<PAGE>
As filed with the Securities and Exchange Commission on March 9, 1998
Registration No. 333-45121
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
Amendment No. 1
to
FORM SB-2
REGISTRATION STATEMENT
Under The Securities Act of 1933
---------------------
FRISBY TECHNOLOGIES, INC.
(exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 3086 62-1411534
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification Number)
</TABLE>
417 South Main Street, Freeport, New York 11520 (516) 378-0162
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
---------------------
Gregory S. Frisby
Chief Executive Officer
417 South Main Street
Freeport, NY 11520
(516) 378-0162
(516) 378-0262 (fax)
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies to:
Irvin Brum, Esq. Shari K. Krouner, Esq.
William A. Ubert, Esq. Kramer, Levin, Naftalis & Frankel
Margo L. Intrator, Esq. 919 Third Avenue
Ruskin, Moscou, Evans & Faltischek, P.C. New York, New York 10022
170 Old Country Road (212) 715-9100
Mineola, New York 11501 (212) 715-8000 (fax)
(516) 663-6600
(516) 663-6641 (fax)
---------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this 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, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Title of each Class of Number of Shares to Proposed Maximum Proposed Maximum Amount of
Securities to be Registered be Registered(1) Offering Price per Share Aggregate Offering Price Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value..... 1,840,000(2) $ 8.00 $14,720,000 $ 4,342.40
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value(3).. 160,000 $ 9.60 $ 1,536,000 $ 453.12
- -----------------------------------------------------------------------------------------------------------------------------------
Total Fee ........................................................................................................ $ 4,795.52
===================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 240,0000 shares to cover the Over-Allotment Option.
(3) Issuable upon exercise of the Underwriter's Option.
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED MARCH 9, 1998
PROSPECTUS
1,600,000 Shares
FRISBY LOGO
Common Stock
Frisby Technologies, Inc. (the "Company") hereby offers (the "Offering")
1,600,000 shares of common stock, $.001 par value per share (the "Common
Stock"). Prior to the Offering, there has been no public market for the Common
Stock. The Company has applied for the listing of its Common Stock on the
Nasdaq SmallCap Market under the proposed symbol "FRIZ" and on the Boston Stock
Exchange ("BSE") under the proposed symbol "FRZ". It is currently estimated
that the initial public offering price of the Common Stock will be between
$6.00 and $8.00 per share. See "Underwriting" for information relating to the
factors to be considered in determining the initial public offering price.
----------------
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.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD
TO SUSTAIN A TOTAL LOSS OF THEIR INVESTMENT. PROSPECTIVE PURCHASERS SHOULD
CONSIDER CAREFULLY THE MATTERS SET FORTH UNDER "RISK FACTORS" BEGINNING ON
PAGE 9 OF THIS PROSPECTUS.
<TABLE>
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=========================================================================================
Underwriting Discounts
Price to Public and Commissions (1) Proceeds to Company (2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ......... $ $ $
- -----------------------------------------------------------------------------------------
Total (3) ......... $ $ $
=========================================================================================
</TABLE>
<PAGE>
(1) Does not reflect additional compensation to be received by the Underwriter
including: (i) a non-accountable expense allowance equal to three percent
of the gross proceeds of the Offering (of which $40,000 has been paid);
and (ii) an option entitling the Underwriter to purchase from the Company,
for a period of five years from the date of this Prospectus, up to 160,000
shares of Common Stock at an exercise price equal to 120% of the initial
public offering price (the "Underwriter's Option").
(2) Before deducting expenses of the Offering payable by the Company (including
the Underwriter's non-accountable expense allowance) estimated at $______
($______ if the Over-Allotment Option is exercised in full). See "Use of
Proceeds."
(3) The Company has granted to the Underwriter an option (the "Over-Allotment
Option"), exercisable within 45 days after the date of the Offering to
purchase up to 240,000 additional shares of Common Stock on the same terms
and conditions as set forth above solely to cover over-allotments. If the
Over-Allotment Option is exercised in full, the total Price to Public,
total Underwriting Discounts and Commissions and total Proceeds to Company
will be $_______, $_______ and $_______, respectively. See "Underwriting."
The Common Stock offered hereby is subject to prior sale, when, as and if
delivered to and accepted by the Underwriter, and subject to approval of
certain legal matters by its counsel and to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify such offer and to
reject any order in whole or part. It is expected that delivery of the
certificates representing the shares of Common Stock will be made at the
offices of Barington Capital Group, 888 Seventh Avenue, New York, New York
10019, on or about ___________, 1998.
BARINGTON CAPITAL GROUP
The date of this Prospectus is _____________, 1998
<PAGE>
[PHOTOGRAPHIC INSERT]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
ON THE NASDAQ SMALLCAP MARKET, REGIONAL MARKETS OR OTHERWISE, WHICH STABILIZE,
MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK ON THE OPEN MARKET IN ORDER TO
STABILIZE THE MARKET PRICE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
---------------------
Upon completion of the Offering, the Company will be subject to the
reporting requirements of the Securities Exchange Act of 1934 (the "Exchange
Act"). The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.
---------------------
Thermasorb(R) and ComforTemp(R) are registered trademarks of the Company
and the Company has applied for trademark registration for Comfort in the
Extreme(TM). This Prospectus also contains trademarks and trade names of other
companies.
2
<PAGE>
Unless otherwise indicated, the information contained in this Prospectus
assumes the Over-Allotment Option is not exercised. Except as otherwise
indicated, all share information and per share amounts set forth in this
Prospectus have been adjusted to reflect the issuance of 587,500 shares of the
Company's convertible preferred stock (the "Convertible Preferred Stock"), in a
private placement, concluded prior to the commencement of the Offering. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in such forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed under the
heading "Risk Factors." The shares offered hereby involve a high degree of
risk.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus and should be read in conjunction with that
information and those financial statements and notes. Prospective investors are
urged to read this Prospectus in its entirety.
THE COMPANY
Frisby Technologies, Inc. (the "Company") is engaged in the development
and commercialization of innovative advanced thermal management products for
use in a broad range of consumer and industrial products such as gloves, boots,
athletic footwear, apparel, protective and temperature retardant equipment,
electronics cooling systems, packaging materials, and coating substances. The
Company's Thermasorb(R) and ComforTemp(R) products utilize licensed patents and
the Company's proprietary microencapsulated phase change material ("MicroPCM")
technology to enhance thermal characteristics (i.e., insulation, cooling or
temperature control properties) of these and a variety of other consumer and
industrial products. For example, when ComforTemp(R) foams are incorporated
into ski gloves, the skier's hands remain within a constant, pre-set
temperature range without the typical accumulation of moisture. If a
firefighter were to wear flame retardant clothing incorporating ComforTemp(R)
foam, the firefighter would remain cooler and be able to fight fires longer and
more safely than a firefighter wearing flame retardant clothing without
ComforTemp(R) foam.
The Company's marketing strategy is based on penetrating large select
markets for its thermal management technology through relationships with
strategic partners. The Company works closely with its strategic partners
within each market to develop commercially viable product applications. To
date, the Company has entered into such strategic partnerships with, among
others, Wells Lamont Division of Marmon Holdings, Inc., LaCrosse Footwear, Inc.
and Bell Sports Corp.
Industry Overview
Thermal management is the process by which the temperature of various
materials is controlled or manipulated. The thermal management materials
industry consists primarily of a wide variety of non-phase change materials
such as Thinsulate(R) brand insulation for use in apparel; flexible and rigid
polyurethane foams for use in footwear, sporting goods, automotive and
transportation industries; specialized chemical additives for use in
temperature resistant paints and coatings; and liquid coolants for use in
aerospace, automotive and computer/electronics cooling systems. Phase change
thermal management materials are comprised of materials that have the ability
to absorb and reject large amounts of heat by changing from solid to liquid and
back, thereby greatly enhancing the ability to heat or cool a particular
object.
The Company believes that its products are the first to combine the two
distinct technologies of thermal management phase change materials ("PCMs") and
microencapsulation to effect meaningful thermal performance improvements within
applications across broad markets. Microencapsulation is the enclosing of
materials inside a microscopic shell to maintain the integrity of the enclosed
material. The combination
3
<PAGE>
of PCM technology with microencapsulation technology overcomes many of the
inherent shortcomings of non-encapsulated PCMs, such as the tendency of
non-encapsulated PCMs to lose their integrity, and to dissipate, evaporate or
exhaust themselves over time. Microencapsulation permits PCMs to be imbedded
into a variety of host materials, while maintaining the integrity and thermal
functionality of the core PCMs. Microencapsulation is a proven technology and
has been used extensively in the pharmaceutical industry (time release
medication) and the paper industry (carbonless copy paper). Since its advent,
microencapsulation has been increasingly utilized across diverse applications.
Management believes that the technology will continue to gain further
penetration and usage in different fields, including thermal management.
Products
The Company's products offer impressive and cost-effective thermal
management solutions for a broad range of industries. The Company's current
MicroPCM based products consist of a series of thermal additives and a series
of foams in which the thermal additives are embedded. The Company currently
markets its thermal additives and foams under the trademarks Thermasorb(R) and
ComforTemp(R), respectively.
Thermasorb(R) additives are a series of thermal management additives
developed using the latest advances in microencapsulation technology.
Thermasorb(R) MicroPCMs are micron-sized particles in the form of a dry,
free-flowing powder, consisting of a heat absorbing core material encapsulated
within a proprietary, durable shell wall. Thermasorb(R) additives can improve
the thermal storage capacity of a variety of host materials, including liquid,
foam, epoxy or composite materials. Thermasorb(R) additives are currently
commercially available in a variety of transition temperatures ranging from 43o
F to 190o F. Thermasorb(R) additives incorporated into solid materials enable
those materials to absorb up to ten times more heat than traditional insulating
materials. In tests performed for the United States Air Force by Triangle
Research and Development Corp. ("TRDC"), the principal licensor of the
Company's technology, liquid coolants containing Thermasorb(R) additives were
shown to remove up to 40 times more heat than traditional coolants.
ComforTemp(R) foams are a series of foam products that contain embedded
Thermasorb(R) additives. ComforTemp(R) foams can be fabricated in different
ways to have the ability to retain or exclude heat thereby maintaining a more
constant temperature. ComforTemp(R) foams are currently available in a light,
breathable polyurethane foam which has the added capability of wicking away
moisture while maintaining comfort in extreme hot or cold climates. For cold
weather apparel products, the greatest asset of ComforTemp(R) foams is the
ability to retain body heat during periods of activity and to release the heat
back to the individual during periods of inactivity when the body is most in
need of warmth. ComforTemp(R) foams "recharge" naturally depending on the
individual level of physical activity or other external conditions. For hot
weather products, ComforTemp(R) foams can be used as a thin thermal
barrier/heat shield to protect against extreme heat as well as to facilitate
the regulation of body heat generated during activity thereby providing a
cooling effect.
The Company's thermal management technology utilized in Thermasorb(R)
additives and ComforTemp(R) foams provides the following unique
characteristics:
o Intelligent thermal management -- provides pre-selected temperature
control;
o Versatile -- may be incorporated into a wide variety of end-use products;
o Lightweight -- lighter and less bulky than conventional insulating
materials;
o Durable -- typically outlasts product to which it is applied;
o Rechargeable -- continuous, automatic thermal management;
o Customizable -- may be engineered to meet the requirements of applications
across a wide temperature range;
o Maintenance free -- no maintenance or power source required; and
o Complementary -- may be used to enhance other insulating products.
4
<PAGE>
Strategy
The Company's current primary objective is to increase acceptance and
usage of its existing products and to adapt such products for use in additional
consumer and commercial products within targeted industries through strategic
partnerships with leaders in such industries. The Company intends to establish
its Thermasorb(R) and ComforTemp(R) products as the most advanced thermal
management products available, and to establish Thermasorb(R) and ComforTemp(R)
as internationally recognized consumer and industrial brands.
A significant portion of the Company's marketing and brand promotion
efforts are coordinated with its strategic partners. The Company's agreements
with its strategic partners typically obligate the strategic partner to display
and promote the Company's trademarks, including Thermasorb(R) and
ComforTemp(R), in all promotional materials, point of sale displays and direct
product advertising relating to end-products incorporating the Company's
products. The Company refers to these efforts as "co-branding."
The Company's products are currently being marketed commercially in
apparel, footwear and sporting goods products. Three additional fields in which
its products are most likely to become commercially feasible in the near term
are home furnishings, shipping/packaging and healthcare. In the future, the
Company's plans include developing products and establishing strategic
partnerships in the automotive, aerospace and computers and electronics
industries.
The Company's strategy is to pursue product applications which it
determines can: (i) offer significant growth potential within large,
established and/or growing markets; (ii) generate attractive margins and
enhanced brand recognition while having low capital requirements; (iii) meet a
significant unmet market need; and (iv) provide a strong proprietary
opportunity for industry leaders entering into strategic partnerships with the
Company. Once a specific market or product is identified, the Company seeks to
introduce that product by: (i) targeting a market leader in that specific
industry; (ii) establishing a strategic relationship with that market leader;
(iii) working closely with its strategic partner to develop the optimal
characteristics and marketing efforts for each product incorporating the
Company's products; and (iv) coordinating with its strategic partner to
maximize market penetration including penetration of the mass market.
The Company's current plans involve maximizing the commercial viability
and success of its thermal management products. From time to time, the Company
becomes aware of and considers conducting funded research projects that do not
relate to thermal management. The Company expects to evaluate future funded
research and development projects on a case-by-case basis and will engage in
those projects management considers to offer complementary opportunities for
the Company.
Strategic Partners
Through mid-1996, the Company focused its efforts on acquiring patent
licenses and developing proprietary technology and identifying and testing
potential applications for its innovative thermal management products. During
that period, the Company generated substantially all of its revenues from
United States government related research and development contracts. In March
1996, the Company began to commercially market its Thermasorb(R) and
ComforTemp(R) products.
After the conclusion of this Offering, the Company anticipates that it
will generate revenues from two principal sources: (i) sales of its
Thermasorb(R) and ComforTemp(R) products for use in the products of its
strategic partners; and (ii) royalties from the use of the Thermasorb(R) and
ComforTemp(R) trademarks by its strategic partners based on a percentage of its
strategic partners' sales of products containing the Company's products to
end-users. The Company also may receive license fees and development fees from
some strategic partners for the grant of exclusive rights within a specific
product category and for development services provided by the Company.
5
<PAGE>
To date, the Company's products have been incorporated into and are
currently being sold to consumers of products such as HotFingers(TM) ski gloves
by Wells Lamont, ski and snowboard helmets by Bell Sports Corp., hiking boots
and snowboots by Cove Shoe Company and Genfoot, Inc., and fishing waders by Fly
Technologies, Inc. In addition, the Company's products are currently being
incorporated into products such as snowboots by LaCrosse Footwear, Inc. and
personal hydration systems by FasTrak Systems, Inc., each of which are expected
to first be made available for sale to consumers in 1998.
The Company is currently in negotiations with additional entities that are
interested in entering into strategic partnerships for the use of Thermasorb(R)
additives or ComforTemp(R) foams in their products. These companies are in the
technical outerwear, athletic footwear, home furnishing, shipping and
packaging, healthcare, automotive, aerospace, and computer and electronics
industries.
History
The Company was incorporated in North Carolina in November 1989 and
reincorporated in Delaware in March 1998. The Company's principal executive
office is located at 417 South Main Street, Freeport, New York 11520. Its
telephone number is (516) 378-0162 and its web sites are http://www.frisby.com
and http://www.comfortemp.com.
6
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock Offered by the Company (1) (2)......... 1,600,000 shares
Common Stock Outstanding
Immediately Prior to the Offering (3) ............ 3,280,613 shares
Common Stock to be Outstanding
Following the Offering (1) (3) ................... 4,880,613 shares
Risk Factors ....................................... The shares of Common Stock offered hereby
involve a high degree of risk and should be pur-
chased only by persons who can afford to sustain
a total loss of their investment. See "Risk Factors"
and "Dilution."
Use of Proceeds .................................... The net proceeds of the Offering will be used by
the Company to provide resources for: (i) sales
and marketing; (ii) product development; (iii)
capital expenditures; (iv) research and develop-
ment; and (v) working capital. See "Use of
Proceeds."
Proposed Nasdaq SmallCap Market Symbol (4) ......... FRIZ
Proposed BSE Symbol (4) ............................ FRZ
</TABLE>
- -------------
(1) Does not include: (i) 240,000 shares of Common Stock issuable upon exercise
of the Over-Allotment Option; or (ii) 160,000 shares of Common Stock
issuable upon exercise of the Underwriter's Option. See "Underwriting."
(2) Includes 160,000 shares of Common Stock which may be purchased by an
existing stockholder of the Company at the public Offering price. See
"Certain Transactions" and "Underwriting."
(3) Does not include: (i) 587,500 shares of Common Stock issuable upon
conversion of 587,500 shares of the Convertible Preferred Stock issued in
February 1998 upon exercise of an option (the "Private Placement Option")
issued in December 1997 in a private placement (the "Private Placement");
or (ii) 250,000 shares of Common Stock reserved for issuance upon exercise
of options which may be granted under the Company's 1997 Stock Option Plan
(the "Stock Option Plan") which will be adopted prior to the completion of
the Offering. See "Capitalization," "Management -- Stock Option Plan,"
"Certain Transactions" and "Description of Securities."
(4) There is currently no market for the Common Stock and there can be no
assurance that a market for the Common Stock will develop after the
Offering. The Company has applied for the listing of its Common Stock on
the Nasdaq SmallCap Market and the BSE. There can be no assurance,
however, that such listing will be granted or, if granted, maintained. See
"Risk Factors -- No Prior Market for the Common Stock; Determination of
Offering Price; Potential Volatility of Stock Price."
7
<PAGE>
SUMMARY FINANCIAL DATA
The actual summary financial data presented below under the captions
"Statement of Operations Data" and "Balance Sheet Data" for and as of the end of
each of the periods indicated are derived from the financial statements of the
Company appearing elsewhere herein. The information set forth below should be
read in conjunction with such financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Statements of Operations Data:
Revenue .................................................... $1,208,000 $1,352,000
Cost of sales .............................................. 1,036,000 976,000
---------- ----------
Gross profit ............................................... 173,000 376,000
Operating expenses:
Selling and marketing .................................... 83,000 315,000
General and administrative ............................... 207,000 900,000
---------- ----------
Total operating expenses ................................... 290,000 1,215,000
---------- ----------
Loss from operations ....................................... (118,000) (839,000)
Net loss ................................................... $ (88,000) $ (920,000)
========== ==========
Net loss per common share -- basic and diluted ............. $ (0.03) $ (0.32)
========== ==========
Shares used in computing net loss per common share ......... 2,839,000 2,843,000
========== ==========
</TABLE>
December 31, 1997
------------------------------------------------
Pro Forma
Actual Pro Forma(1) As Adjusted(1)(2)
------------ -------------- ------------------
Balance Sheet Data:
Cash ......................... $ 375,000 $2,875,000 $12,158,000
Working capital .............. 466,000 2,966,000 12,249,000
Total assets ................. 1,268,000 3,768,000 12,912,000
Stockholders' equity ......... 565,000 3,065,000 12,209,000
- -------------
(1) Pro forma to give effect to the exercise in February 1998 of an option to
purchase 587,500 shares of Convertible Preferred Stock for an aggregate
exercise price of $2,500,000 issued in the Private Placement. See
"Certain Transactions."
(2) Pro forma, as adjusted to give effect to the sale by the Company of the
1,600,000 shares of Common Stock offered hereby at the assumed initial
offering price of $7.00 per share and receipt of the estimated net
proceeds therefrom ($139,000 of related expenses have been paid prior to
December 31, 1997). See "Use of Proceeds."
8
<PAGE>
RISK FACTORS
The shares of Common Stock offered hereby involve substantial risks and
should be purchased only by persons who can afford to sustain the loss of their
entire investment. The following risk factors, in addition to the other
information and financial data set forth elsewhere in this Prospectus, should
be considered carefully in evaluating the Company and its business before
making an investment in the Common Stock. The risks described below and
elsewhere in this Prospectus are not intended to be an exhaustive list of the
general or specific risks involved, but merely to identify certain risks that
are now foreseen by the Company. It must be recognized that other risks, not
now foreseen, might become significant in the future and that the risks, which
are now foreseen, might affect the Company to a greater extent than now
foreseen or in a manner not now contemplated. Furthermore, this Prospectus
contains certain forward-looking statements that are based on current
expectations, estimates and projections about the business of the Company and
the industry in which the Company operates, management's beliefs and
assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks" and "estimates," variations on such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions which are difficult to
predict. The Company's actual results could differ materially from those
expressed or forecasted in these forward-looking statements as a result of
certain factors, including those set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and
elsewhere in this Prospectus. Each prospective investor should carefully
consider all information contained in this Prospectus and should give
particular consideration to the following risk factors before deciding to
purchase the Common Stock offered hereby.
