreements of the parties herein
contained, Seller and Purchaser hereby covenant and agree as follows:
1. Grant of Option. Seller hereby irrevocably grants to
Purchaser the exclusive option (hereinafter the "Option") to purchase the
Property upon the terms and conditions set forth herein for a purchase price of
SEVEN HUNDRED SEVENTY-THREE THOUSAND ONE HUNDRED FIFTY AND NO/100 DOLLARS
($773,150.00) (hereinafter the "Purchase Price"). The Purchase Price shall be
paid at the closing of the sale of the Property contemplated herein (the
"Closing") in cash or Purchaser's Series A Preferred Stock. Seller shall
designate a method of payment at least thirty (30) days prior to the Closing.
For purposes of such payment, Purchaser's Series A Preferred Stock shall be
valued at eighty percent (80%) of its then existing fair market value or
appraised value based on (a) the average market value of such stock during the
four (4) months preceding the date Seller elects to receive payment in
Purchaser's stock, if such stock is then publicly traded, or (b) the value of
the equity in Purchaser as determined in good faith by Purchaser's Board of
Directors as of the date Purchaser exercises the option, if such stock is not
then publicly traded.
2. Option Term. The term of this Option ("Option Term") shall be
for a period of thirty-six (36) months and shall expire April 22, 1999 (the
"Expiration Date"). Purchaser may elect to terminate this Option Agreement
effective as of any April 22nd occurring during the Option Term by providing
Seller written notice of termination no later December 31 of the calendar year
immediately preceding such April 22nd termination date. Purchaser shall have no
obligation to make additional Option Payments from
<PAGE> 2
and after the date such notice of termination is delivered to Seller. In
addition, this Option Agreement may be terminated by either party in the event
the sale of the forty (40) acre tract of adjacent land owned by Purchaser's
sole shareholder, Judith A. Schweickert ("Schweickert"), fails to close
pursuant to the Purchase and Sale Agreement of even date herewith by and
between Schweickert and Purchaser ("Adjacent Land Sale Contract").
3. Option Payment(s). As consideration for the Option, Purchaser
shall pay to Seller the amount(s) set forth below in the following manner:
(a) Concurrently with the execution of this Agreement,
Purchaser shall pay ELEVEN THOUSAND AND NO/100 DOLLARS ($11,000.00)
("Initial Payment") to Seller, and Seller, by execution hereof,
acknowledges the receipt, sufficiency and adequacy of the Initial
Payment. Purchaser has made the Initial Payment in consideration of
Seller's execution and delivery of this Option Agreement and such
payment is fully earned by Seller as of the date hereof; provided,
however, that Seller and Schweickert shall cause the entire Initial
Payment to be applied toward the purchase price of the adjacent land
being acquired by Purchaser pursuant to the Adjacent Land Sale
Contract, upon the closing of the sale of such land as contemplated by
the Adjacent Land Sale Contract.
(b) Upon Seller's execution and delivery of this Option
Agreement, Purchaser shall deposit FORTY-SIX THOUSAND THREE HUNDRED
EIGHTY-NINE AND NO/100 DOLLARS ($46,389.00) ("Initial Deposit") in
escrow with Buchner and O'Toole Title Company ("Escrowee") as
escrowee. In the event this Option Agreement is terminated by either
of the parties hereto due to the failure of the closing contemplated
by the Adjacent Land Sale Contract to occur, Escrowee shall refund the
Initial Deposit to Purchaser upon receipt of Purchaser's written
demand therefor. Upon the closing of the sale of such land pursuant
to the Adjacent Land Sale Contract, Escrowee shall pay the Initial
Deposit to Seller, in consideration of the Option granted to Purchaser
herein.
(c) On each April 22nd occurring hereafter during the
Option Term, Purchaser shall make an additional option payment in the
amount of FORTY-SIX THOUSAND THREE HUNDRED EIGHTY-NINE AND NO/100
DOLLARS ($46,389.00), unless Purchaser has theretofore terminated this
Option Agreement as provided in Paragraph 2 hereinabove.
The amounts set forth in this Paragraph 3, including the Initial Payment and
the Initial Deposit, are sometimes referred to herein individually as an
"Option Payment" and collectively as the "Option Payments." In the event
Purchaser exercises the Option, any Option
2
<PAGE> 3
Payments theretofore made by Purchaser shall not be applied to the Purchase
Price at Closing.
4. Exercise of Option. Purchaser may exercise the Option by
delivering to Seller, prior to September 15th of any year during the Option
Term, written notice of Purchaser's intention to close the purchase of the
Property on or before April 22nd of the following year. Within thirty (30)
days after delivery of such notice, the parties shall enter into a definitive
purchase and sale agreement ("Contract") that incorporates the applicable terms
and conditions of this Option Agreement and such other customary terms and
conditions as prevail in land purchase contracts in LaSalle County, Illinois.
5. Title and Survey.
(a) On or before Seller's execution and delivery of this
Option Agreement, Seller, at its expense, shall provide Purchaser with
title commitment ("Title Commitment") issued by Buchner & O'Toole
Title Company as agents for Chicago Title Insurance Company ("Title
Company"), showing title to the Property in the name of Seller.
Within thirty (30) days after Purchaser's exercise of the Option under
Paragraph 4 hereof, Seller, at its cost, shall furnish Purchaser with
an updated Title Commitment (dated after the date of Purchaser's
exercise of the Option) showing title to the Property in the name of
Seller. In the event the updated Title Commitment reveals any
exceptions to title other than the permitted exceptions ("Permitted
Exceptions") identified on Exhibit B hereto, Seller shall cause all
such unpermitted title exceptions to be removed from title to the
Property prior to Closing. The updated Title Commitment shall contain
a commitment to issue extended coverage over the standard exceptions,
survey accuracy, property tax identification number (PIN), access, and
mineral rights endorsements and an endorsement deleting any creditors'
rights exclusion. The mineral rights endorsement shall be in the form
of Exhibit C hereto. At Closing, Seller, at its cost, shall furnish
Purchaser with a title policy issued pursuant to the Title Commitment
insuring Purchaser's title to the Property in the full amount of the
Purchase Price, subject only to the Permitted Exceptions.
(b) Purchaser acknowledges receipt of that certain
ALTA/ACSM Land Title Survey of the Property dated April 16, 1996
prepared by Chamlin & Associates, Inc. and identified as File No.
B8898.00Y-1 (the "Survey"). Purchaser hereby accepts all matters
(other than zoning) disclosed on the Survey with respect to the
Property. Within thirty (30) days after Purchaser's exercise of the
Option under Paragraph 4 hereof, Seller, at its cost, shall cause the
Survey to be recertified as of a date subsequent to Purchaser's
exercise of the Option. If such updated survey reveals any new
matters that have an
3
<PAGE> 4
adverse affect on title to the Property ("Survey Defects"), Seller
shall cause such Survey Defects be cured or insured over by the Title
Company prior to the Closing.
6. Use of Property During Option Term. Seller shall retain the
right to lease the Property during the Option Term to a farm tenant (provided
any such farm lease terminates on or before the Closing), and Purchaser shall
have no obligation to pay real estate taxes or any other costs, expenses or
impositions related to the ownership or operation of the Option Parcel during
the Option Term. Throughout the Option Term, Seller shall maintain the
Property's agricultural use, and Seller shall be responsible for payment when
due, whether before or after the Closing, of any real estate taxes based on an
assessment classification of the Property other than agricultural for periods
prior to Closing.
7. Purchaser's Inspections.
(a) During the Option Term, Seller shall provide
Purchaser with access to the Property in order to conduct the
inspections described in Paragraph 7(b) hereinbelow. Seller shall
obtain all consents and approvals required from third parties to
ensure access by Purchaser, its authorized agents and contractors, to
the Property at all reasonable times. Purchaser hereby indemnifies,
defends and holds harmless Seller from and against any injury to
persons or property caused by Purchaser's inspections of the Property
and shall provide Seller with a certificate of insurance evidencing
comprehensive general public liability insurance in an amount not less
than $1,000,000 naming Seller as an additional insured and covering
all of Purchaser's acts and omissions on the Property while conducting
such inspections. Purchaser shall conduct such inspections in a
manner that does not unreasonably interfere with the operations of any
existing farm tenant of the Property.
(b) Subject to the terms and conditions of Paragraph 7(a)
hereinabove, Purchaser, its authorized agents and contractors, shall
have the right, during the Option Term, to enter upon the Property and
conduct such tests, inspections, measurements, surveys and other
activities thereon as shall, in Purchaser's sole discretion, be
necessary or appropriate to determine the suitability of the Property
for Purchaser's intended use. Such tests, inspections and other
activities may include, without limitation, soil tests, soil borings,
percolation and other similar tests and topographic, engineering,
environmental and feasibility studies or audits, together with such
other tests, inspections or surveys as Purchaser may require in
connection with Purchaser's intended use of the Property.
4
<PAGE> 5
8. Seller's Covenants. Seller hereby covenants, represents and
warrants to Purchaser as follows:
(a) Seller owns fee simple title to the Property, subject
only to the Permitted Exceptions, and possesses all right, title and
authority to perform all of Seller's obligations under this Option
Agreement.
(b) Seller's execution and delivery of this Option
Agreement and the performance of its obligations hereunder (i) will
not violate or constitute a default under any agreement or instrument
to which Seller is a party or by which Seller or any portion of the
Property is bound and (ii) does not require the consent of any lender,
governmental authority or other third party.
(c) There are no claims, demands, liabilities or actions
existing or, to the best of Seller's knowledge, threatened against
Seller or any portion of the Property (including, without limitation,
condemnation proceedings by any public or governmental agency or
authority) that constitute or might result in a lien or claim against
any portion of the Property or that could deprive Purchaser of any
portion of the Property.
(d) The Property is not subject to any purchase options
(other than this Option Agreement) or sale agreements.
(e) Seller has received no notice, and has no knowledge
of, any uncured violation of any law, ordinance, order, regulation or
requirement, affecting the Property.
(f) To the best of Seller's knowledge, no coal or other
mining activity has ever been conducted underneath the surface of the
Property or adjacent properties.
(g) Seller will not, by any act or omission, create or
permit the creation of any lien, imposition, restriction, covenant,
easement or encumbrance of any kind affecting title to any portion of
the Property other than the Permitted Exceptions, nor shall Seller
create or permit the creation of any condition on any portion of the
Property that would violate any applicable federal, state or local
laws or regulations.
(h) Seller shall continue to use the Property as it is
currently being used.
(i) The Property has been annexed to the City of Peru
pursuant to an Annexation Agreement approved by Purchaser and is
currently zoned as a M-2 Manufacturing District.
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<PAGE> 6
(j) Seller shall maintain or cause to be maintained
comprehensive public liability and casualty insurance on and with
respect to the Property in an amount not less than $1,000,000, naming
Purchaser as an additional insured with respect to the Property.
(k) Seller shall notify Purchaser immediately if Seller
becomes aware of any transaction or occurrence during the Option Term
which would make any of the representations or warranties of Seller
contained in this Paragraph 8 false or misleading in any material
respect.
9. Unpermitted Transfers. Seller hereby covenants and agrees
that, during the Option Term, Seller shall not commit, approve, consent to or
permit any Unpermitted Transfer (as hereinafter defined) without the prior
written consent of Purchaser. Any Unpermitted Transfer which is effected
without the prior written consent of Purchaser shall be void, invalid and
ineffective and of no force or effect against Purchaser or Purchaser's rights
hereunder and in the Property. As used herein, an "Unpermitted Transfer" shall
mean any of the following:
(a) any lease affecting all or any portion of the
Property;
(b) any grant, sale, transfer or other conveyance of all or
any portion of or interest in the Property; Purchaser hereby
acknowledges that it will not withhold its consent to any transfer by
Seller of all or any portion of its interest in the Property to
Schweickert, her descendants and/or their spouses or trusts created by
Schweickert for the exclusive benefit of Schweickert, her descendants
and/or their spouses, or to another entity in which Seller or
Schweickert owns a controlling interest, provided that any such
assignee acknowledges this Option Agreement and agrees in writing to
perform and observe all of the covenants, terms and conditions to be
performed or observed by Seller hereunder;
(c) any mortgage, lien or other encumbrance of all or any
portion of the Property unless such mortgage, lien or encumbrance
expressly states, without reservation, that it is in all respects
subordinate and subject to the interest of Purchaser hereunder and has
been approved by Purchaser;
(d) any contract or other agreement which results in any
party obtaining lien rights affecting all or any portion of the
Property;
(e) any zoning change or subdivision of all or any part of the Property; or
6
<PAGE> 7
(f) any other act or omission affecting the Property which
would diminish or otherwise adversely affect Purchaser's interest
under this Option Agreement or which might prevent Seller's full
performance of its obligations hereunder or under the Contract.
10. Covenants Running With The Land. The covenants and agreements
of Seller under this Option Agreement are intended to be and shall be covenants
running with the land with respect to the Property and shall be binding upon
Seller and Seller's legal representatives, successors and assigns. This Option
Agreement shall be specifically enforceable by Purchaser and by Purchaser's
legal representatives, successors and assigns.
11. Brokerage. Each of the parties represents and warrants to the
other that it has had no dealings with any broker in connection with the
negotiation, execution and delivery of this Option Agreement. Each of the
parties hereby agrees to indemnify, defend and hold harmless the other from and
against any claims for broker's commissions or fees arising from a breach of
the foregoing representation and warranty made by such indemnifying party.