Limited Operating History
The Company was formed in 1989 and has a limited operating history. The
Company's activities to date have primarily related to: (i) the identification
and licensing of, and research and materials development related to, its
MicroPCM technology, the rights to which were initially licensed to the Company
in 1991; (ii) the arrangement of the contract manufacturing of MicroPCMs by
third-party suppliers; (iii) identification of initial target markets and entry
into strategic partnerships in those markets; and (iv) the limited
commercialization by the Company's first strategic partners of thermal
management products incorporating the Company's Thermasorb(R) additives and
ComforTemp(R) foams. The Company commenced producing and selling its products
commercially in mid-1996 and, as of December 31, 1997, the Company had entered
into seven agreements with strategic partners. The Company intends to rely
extensively upon the "co-branding" of its products with the products of its
strategic partners. The Company's co-branding strategy involves requiring its
strategic partners to display the Company's trademarks, Thermasorb(R) and
ComforTemp(R), on or in conjunction with end-use products incorporating its
products and in all advertising relating to those products. There can be no
assurance that the Company, alone or with its strategic partners, will be able
to create awareness of, and demand for, the Company's products through their
respective marketing efforts. The failure of the Company's co-branding approach
to marketing would require the Company to develop its marketing capabilities at
a potentially higher cost to the Company. Further, there can be no assurance
that the Company's co-branding strategy will be successful or, if successful,
that such program will lead to increased sales of the Company's products and
services. If the Company's co-branding strategy is not successful, there can be
no assurance that the Company will have sufficient resources to develop its own
marketing program or, if developed, that such program will be successful. See
"Business -- Strategy" and "-- Sales and Marketing."
Additionally, the Company's business and its operations are subject to
unanticipated expenses, uncertain market acceptance, competition, government
regulation, increases in costs, delays and risks inherent in the establishment
of a new business enterprise, including limited capital, and delays in product
development by the Company or its strategic partners. There can be no assurance
that the Company will succeed in addressing any or all of these risks, and
failure to do so would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Products" and "-- Technology Overview."
Accumulated Losses; Possible Need for Additional Financing
For the years ended December 31, 1996 and 1997, the Company had net losses
of $88,000 and $920,000, respectively. The Company had working capital of
$466,000 at December 31, 1997, and an accumulated deficit
9
<PAGE>
of $978,000 through December 31, 1997. The Company anticipates that it will
continue to sustain losses through the third quarter of 1999, principally as a
result of expenses associated with the Company's continuing product development
efforts and anticipated selling, marketing and general administrative expenses.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company believes that the net proceeds from the Offering will be
sufficient to satisfy the Company's working capital requirements for a period
of approximately 24 months following completion of the Offering. No assurance
can be given that the Company will become profitable in such time or
thereafter. In the event that the Company's plans change, its assumptions prove
to be inaccurate (due to unanticipated expenses, difficulties, delays or
otherwise) or the proceeds of the Offering otherwise prove to be insufficient
to fund the implementation of the Company's business strategy and working
capital requirements, the Company could be required to seek additional
financing. The Company has no commitments for any future funding, and there can
be no assurance that the Company will be able to obtain additional capital in
the future. The type, timing and terms of such funding, if available, will be
determined by prevailing conditions in the financial markets and the Company's
financial condition, among other factors. If the Company requires additional
capital and is unable to obtain such capital, it may be required to
significantly curtail its activities which would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Reduction in Government Funded Development; No Assurance of Continued
Government Contracts
A significant portion of the $5,648,000 in total revenues earned by the
Company since its inception through December 31, 1997 was generated from
performing contracts and providing engineering services directly or indirectly
for the United States government. Revenue from these contracts accounted for
92.7% and 36.0% of the Company's total revenues for the years ended December
31, 1996 and 1997, respectively, and substantially funded the Company's
development efforts. Except for four of these contracts which provide for
future development payments to the Company totalling approximately $750,000,
these contracts were fully or substantially completed as of December 31, 1997.
The Company does not believe that it is materially dependent on a continued
flow of revenue from existing or future government related contracts. The
Company currently expects to continue to solicit approximately $500,000 per
year of government related contracts and to fund any remaining development
efforts through license fees, product sales and royalties. There can be no
assurance that the United States government and the related contracting parties
will not curtail or eliminate their expenditures for services of the type
provided by the Company, or if not curtailed or eliminated, that the Company
will be successful in obtaining contracts to perform such services in the
future. See "Business -- Research and Development."
Market Acceptance
Since its inception, the Company has focused its product development
efforts on research and development with respect to its Thermasorb(R) and
ComforTemp(R) products and market applications incorporating Thermasorb(R)
additives and ComforTemp(R) foams which the Company believes will be superior
to similar applications utilizing currently available non-MicroPCM
technologies. As with any new technology, there is a risk that the market may
not appreciate the benefits of or recognize the potential applications for the
technology. See "Business -- Strategy."
In order for the Company to achieve broad market acceptance of its thermal
management products, the Company must demonstrate to potential consumers and
strategic partners that its additives or its products made therefrom are useful
in addition to or as replacements for existing thermal management technology.
The Company's strategy is to achieve and capitalize upon brand recognition of
its thermal management technologies in high profit markets. However, there can
be no assurance that the Company's existing or future products will be
commercially accepted. The Company's targeted strategic partner base may not
change the established thermal management technologies incorporated in their
products and may not make the necessary investment to purchase the Company's
products. If market acceptance of the Company's products does not develop, the
Company's prospects would be materially adversely affected.
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Dependence Upon Intellectual Property
The Company's business is dependent on the continued validity of the
patents that it licenses and the effectiveness of its licenses to such patents.
The Company holds licenses under nine issued and one pending United States
patent and one European patent and believes that its rights under these licenses
together with the Company's proprietary techniques adequately protect its
MicroPCM technology. The Company's rights under the licenses and in the
proprietary techniques have not been tested in any court proceeding and there
can be no assurance that these rights, if tested, will in fact be adequate to
protect its technology. The Company has a license agreement (the "TRDC License")
with TRDC for the exclusive worldwide right to develop and commercialize all
patented and proprietary bulk PCMs and MicroPCM technologies owned presently or
in the future by TRDC ("TRDC Technology") with the exception of MicroPCMs
relating to fibers and fabrics with reversible enhanced thermal storage
properties ("MicroPCM Fibers and Fabrics"). TRDC's principal, Dr. David P.
Colvin, Ph.D., is a member of the Company's Innovation Advisory Board. The TRDC
Technology currently includes nine issued and one pending United States patent
and one European patent. TRDC or its licensees have applied for international
patent protection for two of the issued United States patents. The TRDC License
also grants to the Company the exclusive right and license to sublicense, to
manufacture bulk PCMs, MicroPCMs, end-use products, and any improvements thereto
based on the TRDC Technology, and to market, sell, use, lease or distribute all
applications of such products worldwide, with the exception of MicroPCM Fibers
and Fabrics. The Company has been advised that TRDC has assigned its right to
receive payments under the TRDC License to an affiliated entity. See "Management
- -- Innovation Advisory Board."
The rights to the portion of the TRDC Technology relating to MicroPCM
Fibers and Fabrics were licensed by TRDC to Outlast Technologies, Inc.
("Outlast") prior to the Company's licensing all of the other rights to the
TRDC Technology under the TRDC License. In order to further expand its rights
in the TRDC Technology, in January 1998, the Company entered into an agreement
with Outlast (the "Outlast Agreement"). The Outlast Agreement expands the
rights of the Company to include combinations of the Company's products with
fibers and fabrics. Under the Outlast Agreement, the Company has exclusive
rights, for most applications, to manufacture, sub-license and sell
ComforTemp(R) foams that are attached to fibers and fabrics or intended to be
attached to fibers or fabrics so long as the foam is greater than 2mm in
thickness. The Company also may sell Thermasorb(R) additives for use in such
foams to be attached to fibers and fabrics. The Company agreed to pay Outlast a
royalty if its products are used in certain combinations with fibers and
fabrics, with minimum annual payment requirements in effect for as long as the
Company desires the agreement to be exclusive (including exclusive of Outlast).
Pursuant to the Outlast Agreement, Outlast will not sell fabrics or fibers
attached to ComforTemp(R)-type foams greater than 2mm in thickness for ten
years, unless the Company elects to permit its agreement to become
non-exclusive.
The Company intends to seek TRDC's acknowledgment that Thermasorb(R) and
ComforTemp(R) products, on which royalties are paid under the Outlast
Agreement, will not be claimed to be royalty-bearing under the Company's TRDC
License. No assurance can be given that the Company will receive TRDC's
acknowledgment, and even if obtained, that claims will not be made or, if made,
will not be successful. In the event of any dispute as to which products of the
Company fall under the TRDC License and which, if any, fall under the Outlast
Agreement, the Company believes that it would avoid paying royalties to both
TRDC and Outlast on the same products by instituting an interpleader action and
depositing the higher royalty into court for distribution to the appropriate
licensor. No assurance can be given that such a procedure will be approved by
any court, if it becomes necessary. The Outlast Agreement further provides,
that if the scope of Outlast's license is restricted by agreement or court
decision in a challenge by any third party, the Outlast Agreement is
automatically restricted to the same extent. No assurance can be given that
under circumstances not presently foreseen the Company could not be required to
pay royalties to both TRDC and Outlast on certain product sales.
There can be no assurance that any steps taken by the Company to protect
its intellectual property will be adequate to prevent misappropriation, that
any patents or copyrights issued to the Company or its licensors will not be
invalidated, circumvented or challenged, or that the rights granted thereunder
will provide a competitive advantage. TRDC and the Company are jointly
responsible for the protection of the intellectual property licensed
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by the Company from TRDC. Both Outlast and the Company are responsible for the
protection of the intellectual property sublicensed from Outlast. In addition,
laws of certain countries in which the Company's products are, or may be
developed, manufactured or sold, may not provide the Company's products and
intellectual property rights with the same degree of protection as the laws of
the United States. Furthermore, there can be no assurance that others will not
independently develop technologies similar or superior to the Company's
technology and obtain patents, trademarks or copyrights thereon. In such event,
the Company may not be able to license such technologies on reasonable terms,
or at all. Although the Company believes that its products and technology do
not infringe upon proprietary rights of others, there can be no assurance that
third parties will not assert infringement claims in the future. Moreover,
litigation may be necessary in the future to enforce the Company's rights under
licensed patents, copyrights and other intellectual property rights, to protect
the Company's trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Such litigation, regardless of the outcome, could result in
substantial cost and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business -- Patents/Intellectual Property."
In addition to patent protection, the Company seeks to protect its
proprietary information through confidentiality and non-competition agreements
with its employees, directors, licensees, customers, strategic partners,
consultants, advisors and collaborators. There can be no assurance that such
agreements will not be breached, that the Company will have adequate remedies
for any such breach or that the Company's proprietary information will not
otherwise become known to, or be independently developed by, the Company's
competitors. See "Business -- Patents/Intellectual Property."
The Company holds federal registrations of the trademarks Thermasorb(R)
and ComforTemp(R), Canadian registration for the trademark ComforTemp(R) and
has applied for trademark registration for Comfort in the Extreme(TM) in the
United States. The Company has also filed for international registrations for
ComforTemp(R) in the European Community. There can be no assurance that the
registered or unregistered trademarks of the Company do not infringe upon the
rights of third parties or that third parties will not assert claims of
infringement. The cost to defend such claims or the requirement to change any
trademark (which would result in the loss of any goodwill associated with that
trademark) could entail significant expense and have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Patents/Intellectual Property."
Dependence on Small Number of Strategic Partners; Limited Sales and Marketing
Experience
The Company received approximately 73% of its total revenue for the year
ended December 31, 1997 from product sales, royalties and license fees from
two strategic partners. While its agreements with its strategic partners
require minimum annual purchases of Thermasorb(R) additives and ComforTemp(R)
foams and royalty payments on the sale of goods utilizing Thermasorb(R)
additives and ComforTemp(R) foams for such strategic partners to retain the
exclusivity of their rights within specified product categories, there can be
no assurance that these strategic partners will not seek to terminate their
agreements, or fail to purchase such minimum quantities and/or fail to pay any
royalties to the Company. There can be no assurance that these or any other
strategic partners will renew or enter into such agreements with the Company in
the future. To the extent that the Company's current strategic partners fail to
renew their agreements, the Company will be forced to find new strategic
partners to replace them. To the extent that the Company is unable to
successfully replace such strategic partners or to enter agreements with
additional strategic partners, the Company's business, financial condition and
results of operations would be materially adversely affected. See "Business --
Strategic Partners."
In the event that sales by the Company's strategic partners of products
incorporating the Company's products cease or are curtailed for any reason, the
Company will experience a significant adverse effect on its cash flow. No
assurance can be given that the Company's existing strategic partners will be
able to generate sufficient sales of products incorporating the Company's
products, immediately or within a reasonable time after entering into
agreements with the Company, to enable the Company to achieve its business
plan.
The present management of the Company has limited experience with respect
to the sales and marketing of thermal management products to retail and
industrial markets. To date, the Company has only two employees dedicated to
sales and marketing. From the time the Company began to commercialize its
products in 1996 through December 31, 1997, the Company generated $488,000 from
sales of its Thermasorb(R) and ComforTemp(R) products.
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Dependence on Single Source Providers for Manufacturing
The Company currently outsources the manufacture of all of its products,
including Thermasorb(R) additives and ComforTemp(R) foams to a limited number
of manufacturers. For the year ended December 31, 1997, all of the Company's
Thermasorb(R) additives were manufactured under a purchase order with Minnesota
Mining and Manufacturing, Inc. ("3M"). Prior to October 23, 1997, all of the
Company's ComforTemp(R) foams were manufactured under a purchase order with
Lendell Manufacturing, Inc. ("LMI"). On October 23, 1997, the Company entered
into a memorandum of understanding with LMI that grants LMI the exclusive
license to manufacture a specific hydrophilic polyurethane version of the
Company's ComforTemp(R) foams. The Company and 3M have entered into an
arrangement that provides firm, fixed pricing for all of the Company's
anticipated Thermasorb(R) requirements, as well as favorable pricing and
delivery terms for short run and prototype production volumes. Pursuant to the
arrangement, the Company placed a blanket purchase order for all of its 1998
anticipated requirements of Thermasorb(R). The Company has also received written
assurances from 3M regarding 3M's desire to enter into a long-term supply
agreement for the manufacture of the Company's Thermasorb(R) additive. The
Company also has executed a non-binding agreement with Foamex International,
Inc. ("Foamex") for the manufacture of certain foam products not manufactured by
LMI and the right to sell, co-exclusively with the Company, ComforTemp(R)
polyurethane foams. While the Company believes that its relationship with Foamex
will provide the Company with an additional, high capacity, source of supply for
polyurethane foams and access to as yet untapped areas for new strategic
partnerships, there can be no assurance that the Company and Foamex will
finalize a definitive agreement or that any of the perceived benefits will
materialize. No assurance can be given that the Company will be able to procure
long-term supply contracts with either 3M, LMI, Foamex or any of its other
suppliers. To date, the Company has not experienced difficulty in connection
with the delivery of Thermasorb(R) additives or ComforTemp(R) foams. If for any
reason the Company is unable or unwilling to procure long-term supply contracts
with such suppliers or if any of its suppliers are unable to meet the Company's
requirements, the Company could experience cost increases, a deterioration of
services from its suppliers, or interruptions, delays or a reduction that may
cause the Company to fail to meet delivery schedules to its strategic partners
which in turn may have a material adverse effect on the Company's business. See
"Business -- Sales and Marketing" and "-- The Manufacturing Process."
Although the Company believes that alternate suppliers exist for the
manufacture of Thermasorb(R) additives and ComforTemp(R) foams in sufficient
quantities and at competitive prices with its current suppliers, any
unanticipated interruption of supply would have, at a minimum, a short-term
material adverse effect on the Company. The Company may outsource the
manufacture of some portion of its products to other domestic or international
manufacturers in the future. The Company has no current arrangement with any
such domestic or international alternative manufacturer, and there can be no
assurance that the Company will be able to negotiate acceptable arrangements,
or if negotiated, that such arrangements will be on terms and conditions
acceptable to the Company. Any difficulties encountered by third-party
manufacturers which result in product defects, production delays, cost overruns
or the inability to fulfill orders on a timely basis could have a material
adverse effect on the Company. See "Business -- The Manufacturing Process."
Alternative Technologies; Technological Obsolescence
The thermal management products industry is characterized by rapid
technological change and frequent introduction of new products and product
enhancements which result in relatively short product life cycles and rapid
product obsolescence. There can be no assurance that the Company will be able
to identify and offer thermal management products necessary to remain
competitive and avoid losses related to obsolete inventory or related drastic
price reductions.
The thermal management products industry presents continuing opportunities
for the development of alternative insulating and protective devices and
technologies. The development and commercialization of alternative thermal
management technologies that are less expensive, more effective or more
efficient than the Company's technologies could place the Company at a
competitive disadvantage. There can be no assurance that the Company will
successfully distinguish itself from its competitors, or that the market will
consider the products incorporating the Company's products to be superior to
its competitors' products or that the Company will be able to adapt to evolving
markets and technologies, develop new products or achieve and maintain
technological advantages. See "Business -- Technology Overview" and "--
Competition."
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Risks Associated With Business Plan and Strategy; Need for Additional Personnel
The Company has formulated its business plan and strategy based upon
certain assumptions regarding the size of the thermal management products
market, the Company's anticipated share of this market, the price at which the
Company believes it will be able to sell its products, and consumer acceptance
of the Company's products. There can be no assurance that the Company's
assumptions will prove to be correct. The Company's ability to operate in the
future will depend upon many factors, including technological advances and
product obsolescence; levels of competition, including the entry into the
market of additional competitors and increased success by existing competitors;
changes in general economic conditions; increases in operating costs including
costs of production, supplies, personnel or equipment; and changes in
requirements and regulations promulgated by applicable federal, state and local
regulatory authorities. There can be no assurance that the Company will
successfully obtain or apply the human, operational and financial resources
needed to manage a developing and expanding business. Failure by the Company to
manage its growth effectively could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Strategy."
In order to meet both the existing and anticipated market demand for the
Company's products, the Company needs to attract and retain additional
personnel. The Company currently has only two full-time sales and marketing
employees, seven product development employees, one quality assurance
specialist, one clerical employee and has no Chief Financial Officer. In order
to effectively manage its finances and launch its marketing and sales strategy,
the Company will have to hire a Chief Financial Officer as well as additional
sales, marketing, technical and operations personnel. The success of the Company
will also be dependent upon its ability to hire, train and retain new and
existing personnel. The Company will compete with other companies with greater
financial and other resources for such qualified personnel. There can be no
assurance that the Company will be able to hire and retain additional personnel
to support the Company's marketing, sales, research and product development
efforts. See "Business -- Employees."
Broad Discretion as to Use of Proceeds
An estimated $1,544,000, or 16.9%, of the net proceeds of the Offering
have been allocated to working capital and will be used for such purposes as
management of the Company may determine. Management will have broad discretion
with respect to the expenditure of that portion of the net proceeds of the
Offering. In addition, the Company's estimated allocation of the remaining net
proceeds of the Offering is subject to reapportionment among the purposes set
forth under "Use of Proceeds" including working capital. The amount and timing
of expenditures will vary depending upon a number of factors, including the
progress of the Company's product development and marketing efforts, changing
competitive conditions and general economic conditions. See "Use of Proceeds."
Fluctuations in Operating Results
The Company's operating results may vary significantly from quarter to
quarter or year to year, depending on various factors such as the timing of
product development, the timing of increased research and development, the
timing of sales and marketing expenses, the timing and size of orders and the
introduction of new products by the Company or its strategic partners.
Consequently, revenues or profits may vary significantly from quarter to
quarter or year to year, and revenues or profits in any period will not
necessarily be predictive of results in subsequent periods. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Dependence on Key Personnel; Salary Increases to Management
The Company's growth and development is dependent upon the continued
services of Gregory S. Frisby, Chairman of the Board, President and Chief
Executive Officer of the Company, and Douglas J. McCrosson, Vice President of
Market Development and Secretary of the Company. The Company currently has key
man insurance on the life of Gregory S. Frisby in the amount of $2.5 million.
Although the Company has been able to hire and retain other qualified and
experienced personnel, the loss of the services of either Gregory S. Frisby or
Douglas J. McCrosson, for any reason, could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management."
The Company has entered into employment agreements with both Gregory S.
Frisby and Douglas J. McCrosson that will expire on December 31, 2002 and
December 31, 2000, respectively. The employment agreements effect increases in
base salary paid by the Company to enable the Company to retain key managers.
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The agreements contain confidentiality, non-competition, and non-solicitation
provisions. No assurance can be given that such agreements will effectively
enable the Company to retain key management employees or that the agreements
will not be violated, or if violated, that such provisions will be enforced in
accordance with their terms, if at all. See "Management -- Employment
Agreements."
Competition
The markets for thermal management products are widely diversified and
highly competitive. The Company will compete against current and future
competitors that manufacture, produce and sell natural and synthetic thermal
management products. Certain of the companies with which the Company competes
have substantially greater technical, financial, research and development, and
marketing resources than the Company. There can be no assurance that the
Company will be able to compete successfully with existing or new competitors.
See "Business -- Competition."
Product Liability Exposure and Availability of Insurance
The development, testing, manufacturing, marketing and sale of the
Company's products involve risks of allegations of product liability. While no
product liability claims have been made against the Company to date, if such
claims were made and adverse judgments obtained, whether directly against the
Company or against one of the Company's strategic partners in connection with
an end-use product incorporating the Company's products, such claims could have
a material adverse effect on the Company's business, financial condition and
results of operations. Although the Company has taken and intends to continue
to take what it believes to be appropriate precautions to minimize exposure to
product liability claims, there can be no assurance that it will be able to
avoid significant liability. The Company presently maintains product liability
insurance in the amount of $1,000,000 per claim with an annual aggregate limit
of $2,000,000 and is seeking proposals to increase its coverage. There can be
no assurance that such coverage is, or any new coverage will be, adequate or
will continue to be available at an acceptable cost, if at all. A product
liability claim, product recall or other claim with respect to uninsured
liabilities or in excess of insurance coverage could have a material adverse
effect on the Company's business, operating results and financial condition.
Government Regulations
As the licensor and supplier of the MicroPCMs and a licensor for their use
in certain applications, the Company relies upon its strategic partners to
incorporate the MicroPCM materials into final products, such as boots, gloves,
outerwear, helmets and automotive and industrial components. Each strategic
partner is responsible for determining that its final products conform to
applicable governmental health and safety regulations. The Company has not
undertaken all necessary tests or analyses to determine if end-products that
contain its thermal additives will conform to applicable health and safety
regulations. In the event that end-products incorporating the Company's
products fail to conform to such regulations, the Company may have to conduct
additional research and development to reformulate its products. There can be
no assurance that the products could be reformulated, nor can the Company make
any estimate of the time or expense involved in such additional research and
development, if it were to become necessary.
The Company may be subject to a variety of federal, state and local
environmental laws relating to the storage, discharge, handling, emission,
generation, manufacture, use and disposal of chemicals, solid and hazardous
waste and other toxic and hazardous materials related to its products. All of
the manufacture of the Company's products is outsourced to third-party
suppliers, and the Company maintains only a minimal amount of chemicals in its
own facility in order to support its internal development activity. The Company
believes that it has been operating its facilities in substantial compliance in
all material respects with existing laws and regulations. Nevertheless, the
failure to comply with current or future regulations could result in
substantial fines being imposed on the Company, suspension of production,
alteration of its manufacturing or cessation of its operations. Such
regulations could require the Company to acquire expensive remediation
equipment or to incur substantial compliance expenses. The Company cannot
predict the nature, scope or effect of legislation or regulatory requirements
that could be imposed or how existing or future laws or regulations will be
administered or interpreted
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with respect to products or activities to which they have not previously
applied. Compliance with more stringent laws or regulations, as well as more
vigorous enforcement policies of regulatory agencies, could require substantial
expenditures by the Company and could adversely affect the results of
operations of the Company.
In addition, the Company's local facilities and all of its operations are
subject to the plant and laboratory safety requirements of various federal,
state and local occupational safety and health laws. The Company believes it
has complied in all material respects with regard to governmental regulations
applicable to it. There can be no assurance, however, that the Company will
continue to comply with applicable government regulations or that such
regulations will not materially restrict or impede the Company's operations in
the future.
No Prior Market for the Common Stock; Determination of Offering Price;
Potential Volatility of Stock Price
Prior to the Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained or that the Common Stock will be resold at or above the
initial public offering price. The Company has applied for listing of the
Common Stock on the Nasdaq SmallCap Market and the BSE, subject to approval and
notice of issuance. The initial public offering price of the Common Stock
offered hereby will be determined by negotiations between the Company and the
Underwriter and does not bear any relationship to the Company's book value,
assets, past operating results, financial condition and other established
criteria for value. Among the factors to be considered in determining the
initial public offering price will be the history of, and the prospects for,
the Company's business and the industry in which it competes, an assessment of
the Company's management, its past and present operations, the prospects for
earnings of the Company, the general condition of the securities market at the
time of the Offering, the market prices and earnings of similar securities of
comparable companies at the time of the Offering and prevailing market and
economic conditions. See "Underwriting."
After the Offering, the market price of the Common Stock may be subject to
significant fluctuations in response to numerous factors, including but not
limited to, fluctuations or uncertainties in the Company's quarterly operating
results (including losses), delays with respect to entering new licensing
agreements, length of time required for the Company's strategic partners to get
their products to market, announcements of technological innovations of new
products, patents and technology of other suppliers, governmental regulations,
conditions in the markets in which the Company and its competitors compete,
changes by financial analysts in their estimates of the earnings of the
Company, and the economy in general. From time to time, the stock market
experiences significant price and volume volatility which may affect the market
price of the Company's Common Stock for reasons unrelated to the performance of
the Company. In addition, it is expected that there will be a relatively small
number of shares of Common Stock trading publicly following the Offering.
Accordingly, stockholders may experience difficulty selling or otherwise
disposing of shares of Common Stock at favorable prices, or at all. See "Shares
Eligible for Future Sale" and "Underwriting."
Control by Principal Stockholders
Upon completion of the Offering, Gregory S. Frisby, Chairman of the Board,
President and Chief Executive Officer of the Company and his brother, Jeffry D.
Frisby, who is not involved in the day-to-day operations of the Company, will
continue to own approximately 26.0% each of the aggregate of the Company's
outstanding Common Stock (24.9% each if the Over-Allotment Option is exercised
in full). Pursuant to a Shareholders Agreement between Gregory S. Frisby and
Jeffry D. Frisby, Gregory S. Frisby controls the voting of all of Jeffry D.
Frisby's shares giving Gregory S. Frisby control of over 51.9% of the aggregate
of the Company's outstanding Common Stock and Convertible Preferred Stock after
the Offering (49.7% if the Over-Allotment Option is exercised in full) and the
power to control the outcome of matters submitted to a vote of the Company's
stockholders, including the election of at least a majority of the members of
the Company's Board of Directors and to direct the future operations of the
Company. Such concentration may have the effect of discouraging, delaying or
preventing a change in control of the Company. See "Certain Transactions" and
"Principal Stockholders."
In addition, MUSI Investments S.A. ("MUSI") owns 441,327 shares of the
Company's outstanding Common Stock and 587,500 shares of Convertible Preferred
Stock that are convertible into an equal number of shares
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of Common Stock under certain circumstances. MUSI also has an undertaking from
the Underwriter to purchase up to ten percent of the shares of Common Stock to
be offered to the public at the public Offering price. MUSI, Gregory S. Frisby
and Jeffry D. Frisby are parties to a Stockholders Agreement which requires the
Company to use its best efforts to elect a designee of MUSI as a director of the
Company (the "MUSI Designee"). MUSI owns 100% of the Convertible Preferred
Stock. Except as otherwise required by law, shares of Convertible Preferred
Stock have the same voting rights and vote together with the Common Stock. See
"Certain Transactions," "Principal Stockholders," "Description of Securities"
and "Underwriting."
Participation in Affiliate's Pension Plan
Until January 1, 1997, the Company's employees participated in a multiple
employer pension plan administered for the Company and its affiliate, Frisby
Aerospace, Inc. ("Frisby Aerospace"), by LaSalle National Bank. The plan was a
401(k) plan (the "Old Plan") and was funded by employee contributions. Although
the Company believes that the Old Plan was administered in accordance with all
applicable laws and regulations, the Company could be liable to employees of
Frisby Aerospace as well as employees of the Company if it were alleged and
proven that the Old Plan was not administered in accordance with all applicable
laws and regulations. If imposed, such liability could have a material adverse
effect on the Company.
Year 2000 Compliance
The Company has implemented Year 2000 compliance programs designed to
ensure that its computer systems and applications will function properly beyond
1999. The Company believes that adequate resources have been allocated for this
purpose and expects its Year 2000 date conversion programs to be completed on a
timely basis. The Company does not expect to incur significant expenditures to
address this issue. However, there can be no assurance that the Company will
identify all Year 2000 problems in its computer systems in advance of their
occurrence or that the Company will be able to successfully remedy any problems
that are discovered. The expenses of the Company's efforts to address such
problems, or the expenses or liabilities to which the Company may become
subject as a result of such problems, could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, the revenue stream and financial stability of existing customers may
be adversely impacted by Year 2000 problems, which could cause fluctuations in
the Company's revenues and operating profitability.
No Assurance of Continued Nasdaq SmallCap Market or BSE Listing; Risk of
Application of Penny Stock Rules
The trading of the Company's stock in the Nasdaq SmallCap Market and the
BSE, if approved, will be conditioned upon the Company's meeting certain asset,
capital and surplus earnings and stock price tests. To maintain eligibility for
trading on the Nasdaq SmallCap Market, the Company will be required to
maintain, among other things, net tangible assets of at least $2,000,000; a
minimum bid price for the listed securities of $1.00 per share; a market value
of the public float of at least $1,000,000; and at least two market makers for
its securities. To maintain eligibility on the BSE, the Company is required,
among other matters, to maintain total net tangible assets in excess of
$1,000,000. There can be no assurance that the Company will be approved for
listing or, if approved, will continue to satisfy the requirements for
maintaining a Nasdaq SmallCap Market or a BSE listing. If the Common Stock were
to be delisted from the Nasdaq SmallCap Market and/or the BSE, the prices and
the holders' ability to sell such securities would be adversely affected. If
the Common Stock were delisted and the Company desired to have it relisted, the
Company would be required to satisfy the more stringent initial listing
requirements of the Nasdaq SmallCap Market and the BSE.
If the Company is delisted from the Nasdaq SmallCap Market and the BSE and
the price per share dropped below $5.00, then unless the Company satisfied
certain net assets tests, the Common Stock would become subject to certain
penny stock rules promulgated by the Securities and Exchange Commission (the
"Commission"). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer must also provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing
the market value of each
17
<PAGE>
penny stock held in the customer's account. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
such rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for stock that becomes subject to the penny stock rules. If the Common
Stock becomes subject to the penny stock rules, investors in the Offering may
find it more difficult to sell their Common Stock.
Shares Eligible for Future Sale
Immediately after completion of the Offering, the Company will have
4,880,613 shares of Common Stock and 587,500 shares of Convertible Preferred
Stock outstanding, of which the 1,600,000 shares of Common Stock (1,840,000
shares of Common Stock if the Over-Allotment Option is exercised in full) sold
pursuant to the Offering, will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), by persons other than "affiliates" of the Company, as defined under the
Securities Act. The remaining 3,280,613 shares of Common Stock and the 587,500
shares of Convertible Preferred Stock are deemed "restricted securities" as
defined by Rule 144 under the Securities Act and may not be sold in the absence
of registration under the Securities Act unless an exemption from registration
is available, including the exemption provided by Rule 144. All of the
restricted shares of Common Stock will be eligible for trading under Rule 144
commencing 90 days following the date of this Prospectus, subject to certain
limitations and other restrictions, including volume restrictions, prescribed by
such rule, and to the contractual "lock-up" restrictions described below. The
Company, its officers, directors and current stockholders have agreed to enter
into lock-up agreements (the "Lock-Up Agreements") under which they will agree
not to sell or otherwise dispose of any of their shares of Common Stock and
Convertible Preferred Stock of the Company for a period of 24 months commencing
upon the date of this Prospectus, or 18 months in certain circumstances, unless
certain criteria are met or prior written consent is obtained from the
Underwriter. Sales of substantial amounts of Common Stock, or the perception
that these sales could occur, could adversely affect the prevailing market price
for the Common Stock and could impair the ability of the Company to raise
additional capital through the sale of its securities or through debt financing.
See "Shares Eligible for Future Sale" and "Underwriting."
Effect of Options and Underwriter's Option on Stock Price
The Company has reserved 250,000 shares of Common Stock for issuance to
key employees, officers, directors and consultants upon the exercise of options
available for grant under the Stock Option Plan. The Company also will sell to
the Underwriter in connection with the Offering, the Underwriter's Option to
purchase an aggregate of 160,000 shares, subject to adjustment as provided
therein. Issuance of the Underwriter's Option and options issuable under the
Stock Option Plan could adversely impact future financings. In addition,
certain holders of such securities have certain registration rights, and the
sale of shares of Common Stock upon exercise of such rights or the availability
of such shares for sale could adversely affect the market price of the Common
Stock. See "Description of Securities" and "Underwriting."
The Underwriter's Option is exercisable for up to 160,000 shares of Common
Stock for a five year period commencing one year from the date of the Offering,
at an exercise price equal to 120% of the initial public offering price. The
exercise of the Underwriter's Option and any options issued under the Stock
Option Plan may dilute the book value per share of Common Stock. The holders of
such options may exercise them at a time when the Company would otherwise be
able to obtain additional equity capital on terms more favorable to the Company
and have the opportunity to benefit from increases in the price of the Common
Stock without risk of an equity investment. The Company has agreed to grant
certain demand and "piggyback" registration rights to the holders of the
Underwriter's Option. Such registration rights could involve substantial
expenses to the Company and may adversely affect the terms upon which the
Company may obtain additional financing. See "Shares Eligible for Future Sale"
and "Underwriting."
Dilution
As of December 31, 1997, the pro forma net tangible book value of the
Common Stock was $0.76 per share. Upon completion of this Offering, the net
tangible book value will be approximately $2.23 per share, representing
immediate and substantial dilution to the public investors of approximately
$4.77 or 68.1%. See "Dilution."
18
<PAGE>
No Dividends
The Company currently anticipates that it will retain all of its future
earnings, if any, for use in the operation and expansion of its business, and
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. See "Dividend Policy" and "Description of Securities."
Anti-Takeover Provisions
Certain provisions of the Company's Certificate of Incorporation, By-Laws
and Delaware law may be deemed to have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt that a stockholder might
consider in its best interests, including attempts that might result in a
premium over the market price for the shares held by the stockholders and could
make it more difficult to remove incumbent management. The Company's
Certificate of Incorporation or By-Laws provide that: (i) directors may
authorize the issuance of preferred stock (the "Preferred Stock") having rights
and preferences established by the Board of Directors without further approval
by the stockholders; (ii) except as otherwise required by law, vacancies in the
Board of Directors may be filled only by the remaining directors; and (iii) all
nominations for candidates for election as directors, other than nominations by
or at the discretion of the Board of Directors or a committee of the Board of
Directors and all stockholder proposals to be considered at annual or special
meetings of the stockholders be presented to the Company pursuant to an advance
notice procedure set forth in the Certificate of Incorporation. In general,
notice of an intent to nominate a director or to make a stockholder proposal to
be considered at a meeting must be received by the Company not less than 60 nor
more than 90 days before the meeting and must contain certain information
concerning the nominee for director or the proposal to be brought before the
meeting and concerning stockholders submitting the proposal. The affirmative
vote of at least a majority of the directors or the holders of at least
two-thirds of the voting power of the Company's stock is required to alter,
amend, repeal or adopt any provision inconsistent with the provisions described
in this paragraph. See "Description of Securities -- Preferred Stock" and "--
Directors' Limitation of Liability and Indemnification."
In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the General Corporation Law of the State of Delaware (the
"DGCL"). In general, this statute restricts a corporation from entering into
certain business combinations with an interested stockholder (defined as any
person or entity that is the beneficial owner of at least 15% of a
corporation's voting stock) or its affiliates for a period of three years after
the date of the transaction in which the person became an interested
stockholder unless: (i) the transaction is approved by the Board of Directors
of the corporation prior to such business combination; (ii) the interested
stockholder acquires 85% of the corporation's voting stock in the same
transaction in which it exceeds 15%; or (iii) the business combination is
approved by the Board of Directors and by a vote of two-thirds of the
outstanding voting stock not owned by the interested stockholder. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder.
Indemnification and Limitation on Liability of Directors and Officers
The Company's Certificate of Incorporation provides for the
indemnification of the Company's directors and officers to the fullest extent
permitted under the DGCL. As permitted by the DGCL, the Company's Certificate
of Incorporation provides that directors of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except: (i) for any breach of the director's duty
of loyalty to the Company or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or violation of law;
(iii) for acts or omissions relating to prohibited dividends or distributions
or the purchase or redemption of stock; or (iv) for any transaction from which
the director derives an improper personal benefit. However, insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Commission such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable. See "Description of
Securities -- Directors' Limitation of Liability and Indemnification."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered hereby at the assumed initial offering price of $7.00 per share,
after deducting underwriting discounts and commissions and other expenses of
the Offering estimated to be $2,056,000 ($2,274,000 if the Over-Allotment
Option is exercised in full), will be approximately $9,144,000 ($10,606,000 if
the Over-Allotment Option is exercised in full).
The Company intends to use the net proceeds of the Offering as follows:
Approximate Percentage of
Use Amount Net Proceeds
- ---------------------------------- ------------- --------------
Sales and marketing .............. $4,400,000 48.1%
Product development .............. 2,400,000 26.2
Capital expenditures ............. 600,000 6.6
Research and development ......... 200,000 2.2
Working capital .................. 1,544,000 16.9
---------- -----
TOTAL ......................... $9,144,000 100.0%
========== =====
The Company intends to use an estimated $4,400,000 of the net proceeds of
the Offering to expand its sales and marketing efforts, including hiring
additional marketing and technical personnel to support the Company's marketing
and sales efforts in industries where the Company's products are currently
being marketed commercially including apparel, footwear and sporting goods
products; industries in which the Company's products are most likely to become
commercially feasible in the near term, including home furnishings, shipping
and packaging, and healthcare; and industries which the Company plans to enter
in the future, including automotive, aerospace, and computers and electronics.
The Company will also increase its consumer advertising through visual and
print media, in-store promotions and displays, and event sponsorships. See
"Business -- Sales and Marketing."
The Company intends to use an estimated $2,400,000 of the net proceeds of
the Offering for product development for current and potential customers and
strategic partners, including the development of additional and improved end-use
products to be sold by strategic partners utilizing the Company's Thermasorb(R)
and
ComforTemp(R) products and the establishment of customer and technical support
service teams. See "Business -- Product Development Services and Support."
The Company intends to use approximately $600,000 of the net proceeds of
the Offering to fund capital expenditures necessary to support the sales and
marketing, research and development, improved quality control and product
development expansion described above, including but not limited to, the
acquisition of certain testing and analysis equipment for use in connection
with the Company's product development, research and development and improved
quality assurance efforts.
To date, the Company has funded, and anticipates that it will continue to
fund, the majority of its research and development efforts through funding
obtained from government and related private sources. Accordingly, the Company
intends to use an estimated $200,000 of the net proceeds of the Offering for
research and development, including, hiring additional technical personnel and
developing new products and technologies. In the event the Company is unable to
obtain government or private industry funding for research and development, the
Company will be required to pay any future research and development costs from
its own resources which would increase the amount of net proceeds allocated to
research and development efforts thereafter. See "Business -- Research and
Development."
The balance of the net proceeds of approximately $1,544,000 ($3,006,000 if
the Over-Allotment Option is exercised in full), will be employed for working
capital, including hiring a chief financial officer and other management
personnel. The Company may also from time to time utilize a portion of such
proceeds to acquire or enter into licensing arrangements with respect to
complementary businesses, products, services or technologies.
The table above represents the Company's best estimate of its allocation
of the uses of the net proceeds of the Offering based upon the current state of
its business operations, its current business plan and strategy, and current
economic and industry conditions. The amount and timing of expenditures will
vary depending upon a
20
<PAGE>
number of factors, including, among other things, the progress of the Company's
product development and marketing efforts, changing competitive conditions and
general economic conditions. The allocation of the net proceeds of the Offering
is subject to reapportionment among the purposes listed above. Management has
broad discretion as to the actual allocation of the net proceeds. The actual
allocation of the net proceeds cannot be predicted with any degree of
certainty. See "Risk Factors -- Broad Discretion as to Use of Proceeds."
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds of the Offering in short-term,
interest-bearing, investment-grade debt securities, money market accounts,
certificates of deposit, or direct or guaranteed obligations of the United
States government.