12. Notices. Any notice, request, demand, instruction or other
document to be given or served hereunder or under any document or instrument
executed pursuant hereto shall be in writing and shall be delivered personally
with a receipt requested therefor or sent by (a) telecopier, with proof of
transmission, (b) a recognized overnight courier service or (c) United States
certified mail, return receipt requested, postage prepaid, and addressed to the
parties at their respective addresses set forth below, and the same shall be
effective (w) upon receipt or refusal if delivered personally, (x) upon receipt
of proof of transmission, if delivered by telecopier, (y) one (1) business day
after depositing with such an overnight courier service; or (z) two (2)
business days after deposit if mailed. A party may change its address for
receipt of notices by service of a notice of such change as provided herein.
If to Seller: SUMIDI, INC.
c/o Judith A. Schweickert
603 Broadwood Drive
Morris, Illinois 60450
with a copy to: Hynds, Rooks, Yohnka & Mattingly
105 W. Main Street
Morris, Illinois 60450
Attn: John W. Hynds
If to Purchaser: Donlar Corporation
6502 South Archer Avenue
Bedford Park, Illinois 62501
Attn: Larry P. Koskan
7
<PAGE> 8
with a copy to: Holleb & Coff
55 E. Monroe Street
Suite 4100
Chicago, Illinois 60603
Attn: Eric M. Fogel and H. James Fox
13. Memorandum. The parties hereby agree that a fully executed
and acknowledged memorandum of this Option Agreement in the form attached
hereto and made a part hereof as Exhibit D, shall be executed by Purchaser and
Seller and recorded by Purchaser at Purchaser's sole expense. In the event
that this Option Agreement shall expire or terminate and Purchaser shall not
have acquired the Property pursuant hereto, Purchaser shall execute,
acknowledge and deliver to Seller a recordable quitclaim deed to the Property
or any other instrument reasonably requested by Seller for the release of said
memorandum and otherwise indicating the termination of Purchaser's rights
hereunder and with respect to the Property.
14. Successors and Assigns. All the terms and conditions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective legal representatives, successors and assigns.
15. Severability. In the event that any term or provision of this
Option Agreement, or the application thereof to any particular party or
circumstance, is found by a court of competent jurisdiction to be invalid or
unenforceable (in whole or in its application to a particular party or
circumstance), the remaining terms and provisions of this Option Agreement of
the application thereof to different parties or circumstances, as the case may
be, shall not be affected thereby and this Option Agreement shall remain in
full force and effect in all other respects.
16. Entire Agreement, Amendments, Waivers and Survival. This
Agreement contains the entire agreement and understanding of the parties with
respect to the subject matter hereof, and all previous negotiations and
understandings between Seller and Purchaser or their respective agents and
employees with respect to the transaction set forth herein are merged in this
Agreement. Further, this Agreement may not be amended, modified or discharged
nor may any of its terms be waived except by an instrument in writing signed by
Purchaser and Seller. The terms and provisions of this Option Agreement shall
survive the entry, and shall not merge or be deemed to merge, into the
Contract.
17. Further Assurances. The parties each agree to do, execute,
acknowledge and deliver all such further acts, instruments and assurances and
to take all such further action before or after the Closing as shall be
necessary or desirable to fully carry out this Option Agreement and to fully
consummate and effect the transactions contemplated hereby.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the day and year first above written.
<TABLE>
<S><C>
SELLER: PURCHASER:
SUMIDI, INC., an Illinois DONLAR CORPORATION, an
corporation Illinois corporation
By: Judith A. Schweickert By: Larry P. Koskan
------------------------------ -----------------------------
Its: President Its: President
-------------------------- -------------------------
ATTEST: ATTEST:
By: Judith A. Schweickert By: /s/
------------------------------ -----------------------------
Its: Secretary Its: Secretary
-------------------------- -------------------------
</TABLE>
9
<PAGE> 10
JOINDER
The undersigned, Judith A. Schweickert, hereby executes this Joinder
for the purpose of confirming her agreement to perform and be bound by the
obligations of Seller described in Section 3(a) of this Option Agreement with
respect to the application of the Initial Payment described therein.
Judith A. Schweickert
-----------------------
Judith A. Schweickert
<PAGE> 11
EXHIBIT A
LEGAL DESCRIPTION
The West One-Half of that part of the Southwest Quarter of Section 32, Township
34 North, Range 1 East of the Third Principal Meridian, LaSalle County,
Illinois, described as follows:
Commencing at the Southwest Corner of said Section 32, thence North 00
degrees 35' 25" East along the West Line of the Southwest Quarter of said
Section 32 for a distance of 2,541.94 feet to a point on the South
Right-of-Way Line of PeruRail (former LS & BC Railroad); thence South 89
degrees 59' 54" East along the said South Right-of-Way Line of PeruRail
for a distance of 2,654.31 feet; thence South 00 degrees 47' 06" West
along the East Line of the Southwest Quarter of said Section 32 for a
distance of 2,541.97 feet; thence North 90 degrees 00' 00" West along the
South Line of the Southwest Quarter of said Section 32 for a distance of
2,645.67 feet to the Point of Beginning, said tract containing 77.315
acres, more or less.
<PAGE> 12
EXHIBIT B
PERMITTED EXCEPTIONS
1. General real estate taxes not yet due and payable.
2. Rights of the Public, the State of Illinois, and the municipality in
and to that part of the premises in question taken or used for roads
and highways, at the locations shown on the ALTA/ACSM Land Title
Survey Plat for the subject property prepared by Chamlin & Associates,
Inc. (File No. B8898.00Y-1) revised April 16, 1996.
3. Rights of way for drainage ditches, drain tiles, feeders, laterals and
underground pipes, if any.
4. Easement to Illinois Iowa Power Company dated August 7, 1937 and
recorded September 20, 1937 in Book 747, page 83 as Document #290462
to erect, reconstruct, operate, maintain, renew and remove an electric
transmission system in, upon, across and over the West side of the
fence line along the East side of the public highway extending in a
Northerly and Southerly direction along the West side of the land, at
the location shown on the aforementioned survey.
5. Easement to National Gas Pipeline Company of America through a Right
of Way Option dated November 21, 1941 and recorded December 24, 1941
in Book 774, page 578 as Document #319893 and exercised by document
dated November 21, 1941 and recorded January 7, 1942 in Book 774, page
602 as Document #320071, as assigned to Illinois Power Company by
Assignment of Rights of Way and Sale of Pipeline and Appurtenant
Facilities dated November 20, 1968 and recorded May 8, 1969 as
Document #552550, to construct, test, reconstruct, renew, operate,
maintain, inspect, alter, repair and remove a pipeline or pipelines
and appurtenances as may be necessary or convenient for such
operations, over, through and within one rod of existing fences along
west line of the land, at the location shown on the aforementioned
survey.
6. Easement to Illinois-Iowa Power Company dated August 7, 1937 and
recorded September 20, 1937 in Book 747, page 81 as Document #290461
to erect, reconstruct, operate, maintain, renew and remove an electric
transmission system in, upon, across and over the South side of the
fence line along the North side of the public highway extending in an
Easterly and Westerly direction along the South side of the land, at
the location shown on the aforementioned survey.
7. Easement to Illinois Power Company dated October 3, 1963 and recorded
January 23, 1964 in Book 1220, page 359 as Document #499581 to erect,
reconstruct, operate, patrol, maintain, renew and remove electric
transmission system, and other equipment appurtenant thereto,
including signal and telephone.
<PAGE> 13
lines and equipment, through, over and across a strip of land 20 feet
in width described as follows: Beginning in the East line of said
Southwest Quarter at a point one foot South of the North right of way
line of public road running along the South line of said Section 32;
thence West parallel to and one foot South of the said North right of
way line to a point of exist in the West line of said Southwest
Quarter, all at the location shown on the aforementioned survey. All
poles shall be located in the said road right of way. (For further
particulars, see the record).
8. Easement to Illinois Power Company dated October 20, 1966 and recorded
January 22, 1968 as Document #540334 to lay, operate, maintain,
patrol, renew, alter, remove and re-lay a pipeline and all other
equipment appurtenant thereto through, over and across a strip of land
10 feet in width through the Southwest Southwest Quarter of said
Section 32, the center line of the said 10 foot strip described as
beginning in the West line of the said Southwest Southwest Quarter 5
feet North of the North right of way line of a public road running
East and West along the South side of the said Southwest Southwest
Quarter; thence East 5 feet North of and parallel to the said North
R/R line 636 feet to a point; thence deflecting to the right 90
degrees to the point of exit in the South line of the said S.W. S.W.
1/4, all at the location shown on the aforementioned survey. (For
further particulars, see the record).
9. Easement to Illinois Bell Telephone Company dated April 24, 1978 and
recorded June 23, 1978 as Document #658092 to construct, reconstruct,
add to, remove, operate and maintain a communication system within the
East/West public highway commonly known as N. 30th Road which extends
along the South side of the land, at the location shown on the
aforementioned survey.
B-2
<PAGE> 14
EXHIBIT C
MINERAL RIGHTS ENDORSEMENT
[See Attached]
<PAGE> 15
Page 1
SPECIMEN
ENDORSEMENT No. 5
Attached to and forming a part of
No.:
Issued by
CHICAGO TITLE INSURANCE COMPANY
MINERAL ENDORSEMENT:
The Company hereby insures the insured against loss or damage which the insured
shall sustain by reason of damage to the surface of said land or any
improvements thereon resulting from the exercise of any right by the owner of
the coal and minerals underlying said land to use the surface of said land in
the extraction or development of coal and minerals. The duty to provide
defense pursuant to paragraph 3(a) of the Conditions and Stipulations is
applicable to the assertion of any right of entry upon the surface of the land
by the owner of the Coal and minerals underlying Said land.
This Endorsement should not be construed as to insuring for any loss or damage
arising from subsidence.
This endorsement is made a part of the commitment or policy. It is subject to
all the terms of the commitment or policy and prior endorsements. Except as
expressly stated on this endorsement, the terms, dates and amount of the
commitment or policy and prior endorsements are not changed.
DATED:
- ---------------------------
Authorized Signatory
Note: This endorsement shall not be
Valid or binding until countersigned
by an authorized signatory.
<PAGE> 16
EXHIBIT D
MEMORANDUM OF OPTION AGREEMENT
[See Attached]
<PAGE> 17
MEMORANDUM OF OPTION AGREEMENT
THIS MEMORANDUM OF OPTION AGREEMENT is made as of the 23rd day of April, 1996,
by and between SUMIDI, INC., an Illinois corporation ("Seller"), and DONLAR
CORPORATION, an Illinois corporation ("Purchaser").
WITNESSETH
THAT, by that certain Vacant Land Option Agreement of even date herewith by
and between Seller and Purchaser (the "Agreement"), Seller has granted to
Purchaser, and Purchaser has acquired from Seller, an exclusive option to
acquire the real estate described on Exhibit I attached hereto and made a part
hereof (the "Property") upon the terms and subject to the conditions set forth
in the Agreement.
THAT, pursuant to and upon the terms and conditions set forth in the
Agreement, said option shall expire on April 22, 1999, if not earlier terminated
in accordance with the terms of the Agreement.
THAT, no lease, mortgage, lien or other encumbrance affecting the Property
which is created or entered into after the date hereof and prior to April 22,
1999 shall be valid of effective without obtaining the prior written consent of
Purchaser; all such leases, mortgages, liens and other encumbrances shall be
void and of no force or effect against Purchaser or Purchaser's interest in the
Property.
THAT, the covenants and agreements of Seller under the Agreement shall be
binding upon Seller and Seller's legal representatives, successors and assigns.
THAT, this Memorandum of Option Agreement is executed and recorded in
accordance with the terms of the Agreement solely for the purpose of giving
notice of the existence thereof and shall not supersede or in any way modify the
terms or conditions of the Agreement.
THAT, this Memorandum shall automatically terminate upon the recordation of
a release as described in the Vacant Land Option Agreement.
(continued on next page)
D-2
<PAGE> 18
IN WITNESS WHEREOF, Seller and Purchaser have caused this Memorandum
of Option Agreement to be executed as of the date first above written.
<TABLE>
<S><C>
SELLER: PURCHASER:
SUMIDI, INC. DONLAR CORPORATION
By: By:
------------------------------ -----------------------------
Its: Its:
-------------------------- -------------------------
ATTEST: ATTEST:
By: By:
------------------------------ -----------------------------
Its: Its:
-------------------------- -------------------------
</TABLE>
D-3
<PAGE> 19
STATE OF ILLINOIS )
COUNTY OF LASALLE )
I, ______________________________________________, a Notary Public in
and for said County, in the State aforesaid, DO HEREBY CERTIFY that
______________________ and _____________________, personally known to me to be
the _________________ and _______________ of Sumidi, Inc., an Illinois
corporation, and the same persons whose names are subscribed to the foregoing
instrument, appeared before me this day in person and acknowledged that they
signed and delivered the said instrument as their free and voluntary act as
such _______________________ and _____________________ as aforesaid, and as the
free and voluntary act and deed of said corporation, for the uses and purposes
therein set forth.