DIVIDEND POLICY
The Company intends to retain earnings for use in the operation and
expansion of its business and therefore does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. The payment of
dividends is within the discretion of the Board of Directors and will be
dependent upon, among other things, earnings, capital requirements, financing
agreement covenants, the financial condition of the Company and applicable law.
There is a dividend preference of $1.00 per share on the Convertible Preferred
Stock, if, as and when declared by the Board of Directors. See "Description of
Securities."
21
<PAGE>
DILUTION
As of December 31, 1997, the Company had a pro forma net tangible book
value of approximately $2,926,000, or $0.76 per share of Common Stock
outstanding, after giving effect to the exercise in February 1998 of an option
to purchase 587,500 shares of Convertible Preferred Stock at $4.26 per share
and assuming the conversion of such shares into 587,500 shares of Common Stock.
Net tangible book value equals the tangible net worth of the Company (total
tangible assets less total liabilities) divided by the number of shares of
Common Stock outstanding. After giving effect to the sale by the Company of
1,600,000 shares of Common Stock in this Offering at an assumed initial public
offering price of $7.00 per share, after deducting the estimated underwriting
discounts and Offering expenses (of which $139,000 of related expenses have been
paid prior to December 31, 1997), the pro forma net tangible book value of the
Company as of December 31, 1997 would have been approximately $12,209,000 or
$2.23 per share. This represents an immediate increase in pro forma net
tangible book value of $1.47 per share to current stockholders and an immediate
dilution of $4.77 or 68.1% per share to new investors. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share (1) ............ $ 7.00
Pro forma net tangible book value before the Offering ......... $ 0.76
Increase attributable to new investors ........................ 1.47
------
Pro forma net tangible book value after the Offering ........... 2.23
------
Dilution per share to new investors ............................ $ 4.77
======
</TABLE>
- ------------
(1) Represents the assumed initial public offering price per share of Common
Stock, before deducting underwriting discounts and Offering expenses
payable by the Company.
The following table summarizes, immediately prior to the Offering, the
difference between existing stockholders and investors in the Offering with
respect to the number and percentage of shares of Common Stock and Convertible
Preferred Stock purchased from the Company, the amount and percentage of
consideration paid and the average price paid per share of Common Stock and
Convertible Preferred Stock, before the deduction of offering expenses and
underwriting discounts:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
------------ --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 3,868,113 71% $ 5,000,500 31% $ 1.29
New investors ................. 1,600,000 29 11,200,000 69 $ 7.00
--------- -- ----------- --
Total ...................... 5,468,113 100% $16,200,500 100%
========= === =========== ===
</TABLE>
The foregoing table reflects the exercise in February 1998 of an option to
purchase 587,500 shares of Convertible Preferred Stock at $4.26 per share and
assumes the conversion of such shares into 587,500 shares of Common Stock. The
table does not include: (i) 250,000 shares of Common Stock reserved for
issuance upon exercise of options which may be granted under the Stock Option
Plan; (ii) up to 240,000 shares of Common Stock issuable upon exercise of the
Over-Allotment Option; or (iii) 160,000 shares of Common Stock issuable upon
exercise of the Underwriter's Option. See "Management -- Stock Option Plan,"
"Certain Transactions," "Description of Securities" and "Underwriting."
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company: (i) as
of December 31, 1997; (ii) on a pro forma basis to give effect to the exercise
in February 1998 of an option to purchase 587,500 shares of Convertible
Preferred Stock at $4.26 per share; and (iii) on a pro forma, as adjusted basis
to give further effect to the sale by the Company of 1,600,000 shares of Common
Stock at an assumed public offering price of $7.00 per share, after deducting
underwriting discounts and commissions and estimated Offering expenses. This
table should be read in conjunction with the financial statements, including
the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------
Pro Forma
Actual Pro Forma (1) As Adjusted (2)
-------------- ----------------- ----------------
<S> <C> <C> <C>
Stockholders' equity:
Preferred Stock, 1,000,000 shares authorized; shares issued
and outstanding: none actual; 587,500 pro forma and pro
forma as adjusted ........................................ $ -- $ 2,500,000 $ 2,500,000
Common Stock, $.001 par value, 10,000,000 shares autho-
rized; shares issued and outstanding: 3,280,613 actual and
pro forma; 4,880,613 pro forma, as adjusted (3) .......... 3,000 3,000 5,000
Additional paid-in-capital ................................. 1,541,000 1,541,000 10,683,000
Accumulated deficit ........................................ (978,000) (978,000) (978,000)
----------- ----------- -----------
Total stockholders' equity .................................. 565,000 3,065,000 12,209,000
----------- ----------- -----------
Total capitalization ..................................... $ 565,000 $ 3,065,000 $12,209,000
=========== =========== ===========
</TABLE>
- ------------
(1) Pro forma to give effect to the exercise in February 1998 of an option to
purchase 587,500 shares of Convertible Preferred Stock at $4.26 per share.
See "Summary Financial Data," "Certain Transactions" and "Description of
Securities."
(2) Pro forma, as adjusted to give effect to the sale by the Company of the
1,600,000 shares of Common Stock offered hereby at the assumed initial
offering price of $7.00 per share after deducting underwriting discounts
and commissions and estimated offerings expenses.
(3) Does not include: (i) 587,500 shares of Common Stock issuable upon the
conversion of the Convertible Preferred Stock; and (ii) 250,000 shares of
Common Stock reserved for issuance under the Stock Option Plan. See
"Certain Transactions," "Description of Securities" and Note 10 of notes
to financial statements.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to assist the reader in
understanding and assessing the significant changes and trends relating to the
results of operations and financial condition of the Company. This discussion
and analysis should be read in conjunction with the Company's financial
statements and notes thereto included elsewhere in this Prospectus.
Overview
The Company was formed in 1989 to identify, acquire, manage, and
commercialize innovative technologies. Since its inception, the Company's focus
has been on developing thermal management products utilizing a proprietary and
patented MicroPCM technology, the rights to which the Company has licensed
under the TRDC License and the Outlast License. This technology centers around
a thermal additive material that the Company markets under the trade name
Thermasorb(R). To date, this additive material has been applied primarily to a
family of cooling and insulating foams under the trade name ComforTemp(R), as
well as to other materials. The license agreements give the Company the
exclusive worldwide right to develop and commercialize this technology with
respect to certain applications in exchange for royalties that range from one
percent to five percent of product sales revenue and 12.5% to 50% of license
fees and royalty revenues, as defined. The TRDC License also requires the
Company to make minimum annual payments each year if the royalties do not
exceed certain annual minimums that increase from $15,000 to $150,000 over the
first eight years of the TRDC License and remain at $150,000 thereafter. The
Company is expensing these minimum annual payments to cost of sales on a
straight-line basis over the first eight years of the agreement. Under the
Outlast License, the Company is required to make minimum annual payments in
order to maintain the exclusivity of its license. The annual minimum payments
increase incrementally from $150,000 to $600,000 per year from 1998 through
2002 and will be $1,000,000 per year thereafter. See "Business --
Patents/Intellectual Property."
The Company has incurred cumulative losses since inception through
December 31, 1997 of approximately $978,000. This is primarily due to the
efforts of the Company to develop a supply infrastructure and to identify and
test applications of its thermal management products with only limited
commercialization prior to 1997. During 1997, the Company began to bring its
products to market, as a result of which, approximately 64.0% of the Company's
revenue during the year ended December 31, 1997 was attributable to product
sales and licensing fees related to its thermal management technology. The
Company is following a strategy of positioning its products as high performance
products that will be sold in specialty retail or industrial markets. This will
be accomplished primarily through strategic partnerships with selected market
leaders within targeted industries.
After the conclusion of this Offering, the Company anticipates that it
will generate revenues from two principal sources: (i) sales of its
Thermasorb(R) and ComforTemp(R) products for use in the products of its
strategic partners; and (ii) royalties from the use of the Thermasorb(R) and
ComforTemp(R) trademarks by its strategic partners based on a percentage of its
strategic partners' sales of products containing the Company's products to end-
users. The Company may also receive license fees and development fees from some
strategic partners for the grant of exclusive rights within a specific product
category and for development services provided by the Company.
Management anticipates that the Company will continue to incur operating
losses until the fourth quarter of 1999, when it expects to begin realizing
greater revenues from the increased introduction of its products into the
marketplace by its strategic partners. The Company plans to use the net
proceeds of the Offering for sales and marketing, product development, capital
expenditures, research and development, and for working capital. See "Use of
Proceeds."
The Company utilizes software and related technologies throughout its
business that will be affected by the date change in the year 2000. System
modifications or replacements are underway or planned which should make all
significant computer systems at the Company compliant with the year 2000
requirement. Anticipated spending for these modifications will be expensed as
incurred and is not expected to have a material impact on the Company's ongoing
results of operations.
24
<PAGE>
Results of Operations
The following table sets forth certain operating data in dollars and
percentage of total revenues for the years indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1997
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
Revenues:
Product sales ............................. $ 14,000 1.2% $ 474,000 35.1%
Research and development projects ......... 1,120,000 92.6 487,000 36.0
Licenses and royalties .................... 75,000 6.2 391,000 28.9
---------- ----- ---------- -----
Total revenues ............................. 1,208,000 100.0 1,352,000 100.0
Cost of sales:
Products .................................. 12,000 1.0 452,000 33.4
Research and development projects ......... 1,004,000 83.1 258,000 19.1
Licenses and royalties .................... 20,000 1.7 265,000 19.6
---------- ----- ---------- -----
Total cost of sales ........................ 1,036,000 85.8 976,000 72.2
---------- ----- ---------- -----
Gross profit ............................... 173,000 14.3 376,000 27.8
Selling and marketing expense .............. 83,000 6.9 315,000 23.3
General and administrative expense ......... 207,000 17.1 900,000 66.6
---------- ----- ---------- -----
Loss from operations ....................... (118,000) ( 9.8) (839,000) (62.1)
Interest expense ........................... 19,000 1.6 37,000 2.7
---------- ----- ---------- -----
Loss before income taxes ................... (136,000) (11.3) (875,000) (64.7)
Income tax (benefit) provision ............. (49,000) ( 4.1) 45,000 3.3
---------- ----- ---------- -----
Net loss ................................... $ (88,000) ( 7.3)% $ (920,000) (68.0)%
========== ===== ========== =====
</TABLE>
Years ended December 31, 1997 and 1996
Revenues. The Company generates revenue from three primary sources: (i)
sales of its Thermasorb(R) and ComforTemp(R) products for use in its strategic
partners' products; (ii) revenue from research and development contracts
related to the United States Government; and (iii) license fees and royalties
from the use of Thermasorb(R) and ComforTemp(R) trademarks by strategic
partners in end-user products, as well as other fees earned in connection with
its agreements with strategic partners. Total revenues for the year ended
December 31, 1997 increased by $144,000 to $1,352,000 from $1,208,000 for the
year ended December 31, 1996.
Product sales. Product sales for the year ended December 31, 1997 increased
by $460,000 to $474,000 from $14,000 for the year ended December 31, 1996.
The increase was primarily the result of the Company bringing its
ComforTemp(R) foams to market in 1997.
Research and development projects. Revenues from research and development
projects for the year ended December 31, 1997 decreased by $633,000 to
$487,000 from $1,120,000 for the year ended December 31, 1996. This
decrease resulted primarily from completion of several long-term contracts
during the year ended December 31, 1997 and the shift in the Company's
focus from obtaining and performing funded research and development
contracts to commercialization of its products.
Licenses and royalties. Revenues from license fees and royalties for the
year ended December 31, 1997 increased by $316,000 to $391,000 from $75,000
for the year ended December 31, 1996. This increase resulted primarily from
the Company's entry into three additional strategic partnership agreements
during 1997. These arrangements provided for payments to the Company of
certain license fees, at signing, in consideration for exclusive use of the
Company's technology in particular product categories. In addition, the
Company received $155,000 in royalties based upon sales of end-use products
by its strategic partners.
25
<PAGE>
Cost of sales. Total cost of sales for the year ended December 31, 1997
decreased by $60,000 to $976,000 from $1,036,000 for the year ended December
31, 1996. The Company's cost of sales consists of: (i) direct and indirect
costs incurred in connection with product sales; (ii) direct and indirect costs
incurred in connection with revenue from research and development contracts
relating to the United States government programs; and (iii) royalty payments
required to be made to TRDC in accordance with the TRDC License.
Cost of sales -- Products. Cost of sales related to products for the year
ended December 31, 1997 increased by $440,000 to $452,000 from $12,000 for
the year ended December 31, 1996. This increase reflected the
commercialization of the Company's products during the last three months of
1996 and the year ended December 31, 1997.
Cost of sales -- Research and development projects. Cost of sales related
to research and development projects for the year ended December 31, 1997
decreased by $746,000 to $258,000 from $1,004,000 for the year ended
December 31, 1996, primarily due to a decrease in projects during the year
ended December 31, 1997. This decrease reflected a shift of personnel to
work on the Company's product development effort, the cost of which is
classified as general and administrative expenses. This shift reflected the
Company's general strategy of shifting its focus to commercialization of
its products and away from funded research and development. The related
gross profit of such projects increased to 47.0% for the year ended
December 31, 1997 from 10.4% for the year ended December 31, 1996.
Approximately 85% of this increase was attributable to the Company's
overall development contract mix consisting of more cost plus fixed-fee
contracts during 1996 as opposed to more fixed priced contracts during 1997
which fixed price contracts proved to be more profitable. The balance of
this increase was attributable to losses incurred during 1996 relating to
cost sharing contracts which the Company performed during 1996.
Cost of sales -- Licenses and royalties. Cost of sales related to license
fees and royalties for the year ended December 31, 1997 increased by
$245,000 to $265,000 from $20,000 for the year ended December 31, 1996.
Approximately 59% of this increase was the result of the increase in
license fees and royalties which required increased licensing payments to
be made by the Company in accordance with the terms of the TRDC License.
The balance of the increase was due to a $100,000 charge related to prior
periods incurred upon the execution of the Outlast Agreement.
Selling and marketing expense. Selling and marketing expenses for the year
ended December 31, 1997 increased by $232,000 to $315,000 from $83,000 for the
year ended December 31, 1996. This increase was primarily the result of the
Company increasing its marketing activity with respect to its thermal
management technology as its products were ready for market and the pursuit of
additional exclusive and non-exclusive licenses with potential strategic
partners.
General and administrative expense. General and administrative expenses
for the year ended December 31, 1997 increased by $693,000 to $900,000 from
$207,000 for the year ended December 31, 1996. This increase was primarily due
to the shift in personnel and related costs from funded research and
development to product development, which are classified as general and
administrative expenses. This shift reflected the Company's general strategy of
shifting its focus to commercialization of its products and away from funded
research and development.
Interest expense. Interest expense for the year ended December 31, 1997
increased by $18,000 to $37,000 from $19,000 for the year ended December 31,
1996. The increase was primarily the result of increased average borrowings
outstanding under the Company's line of credit.
Income tax provision (benefit). The Company recorded an income tax
provision for the year ended December 31, 1997 of $45,000 compared to an income
tax benefit of $49,000 for the year ended December 31, 1996. The loss before
income taxes for the year ended December 31, 1997 was $875,000 compared to
$136,000 for the year ended December 31, 1996. The income tax provision for the
year ended December 31, 1997 arose from providing a valuation allowance against
all deferred tax assets due to uncertainties relating to expected future
taxable income that would have to be generated to realize such assets. The
income tax benefit for the year ended December 31, 1996 resulted primarily from
recognition of a net operating loss carryback and a deferred tax asset.
Net loss. As a result of the foregoing, the net loss for the year ended
December 31, 1997 increased to $920,000 from $88,000 for the year ended
December 31, 1996.
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Liquidity and Capital Resources
From its inception through December 31, 1997, the Company incurred
cumulative losses of approximately $978,000. The Company has financed its
operations to date through research and development contracts relating to United
States government programs, loans from an affiliated company and bank
borrowings. During 1997, the Company received non-interest bearing advances from
Frisby Aerospace, certain stockholders of which are also stockholders of the
Company, aggregating $517,000. Frisby Aerospace provided the Company with
certain facilities at terms that the Company believes to be substantially
equivalent to those available from unaffiliated third parties. In addition,
Frisby Aerospace provided the Company with certain facilities, accounting,
clerical and office services without charge, the value of which services are not
considered material and accordingly, have not been recorded in the accompanying
financial statements. These facility charges, which are non-interest bearing,
are based upon estimates of square footage and include charges for actual
expenses incurred by Frisby Aerospace on behalf of the Company. Management
believes that such allocations are reasonable. Frisby Aerospace has charged the
Company approximately $51,000, and $57,000 for such facilities and related
services during the years ended December 31, 1996 and 1997, respectively. The
Company has also funded its operations through bank borrowings in the amount of
$500,000. Both the bank debt and the advances due to Frisby Aerospace were
subsequently repaid with a portion of the proceeds of the Private Placement. See
"Risk Factors -- Accumulated Losses; Reduction in Government-Funded Development;
Possible Need for Additional Financing" and "Certain Transactions."
At December 31, 1997, the Company had working capital of $466,000,
including accounts receivable-billed of $358,000 and inventory of $248,000,
offset by accounts payable of $353,000 and license fees payable of $185,000.
The Company's liquidity during the year ended December 31, 1997 was
significantly impacted by its increasing development of its thermal management
products and increasing related sales and marketing efforts. In addition, the
increases in inventory and accounts receivable arising from product sales have
increased the Company's working capital needs. Net cash used in operating
activities for the years ended December 31, 1996 and 1997 was $70,000 and
$832,000, respectively. The principal factor contributing to the cash used in
operating activities for each of the years ended December 31, 1996 and 1997 was
the net loss for each of the respective periods.
Management anticipates that the Company will continue to incur losses until
the fourth quarter of 1999, when it expects to begin realizing greater revenues
from increased introduction of its products into the marketplace by its
strategic partners.
The Company has a $500,000 line of credit with a bank. The line of credit
bears interest at 0.5% above the bank's prime rate and will expire on June 30,
1998. The amount outstanding under the line of credit was repaid in full in
December 1997 with a portion of the proceeds from the Private Placement and,
accordingly, the full amount is currently available.
The Company has incurred cumulative losses since its inception, and
therefore, has not been subject to significant federal income taxes. Through
December 31, 1997, the Company has generated net operating loss carryforwards
of approximately $848,000 which may be available to reduce future available
taxable income and future tax liabilities. These carryforwards expire
principally in the year 2012. The Tax Reform Act of 1986 provides for an annual
limitation on the use of net operating loss carryforwards (following certain
ownership changes) that could significantly limit the Company's ability to
utilize these carryforwards. Upon the completion of the Offering, the exercise
of the Over-Allotment Option, or the subsequent exercise of options or warrants
in connection with other future sales of equity, the Company's ability to
utilize the aforementioned carryforwards may be limited. Additionally, because
the United States tax laws limit the time during which these carryforwards may
be applied against future taxes, the Company may not be able to take full
advantage of these attributes for federal tax purposes.
On December 29, 1997 the Company consummated the Private Placement pursuant
to which it sold 441,327 shares of its Common Stock and an option to purchase
587,500 shares of Convertible Preferred Stock to an unaffiliated foreign
investor for an aggregate purchase price of $2,500,000 and net proceeds of
approximately $1,600,000, after the payment of related issuance costs. The
Option was exercised at an exercise price of $4.26 per share on February 27,
1998, resulting in proceeds to the Company of $2,500,000. See "Certain
Transactions" and "Description of Securities."
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Of the $9,144,000 of estimated proceeds of the Offering, the Company
intends to use approximately $4,400,000 for sales and marketing, $2,400,000 for
product development of current and potential licensees, $600,000 for capital
expenditures, $200,000 for research and development, and $1,544,000 for working
capital. See "Use of Proceeds."
Based on the Company's current operating plan, the Company believes that
the net proceeds of the Offering, together with its existing resources and
revenues from continuing operations, will be sufficient to satisfy its capital
requirements for at least 24 months following the consummation of the Offering.
Such belief is based upon certain assumptions, and there can be no assurance
that such assumptions are correct. In the event that the Company's plans
change, or the proceeds of the Offering are insufficient to fund operations due
to unanticipated delays, problems, expenses or otherwise, the Company would be
required to seek additional financing sooner than anticipated. Further,
depending on the Company's progress in marketing its product line, gaining
acceptance of its thermal management technology and its other products and
services among the business community, the Company may determine that it is
advisable to raise additional capital sooner than was anticipated.
Inflation
The impact of general inflation on the Company's business has been
insignificant to date and the Company believes that it will continue to be
insignificant for the foreseeable future.