GIVEN under my hand and notarial seal this _________ day of
_____________________, 1996.
________________________________
Notary Public
My commission expires:____________________
STATE OF ILLINOIS )
COUNTY OF COOL )
I, ______________________________________________, a Notary Public in
and for said County, in the State aforesaid, DO HEREBY CERTIFY that
______________________ and _____________________, personally known to me to be
the __________________ and _______________ of Donlar Corporation, an Illinois
corporation, and the same persons whose names are subscribed to the foregoing
instrument, appeared before me this day in person and acknowledged that they
signed and delivered the said instrument as their free and voluntary act as
aforesaid as such _______________________ and _____________________ as
aforesaid, and as the free and voluntary act and deed of said corporation, for
the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this _________ day of
_____________________, 1996.
___________________________________
Notary Public
My commission expires:____________________
THIS DOCUMENT WAS PREPARED
BY, AND AFTER RECORDING
SHOULD BE RETURNED TO:
Gregory G. Schuler Holleb & Coff
55 E. Monroe Street
Chicago, Illinois 60603
D-4
<PAGE> 20
EXHIBIT I
TO MEMORANDUM OF OPTION AGREEMENT
THE PROPERTY
The West One-Half of that part of the Southwest Quarter of Section 32, Township
34 North, Range 1 East of the Third Principal Meridian, LaSalle County,
Illinois, described as follows:
Commencing at the Southwest Corner of said Section 32, thence North 00
degrees 35' 25" East along the West Line of the Southwest Quarter of said
Section 32 for a distance of 2,541.94 feet to a point on the South
Right-of-Way Line of PeruRail (former LS & BC Railroad); thence South 89
degrees 59' 54" East along the said South Right-of-Way Line of PeruRail
for a distance of 2,654.31 feet; thence South 00 degrees 47' 06" West
along the East Line of the Southwest Quarter of said Section 32 for a
distance of 2,541.97 feet; thence North 90 degrees 00' 00" West along the
South Line of the Southwest Quarter of said Section 32 for a distance of
2,645.67 feet to the Point of Beginning, said tract containing 77.315
acres, more or less.
Permanent Index No.: 11-32-301-000
<PAGE> 1
EXHIBIT 10.11
OFFICE LEASE
THIS LEASE is made as of August 1, 1992, between Illinois Institute of
Technology, an Illinois not-for-profit corporation (the "Landlord"), and DONLAR
CORPORATION (the "Tenant").
ARTICLE 1
DEMISED PREMISES AND TERM
A. Specific Locations and Terms. Subject to the terms, covenants and
agreements herein contained, Landlord does hereby demise and lease to Tenant
and Tenant hereby accepts the following spaces in the building commonly known
as Building 90, Moffett Campus, 6502 Archer Road, Bedford Park, Illinois
("Building 90").
(1) that certain space located on the second floor of Building 90
(the "Building 90 Space"), consisting of approximately 822 square feet
identified by cross-hatching on the floor plan attached hereto as
Exhibit A, for a term commencing on August 1, 1992 and ending on July
31, 1994, unless sooner terminated as provided herein or extended as
provided in Article 23.
ARTICLE 2
RENT
A. Rent. During the Term of this Lease, Tenant shall pay rent for the
Premises as follows:
(1) for the Building 90 Space, Twelve Thousand Three Hundred
Thirty and 00/100 Dollars ($12,330.00) per annum ($15.00 per square
foot per annum), which shall be payable in equal monthly installments
of One Thousand Twenty Seven and 50/100 Dollars ($1,027.50);
(2) as used in this Lease, the term "Rent" shall mean the rent
payable from time to time with respect to all of the Premises. Rent
shall be payable in advance on the first day of each and every
calendar month during the Term except that the first monthly payment
shall be paid in advance on the date Tenant executes this Lease. If
the Term ends on a day other than the first day of a calendar month,
then the portion of the rent for the first full calendar month of the
Term for which Rent is payable or the last calendar month of the Term,
as the case may be, shall be prorated on the basis of 1/365th of the
Rent (computed on an annual basis for the year of the Term closest to
the month for which the proration is made) for each day of such
fractional month.
1
<PAGE> 2
B. Payment of Rent. Rent and all other amounts becoming due from
Tenant to Landlord hereunder shall be paid in lawful money of the United States
to Landlord at its Comptroller's Office located at 3300 South Federal Street,
Chicago, Illinois 60616 or as otherwise designated from time to time by written
notice from Landlord to Tenant. The payment of rent hereunder is independent of
each and every other covenant and agreement contained in this Lease and shall be
payable without any prior demand therefor and without any deductions or set-offs
whatsoever.
C. Interest on Overdue Payments. All rent and any other amounts owed by
Tenant to Landlord under this Lease shall be paid within five (5) days of the
due date. After said five days' grace period all such amounts shall bear
interest from the date due until the date paid at a rate equal to 2% (two
percent) per annum above the Reference Rate, or at the maximum legal rate,
whichever is lower. For purposes of this Lease, the term "Reference Rate" shall
mean the rate of interest announced from time to time by Continental Illinois
National Bank and Trust Company of Chicago, at Chicago, Illinois, as its
reference rate, changing as and when said reference rate changes.
ARTICLE 3
USE
A. Permitted Uses. Tenant shall use and occupy the Premises for office
and laboratory purposes and for no other purpose whatsoever. Tenant shall not
use or permit upon the Premises anything that will invalidate any policies of
insurance now or hereafter carried on the Building. Tenant will pay all extra
insurance premiums which may be caused by the use which Tenant shall make of the
Premises. Tenant will not use or permit upon the Premises anything that may be
dangerous to life or limb. Tenant will not in any manner deface or injure the
Building or any part thereof or overload the floors of the Premises. Tenant
will not do anything or permit anything to be done upon the Premises in any way
tending to create a nuisance, or tending to disturb any other tenant or occupant
of the Building or the occupants of neighboring property or tending to injure
the reputation of the Building. Tenant will promptly and fully comply with all
governmental, health and police requirements and regulations respecting the
Premises. Tenant will not use the Premises for lodging or sleeping purposes or
for any immoral or illegal purposes. Tenant shall not conduct nor permit to be
conducted on the Premises any business which is contrary to any of the laws of
the United States of America or of the State of Illinois or the Village of
Bedford Park, Illinois. Tenant shall not at any time manufacture, sell, use or
give away, and shall not at any time permit the manufacture, sale, use or gift
of any alcoholic liquors or controlled substances on the Premises. Tenant shall
not at any time sell, purchase or give away or permit the sale, purchase or gift
of, food in any form on the Premises. Notwithstanding the foregoing, if Tenant
makes a written request of Landlord as to whether any proposed use Tenant shall
desire to make of or conduct within the Premises will invalidate any policies of
insurance carried by Landlord on the Premises or the Building or will increase
the rate of insurance on the Premises or on the Building, Landlord shall, within
thirty (30) days of such request, inform Tenant as to
2
<PAGE> 3
whether such proposed use will have either or both of such effects. If Landlord
does not so inform Tenant, such use shall be deemed not to invalidate or
increase the premiums on any policies of insurance and, so long as Landlord does
not notify Tenant that such use is not permitted pursuant to this Article 3,
Tenant shall be free to conduct such use without becoming obligated for paying
any extra insurance premiums or supplying any substitute policies of insurance.
B. Hazardous Substances. If Tenant is using any hazardous substance on
the Premises, Tenant shall notify Landlord of such use and shall identify to
Landlord the hazardous substance. Tenant shall establish and maintain a system
for the disposal of chemical wastes that is safe and environmentally acceptable.
Tenant shall bear the full responsibility to track and account for the hazardous
chemicals and wastes from the time they are generated until their ultimate
disposal. This shall be accomplished according to applicable federal and state
laws, such as (but not limited to) the Resources Conservation and Recovery Act
(RCRA) of 1976, the Hazardous and Solid Waste Amendments (HSWA) of 1980, the
Superfund Amendments and Reauthorization Act (SARA) of 1986, and the Illinois
Environmental Protection Act, pursuant to 35 Illinois Administrative Code.
Landlord in no way accepts any ownership, responsibility, or liability for said
chemicals. Failure to comply with the requirements of this clause shall have
the right to cure that default pursuant to Section 20 of this Lease. Tenant
shall notify Landlord's Health and Safety Officer of all hazardous substances
brought into or stored on the Premises. For purposes of this Lease, "hazardous
substances" shall include those substances defined as hazardous by the U.S.
Environmental Protection Agency, radioactive substances and any other substances
which would pose a threat to person, property or the environment.
No hazardous wastes, hazardous substances, regulated substances, fumes,
sound, vibration, or radiation in any form are presently being or during the
term of this Lease shall be discharged, emitted or released, by Landlord or
Tenant, into the Building from any source in excess of applicable workplace
exposure constraints imposed by OSHA.
Landlord shall exercise its best efforts to assure that, based on hazardous
waste, hazardous substance, and regulated substance information supplied to
Landlord by Tenant and other tenants in the Building, that during the term of
this Lease no activities involving incompatible hazardous wastes, hazardous
substances, or regulated substances will be conducted within a proximity
reasonably expected to result in any adverse reaction or consequences, including
but not limited to worker exposures in excess of any applicable workplace
exposure constraint imposed by OSHA, without notice of the potential for such
adverse occurrence to Tenant.
ARTICLE 4
SERVICES
A. Utility Services. Landlord shall furnish utility services to the
Premises at such
3
<PAGE> 4
time and in such amounts as Landlord deems reasonably necessary for the
comfortable use of the Premises as an office area. The utility services to be
provided by Landlord to the Premises shall include electricity, steam heat and
air conditioning. Landlord will use reasonable efforts to avoid interruptions in
the utility services to be provided hereunder, provided that Landlord shall not
be liable for interruptions caused by war, insurrection, civil commotion, riots,
acts of God, governmental action, repairs, renewal, improvements, alterations,
strikes, lockouts, picketing (whether legal or illegal), and other labor
disputes, accidents, inability of Landlord to obtain fuel, supplies or utility
services (after using reasonable efforts), restrictive governmental laws and
regulations, riots, insurrections, war, fuel shortages, casualties, acts of God,
acts of or circumstances caused by Tenant, unless resulting from Landlord's
failure to pay for such utility services (or by Tenant's agents, employees,
contractors, licensees or invitees, unless resulting from Landlord's failure to
pay for such utility services) or any other cause or causes beyond the
reasonable control of Landlord. Any such interruption of service shall never
render Landlord liable to Tenant for damages or relieve Tenant from performance
of Tenant's obligation under this Lease. Landlord shall not inhibit Tenant's
access to telephone lines and services for purposes of providing telephone
service to the Premises.
B. Other Services. Landlord shall provide janitorial services to the
Premises and common areas of the Building at such times and to such extent as
Landlord deems reasonably necessary for the comfortable use, in Landlord's
opinion, of the Premises as an office area, but in any such event such services
shall be at the same level of quality as is generally provided by Landlord to
other tenants and occupants of the Building. If at time thereafter Tenant shall
be reasonably dissatisfied with respect to the level of quality of janitorial
services provided by Landlord, then Tenant shall notify Landlord specifying its
objections within ten (10) days notice to Landlord as Tenant's sole and
exclusive remedy, unless Landlord shall not have afforded Tenant the same level
of quality of janitorial services as is generally provided by Landlord to other
tenants and occupants of the Building, in which case Tenant may pursue any other
rights or remedies it may have at law or in equity.
ARTICLE 5
CONDITION OF PREMISES
No promise of Landlord to alter, remodel, repair or improve the Premises or
the Building and no representations respecting the condition of the Premises or
the Building have been made by Landlord to Tenant, other than as may be
contained herein. Tenant's taking possession of any portion of the Premises
shall be conclusive evidence as against Tenant that such portion of the Premises
were in good order and satisfactory condition.
4
<PAGE> 5
ARTICLE 6
REPAIRS
A. Tenant Repairs. Except as otherwise provided in Article 9 of this
Lease and subject to the provisions of Article 7 of this Lease, Tenant shall, at
its sole cost and expense, keep the Premises in good order, repair and
tenantable condition at all times during the Term, ordinary wear and tear and
casualty excepted. Tenant shall promptly arrange with Landlord at Tenant's sole
cost and expense for the repair of all damages to the Premises and for the
replacement or repair of all damaged or broken glass, fixtures and appurtenances
within any reasonable period of time specified by Landlord. If Tenant does not
promptly make such arrangements, Landlord may, but need not, make such repairs
and replacements and the costs paid or incurred by Landlord for such repairs and
replacements (including Landlord's reasonable overhead) shall be deemed
additional Rent reserved under this Lease due and payable forthwith.