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BUSINESS
General
The Company is engaged in the development and commercialization of
innovative advanced thermal management products for use in a broad range of
consumer and industrial products such as gloves, boots, athletic footwear,
apparel, protective and temperature retardant equipment, electronics cooling
systems, packaging materials, and coating substances. The Company's
Thermasorb(R) and ComforTemp(R) products utilize licensed patents and the
Company's proprietary MicroPCM technology to enhance thermal characteristics
(i.e., insulation, cooling or temperature control properties) of these as well
as a variety of other consumer and industrial products. For example, when
Thermasorb(R) additives and ComforTemp(R) foams are incorporated into ski
gloves, the skier's hands would remain within a constant, pre-set temperature
range without the typical accumulation of moisture. Also, if a firefighter were
to wear flame retardant clothing incorporating ComforTemp(R) foam, the
firefighter would remain cooler and be able to fight fires longer and more
safely than a firefighter wearing flame retardant clothing without
ComforTemp(R) foam.
The Company's marketing strategy is based on penetrating large select
markets for its thermal management technology through relationships with
strategic partners. The Company works closely with its strategic partners
within each market to develop commercially viable product applications. To
date, the Company has entered into such strategic partnerships with, among
others, Wells Lamont Division of Marmon Holdings, Inc., LaCrosse Footwear, Inc.
and Bell Sports Corp.
Thermal management is the process by which the temperature of various
materials can be controlled or manipulated. The thermal management materials
industry consists primarily of a wide variety of non-phase change materials
such as Thinsulate(R) brand insulation for use in apparel, flexible and rigid
polyurethane foams for use in footwear, sporting goods, automotive and
transportation industries, specialized chemical additives for use in
temperature resistant paints and coatings, and liquid coolants for use in
aerospace, automotive and computer/electronics cooling systems. Phase change
thermal management materials are comprised of materials that have the ability
to absorb and reject large amounts of heat by changing from solid to liquid and
back, thereby greatly enhancing the ability to heat or cool a particular
object.
The Company's products offer impressive and cost-effective thermal
management solutions for a broad range of industries. The Company's current
MicroPCM based products consist of a series of thermal additives and a series
of foams in which the thermal additives are embedded. The Company currently
markets its thermal additives and foams under the trademarks Thermasorb(R) and
ComforTemp(R), respectively.
The Company's thermal management technology utilized in Thermasorb(R)
additives and ComforTemp(R) foams provides the following unique
characteristics:
o Intelligent thermal management -- provides pre-selected temperature
control;
o Versatile -- may be incorporated into a wide variety of end-use
products;
o Lightweight -- lighter and less bulky than conventional insulating
materials;
o Durable -- typically outlasts product to which it is applied;
o Rechargeable -- continuous automatic thermal management;
o Customizable -- may be engineered to meet the requirements of
applications across a wide temperature range;
o Maintenance free -- no maintenance or power source required; and
o Complementary -- may be used to enhance other insulating products.
After the conclusion of this Offering, the Company anticipates that it
will generate revenues from two principal sources: (i) sales of its
Thermasorb(R) and ComforTemp(R) products for use in the products of its
strategic
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partners; and (ii) royalties from the use of the Thermasorb(R) and
ComforTemp(R) trademarks by its strategic partners based on a percentage of its
strategic partners' sales to end-users of products containing the Company's
products. The Company also may receive license fees and development fees from
some strategic partners for the grant of exclusive rights within a specific
product category and for development services provided by the Company.
To date, the Company's products have been incorporated into and are
currently being sold to consumers of products such as HotFingers(TM) ski gloves
by Wells Lamont, ski and snowboard helmets by Bell Sports Corp., hiking boots
and snowboots by Cove Shoe Company and Genfoot, Inc. and fishing waders by Fly
Technologies, Inc. In addition, the Company's products are currently being
incorporated into products such as snowboots by LaCrosse Footwear, Inc. and
personal hydration systems by FasTrak Systems, Inc., which are expected to first
be made available for sale to consumers in 1998.
Industry Overview
Thermal management is the process by which the temperature of various
materials is controlled or manipulated. The thermal management materials
industry consists primarily of a wide variety of non-phase change materials
such as Thinsulate(R) brand insulation for use in apparel; flexible and rigid
polyurethane foams for use in footwear, sporting goods, automotive and
transportation industries; specialized chemical additives for use in
temperature resistant paints and coatings; and liquid coolants for use in
aerospace, automotive and computer/electronics cooling systems. Phase change
thermal management materials are comprised of materials that have the ability
to absorb and reject large amounts of heat by changing from solid to liquid and
back, thereby greatly enhancing the ability to heat or cool a particular
object.
The Company believes that its products are the first to combine the two
distinct technologies of thermal management and microencapsulation to effect
meaningful thermal performance improvements within applications across broad
markets. Microencapsulation is the enclosing of materials inside a microscopic
shell to maintain the integrity of the enclosed material. The combination of
PCM technology with microencapsulation technology overcomes many of the
inherent shortcomings of non-encapsulated PCMs, such as the tendency of non-
encapsulated PCMs to lose their integrity, and to dissipate, evaporate or
exhaust themselves over time. Microencapsulation permits PCMs to be imbedded
into a variety of host materials, while maintaining the integrity and thermal
functionality of the core PCMs. Microencapsulation is a proven technology and
has been used extensively in the pharmaceutical industry (time release
medication) and the paper industry (carbon-less copy paper). Since its advent,
microencapsulation has been increasingly utilized across diverse applications.
Management believes that the technology will continue to gain further
penetration and usage in different fields, including thermal management.
Strategy
Through mid-1996, the Company focused its efforts on acquiring,
identifying and testing potential applications for its innovative thermal
management products and developing its supply chain infrastructure. Having now
obtained licenses to its technology and identified select applications in which
to initially market its thermal management products and having completed
testing and development of products with manufacturers in several fields, the
Company's primary objective is to increase acceptance and usage of its thermal
management products in select high performance applications within high-volume
targeted industries through strategic partnerships with leaders in such
industries while continuously introducing new products in response to the
demands of the marketplace.
Most of the Company's marketing and brand promotion efforts are
coordinated through its strategic partners. The Company's agreements with its
strategic partners typically obligate the strategic partner to display and
promote the Company's trademarks, including, Thermasorb(R) and ComforTemp(R) in
all promotional materials, point of sale displays, and direct product
advertising with respect to products incorporating the Company's products. The
Company refers to these efforts as "co-branding."
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The Company's products are currently being marketed commercially in
apparel, footwear and sporting goods products. Three additional fields in which
it believes applications of its products are most likely to become commercially
feasible in the near term are home furnishings, shipping and packaging and
healthcare. In the future, the Company's plans include developing products and
establishing strategic partnerships in the automotive, aerospace and computers
and electronics industries.
The Company is following a deliberate strategy of positioning its products
as high performance products that will be sold in specialty retail or
industrial markets. In the near term the Company intends to focus its attention
on building high-quality, well-recognized brand names for its ComforTemp(R)
foams and Thermasorb(R) additives within niche markets such as the athletic
footwear and outdoor apparel market.
The Company evaluates prospective products by utilizing a four part
criteria. The Company's strategy is to pursue prospective product applications
which it determines can: (i) offer significant growth potential within large,
established and/or growing markets; (ii) generate attractive margins and
enhanced brand recognition while having low capital requirements; (iii) meet a
significant unmet market need; and (iv) provide a strong proprietary
opportunity for industry leaders entering into strategic partnerships with the
Company. Once a specific market or product is identified, the Company seeks to
introduce that product by: (i) targeting a market leader in that specific
industry; (ii) establishing a strategic relationship with that market leader;
(iii) working closely with its strategic partners to develop the optimal
characteristics and marketing efforts for each product incorporating the
Company's products; and (iv) coordinating with its strategic partners to
maximize market penetration including penetration of the mass market.
Products
The Company's product portfolio currently consists of its Thermasorb(R)
additives and ComforTemp(R) foams. These products offer advanced thermal
management solutions for a broad range of industries. In addition, these
products address the expanding need for improved thermal management
capabilities in a wide variety of commercial products. In response to the
requirements of its strategic partners, the Company will work to develop
applications of its products in other base materials such as epoxy resins,
paints and composite materials.
Thermasorb(R) additives are a series of thermal management additives
developed using the latest advances in microencapsulation technology.
Thermasorb(R) MicroPCMs are micron-sized particles in the form of a dry
free-flowing powder, consisting of a heat absorbing core material encapsulated
within a proprietary, durable shell wall. Thermasorb(R) additives can improve
the thermal storage capacity of a variety of host materials, including liquid,
foam, epoxy and composite materials. Thermasorb(R) additives are currently
commercially available in a variety of transition temperature settings ranging
from 43oF to 190oF. The variety of the Company's Thermasorb(R) additives allows
for an engineered solution for a multitude of thermal requirements.
ComforTemp(R) foams are a series of foam products containing embedded
Thermasorb(R) additives. ComforTemp(R) foams can be fabricated in different
ways to have the ability to retain or exclude heat thereby maintaining a more
constant temperature. Thermasorb(R) and ComforTemp(R) products have impressive
and cost-effective thermal management properties. For example, Thermasorb(R)
additives incorporated into solid materials enable those materials to absorb up
to ten times more heat than traditional insulating materials. In tests
performed for the United States Air Force by TRDC, liquid coolants containing
Thermasorb(R) additives have been shown to remove up to 40 times more heat than
traditional coolants. ComforTemp(R) foams are currently available in a light,
breathable polyurethane which has the added capability of wicking away moisture
while maintaining comfort in extreme hot or cold climates. For cold weather
apparel products, the greatest asset of ComforTemp(R) foam is its ability to
retain body heat during periods of activity and to release the heat back to the
individual during periods of inactivity, when the body is most in need of
warmth. ComforTemp(R) foams can be "recharged" repeatedly, as it recharges
depending on the individual level of physical activity or other external
conditions. For hot weather products, ComforTemp(R) foams can be used as a thin
thermal barrier or heat shield to provide protection against extreme heat as
well as to facilitate the regulation of body heat generated during activity
thereby providing a cooling effect. ComforTemp(R) foams can also be used as a
therapeutic or "climate controlled" wrap for comfort or medical purposes.
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The Company's thermal management technology utilized in Thermasorb(R)
additives and ComforTemp(R) foams provides the following unique
characteristics:
o Intelligent thermal management -- provides pre-selected temperature
control;
o Versatile -- may be incorporated into a wide variety of end-use
products;
o Lightweight -- lighter and less bulky than conventional insulating
materials;
o Durable -- typically outlasts product to which it is applied;
o Rechargeable -- continuous automatic thermal management;
o Customizable -- may be engineered to meet the requirements of
applications across a wide temperature range;
o Maintenance free -- no maintenance or power source required; and
o Complementary -- may be used to enhance other insulating products.
Product Development Services and Support
The Company offers its strategic partners a broad range of applied
engineering and application support services. The Company's application and
thermal engineers specialize in the design, use and application of PCMs and
MicroPCMs. The Company works with all of its strategic partners to tailor
applications of its product solutions to the strategic partner's specific
thermal management needs. These services include:
Prototype Fabrication: Development of prototypes providing MicroPCM
thermal management solutions for custom designed products and systems.
Thermal Analysis: Analysis and testing of the thermal management
characteristics of existing and prototype products and systems.
Program Management: From initial concept to final product, the Company's
engineers work towards providing a complete thermal management product or
system.
Technology Assessment and Product Development: Performance of market
research and product assessments as well as reviews of competing products
and technologies.
End-Use Product and Systems Design: Design of thermal management
solutions for temperature control systems and specific components to
ensure optimal thermal management.
These design, application and support services enable the Company to work
closely with its strategic partners and potential strategic partners early in
the product development and design process in an effort to reduce the time from
product conception to market.
Initial Target Markets
Apparel Market -- The Company's ComforTemp(R) foams and Thermasorb(R) additives
can enhance the thermal characteristics of a multitude of end-products in the
apparel industry. People working in extreme hot or cold conditions or who are
required to wear protective garments, including firefighters, utility workers,
construction workers, police officers or individuals who spend significant
amounts of time outdoors, will benefit from apparel manufacturers' use of
Thermasorb(R) additives and ComforTemp(R) foams in their products. Such
products may alleviate the discomfort, fatigue and impaired coordination caused
by heat stress or prolonged exposure to heat or cold. During 1997, one of the
Company's strategic partners, Wells Lamont, a large U.S. glove manufacturer,
launched the worldwide roll-out of gloves incorporating ComforTemp(R) foam in
its line of HotFingers(TM) ski gloves.
Footwear Markets -- ComforTemp(R) foam is well suited for use as an insulating
or temperature management material in boots and shoes. During 1997, the
Company's strategic partners, Cove Shoe Company and Genfoot, Inc., launched the
worldwide roll-out of cold weather footwear including hunting boots and rubber
bottom boots. The Company, in January 1998, signed a binding Memorandum of
Understanding with LaCrosse Footwear, Inc., America's largest manufacturer of
rubber bottom boots, pursuant to which LaCrosse Footwear, Inc. is to introduce
three styles of snow boots containing the Company's ComforTemp(R) insulation
for sale during 1998.
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Sporting Goods Equipment -- The Company believes that many athletic goods could
be improved if the Company's products were incorporated into products for
climbing/mountaineering, cycling, hiking/backpacking, racquet sports,
canoeing/kayaking, running, cross training, sailing, skiing, snowboarding,
fishing, hunting, walking and racing. During 1997, the Company's strategic
partners, Fly Technologies, Inc. and Bell Sports Corp., launched the worldwide
roll-out of products incorporating ComforTemp(R) foam in fishing and hunting
waders, and ski and snowboarding helmets, respectively. FasTrak Systems, Inc.
is currently developing a thermally managed personal hydration system under the
CamelBak(TM) line for introduction in 1998.
Home Furnishings -- The Company has identified applications for incorporating
its ComforTemp(R) foams into home furnishings and home products including
mattresses, mattress covers, comforters and pillows. The Company is working
with a leading home furnishings manufacturer to develop a line of home
furnishing products incorporating its ComforTemp(R) foam.
Shipping and Packaging -- Thermasorb(R) and ComforTemp(R) products have
applications in the packaging and shipping industries. The Company is currently
working with a strategic partner to develop enhanced insulating packages
designed to keep foods hot or frozen longer without the need for portable
heaters, refrigeration systems or dry ice. Currently under development is a
soft-sided delivery bag that will be used for fast food and home delivery
applications. These thermally-enhanced bags will ensure that products remain
hot until orders are received by customers. The bags are designed to keep food
at cooking temperatures for up to 90 minutes. The Company sees significant
market potential for this type of product due to the number of people ordering
prepared food for home delivery.
Other potential shipping and packaging applications for the Company's
products include pharmaceutical packaging, flower/seed transport, produce
transport, organ transplant containers, blood/plasma containers, retrofitting
of insulated truck bodies, thermal blankets, speedwalls and electronic
component packaging.
Healthcare Industry -- The Company's Thermasorb(R) and ComforTemp(R) products
may be incorporated into many products useful in the healthcare industry,
including hot and cold packs. Cold packs containing the Company's Thermasorb(R)
additives are being developed to maintain temperatures as low as -30oF, while
hot packs containing the Company's Thermasorb(R) additives are being developed
to maintain temperatures as high as 190oF and can be heated using a microwave
oven. Other healthcare applications include wraps, braces and blankets.
Automotive Industry -- The Company has identified many applications for
incorporating its Thermasorb(R) additives into automotive components, including
seating systems, heat shields, interior and exterior trim, foams and foam
laminates, engine cooling systems, thermal grease, epoxies, lubricants and
oils, and adhesives. The Company's strategy is to work with end-product
manufacturers to identify, test, and provide product solutions to existing and
future thermal management problems. The Company is currently working with
automotive industry participants on the development of prototypes for interior
trim, heat shields, slurry engine coolants, battery insulation and oil coolers,
as well as for cooling the next generation of electric and hybrid motor
vehicles.
Aerospace Industry -- The Company continues to be involved with government
sponsored research and development efforts on avionics, computer and
electronics cooling systems. In this regard, the Company has developed or is
currently in the process of developing prototypes utilizing its proprietary
thermal management products in conjunction with heat sinks, slurry coolants,
thermal capacitors and power supplies. In addition, the Company has identified
applications of its products which can be used in the manufacture of insulating
coatings and paints, which have historically been targeted and tested for the
commercial aircraft industry because it can provide a decrease in the overall
weight of commercial aircraft through more efficient insulation systems.
Aircraft skin protected with a coating impregnated with Thermasorb(R) additives
permit manufacturers to use lighter and less expensive composite materials to
replace premium-priced exotic metals that are capable of withstanding high
temperatures. This not only reduces the weight of the aircraft, but greatly
reduces maintenance costs and has the added benefit of protecting underlying
materials from thermal shock.
Electronics/Computer Industry -- As computers, electronic systems and
components become smaller and more powerful, the amount of heat generated
increases as does the need for thermal management solutions. Excessive heat
degrades system performance and reliability and can cause system failure. The
Company has recognized and is addressing these thermal management opportunities
by developing products that use Thermasorb(R) based solutions to safeguard
electronic components from system failure by utilizing the ability of
Thermasorb(R) additives to absorb large amounts of heat.
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Sales and Marketing
Currently the Company's sales strategy consists of working with its
strategic partners to increase the number of end-use products incorporating
Thermasorb(R) and ComforTemp(R) offered for sale. The Company leverages the
existing sales, marketing and distribution systems of its strategic partners to
maximize exposure of its products to retailers around the world. This strategy
permits the Company to support a large volume of end-use sales through a small
in-house sales staff servicing a small number of strategic partners. The
combined sales forces of the Company's strategic partners comprise an extensive
network of salespersons and sales representatives.
The Company's sales process with respect to prospective strategic partner
is as follows:
o A market leader for a particular niche is identified by the Company's
marketing group.
o A relationship is established with a technical point of contact within
the target company to achieve "buy in" of the Company's product concept by
the technology experts within the prospective strategic partner.
o The Company and the prospect enter into a reciprocal secrecy agreement
ensuring mutual confidentiality and prohibiting "reverse engineering" of
the Company's products and requiring the prospect to enter into a license
with the Company should it ever decide to place the MicroPCM technology
into production.
o The Company's product development personnel (application engineers)
evaluate the prospective strategic partners' needs and recommend a course
of action.
o Upon receipt of an indication of further interest from the prospective
strategic partner, the parties may elect to enter into a Joint Development
and Option to License Agreement (a "JD/Option to License Agreement") if
further development is needed to determine if the Company's products meet
the requirements of the prospective strategic partner. This permits the
prospective strategic partner to evaluate the technology more closely
while (for a fee) reserving the rights to obtain a license once
development is completed.
o The Company and the strategic partner negotiate and enter into a
Memorandum of Understanding with a view to the finalization of a License
Agreement.
o The Company and the strategic partner enter into a License Agreement.
A significant portion of the Company's marketing and brand promotion
efforts are coordinated through its strategic partners. The Company's
agreements with its strategic partners typically obligate the strategic partner
to display and promote the Company's trademarks, including, Thermasorb(R) and
ComforTemp(R) in all promotional materials, point of sale displays, and direct
product advertising for end-use products incorporating the Company's products.
The Company plans to coordinate the promotion of its Thermasorb(R) additives
and ComforTemp(R) foams with the promotional efforts of its strategic partners
and to implement a scaled-up public relations campaign in order to accelerate
the inclusion of feature stories and references to ComforTemp(R) foams and its
strategic partners in targeted industry and consumer periodicals. The Company
believes that this co-branding strategy will help to minimize its advertising
and marketing costs, thereby allowing the Company to allocate a greater portion
of its financial resources to the identification of new strategic partners and
the development of new product applications in conjunction with its new and
existing strategic partners.
In addition to its own marketing efforts and the efforts of its strategic
partners, the Company entered into a non-binding agreement in December 1997
with Foamex granting to Foamex a co-exclusive license with the Company to sell
ComforTemp(R) polyurethane foams and an exclusive license to manufacture
ComforTemp(R) polyurethane foams (other than certain ComforTemp(R)
formulations, currently supplied to the Company by another supplier). The
agreement contemplates a definitive agreement having a term of five years with
an option for a two year renewal and a worldwide license to sell and to
sublicense the right to develop and sell ComforTemp(R) based products to
selected end-product manufacturers with which Foamex has existing
relationships, subject to the Company's prior written consent. In addition, the
Company intends to provide Foamex with a license to manufacture certain
ComforTemp(R) foams within the Americas. The license would provide the Company
with up-front license fees, technical support payments, minimum purchase
requirements, payment of a percentage of sublicensing revenues to the Company
and co-branding obligations in return for continued exclusive
34
<PAGE>
rights and reciprocal agreements to be the sole source of supply for MicroPCMs
and polyurethane foams (other than certain ComforTemp(R) formulations), as the
case may be. The Company believes that its relationship with Foamex provides
several substantial benefits: (i) an additional, high capacity, source of
supply for polyurethane foams; and (ii) access to as yet untapped areas for new
strategic partnerships. For the fiscal year ended December 31, 1996, Foamex had
total revenues of approximately $926,000,000.
Strategic Partnerships
The Company seeks to enter into agreements with strategic partners that
have very strong brand names, excellent reputations for quality and performance
and extensive and established sales and distribution networks. A typical
agreement with a strategic partner: (i) identifies a narrowly defined end-use
product area in which to develop and commercialize products; (ii) requires the
strategic partner to purchase all of its requirements for ComforTemp(R) and
Thermasorb(R) MicroPCM additives and foams from the Company; (iii) establishes
minimum annual purchases of such additives and foams; and (iv) in exchange for
a royalty, grants to the strategic partner a license, which may or may not be
exclusive, to use the Company's name and trademarks in conjunction with the
products produced.
The Company earns revenues from the sale of its Thermasorb(R) additives
and ComforTemp(R) foams for inclusion in the products of its strategic partners
(including annual minimum purchases to maintain exclusivity), earned royalties,
license fees for exclusive agreements and development fees for development
services. In order to maintain exclusive rights within their respective fields
of use, several of the Company's strategic partners are required to make
minimum purchases of the Company's products. If those already contracted for
minimum purchase requirements are satisfied, the Company will receive
approximately $1,500,000 from the required minimum product sales and related
royalties during fiscal 1998.
Generally, the Company's strategic partners are required to co-brand the
Company's products by including the Company's trademarks in all their marketing
materials, point of sale displays, and sales promotion efforts for end-use
products incorporating the Company's products. Exclusivity, when granted, is
established within narrowly-defined end-use products intended to maximize the
Company's ability to selectively enter into additional agreements with market
leaders in many different product categories and to focus the strategic partner
on its field of specialization.
The table below lists the Company's current strategic partners and the
product category which is the subject of its current arrangements with such
partners.
<TABLE>
<CAPTION>
Strategic Partner Product
- ----------------- -------
<S> <C>
Wells Lamont Division of Marmon Holdings, Inc. All Hand Apparel and Selected Accessories
Bell Sports Corp. (*) Winter Sports Helmets (Ski/Snowboard)
Cove Shoe Company, Inc. (H.H. Brown) Outdoor Goodyear Welt Construction Boots
Genfoot, Inc. Cold Weather Insulated Rubber Bottom Boots
Fly Technologies, Inc. Fishing and Hunting Waders
LaCrosse Footwear, Inc. (*) Cold Weather Insulated Rubber Bottom Boots
CamelBak/FasTrak Systems, Inc. (*) Personal Hydration Systems
Thermo Solutions, Inc. (*) Temperature Sensitive Food Storage/Transport Containers
</TABLE>
- ------------
*A signed Memorandum of Understanding is in effect.
Wells Lamont Division of Marmon Holdings, Inc. -- All Hand Apparel. The Company
entered into an agreement in January 1997 with Wells Lamont Division of Marmon
Holdings, Inc. ("Wells Lamont"), granting Wells Lamont exclusive rights to use
the Company's products and trademarks with respect to all hand apparel (e.g.,
gloves and mittens) and selected other products (e.g., ear warmers and
industrial gloves) for a period of three years. Pursuant to the agreement,
Wells Lamont is required to purchase all of its requirements (including certain
minimum purchases to maintain its exclusive rights) for Thermasorb(R) additives
and ComforTemp(R) foams from the Company and is required to pay to the Company
an up front fee with respect to its exclusive rights and a royalty based on
sales. The agreement permits Wells Lamont to enter into sub-license agreements
and requires Wells
35
<PAGE>
Lamont to pay the Company a specified percentage of any royalties received
under any such sub-license agreements for the production or sale of the
licensed products. Wells Lamont is a large U.S. glove manufacturer with a
significant market share for gardening gloves and work gloves. Wells Lamont is
also a significant supplier of ski gloves with its HotFingers(TM) brand. Wells
Lamont has been in continuous operation for 90 years and also manufactures ear
warmers, hats, socks, and industrial gloves.
Bell Sports Corp. -- Winter Sports Helmets. The Company has entered into an MOU
in April 1997 with Bell Sports Corp. ("Bell") granting Bell exclusive rights to
use the Company's products and trademarks with respect to winter sports helmets
(skiing and snowboarding) for a period of two years. The Company and Bell are
proceeding to finalize a license agreement. Pursuant to the MOU, Bell is
required to purchase all of its requirements for Thermasorb(R) additives and
ComforTemp(R) foams from the Company and to pay a royalty to the Company based
on sales. The MOU also requires Bell to co-brand products that incorporate the
Company's products, thereby enhancing the name recognition for the Company's
trademarks. For the fiscal year ended June 30, 1997, Bell had total revenues of
approximately $260,000,000.
Cove Shoe Company, Inc. -- Outdoor Boots with Goodyear Welt Construction. The
Company entered into an agreement in February 1997 with Cove Shoe Company, Inc.
("Cove Shoe") granting Cove Shoe exclusive rights to use the Company's products
and trademarks with respect to the manufacture and distribution of outdoor boots
with Goodyear welt construction within certain specific style categories (e.g.,
military, outdoor and others) for a period of three years. Pursuant to the
agreement, Cove Shoe is required to purchase all of its requirements (including
certain minimum purchases to maintain its exclusive rights) for Thermasorb(R)
additives and ComforTemp(R) foams from the Company and is required to pay to the
Company an up front fee with respect to its exclusive rights and a royalty based
on sales. The agreement also permits Cove Shoe to enter into sub-license
agreements provided Cove Shoe pays to the Company a specified percentage of any
royalties received under any such sub-license. Cove Shoe is a division of H.H.
Brown Shoe Company, a subsidiary of Berkshire Hathaway, Inc., and is one of the
oldest shoe manufacturers in the United States. Cove Shoe engages in private
label manufacturing for many companies including L.L. Bean, Cabellas, Browning,
Eddie Bauer and Bass Pro Shops. Cove Shoe is a major supplier to military and
army-navy stores and has a license to market footwear with the Harley-Davidson
trademark.
Genfoot, Inc. -- Cold Weather Insulated Rubber Bottom Boots. The Company
entered into an agreement in February 1997 with Genfoot, Inc. ("Genfoot")
granting to Genfoot non-exclusive rights to use the Company's products and
trademarks with respect to the manufacture and distribution of cold weather
insulated rubber bottom boots for a period of two years. The agreement requires
Genfoot to purchase all of its requirements for Thermasorb(R) additives and
ComforTemp(R) foams from the Company. The agreement also requires Genfoot to
co-brand the Company's products in connection with its products incorporating
the Company's products, thereby enhancing the name recognition of the Company's
trademarks. In accordance with the terms of the agreement, Genfoot produced and
displayed ten styles of Kamik brand boots incorporating the Company's products
at the 1997 Outdoor Retailers Show and has advised the Company that it plans to
increase this to 12 styles for 1998 including two children's styles. Genfoot is
one of the largest Canadian boot manufacturers measured in number of pairs of
boots shipped. Genfoot has been in continuous operation for nearly 100 years.
Fly Technologies, Inc. -- Fishing and Hunting Waders. The Company entered into
an agreement in March 1997, with Fly Technologies, Inc. ("Fly Tech") granting
Fly Tech the exclusive right to use the Company's products and trademarks with
respect to the manufacture and distribution of fishing and hunting waders for a
period of 21 months. The agreement requires Fly Tech to purchase all of its
requirements (including certain minimum purchases to maintain its exclusive
rights) for Thermasorb(R) additives and ComforTemp(R) foams from the Company
and provides for an up front fee with respect to its exclusive rights and a
royalty based on sales. The agreement permits Fly Tech to enter into
sub-license agreements that require Fly Tech to pay the Company a specified
percentage of any royalties received under any such sub-license. The agreement
also requires Fly Tech to co-brand the Company's products in connection with
its products incorporating the Company's products, thereby enhancing the name
recognition of the Company's trademarks. In addition to their own Fly Tech
brand, Fly Tech manufactures private label fishing and hunting waders for
companies such as Bass Pro Shops, Cabellas and L.L. Bean.
36
<PAGE>
LaCrosse Footwear, Inc. -- Cold Weather Rubber Bottom Boots. The Company
entered into an MOU in January 1998 with LaCrosse Footwear, Inc. ("LaCrosse")
granting LaCrosse non-exclusive rights to use the Company's products and
trademarks with respect to cold weather, insulated rubber bottom boots other
than welt-constructed boots for a period of two years. The Company and LaCrosse
are proceeding to finalize an agreement. The MOU provides for royalties based
on product sales, requires LaCrosse to purchase all of its requirements of
Thermasorb(R) additives and ComforTemp(R) foams from the Company. The MOU also
requires LaCrosse to design, produce and market at least three styles of rubber
bottom boots incorporating ComforTemp(R) foam in its Fall/Winter 1998 product
line. The MOU also requires LaCrosse to co-brand its products that incorporate
the Company's products thereby enhancing the name recognition for the Company's
trademarks. For the fiscal year ended December 31, 1996, LaCrosse had total
revenues of approximately $122,000,000.
CamelBak/FasTrak Systems, Inc. -- Personal Hydration Systems. The Company
entered into an MOU in July 1997 with CamelBak/FasTrak Systems, Inc.
("CamelBak") granting CamelBak exclusive rights to use the Company's products
and trademarks with respect to cold-weather personal portable hydration systems
for commercial and military use for a period of two years. The Company and
CamelBak are proceeding to finalize an agreement. The agreement is royalty free
but requires CamelBak to purchase all of its requirements (including certain
minimum purchases to maintain its exclusive rights) of Thermasorb(R) additives
and ComforTemp(R) foams from the Company and requires CamelBak to design,
produce and market at least one style of winter hydration system incorporating
ComforTemp(R) foam which is expected to first be made available for sale to
consumers in 1998. The MOU also requires CamelBak to co-brand products that
incorporate the Company's products thereby enhancing the name recognition for
the Company's trademarks.
Thermo Solutions, Inc. -- Temperature Sensitive Food Storage/Transport
Containers. The Company entered into an agreement in May 1996 that was amended
by an MOU entered into in January 1998 with Thermo Solutions, Inc. ("Thermo
Solutions"), an early stage company specializing in the manufacture, sale and
distribution of packaging containers for food storage and delivery
applications. The Company and Thermo Solutions are proceeding to finalize an
agreement. As amended, the agreement is expected to grant Thermo Solutions the
exclusive right to use the Company's products and trademarks with respect to
temperature sensitive food storage/transport containers of certain sizes
through December 1998 with two, one year options. The amended agreement
requires Thermo Solutions to purchase all of its requirements (including
certain minimum purchases) for Thermasorb(R) additives and ComforTemp(R) foams
from the Company and provides for annual licensing fees and royalties based on
sales. The final agreement is expected to provide that Thermo Solutions, with
the Company's prior consent, may enter into sub-license agreements that require
Thermo Solutions to pay a percentage of any royalties received under any such
sub-license to the Company. The MOU also requires Thermo Solutions to co-brand
products that incorporate the Company's products thereby enhancing the name
recognition for the Company's trademarks.
Research and Development
From its inception in 1989 until mid-1997, the Company's revenues were
largely derived from a variety of government related research and development
contracts which funded the Company's research and development efforts during
that period. Terms and conditions under these government contracts varied from
a cost plus basis to a fixed price basis. Upon completion of research and
development under these contracts, the government may retain some rights to a
royalty-free license to use the newly developed technology for certain of its
own uses, and the Company retains all other rights to use and further
commercialize the newly developed technology.
The Company was awarded its first research and development contract from
McDonnell Douglas Corporation in 1991 to study the benefits of using MicroPCM
technology in avionics cooling systems in military aircraft. Since that time,
the Company has identified many applications for its products in a wide variety
of areas, including both intermediate and end-use products, and across a wide
range of large and/or growing industry segments.
For the fiscal years ended December 31, 1996 and 1997, the Company was
involved in government research and development projects related to technology
that is used to improve the thermal management properties of military aircraft
and protective outerwear. For those periods, the Company's revenues from
research and development were $1,120,000 and $487,000, respectively, and its
costs related to such projects were $1,004,000 and $258,000, respectively.
37
<PAGE>
From time to time, the Company becomes aware of and considers conducting
funded research projects that do not relate to thermal management. The Company
expects to evaluate future funded research and development projects on a case
by case basis and will engage in those projects management considers to offer
complementary opportunities for the Company. Of the total research and
development revenues received during the fiscal years ended December 31, 1996
and 1997, revenues from projects unrelated to thermal management technology
amounted to approximately, $402,000 and $113,000, respectively. To date, the
Company has not developed any non-thermal technologies or products that it
considers ready to commercialize.
As of December 31, 1997, the Company had ongoing research projects
providing engineering services directly or indirectly for the United States
government in the amount of $351,000 and proposals outstanding for research
projects having an aggregate potential value of less than $250,000. The Company
anticipates that it will continue to conduct some funded research projects in
the future. At present the Company would estimate approximately $500,000 per
year will be realized from funded research projects. See "Risk Factors --
Accumulated Losses; Reduction in Government-Funded Development; Possible Need
for Additional Financing" and "-- Dependence on Small Number of Strategic
Partners; Limited Sales and Marketing Experience."
Technology Overview
Encapsulation technology and traditional PCMs have been separately in
development and use since the early 1970's. Nonencapsulated PCMs have been used
in many energy-related products for heat storage and temperature control.
Microencapsulation has been used extensively in the pharmaceutical industry
(time released medication) and the paper industry (carbonless copy paper). The
Company's technology combines these two sciences to form an entirely new class
of materials that creates heretofore unmatched thermal management solutions.
PCMs have the capacity to absorb and reject large amounts of heat upon a
change of phase (e.g., from solid to liquid, liquid to gas, etc.). The
temperature at which the heat absorption and rejection takes place is known as
the phase change or transition temperature. The amount of heat either rejected
or absorbed is known as the latent heat of fusion.
In the Company's products, the PCM is encapsulated into tiny capsules
ranging in size from one to several hundred microns in diameter. Encapsulating
PCMs within a thin polymer shell, thereby forming a microscopic sphere or
MicroPCM, allows for the melting and freezing of the PCM core to be contained
within this shell. The capsules resemble a fine powder, permitting them to be
mixed into a variety of host materials (e.g., fluids, foams and other solid
structures) while maintaining the integrity and thermal functionality of the
core PCM. The shell wall material used in the Company's MicroPCM additive
Thermasorb(R) is extremely durable and is designed and formulated to perform
under extreme mechanical, chemical, and thermal conditions.
Upon heat absorption, the core material in the MicroPCM melts, changing
from solid to liquid. Upon heat release or at freezing, the core material turns
solid again and is ready for the next melting phase. This unique, reversible
characteristic is referred to as "recharging".
Since the latent heat of fusion of Thermasorb(R) additives is
substantially higher than the heat capacity of a host material, the net effect
of adding a concentration of Thermasorb(R) additives to a host material results
in an increase in the heat capacity of the end product. The choice of core
materials contained in the MicroPCM for any given application depends on the
desired transition temperature and other system level parameters. The Company
has identified dozens of PCMs that are suitable for encapsulation with the
Company's existing processes, ranging in melting points from -65oF to over
225oF.
ComforTemp(R) foams are currently available in a soft hydrophilic version
which is light, breathable, open-cell, polyurethane foam which the Company
believes is best suited to apparel and footwear applications. The Company's
ComforTemp(R) product also has the potential to be produced in at least seven
different foam categories including rubber, closed cell neoprene, latex, soft
hydrophilic, polyurethane soft, polyurethane rigid, silicone and styrofoam.
Each foam category exhibits different thermal, operational and functional
capabilities. Depending upon the thermal management characteristics required
for a strategic partner's end-use application, the appropriate type of foam
(impregnated with Thermasorb(R) additives having the desired transition
temperature) can be used to provide optimal thermal protection.
38
<PAGE>
Test results -- Insulation. Tests performed by the Company for the U.S.
Air Force, as well as by independent third-party testing laboratories,
including Holometrix, Inc. and the Naval Clothing and Textile Research Center
("NCTRF"), have demonstrated that certain ComforTemp(R) foams provided greater
thermal insulation than other existing thermal management materials. The graph
below depicts the results of two such tests. The heavily shaded portion of the
graph shows the inherent thermal insulation value of the materials (including
ComforTemp(R) foam in the uncharged state) as tested by industry standards
while the lightly shaded portion shows the additional insulation value of
ComforTemp(R) foam in the charged state. The information with respect to the
"uncharged" state relates to ComforTemp(R) foam either prior to being charged
by wearer activity or after being de-charged by extended exposure at cold
temperatures. The lightly shaded portion of the graph relates to the additional
insulative benefit derived from the ComforTemp(R) foam as a result of the heat
release characteristic of the embedded Thermasorb(R) capsules in their
"charged" state.
Insulating Value of ComforTemp(R) Foam in Charged and Uncharged States Compared
to Other
Commercially Available Insulating Materials
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
I |
|
N |
|
S |
|
U 10 --| *
| *
L 9 --|
|
A 8 --|
|
T 7 --|
|
I 6 --| X
| X X
N 5 --|
|
G 4 --| X X X
|
3 --|
|
V 2 --|
|
A 1 --|
|
L |
|
U |
|
E |---------------------------------------------------------------------------------------------------------------
ColorTemp ColorTemp name brand fabric typical foam typical felt name brand fabric
from(LX) foam(DX) insulation "A" insulation insulation insulation "B"
</TABLE>
39
<PAGE>
Test results -- Heat protection. The following graph depicts the results
of a test conducted on ComforTemp(R) by the Air Force Fire Research Lab at
Tyndall Air Force Base. This test demonstrated the extended period of
protection that would be provided to a firefighter as a result of incorporating
a layer of ComforTemp(R) foam in a conventional fire suit when exposed to a
temperature simulating the intense heat of a jet fuel fire. By measuring the
temperature increase inside the fire-suit material, with and without
ComforTemp(R) foam, the skin temperature of a firefighter is simulated.
Relative Heat Shielding Capability of a Fire-Suit
With and Without ComforTemp(R) Foams
200 |
|
|
|
T 180 |
E |
M | *
P |
E |
R 160 |
A |
T |
U | X
R |
E 140 |
, |
|
D |
E |
G 120 |
R |
E |
E |
S |
100 |
F |
|
|
|
80 |
|----------------------------------------------------------------------
0 50 100 150 200 250 300
seconds
* = standard material
X = ComforTemp foam
The "*" and "X" each represent the end point of a line originating at the
intersection of the vertical and horizontal axes of the graph and extending
to such points. Although neither line maintains a perfectly constant slope,
overall the straight lines described above fairly approximate the slope of the
lines produced from the actual data.
The Manufacturing Process
The Company currently outsources all of its production needs and
anticipates that it will continue to do so for the foreseeable future. The
Company currently has informal agreements and is negotiating definitive supply
agreements with companies involved in each stage of the manufacturing process.
In the event that any of those companies were unable to continue to supply the
Company with materials or services, the Company believes that it would be able
to arrange for other sources available on similar terms and at competitive
prices. See "Risk Factors -- Dependence on Single Source Providers for
Manufacturing."
40
<PAGE>
The chart below illustrates the manufacturing and quality assurance
processes for the Company's products:
The flow chart shows the flow of the Company's manufacturing process from
(level 1) raw phase change materials to (level 2) Thermasorb(R) additives to
(level 3) ComforTemp(R) foam in slab form to (level 4) ComforTemp(R) foam in
thin sheets, with corresponding quality assurance at each stage of the process.
Sales are indicated, after quality assurance reviews of finished Thermasorb(R)
additive (level 2) and of ComforTemp(R) foam in thin sheets (level 4).
Currently, all of the Company's requirements for Thermasorb(R) additives
are manufactured by the Minnesota Mining and Manufacturing Company ("3M"). The
Company and 3M are parties to a Reciprocal Secrecy Agreement pursuant to which
each agrees to maintain the confidence of the others' proprietary information
and to not use or divulge that information except with the written consent of
the other. The Company and 3M have entered into an arrangement that provides
firm fixed pricing for all of the Company's anticipated 1998 requirements for
Thermasorb(R) additives, as well as favorable pricing and delivery terms for
short run and prototype production volumes. Pursuant to the arrangement the
Company placed a blanket purchase order for all of its 1998 anticipated
requirements of Thermasorb(R). Prior to October 23, 1997, the Company obtained
all of its requirements for ComforTemp(R) foams under purchase orders with LMI.