B. Landlord Repairs. Landlord may, but shall not be required so to do,
enter the Premises at all reasonable times, upon reasonable prior oral notice
(except in case of emergency), to make any repairs, alterations, improvements or
additions necessary for the safety, maintenance, repair, preservation or
improvement of the Building, or as Landlord may be required or requested to do
by the Village of Bedford Park, by the order or decree of any court or by any
other proper authority or as a result of the requirements of any other tenant or
occupant of the Building. In the event Landlord or its agents or contractors
shall elect or be required to make repairs, alterations, improvements or
additions to the Premises or the Building, Landlord shall be allowed to take
into and upon the Premises all material that may be required to make such
repairs, alterations, improvements or additions and, during the continuance of
any of said work, to temporarily close doors, entryways, public space and
corridors in the Building and to interrupt or temporarily suspend any services
and facilities without being deemed or held liable for damages to Tenant's
property, business or person, and the Rent reserved herein shall in no way abate
while said repairs, alterations, improvements or additions are being made,
unless and to the extent the Premises or any portion thereof become untenantable
or such repairs, alterations, improvements or additions unreasonably interfere
with Tenant's ability to gain access to or conduct its business in the Premises,
but in no event shall Tenant be entitled to maintain any set-off or counterclaim
for damages of any kind against Landlord by reason thereof. Landlord may, at
its option, make all such repairs, alterations, improvements or additions in and
about the Building and the Premises during ordinary business hours, but if
Tenant desires to have the same done at any other time, Tenant shall pay for all
overtime and additional expenses resulting thereof. Nothing contained in this
Paragraph B shall be construed as requiring Landlord to keep (i) the common
elements, such as entrances, stairways, lobbies, washrooms or corridors of the
Building, (ii) any landscaped areas outside the Building, (iii) any other areas,
facilities or appurtenances from time to time provided for use in common by
Tenant and other tenants or occupants of the Building, (iv) the structure or
exterior portions of the Building or (v) the utility systems of the Building
(including mechanical, electrical, plumbing, elevator, life safety or fire
protection) in any particular state of repair or condition, but if
5
<PAGE> 6
Tenant shall at any time be reasonably dissatisfied with respect to the state of
repair or condition of any of the same, then Tenant shall notify Landlord
specifying its objection to the same and, if Landlord shall not have corrected
the source of such objections within thirty (30) days after such notice of any
of the same, then Tenant shall have the right to terminate this Lease upon not
less than ten (10) days notice to Landlord as Tenant's sole and exclusive
remedy.
ARTICLE 7
ALTERATIONS
A. Tenant Alterations. Tenant shall not, without the prior written
consent of Landlord in each instance obtained, make any repairs, replacements,
alterations, improvements or additions to the Premises; provided, however, that
Landlord's consent shall not be required for minor electrical work, decorating,
cosmetic changes or repairs not in any case affecting the structure or exterior
appearance of the Building. In the event Tenant desires to make any
alterations, improvements or additions which require Landlord's consent pursuant
to this Article 7, or any repairs or replacements pursuant to Article 6 of this
Lease involving the structure or exterior appearance of the Building, Tenant
shall prior to commencing any such work:
(1) Submit to Landlord plans and specifications showing such work
in reasonable detail and obtain Landlord's prior written approval,
which approval shall not be unreasonably withheld and if notice of
approval or disapproval, as the case may be, shall not be delivered by
Landlord to Tenant within ten (10) business days after Landlord's
receipt of such plans and specifications the same shall be deemed
approved;
(2) Provide for the benefit of Landlord and the Building such
security measures with respect to construction traffic, delivery of
materials and other similar issues as Landlord may reasonably require,
as well as all necessary permits evidencing compliance with all
ordinances and regulations of the Village of Bedford Park or any
department or agency thereof, and with the requirements of all
statutes and regulations of the State of Illinois or any department,
or agency thereof;
(3) Provide Landlord with certificates of insurance in forms and
amounts reasonable and customary naming Landlord as an additional
insured when required by Landlord; and
(4) Comply with such other requests as Landlord may reasonably make
in connection with such work.
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B. Contracts and Landlord's Reimbursement. All such work shall be done at
Tenant's expense by employees of or contractors hired by Landlord unless
Landlord gives its prior written consent (which consent shall not be
unreasonably withheld or delayed) to Tenant's hiring its own contractors or
using its own employees. All repairs, replacements, alterations, improvements
and additions shall be constructed in a good and workmanlike manner and only
new materials shall be used. Tenant shall promptly pay to Landlord or to
Tenant's contractors, as the case may be, when due, the cost of all such work
and of all decorating required by reason thereof. Tenant shall also pay to
Landlord two percent (2%) of this cost of such work to reimburse Landlord for
all overhead, fees and other costs and expenses arising from Landlord's
involvement with such work if Landlord's employees perform such work.
C. Indemnity. Tenant hereby agrees to protect, defend, indemnify and
hold Landlord, and its agents, officers and employees, the Building and the
Property harmless from and against any and all liabilities of every kind and
description which may arise out of or in connection with any repairs,
replacements, alterations, improvements or additions made by Tenant and shall at
all times keep the Premises and Building free from any and all mechanics' or
materialman's liens.
D. Tenant Obligations Upon Completion. Upon completing any of such
repairs, replacements, alterations, improvements or additions (provided the same
required Landlord's prior consent), Tenant shall furnish to Landlord
contractors' affidavits and full and final waivers of lien and receipted bills
covering all labor and material expended and used.
E. Landlord's Property. All alterations, improvements, additions,
repairs, or replacements, whether temporary or permanent in character,
including, without limitation, wall coverings, non-detachable carpeting and
other floor coverings, special lighting installations, built-in or attached
shelving or cabinetry and non-detachable mirrors, made by Landlord or Tenant in
or upon the Premises shall become Landlord's property and shall remain upon the
Premises at the termination of this Lease by lapse of time or otherwise without
compensation to Tenant (excepting only Tenant's movable office furniture, trade
fixtures, office equipment and other movable personal property). Notwithstanding
the foregoing, Landlord shall have the right to require Tenant to remove such
alterations, improvements, additions, repairs or replacements at Tenant's sole
cost and expense in accordance with the provisions of Article 16 of this Lease,
unless such items were installed in the Premises with Landlord's prior written
consent or were of a nature that Landlord's consent to make or install the same
was not required pursuant to Paragraph A of this Article 7.
ARTICLE 8
COVENANT AGAINST LIENS
Landlord's title is and always shall be paramount to the title of Tenant.
Nothing
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contained in this Lease shall authorize or empower Tenant to do any act
which shall in any way encumber Landlord's title to the Building or Premises,
nor in any way subject Landlord's title to any claims by way of lien or
encumbrance whether claimed by operation of law or by virtue of any expressed or
implied contract of Tenant. Tenant has no authority or power to cause or permit
any lien or encumbrance of any kind whatsoever, whether created by operation of
law, act of Tenant or otherwise, upon the Building or Premises, and any and all
liens and encumbrances created by act or omission of Tenant shall attach only
against Tenant's interest and shall in all respects be subordinate to Landlord's
title to the Building and Premises. If Tenant has not removed or bonded over
any such lien or encumbrance within thirty (30) days after written notice to
Tenant by Landlord, Landlord may, but shall not be obligated to, pay the amount
necessary to remove such lien or encumbrance, without being responsible for
making any investigation as to the validity or accuracy thereof, and the amount
so paid, together with all costs and expenses (including reasonable attorneys'
fees) incurred by Landlord in connection therewith, and interest thereon at the
rate set forth in Paragraph C of Article 2, shall be deemed additional rent
reserved under this Lease due and payable forthwith.
ARTICLE 9
DAMAGE OR DESTRUCTION BY FIRE OR CASUALTY
A. Landlord's Rights in Event of Damage or Destruction. If the Premises
or any material part of the Building that houses machinery or equipment used in
operation of the Building shall be damaged by fire or other casualty, Landlord
may elect:
(1) to terminate this Lease as of the date of the fire or
casualty by notice to Tenant within ninety (90) days after such
date, or
(2) to proceed to repair and restore with reasonable
promptness the same (subject to reasonable delays for insurance
adjustments and delays of the nature described in Paragraph O of
Article 31), in which case this Lease shall not terminate.
Notwithstanding anything to the contrary herein set forth,
Landlord shall have no duty pursuant to this Article 9 to repair
or restore any portion of the alterations, additions or
improvements owned or made by Tenant in the Premises or to expend
for any repair or restoration amounts in excess of insurance
proceeds paid to Landlord and available for repair or
restoration.
If Landlord elects to proceed pursuant to subparagraph (2) of this
Paragraph A, Landlord shall so notify Tenant within ninety (90) days after the
date of such fire or casualty, which notice shall contain Landlord's reasonable
estimate of the date on which the Premises will be ready for Tenant's occupancy
as evidenced by a certificate of occupancy issued by the Village of Bedford Park
or certificate of substantial completion issued by Landlord's architect for the
uses and with the services contemplated herein ("Reoccupancy Date"), and whether
Landlord does not reasonably believe it has sufficient insurance proceeds
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<PAGE> 9
or other resources to fully repair or restore the Building and Tenant's
Premises. In the event such estimate indicates that the Reoccupancy Date shall
be more than 150 days from the date of the fire or other casualty or Landlord's
notice indicates it does not have sufficient insurance proceeds or other
resources to fully repair or restore the Building and Tenant's Premises, Tenant
shall have the right to terminate this Lease as of the date of such casualty (as
Tenant's sole and exclusive remedy) by giving written notice thereof to Landlord
not later than thirty (30) days after Landlord's notice. If Landlord's estimate
indicates that the Reoccupancy Date will be within 150 days from the date of the
fire or casualty, Landlord's notice indicates it reasonably expects to have
sufficient insurance proceeds or other resources to fully repair or restore the
Building and Premises or if Tenant fails to exercise its right to terminate this
Lease, as aforesaid, this Lease shall remain in full force and effect; provided,
however, if the Premises are not so ready for Tenant's occupancy for the uses
and with the services contemplated herein by the Reoccupancy Date, Tenant, on
thirty (30) days prior written notice to Landlord, shall have the right to
terminate this Lease; provided, however, that if Landlord in fact substantially
completes such repairs or restorations to the Building and Premises within said
thirty (30) day period, Tenant's notice to terminate shall be of no force or
effect and this Lease shall remain in full force and effect.
B. Rent Abatement. In the event any such fire or casualty damage is not
caused by the act or neglect of Tenant, its agents or employees, but renders the
Premises untenantable, and if this Lease shall not be terminated pursuant to the
foregoing provisions of this Article 9 by reason of such damage, then Rent shall
abate on a per diem basis during the period beginning with the date of such
damage and ending with the date when Landlord tenders the Premises to Tenant as
being ready for occupancy. In the event that only a portion of Premises is
untenantable, such abatement shall be in an amount equal to the total amount of
Rent for such period multiplied by the ratio of the number of square feet in the
Premises that is not ready for occupancy from time to time to the total number
of square feet in the entire Premises. In the event of termination of this
Lease pursuant to this Article 9, Rent shall be apportioned on a per diem basis
and be paid to the date of the fire or casualty.
C. No Consequential Damage. In no event shall Landlord be liable to
Tenant for loss of profits or indirect, special or consequential damages arising
out of the partial or total damage to or destruction of the Premises or the
Building by fire or other casualty.
ARTICLE 10
INSURANCE
A. Insurance to be Maintained by Tenant. Tenant shall maintain the
following policies of insurance during the entire Term with companies as
reasonably approved by Landlord, but with increases in limits of liability as
Landlord may from time to time reasonably request:
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(1) Property. Insurance covering the full replacement value of all
Tenant's fixtures and improvements including, but not limited to,
special wall and floor coverings, special lighting fixtures, built-in
cabinets and bookshelves and of all Tenant's contents, furniture,
equipment or other items of personal property on the Premises against
all risk of direct physical loss or damage, including but not limited
to, fire, lighting, sprinkler leakage, water damage, vandalism and
malicious mischief, theft, explosion, and such other similar risks
insured against under the typical extended coverage form.
(2) Liability. Comprehensive general liability coverage for Tenant
and its agents and employees covering claims for personal injury,
including death, and property damage occurring in and about the
Premises under insurance policies offering coverage of not less than
One Million and no/100 Dollars ($1,000,000.00) per person and per
occurrence.
B. Evidence of Insurance. Tenant shall, prior to the Commencement Date,
furnish to Landlord certificates evidencing such policies of insurance. Within
thirty (30) days of receipt of a written request by Landlord (but in no event
more than once in each calendar year) Tenant shall provide Landlord with a
certificate of insurance evidencing that the insurance Tenant is obligated to
provide hereunder is currently in force.
C. Mutual Waiver of Subrogation. Landlord and Tenant agree to have any
and all property insurance policies issued to either of them contain a clause
providing that any release from liability of or waiver of claim for recovery
from the other party entered into in writing by the insured prior to any loss or
damage shall not affect the validity of said policy or the right of the insured
to recover thereunder, and providing further that the insured waives all rights
of subrogation which such insurer may have against the other party. Without
limiting any release or waiver of liability or recovery contained in any other
provision of this Lease, but rather in confirmation in furtherance thereof, each
of the parties hereto waives any and all rights of action against the other
which may arise on account of damage to the Premises or Building or either
party's property located in the Premises or in the Building resulting from fire
or any other casualty of the kind covered by standard fire insurance policies
with extended coverage, regardless of whether or not, or in what amounts, such
insurance is now or hereafter carried by the parties.
ARTICLE 11
CONDEMNATION
If the entire Building or land on which the Building is located shall be
taken or condemned for any public or quasi-public use or purpose, or conveyed
under threat of any such taking or condemnation, then the Term and this Lease
shall terminate upon the date when possession of the Building and land is taken
or conveyed to the condemning authority. If less than all, but any material
part of the Premises or Building or land on which the Building is located shall
be taken or condemned for any public or quasi-public
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use or purpose, or conveyed under threat of any such taking or condemnation,
or if any adjacent property or street shall be condemned or improved in such
manner as to require the use of any part of the Premises or of the Building,
the Term and this Lease, at the option of Landlord, shall terminate upon the
date when possession of the part so taken or conveyed shall be taken or
conveyed to the condemning authority for such use or purpose. Landlord shall
be entitled to receive the entire award with respect to any such taking or
condemnation without any payment to Tenant, Tenant hereby assigning to the
Landlord Tenant's interest therein, if any, but Rent shall be apportioned as
of the date of any such termination.
In the event that the Landlord does not elect to terminate the Term and
this Lease as provided in the preceding paragraph, this Lease shall continue
and Landlord will restore the Premises or Building; provided, however, that
if the Premises cannot in Tenant's reasonable opinion be restored to a
tenantable condition or size similar to that before such taking or if in
Tenant's reasonable opinion the Premises or any substitute Premises offered by
Landlord cannot be effectively used for the purposes contemplated herein,
Tenant shall have the right to terminate this Lease effective as of the date
when possession of the part so taken or conveyed shall be taken by or granted
to the condemning authority upon not more than thirty (30) days notice to
Landlord given not more than thirty (30) days after the date when possession is
taken or granted. In the event neither Landlord nor Tenant shall elect to
terminate this Lease, as aforesaid, and the Premises or a portion of the
Premises is untenantable during the period of restoration, all Rent under this
Lease shall abate on a per diem basis, with the amount of the abatement equal
to the total amount of square feet in the untenantable portion of the Premises
to the total number of square feet in the entire Premises.
ARTICLE 12
WAIVER OF CLAIMS AND INDEMNITY
A. Tenant's Indemnity. Tenant agrees to indemnify, defend and hold
Landlord harmless from and against any claim of liability or loss from personal
injury or property damage resulting from or arising out of the use and
occupancy of the Premises by Tenant, its agents or employees during the Term of
this Lease.
B. Limitation of Landlord's Liability. Except for any loss or damage
resulting from Landlord's negligence or more culpable conduct, including
negligence or more culpable conduct relating to Landlord's maintenance and
repair of the Building and its systems, Tenant releases Landlord and its agents
and employees from and waives all claims for, and Landlord shall not be liable
for, (i) any damage occasioned by Landlord's failure to keep the Building or
the Premises or any part of any thereof in repair, nor for any damage done or
occasioned by or from plumbing, gas, water, sprinkler, steam or other pipes or
sewerage or the bursting, leaking or running of any pipes, tanks or plumbing
fixtures, in, above, upon or about the Premises; (ii) any damage occasioned by
water, snow or ice being upon or coming through the roof; (iii) any damages
arising from
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acts or neglect of any co-tenants or other occupants of the Building or of
any owners of adjacent or contiguous property; or (iv) any theft or
misappropriation of any of Tenant's personal property or trade fixtures located
from time to time in or on the Premises.
ARTICLE 13
NONWAIVER
No waiver of any condition expressed in this Lease shall be implied by any
neglect of Landlord to enforce any remedy on account of the violation of such
condition if such violation is continued or subsequently repeated, and no
express waiver by Landlord shall affect any condition other than the one
specified in such waiver and that one only for the time and in the manner
specifically stated. No receipt of moneys by Landlord or its agent from Tenant
after the termination in any way of the Term or of Tenant's right of possession
hereunder or after the giving of any notice shall reinstate, continue or extend
the Term or affect any notice given to Tenant prior to the receipt of such
moneys, it being agreed that after the service of notice or the commencement of
a suit or after final judgement for possession of the Premises, Landlord may
receive and collect any Rent or other sums due, and such payment shall not
waive or affect said notice, suit or judgment.
No waiver of any condition expressed in this Lease shall be implied by any
neglect of Tenant to enforce any remedy on account of the violation of such
condition if such violation is continued and subsequently repeated, and no
express waiver by Tenant shall affect any Condition other than the time and in
the manner specifically stated, unless and to the extent expressly provided
otherwise herein, and no payment of Rent as provided herein shall be deemed to
be a waiver by Tenant of any of its other rights under this Lease, unless made
after the expiration of any time period during which any other right to Tenant
is required to be exercised.
ARTICLE 14
WAIVER OF NOTICE
Except as provided in Article 15 hereof, Tenant hereby expressly waives
the service of any notice of intention to terminate this Lease or to re-enter
the Premises and waives the service of any demand for payment of Rent or for
possession and waives the service of any other notice or demand prescribed by
any statute or other law.
ARTICLE 15
DEFAULT; LANDLORD'S RIGHTS AND REMEDIES
A. Default. The occurrence of any one or more of the following matters
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constitutes a default ("Default") by Tenant under this Lease:
(1) Failure by Tenant to pay any Rent within five (5) days after the
due date;
(2) Failure by Tenant to pay, within fifteen (15) days after notice
thereof from Landlord to Tenant, any other moneys required to be paid
by Tenant under this Lease;
(3) Failure by Tenant to observe or perform any of the covenants
in respect of assignment and subletting set forth in Article 24;
(4) Failure by Tenant to cure forthwith, immediately after receipt
of notice from Landlord, any hazardous condition which Tenant has
created in violation of law or of this Lease;
(5) Failure by Tenant to observe or perform any other covenant,
agreement, condition or provision of this Lease, if such failure
shall continue for thirty (30) days after notice thereof from
Landlord to Tenant, unless such failure cannot reasonably be cured
within said thirty (30) day period, in which case a Default shall be
deemed to have occurred only if Tenant has not commenced said cure
with said thirty (30) day period, or does not continue to diligently
pursue the cure of such failure with the shortest time reasonably
possible thereafter or does not in all events cure such failure
within 120 days after notice thereof from Landlord to Tenant;
(6) The levy upon under execution or the attachment by legal process
of the leasehold interest of Tenant, or the filing or creation of
a lien in respect of such leasehold interest, which lien shall not be
released, bonded over or discharged within the time period provided
in Article 8;
(7) Tenant vacates or abandons the Premises or fails to take
possession of the Premises when available for occupancy (the transfer
of a substantial part of the operations, business, and personnel of
Tenant to some other location being deemed, without limiting the
meaning of the term "vacates" or "abandons", to be vacation or
abandonment within the meaning of this subparagraph (7), unless
Tenant thereafter continues to pay the Rent due under this Lease);
(8) Tenant becomes insolvent or bankrupt or admits in writing its
inability to pay its debts as they mature, or makes an assignment for
the benefit of creditors, or applies for or consents to the
appointment of a trustee or receiver for Tenant or for the major part
of its property;
(9) A trustee or receiver is appointed for Tenant or for the major
part of its property and is not discharged within sixty (60) days
after such appointment; or
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(10) To the extent permitted by law, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other
proceedings for relief under any bankruptcy law, or similar law for
the relief of debtors, are instituted (a) by Tenant or (b) against
Tenant and are allowed against
it or are consented to by it or are not dismissed within sixty
(60) days after being instituted.
B. Landlord's Remedies. If a Default occurs, Landlord shall have the
rights and remedies hereinafter set forth, which shall be distinct, separate or
cumulative, at Landlord's option, and shall not operate to exclude or deprive
Landlord of any other right or remedy allowed it by law:
(1) Landlord may terminate this Lease by giving to Tenant notice of
Landlord's election to do so, in which event the Term of this Lease
shall end, and all right, title and interest of Tenant hereunder shall
expire on the date stated in such notice which shall be no sooner
than ten (10) days after Landlord's delivery of such notice;
(2) Landlord may terminate the right of Tenant to possession of
the Premises without terminating this Lease by giving notice to
Tenant that Tenant's right of possession shall end on the date stated
in such notice, which shall be no sooner than ten days after
Landlord's delivery of such notice, whereupon the right of Tenant to
possession of the Premises or any part thereof shall cease on the
date stated in such notice; and
(3) Landlord may enforce the provisions of this Lease and may
enforce and protect the rights of Landlord hereunder by a suit or
suits in equity or at for the specific performance of any covenant or
agreement contained herein, or for the enforcement of any other
appropriate legal or equitable remedy, including recovery of all
moneys due or to become due from Tenant under any of the provisions
of this Lease.
C. Possession. If Landlord exercises either of the remedies provided
for in subparagraphs (1) and (2) of paragraph B of this Article 5, Tenant shall
surrender possession and vacate the Premises and immediately deliver possession
thereof to Landlord pursuant to the provisions of Article 16. Landlord may
re-enter and take complete and peaceful possession of the Premises, with or
without process of law, full and complete license so to do being hereby granted
to Landlord, and Landlord may remove all occupants and property therefrom,
using such force as may be necessary, without being deemed in any manner guilty
of trespass, eviction or forcible entry and detainer and without relinquishing
Landlord's right to Rent, additional rent, any other sums due hereunder or any
other right given to Landlord hereunder or by operation of law.
D. Rent Without Termination of Lease. If Landlord terminates the right
of
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Tenant to possession of the Premises without terminating this Lease, such
termination of possession shall not release Tenant, in whole or in part,
from Tenant's obligation to pay the Rent or any additional rent payable
hereunder for the full Term. In addition, Landlord shall have the right, from
time to time, to recover from Tenant, and Tenant shall remain liable for Rent,
additional rent and any other sums thereafter accruing as they become due under
this Lease during the period from the date of such notice of termination of
possession to the stated end of the Term.
Landlord may, but, unless otherwise required by law, shall be under no
obligation to, relet the Premises or any part thereof for the account of Tenant
for such rent, for such time (which may be for a term extending beyond the Term
of this Lease) and upon such terms as Landlord in Landlord's sole discretion
shall determine, and Landlord, unless otherwise required by law, shall not be
required to accept any tenant offered by Tenant or to observe any instructions
given by Tenant relative to such reletting. Landlord may make repairs,
alterations and additions in or to the Premises and redecorate the same to the
extent deemed by Landlord necessary or desirable and in connection therewith
change the locks to the Premises, and Tenant shall upon demand pay the cost
thereof together with Landlord's expenses of reletting. Landlord may collect
the rents from any such reletting and apply the same first to the payment of
the expense of reentry, redecoration, repair and alterations and the expenses
of reletting and second, to the payment of Rent or additional rent herein
provided to be paid by Tenant, and any excess or residue shall operate only as
an offsetting credit against the amount of Rent or additional rent due and
owing or as the same thereafter becomes due and payable hereunder, but the use
of such offsetting credit to reduce the amount of Rent or additional rent due
Landlord, if any, shall not be deemed to give Tenant any right, title or
interest in or to any credit on its indebtedness to Landlord in excess of the
aggregate sum which would have been paid by Tenant for the period for which the
credit to Tenant is being determined, had no Default occurred, and any such
excess or residue shall belong to Landlord solely.
No re-entry or repossession, repairs, alterations and additions, or
reletting by Landlord shall be construed as an eviction or ouster of Tenant or
as an election on Landlord's part to terminate this Lease, unless a written
notice of such intention is given to Tenant, or shall operate to release
Tenant in whole or in part from any of Tenant's obligations hereunder. Landlord
may, at any time and from time to time, sue and recover judgment for any
deficiencies from time to time remaining after the application from time to
time of the proceeds of any such reletting.
E. Damages Upon Termination of Lease. In the event of the termination
of this Lease by Landlord as provided for by subparagraph (1) of paragraph B of
this Article 15, Landlord shall be entitled to recover from Tenant all the
fixed dollar amounts of Rent accrued and unpaid for the period up to and
including such termination date, as well as all other additional rent or sums
payable by Tenant, or for which Tenant is liable or in respect of which Tenant
has agreed to indemnify Landlord under any of the provisions of this Lease,
which may be then owing and unpaid. Landlord may also recover all costs and
expenses, including court costs and attorneys' fees incurred by Landlord in the
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<PAGE> 16
enforcement of its rights and remedies hereunder. In addition, Landlord shall
be entitled to recover as damages for loss of the bargain and not as a penalty
(a) the aggregate sum which at the time of such termination represents the
excess, if any, of the present value of the Rent at the same annual rate for
the remainder of the Term as then in effect pursuant to the applicable
provisions of Article 2 or Article 23 of this Lease, over the then present
value of the then aggregate fair rental value of the Premises for the balance
of the Term, such present worth to be computed in each case on the basis of a
discount rate equal to two percent (2%) per annum below the Reference Rate in
effect at the time Landlord delivers its notice pursuant to subparagraph (1) of
Paragraph B of this Article 15; and (b) any damages in addition thereto,
including reasonable attorneys' fees and court costs, which Landlord shall have
sustained by reason of the breach of any of the covenants of this Lease other
than for the payment of Rent.
F. Bankruptcy. Notwithstanding anything contained in Paragraph A
(10) of this Article 15, in the event that Tenant shall be adjudged bankrupt,
or a trustee in bankruptcy shall be appointed for Tenant, Landlord and Tenant
agree, to the extent permitted by law, to request that the trustee in
bankruptcy shall determine within sixty (60) days thereafter whether to assume
or reject this Lease.
ARTICLE 16
SURRENDER OF POSSESSION
A. Tenant's Obligations on Termination of Possession. On or
before the date this Lease and the Term hereby created terminates, or on or
before the date Tenant's right of possession terminates, whether by lapse of
time or at the option of Landlord, Tenant shall:
(1) restore the Premises to the same condition as they were in
at the beginning of the Term, ordinary wear and tear or damage by fire
or other casualty excepted;
(2) remove those alterations, improvements or additions
installed for or during Tenant's occupancy, whether installed by
Landlord or Tenant, or acquired by Tenant from former tenants, which
Landlord shall request Tenant to remove, unless such items were
installed in the Premises prior to the date hereof, were installed
with Landlord's prior written consent or were of a nature that
Landlord's consent to make or install the same was not required
pursuant to Paragraph A of Article 7;
(3) remove from the Premises and the Building all of Tenant's
movable office furniture, trade fixtures, and other movable personal
property;
(4) surrender possession of the Premises to Landlord in a
clean condition free of all rubbish and debris; and
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(5) surrender all keys of the Premises to Landlord and make known to
Landlord the combination of all locks on the Premises.