The Company has relationships with other suppliers for each of the other steps
of the production process. On October 23, 1997, the Company entered into a
memorandum of understanding with LMI granting LMI the exclusive licence to
manufacture a specific hydrophilic polyurethane version of the Company's
ComforTemp(R) foams. Foamex as an additional supplier for production of
ComforTemp(R) polyurethane foams. The Company has agreed to permit Foamex to
sell ComforTemp(R) polyurethane foams for applications specifically consented to
by the Company. Foamex is a major manufacturer of foam products, having
significant manufacturing capacity both within and outside of the United States.
For the fiscal year ended December 31, 1996, Foamex had total revenues of
approximately $926,000,000. See "Business -- Sales and Marketing."
The Company monitors and tests its products during each step of the
manufacturing process for quality assurance purposes. Raw PCM, identified by
lot number, is delivered to the Company to ensure that the quantity of heat the
PCM can hold at different temperature levels adheres to the Company's product
specifications. After encapsulation, the Company tests and verifies the quality
of the shell wall and validates that the product satisfies its thermal
requirements. The Company verifies and tests the foam products prior to
shipment to its strategic partners. All testing is performed by the Company's
quality assurance team based in its North Carolina facility.
Patents/Intellectual Property
In 1991, the Company secured exclusive rights under a Joint Development
Agreement and subsequently entered into the TRDC License with TRDC. Pursuant to
the TRDC License, TRDC granted to the Company perpetual exclusive worldwide
rights with respect to all applications of bulk PCMs and MicroPCMs covered by
TRDC's patents and proprietary intellectual property other than MicroPCM Fibers
and Fabrics which previously
41
<PAGE>
had been licensed to Outlast. Pursuant to the terms of the TRDC License, the
Company has the exclusive right to manufacture bulk PCMs and MicroPCMs, end-use
products and improvements and the right to market, sell, use, lease and
distribute all applications except MicroPCM Fibers and Fabrics, and to
sublicense such rights. The Company is required to pay TRDC a royalty based on
gross product sales revenues and a percentage of any royalties the Company
receives from its strategic partners and sublicensees. The TRDC License
establishes minimum annual royalties payable over the term of the TRDC License
which are offset to the extent of any actual earned royalties paid to TRDC and
a percentage of any research and development contracts accepted by TRDC from
the Company. Pursuant to the terms of the TRDC License, the Company is required
to pay all of the patent expenses with respect to inventions that exclusively
benefit the Company and a portion of the patent expenses with respect to
inventions in which the Company shares the benefits with others. Effective
January 3, 1997, TRDC assigned its rights under the TRDC License to an
affiliated entity. TRDC is obligated under the TRDC License to notify the
Company and to give the Company the benefit of any future developments for bulk
PCM and MicroPCM technologies other than MicroPCM Fibers and Fabrics.
The TRDC License granted to the Company broad exclusive rights in the
MicroPCM Technology. Even so, the Company wanted to secure exclusive rights to
a significant portion of the rights granted earlier by TRDC to Outlast,
especially in light of the Company's initial successes with strategic partners
in the fields of apparel and footwear where there exists a high likelihood of
some combination of the Company's Thermasorb(R) and ComforTemp(R) products with
some type of fiber or fabric. In order to expand the scope of the Company's
rights in the MicroPCM Technology, in January 1998, the Company entered into
the Outlast Agreement. The Outlast Agreement, among other things, secures
additional exclusive rights for the Company and limits Outlast's rights with
respect to the combination of MicroPCM foams with fibers and fabrics. Under the
Outlast Agreement, the Company has exclusive rights, for most applications, to
manufacture, sub-license and sell ComforTemp(R) foams that are attached to
fibers and fabrics or intended to be attached to fibers or fabrics so long as
the foam is greater than 2mm in thickness. The Company also may sell
Thermasorb(R) additives for use in foams attached to fibers and fabrics. The
Company agreed to pay Outlast a royalty for its products if its products are
used in such combinations with fibers and fabrics, with minimum annual payment
requirements in effect for as long as the Company desires the agreement to be
exclusive (including exclusive of Outlast). Pursuant to the Outlast Agreement,
Outlast will not sell ComforTemp(R)-type foams greater than 2mm in thickness
attached to fibers and fabrics for ten years, unless the Company elects to
permit its agreement to become non-exclusive. See "Risk Factors -- Dependence
Upon Intellectual Property."
Currently, TRDC's intellectual property relating to MicroPCMs includes nine
issued United States patents, one pending United States patent and one European
patent which expire from 2006 to 2013. TRDC or its licensees are in the process
of applying for international patent protection for the TRDC patented
technology. The Company believes that its MicroPCM technology is adequately
protected by its existing licenses of the TRDC patents and by its proprietary
know-how, although the validity of the patents underlying the licenses and the
limits of the licenses have never been contested in any legal proceeding. See
"Risk Factors -- Dependence Upon Intellectual Property."
42
<PAGE>
The following table sets forth information regarding the patents currently
licensed to the Company.
<TABLE>
<CAPTION>
Patent
Date of Expiration
Patent Patent Number Description Industry (Year)
- ----------- ---------------- ---------------------------------------- ------------------------ -----------
<S> <C> <C> <C> <C>
2/28/89 4,807,696 Thermal Energy Storage Apparatus Automotive, Aerospace, 2006
Using Encapsulated PCMs Electronics
3/27/90 4,911,232 Heat Transfer Using MicroPCM Slurries Automotive, Computers, 2007
Electronics
8/25/92 5,141,079 Cutting/Cooling Fluid All Industries 2009
7/6/93 5,224,356 Thermal Energy Absorbing and Electronics 2010
Conducting Potting Materials
3/1/94 5,290,904 Thermally Enhanced Heat Shields Protective Apparel 2011
11/22/94 5,366,801 Coated Fabric With Reversible Enhanced Protective Apparel 2011
Properties
5/16/95 5,415,222 Microclimate Cooling Garments Protective Apparel 2012
3/19/96 5,499,460 Moldable Foam Insole with Footwear 2013
Reversible Enhanced Thermal Storage
6/10/97 5,637,389 Thermally Enhanced Foam Insulation All Industries 2012
Patent Pending Thermal Insulating Coating using All Industries --
MicroPCMs*
-- 0611330** Coated Fabric With Reversible --
Enhanced Properties
</TABLE>
- ------------
*A Notice of Allowance has been issued and a patent number is expected by the
Company to be issued shortly.
**European Patent granted with respect to the invention covered by United
States Patent No. 5,366,801
The Company has registered the trademarks Thermasorb(R) and ComforTemp(R)
with the United States Patent and Trademark Office (the "PTO") and has applied
for registration of the trademark Comfort in the Extreme(TM) which application
has been allowed by the PTO. Effective September 10, 1997, the Company received
a registered Canadian trademark for ComforTemp(R). Trademark applications have
also been submitted for ComforTemp(R) in the European Community. See "Risk
Factors -- Dependence Upon Intellectual Property."
In addition to its licenses and trademarks, the Company is developing
considerable proprietary technology and trade secrets with respect to the
selection of the raw material(s) to be used for the capsules' core material,
shell wall materials and the composition of the capsule which the Company
believes accords it a considerable competitive advantage. The Company believes
that significant barriers have been created for potential competitors by
securing licenses under patents which grant and protect its rights to a wide
variety of applications, spanning a broad spectrum of industries and end-use
products. In order to further protect its proprietary trade secrets and
know-how, the Company generally requires any person having access to such
confidential information to execute an agreement whereby such person agrees to
keep such information confidential.
Competition
The Company's Thermasorb(R) additives and ComforTemp(R) foams compete with
a wide variety of natural and synthetic insulating products, including other
applications of MicroPCMs and bulk PCMs, open and closed cell foams, synthetic
insulators (e.g., Thinsulate(R), Polar Guard(R)), wool and down. The Company
believes that its ComforTemp(R) foams offer significant benefits over natural
and synthetic insulation materials and foams not containing MicroPCMs because
of (i) the ability of the ComforTemp(R) foam to absorb heat and release it when
cooling occurs; (ii) its lightweight, low bulk characteristics; (iii) its
durability; (iv) its rechargeability; (v) its ability to be customized to a
particular temperature within a wide range of temperatures in a wide variety of
applications; (vi) its minimal maintenance requirements; and (vii) its ability
to be combined with other available heat management materials. The Company's
products also have the capacity to function reversibly. Depending on the
placement of the ComforTemp(R) foam, it may be engineered to absorb, reject or
regulate heat.
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<PAGE>
The Company competes directly with Outlast in certain applications. The
license granted to Outlast by TRDC permits it to market applications of
MicroPCM Fibers and Fabrics. The Company believes that the principal area of
competition with Outlast involves applications where MicroPCM Fibers or Fabrics
less than 2mm thick may be used instead of combinations including the Company's
ComforTemp(R) foam. The Company believes that products incorporating its
ComforTemp(R) foam will offer significant advantages over such fabric
application because fabrics will not have sufficient volume of MicroPCMs to
provide a significant thermal management solution. See "Business --
Patents/Intellectual Property."
The Company will also compete with other companies, including R.G. Barry
Company and Phase Change Laboratories, Inc., companies utilizing bulk PCMs
primarily for heat retention products. The Company believes Thermasorb(R)
additives and ComforTemp(R) foams offer superior performance characteristics
because microencapsulation obviates the need for containment of the PCM in a
sealed bag or other packaging which may tear or leak resulting in contamination
and rendering the end product useless.
The Company's products also compete with active mechanical and solid
cooling alternatives (e.g., fans, conductive heat sinks) currently utilized for
selected electronics and computer cooling applications and certain medical
products. For these applications, Thermasorb(R) will compete within a
fragmented market comprised of specialty firms, including Aavid Thermal
Technologies, Inc. and various smaller companies, including Advanced Ceramics
Corporation, Thermacore, Inc., Chipcoolers, Inc. and Marlow Industries, Inc.
The Company believes that Thermasorb(R) would be an effective means to enhance
the performance of thermal solutions being provided by these and other firms,
resulting in a fertile area for strategic partnerships within this segment of
the industry.
The Company's products will also compete with actively cooled liquid
solutions (e.g., automobile radiator circulating water to cool an engine) which
the Company believes is inferior in technical performance to
Thermasorb(R)-based cooling solutions. The Company recognizes, however, that
there is a significant price differential between existing water-based systems
and cooling solutions incorporating the Company's Thermasorb(R) additives. The
Company believes that based upon its current technology the additional cost
involved in utilizing a Thermasorb(R) solution will not be justified in such a
price sensitive market, therefore, the Company will not target this area in the
near term.
Facilities
The Company currently has three facilities. The Company occupies its
current headquarters located in Freeport, New York, consisting of approximately
500 square feet under a rent free arrangement with an affiliated company,
Frisby Aerospace. The Company expects to vacate its current space in March 1998
and take occupancy of approximately 2,000 square feet of space located at 77
East Main Street, Bay Shore, New York. This space will be occupied by the
Company pending completion of its permanent space also to be located in Bay
Shore. The landlord for both the temporary and the permanent space in Bay Shore
is the Town of Islip. The Company anticipates taking occupancy of the permanent
space in Bay Shore by January 1999. The temporary space in Bay Shore is
currently occupied on a rent free basis and the Company believes it will
continue to be occupied on a rent free basis until the Company takes occupancy
of the permanent space in Bay Shore. The Company is currently negotiating the
lease for the new headquarters space in the newly renovated facility in Bay
Shore, New York. See "Certain Transactions."
The Company currently sub-leases its development and laboratory facilities
in Clemmons, North Carolina, consisting of approximately 8,000 square feet from
Frisby Aerospace. The existing sublease expired on November 30, 1997 and has
been extended on a month-to-month basis at a monthly rent of $2,520. On March
2, 1998, the Company entered into a lease with Piedmont Institute for Research
& Technology II, LLC ("Piedmont") to lease space in a facility in Winston
Salem, North Carolina (the "Piedmont Lease") which will better suit the
Company's near and long-term requirements for expansion space. The Piedmont
Lease has a 20 year term with a monthly lease payment beginning at $5.00
and increasing to $6.50 per square foot over the term of the lease. The Company
expects to take possession of approximately 25,000 square feet of new space and
to vacate its Clemmons facility by June 1998. The Company has also reserved two
condominium units in the Winston-Salem facility for a purchase price of $80,000
and $78,000, respectively. The Company plans to use the condominium units as
accommodations for visiting employees, directors and strategic partners which
the Company believes will provide more cost effective lodging for such
visitors. See "Certain Transactions."
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<PAGE>
The Company also leases approximately 5,000 square feet from a
non-affiliate in Aiken, South Carolina. The Company uses the Aiken facility to
perform some of its research and development activities. The facility is
expected to remain in use until June 1998. The monthly rent for the facility is
$1,250.
The Company does not consider any of the facilities if currently occupies
suitable for its future needs and is negotiating a new lease in New York and has
executed a lease for a new facility in North Carolina as described above. The
Company believes that the new space in North Carolina will be sufficient for the
Company's product development efforts for the foreseeable future. Upon taking
occupancy of the new North Carolina facility, the Company will move the
operations currently conducted at its South Carolina facility into the new North
Carolina facility.
Employees
As of December 31, 1997, the Company had 13 full-time employees of which
two are executives, seven are product development personnel, two are engaged in
sales and marketing, one is a quality assurance specialist and one is clerical.
The Company has no collective bargaining agreements and believes its relations
with its employees are good.
Legal Proceedings
The Company is not involved in any legal proceedings. In the ordinary
course of its business, the Company, from time to time, may be subject to
litigation.
45
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth the names and ages of the Company's
directors, executive officers and significant employees and the positions they
hold with the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gregory S. Frisby(1) .......... 38 Chairman of the Board of Directors, President, Chief
Executive Officer and Treasurer
Jeffry D. Frisby(1) ........... 42 Director
Douglas J. McCrosson .......... 35 Vice President of Market Development and Secretary
Pietro A. Motta ............... 60 Director
</TABLE>
- ------------
(1) Gregory S. Frisby and Jeffry D. Frisby are brothers.
Gregory S. Frisby has been the Chairman of the Board of Directors,
President and Chief Executive Officer of the Company since its inception in
1989. From 1991 to 1997, Gregory S. Frisby was the Chief Executive Officer of
Frisby Aerospace. He also serves as a member of the Board of Directors of
Applied Technology Center Corporation since 1995 and the Long Island Forum for
Technology since 1994. He is a member of the Scientific and Business Advisory
Board of the Long Island Research Institute. From 1993 to 1994, Gregory S.
Frisby was Chairman of the National Advisory Board for the Small Business
Development Center Program for the Small Business Administration, from 1991 to
1993 he was a member of the advisory panel assessing U.S. technology and the
transition to a peacetime economy for the Congressional Office of Technology
Assessment, and from 1995 to 1996 he was a member of the CEM Task Force on
Privatization at the U.S. Department of Energy and a member of the Economic
Policy Council's Panel on "Economic Adjustment After the Cold War" for the
United Nations Association. Gregory S. Frisby received his Bachelor of Science
degree in Business Administration from Wake Forest University in 1981.
Douglas J. McCrosson has been the Vice President of Market Development and
Secretary of the Company since 1997. Mr. McCrosson became the Vice President of
Technical Operations in 1997 and from 1992 through 1997, he was the Group
Director responsible for all of the Company's thermal product development
programs. From 1988 to 1992, Mr. McCrosson was employed as an engineering
manager at Frisby Aerospace. From 1984 to 1988, Mr. McCrosson was a hydraulic
systems engineer for the Grumman Corporation. Mr. McCrosson received his
Bachelor of Science degree in Mechanical Engineering from the State University
of New York at Buffalo in 1984 and his Masters of Science degree in Management
from Polytechnic University in 1990.
Jeffry D. Frisby is a director of the Company. Since 1986, Jeffry D.
Frisby has been the President and a director of Frisby Aerospace. Jeffry D.
Frisby also serves on the Industrial Advisory Board of the American Society of
Mechanical Engineers. He received his Bachelor of Science degree in Business
Administration from Wake Forest University in 1977.
Pietro A. Motta is a director of the Company. Since 1984, he has provided
independent legal and financial advisory services for corporate transactions to
private financial, industrial and real estate groups. He is also a director of
SMEF, the investment banking unit of Compagnie Monegasque de Banque, and an
international advisor to HSBC Investment Banking of Hong Kong & Shanghai Bank.
Mr. Motta received his Bachelors degree from Collegio San Carlo & Liceo Manzoni
in 1956 and his Juris Doctor degree from Universita degli Studi di Milano in
1960.
Board of Directors
Upon completion of the Offering, the Board of Directors will consist of
five members. There are currently three directors and two vacancies on the
Board. Pursuant to agreements between the Company and the Underwriter and the
Company and MUSI, the Underwriter and MUSI each have the right to designate one
nominee
46
<PAGE>
for election as a member of the Board of Directors of the Company. Mr. Motta is
the MUSI designee to the Board. Following completion of the Offering, the
Company expects to appoint two additional members of the Board of Directors
including a designee of the Underwriter. See "Certain Transactions."
Executive officers of the Company are elected annually by the Board of
Directors and serve until their successors are duly elected and qualified.
Board Committees
After completion of the Offering, the Board of Directors will have Audit,
Compensation and Option Committees. The Audit Committee will make annual
recommendations to the Board of Directors concerning the appointment of the
independent public accountants of the Company and will review the results and
scope of the audit and other services provided by the Company's independent
auditors. The Compensation Committee will make recommendations to the Board of
Directors concerning salaries and incentive compensation for employees of the
Company. The Option Committee will make recommendations to the Board of
Directors concerning incentive stock option plans for officers, directors, key
employees and consultants of the Company. After completion of the Offering, the
independent directors to be appointed to the Board of Directors, will be
appointed to the Audit Committee, the Compensation Committee and the Option
Committee.
Director Compensation
Directors who are employees of the Company receive no compensation for
their service as members of the Board. It is expected that directors who are
not employees of the Company will receive options to purchase 7,500 shares of
Common Stock for each year served on the Board of Directors at a price equal to
no less than the fair market value on the date of the grant that will vest one
year after such grant and reimbursement of expenses incurred in connection with
attendance at Board of Directors and committee meetings.
Innovation Advisory Board
The Company is in the process of forming an innovation advisory board (the
"Advisory Board"). The members (the "Advisors") of the Advisory Board will
consult with the Company on developments relating to the scientific, research
and sales and marketing aspects of its business. In selecting the members of
the Advisory Board, the Company's Board of Directors intends to seek expertise
in a variety of areas, including financial, technical and marketing matters
related to the Company's thermal management products as well as the marketing
of products manufactured or sold by the Company's strategic partners and
customers. Currently the Company has identified three members of the Advisory
Board including Dr. David P. Colvin, Ph.D., the inventor of the Company's
MicroPCM technology and principal of TRDC, and representatives of certain of
the Company's current and potential strategic partners including Hannoosh
Industries, Sensormatic Electronics and Nike, Inc. Advisors will devote only a
small portion of their time to the affairs of the Company and will have other
commitments to, or consulting or advisory contracts with, other institutions
which may conflict with the Advisors' obligations to the Company. If any such
conflict would adversely effect such Advisor's ability to perform his or her
duties, or cause harm to the Company or its shareholders, such Advisor would be
forced to resign. The Company is not currently aware of any such conflict.
Additionally, the Company will require each of its Advisors to execute a
confidentiality agreement upon the commencement of his or her relationship with
the Company. The agreements generally provide that all confidential information
made known to the individual during the term of the relationship shall be the
exclusive property of the Company and shall be kept confidential and not
disclosed to third parties except under specified circumstances.
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<PAGE>
Set forth below are the names and areas of expertise of individuals
currently identified by the Company and agreeing to serve on the Company's
Advisory Board:
<TABLE>
<CAPTION>
Name Area of Expertise
---- -----------------
<S> <C>
Dr. David P. Colvin, Ph.D. Thermal Science and medical research
Dr. James Hannoosh, Ph.D. Advanced materials development
Mark Krom Electronics
Mary Ellen Smith Materials research
</TABLE>
Advisory Board Compensation
Advisors who are not employees of the Company will receive options to
purchase 2,500 shares of Common Stock for each year served on the Advisory
Board at a price equal to no less than the fair market value on the date of the
grant, and reimbursement of expenses incurred in connection with attendance of
Advisory Board meetings.
Limitation of Liability and Indemnification of Directors and Officers
The Certificate of Incorporation provides for the indemnification of the
Company's directors and officers to the fullest extent permitted under the
DGCL.
As permitted by the DGCL, the Company's Certificate of Incorporation
provides that directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director, except: (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or violation of law; (iii) for acts and
omissions relating to prohibited dividends or distributions or the purchase or
redemption of stock; or (iv) for any transaction from which the director
derives an improper personal benefit. As a result of this provision, the
Company and its stockholders may be unable to obtain monetary damages from a
director for breach of his or her duty of care.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed 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.