B. Failure to Surrender Possession. If Tenant shall fail or refuse to
surrender possession of the Premises to Landlord on or before the date
specified in Paragraph A of this Article 16, Landlord may forthwith re-enter
the Premises and repossess itself thereof as of its former estate and remove
all persons and effects therefrom, using such force as may be necessary,
without being guilty of any manner of trespass or forcible entry or detainer
and, in addition, may put the Premises in the condition required pursuant to
said Paragraph A and recover from Tenant Landlord's cost of so doing. Without
limiting the generality of the foregoing, Tenant agrees to pay Landlord, upon
demand, the cost of restoring the walls, ceilings and floors of the Premises to
the same condition that existed prior to the date of the commencement of the
alterations, improvements, or additions made by or for Tenant's occupancy (or a
prior tenant's occupancy if such alterations, improvements or additions were
acquired by Tenant from a former tenant) of the Premises, ordinary wear and
tear or damage by fire or other casualty excepted, unless such items were
installed in the Premises prior to the date hereof, were installed with
Landlord's prior written consent or were of a nature that Landlord's consent to
make or install the same was not required pursuant to Paragraph A of Article 7.
C. Failure to Remove Personal Property and Trade Fixtures. If Tenant
shall fail or refuse to comply with Tenant's duty to remove all personal
property or trade fixtures from the Premises and the Building on or before the
above-specified date, the parties hereto agree and stipulate that Landlord may
enter into and upon the Premises and may, at its election:
(1) treat such failure or refusal as an offer by Tenant to transfer
title to such personal property to Landlord, in which event title
thereto shall thereupon pass under this Lease as a bill of sale to and
vest in Landlord absolutely without any cost either by set-off, credit
allowance or otherwise, and Landlord may retain, remove, sell, donate,
destroy, store, discard, or otherwise dispose of all or any part of
said personal property or trade fixtures in any manner that Landlord
shall choose; provided, however, that Landlord shall be solely liable
for any claims of liability or loss from personal injury or property
damage resulting from the manner in which any such personal property
or trade fixtures are removed, destroyed, discarded or otherwise
disposed of (but in no event shall Landlord be so liable to Tenant);
or
(2) treat such failure or refusal as conclusive evidence, on which
Landlord or any third party shall be entitled absolutely to rely and
act, that Tenant has forever abandoned such personal property or trade
fixtures, and without accepting title thereto, Landlord may, at
Tenant's expense, remove, store, destroy, discard or otherwise dispose
of all or any part thereof if any manner that Landlord shall choose
without incurring liability to Tenant or to any other person;
provided, however, that Landlord shall be solely liable for
<PAGE> 18
any such personal property or trade fixtures removed, destroyed,
discarded or otherwise disposed of (but in no event shall Landlord be so
liable to Tenant).
In no event shall Landlord ever become or accept or be charged with the duties
of a bailee (either voluntary or involuntary) of any personal property or trade
fixtures, and the failure of Tenant to remove all personal property and trade
fixtures from the Premises and the Building shall forever bar Tenant from
bringing any action or from asserting any liability against Landlord with
respect to any such property or fixtures which Tenant fails to remove.
ARTICLE 17
HOLDING OVER
Tenant shall pay to Landlord for each day Tenant retains possession of
the Premises or any portion thereof after the termination of this Lease, whether
by lapse of time or otherwise, an amount which is double the amount of rent per
day (computed on year of 365 days) based on the annual rate of Rent set forth
in Article 2 or Article 23, as the case may be, for the period in which such
possession occurs, and also shall pay all direct damages sustained by Landlord
on account thereof. The provisions of this Article 17 shall not operate as a
waiver by Landlord of any right of re-entry hereinbefore provided.
ARTICLE 18
COSTS, EXPENSES AND ATTORNEY'S FEES
In case Landlord shall, without fault on its part, be made a party to
any litigation commenced by or against Tenant, then Tenant shall pay all costs,
expenses and reasonable attorneys' fees incurred or paid by Landlord in
connection with such litigation. Tenant shall also pay all costs, expenses and
reasonable attorneys' fees that may be incurred or paid by Landlord in
enforcing any of Tenant's covenants and agreements in this Lease. In case
Tenant shall, without fault on its part, be made a party to any litigation
commenced by or against Landlord, then Landlord shall pay all costs, expenses
and reasonable attorneys' fees incurred or paid by Tenant in connection with
such litigation. Landlord shall also pay all costs, expenses and reasonable
attorneys' fees that may be incurred or paid by Tenant in enforcing any of
Landlord's covenants and agreements in this Lease.
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ARTICLE 19
COMPLIANCE WITH LAWS
Tenant shall operate the Premises in compliance with all applicable
federal, state, and municipal laws, ordinances and regulations and shall not
knowingly, directly or indirectly, make any use of the Premises or Building
which is prohibited by any such laws, ordinances or regulations.
ARTICLE 20
CERTAIN RIGHTS RESERVED BY LANDLORD
A. Landlord's Rights. Landlord shall have the following rights,
exercisable without notice (except as otherwise expressly provided in this
Paragraph A) and without liability to Tenant for damage or injury to property,
person or business and without affecting an eviction, constructive or actual,
or disturbance of Tenant's use or possession or giving rise to any claim for
set-off or abatement of Rent or additional rent or any other amounts due and
payable by Tenant under this Lease:
(1) To name the Building and, upon not less than thirty (30)
days prior written notice to Tenant, to change the Building's
name or street address.
(2) To install, affix and maintain any and all signs on the
exterior and interior of the Building.
(3) To reasonably designate and approve, prior to installation,
all types of carpeting, paint, wall hanging devices, window
shades, blinds, drapes, and other similar equipment, and to
control all internal lighting that may be visible from the
exterior of the Building.
(4) In the event that Landlord believes the suppliers of
services or goods to Tenant or other tenants located in the
Building are impeding access to the Building, interfering with
the security of the Building or significantly increasing the
amount of traffic in the Building, Landlord shall have the right
to establish reasonable written rules and regulations
designating, restricting or controlling the suppliers of
services or goods to Tenant and other tenants in the Building.
(5) On reasonable prior notice to Tenant, to show the Premises
to prospective tenants or purchasers at reasonable hours during
the Term and, if vacated or abandoned (within the meaning of
Paragraph A (7) of Article 15) during such period, to decorate,
remodel, repair or otherwise prepare the Premises for
re-occupancy without affecting Tenant's obligation to pay Rent.
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(6) To retain at all times, and to use in appropriate instances,
keys to all doors within and into the Premises. No locks
shall be changed without the prior written consent of Landlord.
(7) To have and retain a paramount title to the Premises free and
clear of any act of Tenant purporting to burden or encumber it.
(8) To grant to anyone the exclusive right to conduct any business
or render any service in or to the Building, provided such exclusive
right shall not operate to exclude Tenant from the use expressly
permitted herein.
(9) To approve the weight, size and location of safes and other
heavy equipment and bulky articles in and about the Premises and the
Building (so as not to overload the floors of the Premises), and to
require all such items and furniture and similar items to be moved
into and out of the Building and Premises only at such times and in
such manner as Landlord shall direct in writing. Any damages done to
the Building or Premises or to other tenants in the Building by
taking in or putting out safes, furniture, and other items, or from
overloading the floor in any way, unless the location of such items
shall have been approved in writing in advance by Landlord, shall be
paid by Tenant. Furniture, boxes, merchandise or other bulky
articles shall be transported within the Building only upon or by
vehicles equipped with rubber tires and shall be carried only in
freight elevators and at such times as the management of the Building
shall require. Movements of Tenant's property into or out of the
Building and within the Building are entirely at the risk and
responsibility of Tenant, and Landlord reserves the right to require
permits before allowing any such property to be moved into or out of
the Building.
(10) To prohibit the placing of vending or dispensing machines of
any kind in or about the Premises without the prior written
permission of Landlord.
(11) To have access for Landlord and other tenants of the Building to
any mail chutes located on the Premises according to the rules of the
United States Post Office.
(12) To change the arrangement or location of entrances,
passageways, doors and doorways, corridors, stairs, toilets and other
public service portions of the Building not contained within the
Premises or any part thereof, so long as no such change materially,
adversely affects Tenant's use of or access to Premises.
(13) To close the Building after regular working hours and on
Saturdays, Sundays and legal holidays subject, however, to Tenant's
right to admittance, under such reasonable written regulations as
Landlord may prescribe from time to time, which may include by
way of example but not
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limitation, that persons entering or leaving the Building identify
themselves to Building personnel by registration or otherwise and
that said persons establish their rights to enter or leave the
Building.
B. Landlord May Enter Premises. Landlord may enter upon the Premises
and may exercise any or all of the foregoing rights hereby reserved without
being deemed guilty of an eviction or disturbance of Tenant's use or possession
and without being liable in any manner to Tenant; provided, however, that if
Landlord enters upon the Premises for any reason whatsoever, Landlord shall use
reasonable efforts so as not to unreasonably interfere with Tenant's use of or
access to the Premises.
ARTICLE 21
ESTOPPEL
Tenant agrees that from time to time, upon not less than ten (10) days'
prior request by Landlord, Tenant or Tenant's duly authorized representative
having knowledge of the following facts shall deliver to Landlord or to a
prospective purchaser of the Building, or any interest therein, or to any
prospective or actual mortgagee or any trustee under any mortgage against the
Building, a statement in writing certifying (a) that this Lease is unmodified
and in full force and effect (or if there have been modifications that the
Lease as modified is in full force and effect); (b) the dates to which the Rent
and any other sums due under this Lease have been paid; (c) that, to the best
of such authorized representative's knowledge, neither Landlord nor Tenant is
in default under any provision of this Lease, or, if in default, the nature
thereof in detail; (d) that there are no offsets or defenses to the payment of
Rent or any such offsets or defenses, specifying such in detail; and (e) such
other matters as may reasonably be requested by Landlord, or such prospective
purchaser or the mortgagee or trustee under any such mortgage.
ARTICLE 22
RULES AND REGULATIONS
Landlord reserves the right to make such reasonable written rules and
regulations as in Landlord's judgment may from time to time be needful for the
safety, care and cleanliness of the Building and Premises and for the
preservation of good order therein.
Tenant agrees to observe the reservations to Landlord in Article 20 hereof
and agrees, for itself, its employees, agents, servants, clients, customers,
invitees, licensees and guests to observe and comply at all times with the
written rules and regulations as Landlord may from time-to-time make for the
Building, and that failure to observe and comply with such reservations, rules
and regulations shall constitute a Default under Article 15 of this Lease.
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All such rules and regulations shall be applied uniformly against all
tenants and other occupants of the Building, including, without limitation,
Landlord, but any failure by Landlord to enforce any rules or regulations now
or hereafter in effect, either against Tenant or any other tenant in the
Building, shall not constitute a breach hereunder or waive any such rules and
regulations.
ARTICLE 23
OPTION TO EXTEND TERM
A. Extension Option; Option Period. Provided that, at the time Tenant
delivers its notice pursuant to Paragraph B of this Article 23, and at the
commencement of the particular Option Period (as hereinafter defined) to which
such notice relates, this Lease is then in full force and effect and that no
Default then exists or no event which, with notice or the passage of time or
both, would constitute a Default then exists under this Lease, Landlord hereby
grants to Tenant options to extend the Term of the Building 90 space (each such
option to extend being hereafter called an "Extension Option") on the same
terms, conditions and provisions as contained in this Lease, except as
otherwise provided herein, commencing on the first day following the last day
of the then Term. Tenant acknowledges that each Extension Option granted to
Tenant under this Article 23 shall apply only to the Current Space.
B. Manner of Exercise. Any Extension Option pursuant to this Article
23 shall be exercisable by written notice from Tenant to Landlord, given no
later than three (3) months prior to the expiration of the Term (as the same
may have then been extended under this Article 23), time being of the essence.
If not so exercised, such Extension Option and each and every other subsequent
Extension Option under this Article 23 shall thereupon expire.
C. Effect of Exercise. If Tenant has validly exercised its Extension
Option under this Article 23, (i) the Term of this Lease will be extended for
the applicable Option Period, (ii) this Lease will expire, if not extended
pursuant to this Article 23 or if not terminated earlier under any other
provisions of this Lease, upon the last date of the applicable Option Period,
and (iii) the term "Term" as used in this Lease shall mean the original or
previous Term of this Lease as so extended.
D. Rent During Option Period. Notwithstanding any other provision
contained in this Lease, the Rent payable during such Option Period shall be
current rent increased four percent (4%).
ARTICLE 24
ASSIGNMENT AND SUBLETTING
A. Assignment and Subletting. Except as otherwise provided herein,
Tenant
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shall not, without the prior written consent of Landlord, (1) assign, convey,
mortgage, pledge or otherwise transfer this Lease, or any part thereof, or any
interest hereunder; (2) permit any assignment of this Lease, or any part
thereof, by operation of law; (3) sublet the Premises, or any part thereof; or
(4) permit the use of the Premises, or any part thereof, by any parties other
than Tenant, its agents, invitees and employees. Except in the case of an
assignment or subletting to a Permitted Assignee as provided in Paragraph E of
this Article 24, Tenant shall, by notice in writing, advise Landlord of its
intention from, on or after a stated date (which shall not be less than thirty
(30) days after date of Tenant's notice), to assign this Lease, or any part
thereof, or to sublet any part or all of the Premises for the balance or any
part of the Term. Tenant's notice shall include all of the terms of the
proposed assignment or sublease or in separate agreements) and shall state the
consideration therefor. Tenant's notice shall state the name and address of the
proposed assignee or sub-tenant and a true and complete copy of the proposed
assignment or sublease and any and all other agreements relating thereto shall
be delivered to Landlord with Tenant's notice.
B. Landlord's Right to Recapture. In the event that Tenant intends to
sublet all or any portion of the Premises or assign this Lease, other than to a
Permitted Assignee (as described in Paragraph E below), Landlord shall have the
right, to be exercised by giving written notice to Tenant within ten (10)
business days after receipt of Tenant's notice, to recapture all or such
portion of the Premises as is described in Tenant's notice and such recapture
notice shall, if given, cancel and terminate this Lease with respect to the
space therein described as of the date stated in Landlord's notice. If Tenant's
notice shall cover all of the Premises, and Landlord shall have exercised its
foregoing recapture right, the Term of this Lease shall expire and end on the
effective date of such assignment or sublease as fully and completely as if
that date had been herein definitely fixed for the expiration of the Term. If,
however, this Lease is hereby cancelled with respect to less than the entire
Premises, Rent reserved herein and additional rent shall be adjusted on the
basis of the number of square feet retained by Tenant in proportion to the
number of square feet contained in the Premises, as described in this Lease,
and this Lease as so amended shall continue thereafter in full force and effect.
C. Landlord Election Not to Recapture. If Landlord, upon receiving
Tenant's notice with respect to any such space, shall not exercise its right to
recapture as aforesaid, and if no Default then exists or no even which, with
notice or passage of time or both, would constitute a Default then exists,
Landlord will not unreasonably withhold its consent to Tenant's assignment of
the Lease or subletting such space to the party identified in Tenant's notice;
provided, however, that in the event Landlord consents to any such assignment or
subletting, and as a condition thereto, Tenant shall pay to Landlord all profit
derived by Tenant from such assignment or subletting. For purposes of the
foregoing, profit shall be deemed to include, but shall not be limited to, the
amount paid or payable to Tenant to effect or to induce Tenant to enter into
any such transaction, and the amount of all rent and other consideration of
whatever nature payable by such assignee or sublessee in excess of the Rent or
additional rent payable by Tenant under this Lease, after deducting Tenant's
documented and reasonable costs associated with the assignment or subletting of
the Premises. If a part of the consideration for such
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assignment or subletting shall be payable other than in cash, the payment to
Landlord of its share of such non-cash consideration shall be in such form as
is satisfactory to Landlord.
Tenant shall and hereby agrees that it will furnish to Landlord upon
request from Landlord a complete statement, certified by an officer of Tenant,
setting forth in detail the computation of all profit derived and to be derived
from such assignment or subletting. Tenant agrees that Landlord, Agent or any
other authorized representative of Landlord shall be given access at all
reasonable times to the books, records and papers of Tenant relating to any
such assignment or subletting, and Landlord shall have the right to make copies
thereof. Tenant's profit due Landlord hereunder shall be paid to Landlord
within five (5) days of receipt by Tenant of payments made from time to time by
such assignee or sublessee to Tenant.
D. Limitations on Percentage Rent. If Landlord consents to any
sublease, assignment, or other agreement for the possession, use, occupancy or
utilization of the Premises, no such sublease, assignment or agreement shall
contain a provision providing for rental or any other payment to be based in
whole or in part on the net income or profits derived by any person from the
property leased (other than an amount based on fixed percentage or percentages
of gross receipts or sales) and any such provision shall render such sublease,
assignment or agreement absolutely void and ineffective as a conveyance of any
right or interest in the possession, use, occupancy or utilization of any part
of the Premises.
E. Permitted Assignee. Notwithstanding anything contained herein to
the contrary, at any time and from time to time during the Term, Tenant may
without Landlord's consent assign this Lease or sublet any portion or all of
the Premises for all or any portion of the Term to any Permitted Assignee (as
hereinafter defined), so long as on the effective date of such assignment or
subletting no Default then exists or no event which, with notice or passage of
time or both, would constitute a Default then exists. In connection with an
assignment or subletting to a Permitted Assignee, Tenant shall not be obligated
to pay to Landlord any portion of the sublease profit described in Paragraph C
of this Article 24 derived by Tenant from such assignment or subletting (if
any). For purposes of this Lease, "Permitted Assignee" shall mean Tenant's
parent corporation, any subsidiary, any Affiliate (as hereinafter defined), or
any Successor (as hereinafter defined) of Tenant or any Affiliate or Successor
of any subsidiary, Affiliate or Successor of Tenant. For purposes of this
Lease, an "Affiliate" shall mean any corporation or any subsidiary of or
Successor to Tenant or Tenant's parent corporation or any subsidiary of or
Successor to Tenant's parent corporation has a direct or indirect ownership
interest equal to or greater than fifty percent. For purposes of this Lease, a
"Successor" shall mean any party succeeding to all or substantially all of the
business or assets of Tenant or any party resulting from a merger or
consolidation with Tenant.
F. Liability and Obligations of Tenant. Any subletting of assignment
hereunder shall not release or discharge Tenant of or from any
liability, whether past, present or future, under this Lease, and Tenant shall
remain fully liable thereunder. Any subtenant
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or assignee shall agree, pursuant to a sublease or assignment agreement in a
form satisfactory to Landlord, to comply with and be bound by all of the terms,
covenants, conditions, provisions and agreements of this Lease to the extent of
the portion of the Premises sublet or to which such assignment applies, and
Tenant shall deliver to Landlord promptly after execution, an executed copy of
each such sublease or assignment and an agreement of compliance by each such
subtenant or assignee. Tenant agrees to pay Landlord, on demand, all reasonable
costs incurred by Landlord (including reasonable fees paid to consultants and
attorneys) in connection with any request by Tenant for Landlord to consent to
any assignment or subletting by Tenant. Any sale, assignment, mortgage,
transfer, or subletting of this Lease which is not in compliance with the
provisions of this Article 24 shall be of no effect and void.
ARTICLE 25
NOTICE
All notices, requests, waivers and other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed to have been duly given (i) when delivered in person, or (ii) three
days after deposit in the United States mail, sent by registered or certified
mail, return receipt requested, or (iii) one day after deposit with a commercial
"overnight" delivery service, in any case, with postage, registration and
certification fees or delivery charges prepaid:
If to Landlord, to:
Illinois Institute of Technology
IIT Center
10 West 33rd Street - Suite 224
Chicago, Illinois 60616
Attention: Joel Asprooth, Vice President for
Business and Finance
With a copy to:
Illinois Institute of Technology
IIT Center
10 West 33rd Street - Suite 224
Chicago, Illinois 60616
Attention: Mary Anne Smith, Vice President
and University Counsel
or to such other address or addressee as hereafter shall be furnished by a
notice sent in like manner by any party hereto to the other. Persons to whom
copies of notices are to be sent shall be sent copies for information purposes
only and such copies may be sent via regular mail, telecopy or any other means.
A failure to give or receive such copies shall not affect the validity of
notice given to a party.
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ARTICLE 26
SUCCESSIVE LANDLORDS
The term "landlord" as used in this Lease means only the owner or owners
from time to time of the Building of which the Premises form a part. In the
event of any sale or sales of the Building, Landlord in its sole discretion may
either (i) terminate this Lease by providing Tenant within thirty (30) days
prior written notice and thereafter be discharged of any further liability
under this Lease; or (ii) assign this Lease to the purchaser of the Building
and if any security deposit to the purchaser of the Building and thereafter
Landlord shall be discharged of any further liability with respect to the
security deposit.
ARTICLE 27
SUBORDINATION OF LEASE
Landlord may hereafter execute and deliver a mortgage or trust deed in the
nature of a mortgage against the Building, or any interest therein. If
requested by the mortgagee or trustee under any mortgage or trust deed, Tenant
will, at the option of such mortgagee or trustee, either (a) subordinate its
interest in this Lease to such mortgage or trust deed, and to any and all
advances made thereunder and to the interest thereon, and to all renewals,
replacements and extensions thereof, provided that such mortgagee or
trustee shall agree concurrently therewith, pursuant to a non-disturbance and
attornment agreement executed in recordable form, so long as no Default then
exists or no event which, with notice or passage of time or both, would
constitute a Default then exists under this Lease, that this Lease shall not be
terminated nor shall Tenant's use, possession or enjoyment of the Premises be
interfered with nor shall the leasehold estate granted in this Lease be
affected in any way by the giving of a deed in lieu of foreclosure or the
foreclosure of or any action or proceeding instituted under such mortgage or
trust deed, or (b) make Tenant's interest in this Lease superior. Subject to
the immediately preceding sentence, Tenant will execute and deliver such
agreement or agreements as may be reasonably required by such mortgage or
trustee. In addition, if any mortgage or trust deed is foreclosed or a deed in
lieu of foreclosure is given to the mortgagee or trustee thereunder (or its
designee), (i) the liability of the mortgagee or trustee thereunder or
purchaser at such foreclosure sale or the liability of a subsequent owner
designated as landlord under this Lease shall exist only so long as such
trustee, mortgagee, purchaser or owner is the owner of the Building and such
liability shall not continue or survive after further transfer of ownership;
and (ii) upon request of such mortgagee or trustee, Tenant will agree to become
tenant and attorn to the new owner or landlord after the purchase at any
foreclosure sale thereunder or the giving of a deed in lieu of foreclosure on
the same terms and conditions of this Lease, and will execute such instruments
as may be necessary or appropriate to evidence such agreement, provided that
such mortgagee,
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trustee, new owner or landlord shall agree pursuant to a non-disturbance and
attornment agreement executed in recordable form, so long as no Default then
exists or event which, with notice or passage of time or both, would constitute
a Default then exists under this Lease, that this Lease shall not be terminated
nor shall Tenant's use, possession or enjoyment of the Premises be interfered
with nor shall the leasehold estate granted in this Lease be affected in any
way by the giving of a deed in lieu of foreclosure or the foreclosure of or any
action or proceeding instituted under such mortgage or trust deed.
ARTICLE 28
BROKERS
Tenant represents and warrants to Landlord that neither it nor its
officers or agents nor anyone acting on its behalf has dealt with any real
estate brokers in the negotiation or making of this Lease, and Tenant agrees to
indemnify and hold harmless Landlord from the claim or claims of any other
broker or brokers claiming to have interested Tenant in the Building or
Premises or claiming to have caused Tenant to enter into this Lease.
ARTICLE 29
QUIET ENJOYMENT
Subject to the provisions of this Lease, Landlord covenants that
Tenant, on paying the Rent and other amounts due and payable pursuant to this
Lease and performing the covenants of this Lease on its part to be performed,
shall and may peaceably and quietly have, hold and enjoy the Premises for the
Term of this Lease.
ARTICLE 30
MISCELLANEOUS
Landlord and Tenant further covenant with each other that:
A. Remedies Cumulative. All rights and remedies of Landlord under
this Lease shall be cumulative and none shall exclude any other rights
and remedies allowed by law.
B. Meaning of Tenant; Gender. The word "Tenant" wherever used herein
shall be construed to mean Tenants in all cases where there is more than
one Tenant, and the necessary grammatical changes required to make the
provisions hereof apply either to corporations or individuals, men or
women, shall in all cases be assumed as though in each case fully
expressed.
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C. Binding Effect. Each of the provisions of this Lease and all
covenants, indemnities and agreements of the parties hereto shall extend
to and shall, as the case may require, bind or inure to the benefit, not
only of Landlord and of Tenant, but also of their respective heirs,
legal representatives, successors and assigns, provided this clause
shall not permit any assignment contrary to the provisions of Article 24
hereof.
D. Complete Agreement Modifications. All negotiations,
considerations, representations and understandings between Landlord and
Tenant are incorporated herein and may be modified or altered only by
agreement in writing between Landlord and Tenant, and no act or omission
of any employee or other agent of Landlord, Landlord's agent or any
brokers of Landlord shall alter, change or modify any of the provisions
hereof. This Lease constitutes the entire agreement between Landlord and
Tenant with respect to the Premises and there are no representations,
warranties, promises, agreements, conditions or undertakings, oral or
written, between Landlord or Tenant other than those set forth herein.
Any subsequent change, addition or alteration to this Lease shall not be
binding upon Landlord or Tenant unless in writing and signed by both
parties.
E. No Rights to Air and Light. No rights to light or air over any
property, whether belonging to Landlord or any other person, are granted
to Tenant by this Lease.
F. Headings. Article or paragraph headings in this Lease are solely
for convenience or reference and shall not in any way limit or amplify
the terms and provisions hereof.
G. Applicable Law; Construction of Provisions. The laws of the
State of Illinois shall govern the validity, performance and enforcement
of this Lease. If any provision of this Lease is capable of two
constructions, one of which would render the provision invalid and the
other of which would make the provision valid, then the provision shall
have the meaning which renders it valid.
H. Recording. Neither this Lease, nor any memorandum, affidavit or
other writing with respect thereto, shall be filed for record by Tenant
or by anyone acting through, under or on behalf of Tenant, and the
filing for record thereof in violation of this provision shall make this
Lease null and void at Landlord's election.
I. Relationship of Parties. Nothing contained in this Lease shall
be deemed or construed by the parties hereto or by any third party to
create the relationship of principal and agent, partnership, joint
venture or any association between Landlord and Tenant, it being
expressly understood and agreed that neither the method of computation
of rent now any act of the parties hereto shall be deemed to create any
relationship between Landlord and Tenant other than the relationship of
landlord and tenant.
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J. Application of Payments. Landlord shall have the right to apply
payments received from Tenant pursuant to this Lease (regardless of Tenant's
designation of such payments) to satisfy any obligations of Tenant hereunder,
in such order and amounts, as Landlord its sole discretion, may elect.
K. Severability. If any term, covenant or condition of this Lease or
the application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease shall not be affected
thereby and will be in force to the full extent permitted by law.
L. Authorization. Tenant represents to Landlord that Tenant has full
power and authority to enter into this Lease and to perform all of its
obligations hereunder, and that execution and delivery of this Lease does not
and will not violate or conflict with any provisions of any law, contract,
mortgage, lien, instrument, agreement or judgment to which Tenant is a party or
which is binding by Tenant. If Tenant is a corporation, the persons executing
this Lease on behalf of such corporation hereby represent and warrant that they
have been duly authorized to execute this Lease for and on behalf of such
corporation pursuant to a duly adopted resolution of its board of directors or
by virtue of its by-laws.
M. Individual Liabilities of Representations. No person executing
this Lease in a representative capacity for Landlord or Tenant shall be held
individually liable hereunder in the absence of fraud, provided such person
acted with due authority and that intended principals are bound.
N. Limitations of Liability. Notwithstanding anything to the contrary
contained in this Lease, it is specifically understood and agreed that the
liability of Landlord hereunder shall be limited to the interests of Landlord
in the Building in the event of a breach by Landlord of any other of the terms,
covenants and conditions of this Lease to be preformed by Landlord. In
furtherance of the foregoing, Tenant hereby agrees that any judgment it may
obtain against Landlord shall be enforceable solely against Landlord's
ownership interest in the Building.
O. Force Majeure. If Landlord fails to perform timely by of the
terms, covenants and conditions of this Lease on Landlord's part to be
performed, and such failure is due in whole or in part to a strike, lockout,
picketing (whether legal or illegal) or other labor dispute, inability to
procure fuel, supplies or materials (after using reasonable efforts), failure
of power or other utility services (other than where caused by Landlord's
non-payment for such services), restrictive governmental laws and regulation,
riots, insurrections, war, fuel shortages, accidents, casualties, act of God,
acts of or circumstances caused directly or indirectly by Tenant (or Tenant's
agents, employees, contractors, licensees or invitees) or any other cause or
causes beyond the reasonable control of Landlord, then Landlord shall not be
deemed in default under this Lease as a result of such failure. If Tenant is
prevented from performing timely any of the terms, covenants and conditions of
this Lease on Tenant's part to be performed due to a strike, lockout, picketing
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(whether legal or illegal) or other labor dispute, inability to procure
fuel, supplies, materials (after using reasonable efforts), failure of
power or other utility services (other than where caused by Tenant's
non-payment for such services or failure to supply any such services
otherwise required to be supplied by Tenant, so long as the same is not
caused by Landlord's non-payment for such services), restrictive
governmental laws and regulations, riots, insurrections, was, fuel
shortages, accidents, casualties, acts of God, acts of or circumstances
caused directly or indirectly by Landlord (or Landlord's agents,
employees, contractors, licensees or invitees) or any other cause or
causes beyond the reasonable control of Tenant, then Tenant shall be
excused from the failure to perform any such term, covenant or condition
for the time during which any such cause or causes shall continue to
exist before any Default shall be deemed to exist; provided, however, that
except as otherwise provided herein, nothing contained in this paragraph
shall relieve Tenant from the responsibility of paying Rent, additional
rent or any other monetary sums or amounts due pursuant to this Lease
during the period the performance of such other term, covenant or
condition is excused.
P. Time of the Essence. Time is of the essence of this Lease and
of each and all provisions thereof.
Q. Counterparts. This Lease 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.
ARTICLE 31
LANDLORD'S RIGHT TO SUBSTITUTE PREMISES
At any time during the Term, but only once during the Term, Landlord may
substitute for the Premises any other premises within the Building (herein
referred to as the "New Premises") provided the New Premises shall be similar
to the Premises in area and use for Tenant's purposes. In addition:
(1) Landlord shall reimburse Tenant for all of the reasonable
expenses of Tenant incurred by Tenant in moving from the Premises
to the New Premises and improving the New Premises so that they are
substantially similar to the then condition of the Premises;
(2) Such move shall be made during evenings, weekends, or
otherwise so as to incur the least inconvenience to Tenant;
(3) Landlord shall first give Tenant at least sixty (60) days'
notice before making any such substitution; and
(4) Tenant shall have the right to terminate this Lease at any time
prior to
30
<PAGE> 31
the effective date set forth in Landlord's notice delivered pursuant to
subparagraph (3) above, if Tenant determines, in its sole discretion, that the
New Premises are or will be unacceptable, provided such termination notice is
given not more than thirty (30) days after Landlord's notice is aforesaid.
ARTICLE 32
EFFECT OF EARLY TERMINATION OF LEASE
If at any time during the Term of this Lease Tenant shall have the
right and shall elect to terminate the Term or this Lease prior to its then
stated expiration date, the rights and obligations of the parties hereto,
including without limitation, Tenant's obligation to pay Rent, additional rent
and other additional sums due and payable pursuant to this Lease after the
effective date of such termination, shall cease as of the applicable
termination date, but in no event shall either party be relieved of any
liabilities or responsibilities incurred or arising prior to the applicable
termination date.
ARTICLE 33
DEFAULT UNDER OTHER LEASES
If the term of any other lease made by Tenant for any other premises in
the Building shall be terminated after the making of this Lease because of any
default by Tenant (beyond any applicable notice and cure or grace periods)
under such other lease, Landlord, at its option, may terminate this Lease
effective immediately upon written notice of Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed on the date first above written.
LANDLORD: ILLINOIS INSTITUTE OF TECHNOLOGY,
an Illinois not-for-profit corporation
By: /s/ [SIGNATURE]
--------------------------------------
Its: Vice Pres., Bus. & Finance
-------------------------------------
TENANT. DONLAR CORPORATION
By: /s/ Larry P. Koskan
---------------------------------------
Its: President
--------------------------------------
31
<PAGE> 1
EXHIBIT 10.12
LEASE AMENDMENT
BETWEEN
ILLINOIS INSTITUTE OF TECHNOLOGY
AND
DONLAR CORPORATION
This document is an amendment (the "Amendment") to the Office Lease dated
August 1, 1992 (the "Office Lease") between Illinois Institute of Technology
(the "Landlord") and Donlar Corporation (the "Tenant").
ARTICLE 1
DEMISED PREMISES AND TERM
A. SPECIFIC LOCATION AND TERMS. Subject to the terms, covenants
and agreements in the Office Lease, Landlord does hereby demise and lease to
Tenant and Tenant hereby accepts the following spaces in the buildings commonly
known as Building 90 and Building 91, Moffett Campus, 6502 Archer Road, Bedford
Park, Illinois.
<TABLE>
<CAPTION>
Bldg Room Area Described By Lease Term Terms
No. No. (Sq. Ft.) Exhibits(s) Commencing Covered by
- ---- ---- --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
90 234 81 B 08/01/92 Office Lease
90 236 231 B 08/01/92 Office Lease
90 238 510 B 08/01/92 Office Lease
90 239 234 B 02/01/93 Amendment
90 233 81 B 06/01/93 Amendment
90 235 639 B 06/01/93 Amendment
91 1st fl 1400 C,D 06/01/93 Amendment
91 2nd fl 200 E 06/01/93 Amendment
90 232 275 B 11/01/93 Amendment
</TABLE>
The Office Lease and this Amendment shall terminate on July 31, 1994, unless
sooner terminated or extended as provided in the Office Lease.
ARTICLE 2
A. RENT
1. For the Building 90 space covered by this Amendment, Tenant shall
pay to Landlord rent in the amount of fifteen dollars ($15.00) per
square foot per annum.
<PAGE> 2
2. For the Building 91 Pilot Plant space covered by this
Amendment, Tenant shall pay to Landlord rent in the amount of
eight dollars ($8.00) per square foot per annum.
B. INTEREST ON OVERDUE PAYMENTS. Interest on overdue payments
covered by this Amendment is waived for a period extending from
the commencement of the lease term shown in Article 1, Section
A, to thirty (30) days after the date of execution of this
Amendment.
ARTICLE 3
PILOT PLANT: ADDITIONAL REQUIREMENTS
The following items pertain to the activities to be performed in the Pilot
Plant space.
A. STRUCTURAL MODIFICATIONS. The Tenant shall be responsible for all
structural analysis of existing Pilot Plant mezzanine floors and other
installations that require structural analysis. Any modifications to the
existing structural systems and/or floor grating must be approved by the
Landlord in advance of any work commencing.
B. UTILITIES. The Tenant shall pay for all utilities used in the
operation of the aforementioned Pilot Plant area. Utilities available in the
Pilot Plant are:
Electrical Power - 440-480 volts, 3 phase
110-120 volts, single phase
Steam - 160-170 psig
Water - 60-85 psi
Natural Gas
Potable water is available only in the drinking fountains.
In the event that these utilities are not metered, an estimate of usage will
be based on the type, quantity, and time of utility usage. The Tenant will
be billed monthly for these utilities at Landlord's cost.
The Tenant shall comply with all Water Reclamation District ordinances and
shall be responsible for the waste streams generated in the operation of the
Pilot Plant. The cost of disposal of liquid wastes shall be based on the
quantity of water discharged into the sewer system by the Tenant.
<PAGE> 3
All Pilot Plant electrical installations by Tenant shall meet or exceed NEMA 12
electrical specification.
C. NOISE CONTROL. The Tenant shall be responsible for controlling the
noise level generated by Tenant's equipment installed in the Pilot Plant.
Noise reduction devices and modifications to the Tenant's operation may be
necessary if the noise level exceeds 85 dba. The Landlord will make
periodic checks of the Pilot Plant to assure that the noise level does not
exceed this level.
D. ODOR CONTROL. The Tenant shall be responsible for controlling
odors that may be generated in the Pilot Plant operation. In the event of a
release of unpleasant odors, the Tenant shall take immediate steps to
eliminate odors in the Building. In addition, the Landlord must be informed
in writing of the possible odors to be generated through normal operation or
any episodes occurring during abnormal operation and shall approve the Tenant's
odor control plan prior to commencing any new operation.
E. ACCESS TO THE PILOT PLANT. Access to the Pilot Plant will be restricted
to the following locations:
1. The double door at the east side of the Pilot Plant.
2. The overhead door at the west side of the Pilot Plant.
3. Other doors shall be used only as emergency exits.
All pedestrian ingress and egress, deliveries, disposal of refuse, materials and
other waste must occur at these locations only. The Tenant will be responsible
for ensuring that the security of the Pilot Plant is not breached.
The Tenant has the right to use the Pilot Plant 24 hours a day, 7 days a week.
Normal hours of operation are 7:00 a.m. until 6:00 p.m., Monday through Friday.
After hours lighting of the Pilot Plant will be billed at actual cost.
F. RESTORATION OF THE PILOT PLANT. At the termination of this Office Lease
and this Amendment, the Tenant agrees to remove all utilities such as
electricity and water to the point of origin in the building. For example, if
electricity was installed from the main electrical supply room to the Tenant
space, it must be removed back to the point of origin.
G. PILOT PLANT SAFETY. The Tenant must supply copies of Material Safety
Data Sheets (MSDS) for all materials used in the operation of the Pilot Plant
equipment to the Landlord. These
<PAGE> 4
sheets must be on file with the Landlord prior to the commencement of
any activity utilizing the material. In addition, copies of these Data
Sheets must be inserted in the appropriate binder located at the first and
second floor entrances of the Pilot Plant.
A representative of the Tenant shall attend at least two/thirds of the
monthly safety meetings called by the Landlord's representative.
H. FUTURE INSTALLATIONS. The Tenant must submit plans for all proposed
Pilot Plant installations for review and approval of the Landlord. The
Landlord will review the plans for a maximum of 15 working days and will approve
or reject in writing the proposed installation based on stated criteria.
These criteria include, but are not limited to the following: compatibility
with othe Pilot Plant operations; hazardous installations; environmentally
sensitive installations.
IN WITNESS WHEREOF, Landlord and Tenant have caused this amendment to be
executed on the date first above written.
LANDLORD: ILLINOIS INSTITUTE OF TECHNOLOGY
an Illinos not-for-profit corporation
BY: /s/
-------------------------------------
ITS: Vice President
------------------------------------
TENANT: DONLAR CORPORATION
BY: /s/ Larry P. Koskan
-------------------------------------
ITS: President
------------------------------------
<PAGE> 5
DONLAR EXHIBIT B
SECOND FLOOR PLAN
-----------------
BUILDING 90
Occupancy
[ ] Starting Date
-------------
August 1, 1992
[ ] June 1, 1993
[ ] October 1, 1993
Date: 03/01/94 By: R. L. Opila
<PAGE> 6
DONLAR EXHIBIT C
FIRST FLOOR PLAN
----------------
BUILDING 91
PILOT PLANT AREA
<PAGE> 7
DONLAR EXHIBIT D
FLOOR PLAN
<PAGE> 8
DONLAR EXHIBIT E
SECOND FLOOR PLAN
-----------------
BUILDING 91
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
---------------------------
State of
Name Incorporation % Owned
---- ------------- -------
Donlar Pharmaceutical Corporation Illinois 90%