<PAGE>
Executive Compensation
The following table sets forth the compensation for services in all
capacities awarded to, earned by or paid to the Company's Chief Executive
Officer. There were no other executive officers of the Company whose aggregate
cash compensation during the fiscal year ended December 31, 1997 exceeded
$100,000:
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation
- -------------------------------------- ------ ---------- ------- -------------
<S> <C> <C> <C> <C>
Gregory S. Frisby, Chairman of the 1997 $52,000 -- --
Board of Directors, Chief Executive 1996 $52,000 -- --
Officer, President and Treasurer 1995 $52,000 -- --
</TABLE>
Employment Agreements
Effective January 1, 1998, the Company entered into an employment
agreement with Gregory S. Frisby (the "Frisby Employment Agreement"), pursuant
to which the Company will employ Gregory S. Frisby until December 31, 2002,
unless sooner terminated for death, physical or mental incapacity or cause. The
Frisby Employment Agreement provides for a base salary of $200,000 per year,
with an annual increase of ten percent per year
48
<PAGE>
after the first year, a bonus equal to two percent of the Company's pre-tax
profits, an automobile allowance of $400 per month, five weeks paid vacation
each year and, until the second anniversary of the consummation of the
Offering, a Company provided life insurance policy payable to his named
beneficiaries having a death benefit of $7,500,000.
Additionally, pursuant to the Frisby Employment Agreement, Gregory S.
Frisby has agreed (i) both during and after his employment not to disclose or
misappropriate confidential information of the Company; (ii) to disclose and
upon request convey to the Company any intellectual property originated by him
during his employment by the Company or one year thereafter, or with the
Company's time, material or funds; (iii) not to compete (as defined) with the
Company for a period of 12 months from the termination or expiration of the
Frisby Employment Agreement, or such shorter time as may be determined by the
Board of Directors, provided that the Company shall pay to him monthly during
such period an amount equal to the aggregate of his base salary (as in effect
as of the termination or expiration of the Frisby Employment Agreement),
benefits and bonus unless he has received certain severance payments otherwise
due him.
Effective January 1, 1998, the Company entered into an employment
agreement with Douglas J. McCrosson (the "McCrosson Employment Agreement"),
pursuant to which the Company will employ Mr. McCrosson until December 31,
2000, unless sooner terminated for death, physical or mental incapacity or
cause. The McCrosson Employment Agreement provides for a base salary of $88,400
for 1998, $96,200 for 1999 and $105,300 for the year 2000, an automobile
allowance of $400 per month and three weeks paid vacation each year.
If the McCrosson Employment Agreement is terminated early for death or
physical or mental incapacity by the Company, the Company will pay him, or his
estate, any accrued but unpaid salary (including any declared but unpaid bonus)
and a severance payment equal to two months of his then current salary.
"Cause" is defined under the McCrosson Employment Agreement to include:
(i) the commission of any material breach of any of the provisions or covenants
of his employment agreement; (ii) the commission of any act of willful
misconduct or gross negligence in the performance of his duties or obligations
under his employment agreement, or, without proper cause, the willful refusal
or habitual neglect of the performance of his employment duties or obligations
under his employment agreement; (iii) the commission of any act of dishonesty,
breach of trust, fraud or embezzlement; or (iv) his conviction, or plea of
guilty or nolo contendere to, a felony or indictable offense (unless committed
in the reasonable, good faith belief that the Executive's actions were in the
best interests of the Company and its stockholders and would not violate
criminal law). If, following 30 days notice and opportunity to cure, the
Company terminates Mr. McCrosson for cause, he shall be entitled only to
accrued but unpaid salary and benefits (including any declared but unpaid
bonus).
Following 30 days notice, the Company may terminate the McCrosson
Employment Agreement without cause. Following 30 days notice and opportunity to
cure, Mr. McCrosson may terminate the McCrosson Employment Agreement if the
Company has materially breached the McCrosson Employment Agreement. If the
McCrosson Employment Agreement is terminated pursuant to this paragraph, Mr.
McCrosson will be entitled to a severance payment equal to four months of his
then current salary and all accrued and unpaid salary and benefits (including
any declared but unpaid bonus).
The McCrosson Employment Agreement also contains: (i) a non-competition
provision that precludes Mr. McCrosson from competing with the Company for a
period of three years from the date of termination of his employment; (ii) a
non-disclosure and confidentiality provision; and (iii) a non-interference
provision whereby, for a period of three years after the termination of his
employment with the Company, he will not interfere with the Company's
relationship with its strategic partners, customers or employees.
Stock Option Plan
Prior to the completion of Offering, the stockholders will adopt a Stock
Option Plan pursuant to which 250,000 Common Shares will be reserved for
issuance to key employees, officers, directors and consultants of the Company
other than Gregory S. Frisby and Jeffry D. Frisby and to attract, motivate and
retain capable management personnel. At the date of this Prospectus, no stock
options have been granted under the Stock Option Plan.
49
<PAGE>
The Stock Option Plan will be administered by the Option Committee of the
Board of Directors, which is required to be comprised of at least two
non-employee directors, as defined under Rule 16b-3 under the Exchange Act or,
if no Committee is appointed, by the Board of Directors of the Company. The
Stock Option Plan authorizes the grant of incentive stock options (as defined
in Section 422 of the Code) and non-qualified stock options at the discretion
of the Option Committee.
The option price per share of Common Stock underlying each option granted
under the Stock Option Plan may not be less than 100% (110% in the case of an
incentive stock option granted to a 10% stockholder) of the fair market value
per share of Common Stock on the date of the option grant.
Options may not be exercised after ten years from the option grant date
(five years in the case of an incentive stock option granted to a 10%
stockholder). In the case of any incentive stock option, the option shall
terminate on the date that is three months (one year, in the event that the
termination of employment is by reason of death or disability) after the date
on which the optionee terminates employment or, if earlier, the date specified
in the agreement relating to the option grant.
Retirement Plan
Effective January 1, 1997, the Company adopted a 401(k)/Profit Sharing
Plan (the "Plan") for the benefit of all its eligible employees. The Plan is
funded from contributions by employees for their own account and does not
provide for any mandatory or matching contributions by the Company. The Plan is
administered by LaSalle National Bank, an independent third-party administrator
of pension plans. Funds in each employee's account will be invested at the
employee's direction among the investment options available under the Plan. All
employees of the Company on the effective date of the Plan immediately became
eligible. An employee who became employed after January 1, 1997 will become
entitled to participate in the Plan after the completion of six months of
service and the attainment of 21 years of age. Under the Plan, participants
will be permitted to contribute from their compensation any amount up to the
lesser of 20% of their annual gross salary or the maximum deferral allowed
under the Internal Revenue Code. The Company will be entitled to make optional
profit sharing contributions for any plan year in its discretion. See "Risk
Factors -- Participation in Affiliate's Pension Plan."
50
<PAGE>
CERTAIN TRANSACTIONS
On November 3, 1989, the Company issued 567,857 shares of Common Stock to
each of five members of the Frisby family, including Gregory S. Frisby,
President, Founder and Chief Executive Officer of the Company for a nominal
amount. Pursuant to Stock Option Agreements entered into in November 1996 by
the five family members, Gregory S. Frisby and Jeffry D. Frisby exercised
options in November 1997 to purchase all of the outstanding shares of the
Company and two affiliated companies, Frisby Aerospace and Frisby Industries,
from the other family members for the previously negotiated aggregate purchase
price of $4,078,854. As a result of that transaction, Gregory S. Frisby and
Jeffry D. Frisby each owned 50% of the shares of the Company.
On December 10, 1997, Gregory S. Frisby and Jeffry D. Frisby entered into
a Shareholder Agreement (the "JF/GF Agreement") pursuant to which Jeffry D.
Frisby agreed to vote all of his shares in accordance with Gregory S. Frisby's
direction. As a result, Gregory S. Frisby will have effective control of the
Company and will continue to have the power to control the outcome of matters
submitted to a vote of the Company's stockholders, such as the election of at
least a majority of the members of the Company's Board of Directors and to
direct the future operations of the Company. Such concentration of voting power
may have the effect of discouraging, delaying or preventing a change in control
of the Company. The JF/GF Agreement prohibits the transfer of shares by either
party except in accordance with its terms which include a right of first
refusal to purchase one another's stock on the same terms as any potential
third-party purchaser. Pursuant to the terms of the JF/GF Agreement, upon the
death of Gregory S. Frisby, Jeffry D. Frisby will have voting control of all
shares then owned by Gregory S. Frisby and upon the death of either Gregory S.
Frisby or Jeffry D. Frisby, the Company may, at its election, purchase the
shares of Common Stock then owned by such stockholder for a per share price
equal to the fair market value of the Common Stock as then determined by the
Company's Board of Directors. See "Management -- Board of Directors."
The assets of Frisby Aerospace and Frisby Industries were sold to an
unaffiliated third party on February 10, 1998.
The Company has, since its inception, received non-interest bearing
advances from Frisby Aerospace in order to meet operating expenses and has
received certain facilities, accounting, clerical and office services from
Frisby Aerospace without charge. During 1997, the Company continued to borrow
operating capital from Frisby Aerospace and, as of December 30, 1997, the
Company repaid the entire balance of $517,000 with a portion of the proceeds of
the Private Placement. The Company anticipates that as a result of the sale of
the assets of Frisby Aerospace, Frisby Aerospace will cease providing such
services without charge. The Company believes that it can replace, at reasonable
cost, such facilities, accounting, clerical and office services.
During 1997, the Company exhausted its $500,000 existing line of credit
with European American Bank ("EAB"), which is jointly and severally guaranteed
by Gregory S. Frisby, Jeffry D. Frisby and Frisby Aerospace, which guarantees
the Company expects to have released after the consummation of the Offering.
The EAB loan was repaid in full in December 1997 with a portion of the proceeds
of the Private Placement. From September 30, 1997 until December 29, 1997 the
Company was not in compliance with a convenant under the EAB loan which
required that the Company maintain a positive net worth. On December 29, 1997
the Company restored its compliance with this covenant.
The Company currently occupies a portion of Frisby Aerospace's New York
facility and subleases its North Carolina offices from Frisby Aerospace. No
lease for the New York facility exists between the Company and Frisby Aerospace
and no rental payments are made by the Company to Frisby Aerospace with respect
to such facility. The Company's North Carolina lease with Frisby Aerospace
expired on November 30, 1997 and has been extended on a month-to-month basis.
The Company expects that such arrangement will continue until the Company
vacates the New York facility in March 1998 and the North Carolina facility in
June 1998. The rental payment is $2,520 per month. For each of the years ended
December 31, 1996 and 1997, the Company made aggregate rental payments of
$30,240 to Frisby Aerospace with respect to the North Carolina facility.
51
<PAGE>
The Company entered into the Piedmont Lease with an unrelated third party
for the lease of a new facility in North Carolina. The Company plans to move
its North Carolina and South Carolina facilities into the new North Carolina
facility by June 1998. The Company leased from Piedmont approximately 25,000
square feet, with a monthly lease payment beginning at $5.00 and increasing to
$6.50 per square foot. Upon execution of the Piedmont Lease Gregory S. Frisby
and Jeffry D. Frisby each received a five percent equity interest (the "Equity
Interest") in Piedmont. The Equity Interest will vest in ten years from the
date of execution of the Piedmont Lease on the condition that the Company
remains in the premises for ten years from the date the lease is executed.
Notwithstanding the grant of the Equity Interest, the Company believes that the
rental payment represents an arm's-length price for the Piedmont Lease.
Additionally, the Company has reserved two condominium units in the new
North Carolina facility which it plans to purchase at a cost of $80,000 and
$78,000 to be used for accommodating visiting employees, directors and
strategic partners and which the Company believes will provide cost-effective
lodging for such visitors. The Company believes that the cost of the
condominium units approximates the price that would be negotiated on an
arms-length basis.
The Company was a guarantor of a $350,000 loan made by Long Island
Development Corp. ("LIDC") to Frisby Industries, Inc. ("Frisby Industries"), an
affiliate of the Company, on November 4, 1994. Pursuant to the Other
Stockholder Agreement, as hereinafter described, Gregory S. Frisby agreed to
reimburse the Company for any payments the Company makes to LIDC pursuant to
the guaranty. The LIDC loan was repaid in full on February 23, 1998 at which
time the Company's guarantee was released.
In December 1997, pursuant to a Purchase Agreement (the "Purchase Agreement")
the Company issued to MUSI 441,327 shares of the Company's Common Stock and the
Private Placement Option for an aggregate purchase price of $2,500,000. MUSI
exercised the Private Placement Option on February 27, 1998 for 587,500 shares
of the Company's Convertible Preferred Stock at an exercise price of $2,500,000.
The Company paid $300,000 to an entity designated by MUSI in respect of related
transaction costs incurred by MUSI. In connection with the exercise of the
Private Placement Option, the Underwriter has undertaken to allow MUSI to
purchase up to ten percent of the shares of Common Stock to be offered to the
public at the Offering price. See "Description of Securities -- Preferred Stock"
and "Shares Eligible for Future Sale -- Lock-Up Agreements."
In connection with MUSI's purchase of the Common Stock, MUSI, the Company,
Gregory S. Frisby and Jeffry D. Frisby entered into a Stockholders Agreement in
December 1997 (the "Other Stockholders Agreement"). The Other Stockholders
Agreement provides for restrictions on the transfers of shares, rights of first
refusal, the designation by MUSI of one nominee for director (the "MUSI
Designee") and the designation by management of the remaining nominees (the
"Frisby Designees") and prior to the Offering, the requirement that the MUSI
Designee and the Frisby Designees must agree in order for the Company to take
certain actions. Pursuant to the Other Stockholders Agreement, Gregory S.
Frisby and Jeffry D. Frisby agree to use their best efforts to cause the MUSI
Designee to be elected as a director of the Company. See "Management -- Board
of Directors."
Additionally, the Other Stockholders Agreement provides that MUSI, at any
time beginning 18 months after the Company's Offering, may require the Company
to register, on two occasions, at the Company's expense, all or an amount equal
to or exceeding $500,000 of MUSI's Common Stock in a public offering pursuant
to the Securities Act. The Other Stockholders Agreement grants to MUSI, Gregory
S. Frisby and Jeffry D. Frisby the right to "piggyback" their Common Stock in
any registration by the Company of its Common Stock, other than the Offering,
subject to the right of the managing underwriter to restrict or limit the
registration of such shares if the number of such shares requested to be sold
would have an adverse effect on the Offering. The expenses incurred in
connection with a "piggyback" registration, other than underwriter's discounts
and commissions, are to be paid by the Company. In the event MUSI, Gregory S.
Frisby or Jeffry D. Frisby own less than 25% of the number of the Company's
Common Stock owned by them on the date of the Other Stockholders Agreement,
their rights under the Other Stockholders Agreement shall terminate.
The Company has agreed to indemnify MUSI from all losses, costs, damages,
liabilities and expenses resulting from any misrepresentation or breach of any
representation, warranty, covenant or undertaking made or to be performed by
the Company in accordance with the terms of the Purchase Agreement between the
Company and MUSI.
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Upon completion of the Offering, the Underwriter has the right to
designate one nominee for election to the Company's Board of Directors. The
Company has agreed to use its best efforts to effect the election of such
nominee to the Board. See "Management -- Board of Directors."
The Company believes that all of the transactions described above except
for the guaranty of the LIDC loan, which guaranty has been released, is at
least as favorable to the Company as those available on an arms-length basis.
In the future, all material transactions entered into between the Company and
affiliated entities will be on terms no less favorable to the Company than can
be obtained from unaffiliated parties and will not be entered into or
terminated except on the affirmative vote of a majority of the disinterested
directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of shares of
Common Stock as of the date of this Prospectus, and as adjusted to reflect the
sale of 1,600,000 shares of Common Stock offered hereby by: (i) each person
known to the Company to be the beneficial owner of more than five percent of
the outstanding shares of Common Stock or Convertible Preferred Stock; (ii)
each director and nominee director of the Company; (iii) each named executive
officer of the Company; and (iv) all directors and executive officers of the
Company as a group:
<TABLE>
<CAPTION>
Combined Percentage of
Percentage of Class Beneficial Voting Power
Number of Beneficially Owned (1) Owned (2)
Shares ---------------------- ----------------------------
Beneficially Before After Before After
Name and Address Title of Class Owned (1) Offering Offering Offering Offering
- ------------------------------------ ------------------ -------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gregory S. Frisby (3)(4) ........... Common Stock 2,839,286 86.5% 58.2% 73.4% 51.9%
Jeffry D. Frisby (4)(5) ............ Common Stock 1,419,643 43.3 29.1 36.7 26.0
MUSI Investments S.A. (6)(7) ....... Common Stock 441,327 13.5 9.0 --(2) --(2)
Convertible
Preferred Stock 587,500 100.0 100.0 26.6(2) 18.8(2)
Pietro A. Motta (8) ................ Common Stock -- -- -- -- --
All executive officers and directors
as a group (3 persons) ............ Common Stock 2,839,286 86.5% 58.2% 73.4% 51.9%
</TABLE>
- ------------
(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Exchange Act, and generally includes voting or investment power with
respect to securities, subject to community property laws, where
applicable. A person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days from the date of this
Prospectus upon exercise of options or warrants. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person (but not those held by any other person) and
that are exercisable within 60 days from the date of this Prospectus have
been exercised. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
(2) Except as otherwise required by law, the Company's Convertible Preferred
Stock is entitled to one vote per share on matters presented to a vote of
the Company's stockholders. The percentages indicated reflect the combined
voting power of the Company's Common Stock and Convertible Preferred Stock.
(3) The address of Gregory S. Frisby is c/o Frisby Technologies, Inc., 417
South Main Street, Freeport, New York 11520.
(4) Gregory S. Frisby has been granted voting rights with respect to the shares
owned by Jeffry D. Frisby pursuant to a Shareholder Agreement between
Gregory S. Frisby and Jeffry D. Frisby. See "Certain Transactions."
(5) The address of Jeffry D. Frisby is c/o Frisby Aerospace, Inc., 4520 Hampton
Road, Clemmons, North Carolina 27012.
(6) The address of MUSI Investments S.A. is c/o CMB Compagnie Monegasque de
Banque, 23, Avenue de la Costa, BP #167 MC 9800 3 Monaco. MUSI is
beneficially owned by an individual who is not otherwise affiliated with
the Company.
(7) Does not include any shares allocated for purchase by MUSI pursuant to its
agreement with the Underwriter entitling it to purchase up to ten percent of
the shares of Common Stock being offered in the Offering. See
"Underwriting."
(8) The address of Pietro A. Motta is Motta & Co., Via Bigli, 7, 20121 Milano.
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DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, par value $.001 per share and 1,000,000 shares of Preferred
Stock, par value $.001. As of December 31, 1997, there were 3,280,613 shares of
Common Stock issued and outstanding held of record by three stockholders. No
shares of Preferred Stock were issued and outstanding.
Common Stock
Holders of shares of Common Stock are entitled to one vote for each share
held of record on matters to be voted on by the stockholders of the Company.
Holders of shares of Common Stock are entitled to receive dividends when, as,
and if declared by the Company's Board of Directors, out of funds legally
available to the Company. The Company currently intends to retain all future
earnings for the use in the operation of its business and therefore does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. See "Dividend Policy." Upon liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in the
assets remaining after payment of all liabilities and liquidation preferences,
if any. Shares of Common Stock are not redeemable and have no preemptive or
similar rights to subscribe for additional shares. All outstanding shares of
Common Stock are, and the shares of Common Stock offered hereby will be, upon
payment and issuance, fully paid and non-assessable.
Preferred Stock
The Board of Directors has the authority to cause the Company to issue
without any further vote or action by the stockholders, up to 1,000,000 shares
of Preferred Stock, in one or more series, and to designate the number of
shares constituting any series, and to fix the rights, preferences, privileges
and restrictions thereof, including dividend rights, voting rights, rights and
terms of redemption, redemption price or prices and liquidation preferences of
such series. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders. The issuance of Preferred Stock with voting and
conversion rights may adversely affect the voting power of the holders of
Common Stock, including the loss of voting control.
The Company has filed a certificate of designation designating 587,500
shares of the Preferred Stock as the Convertible Preferred Stock with the
rights, privileges and designations of the Convertible Preferred Stock which
includes: (i) a dividend preference (the "Dividend Preference") of $1.00 per
share of Convertible Preferred Stock prior to any payment of dividends to
holders of the Common Stock; (ii) the right, following the payment of the
Dividend Preference, for such share of Convertible Preferred Stock to share
equally with each share of Common Stock with respect to any dividend which may
be declared by the Company's Board of Directors; (iii) the right to cast one
vote per share of Convertible Preferred Stock, together with the holders of the
Common Stock, on each matter subject to the vote of the Company's stockholders;
(iv) a liquidation preference (the "Liquidation Preference") of $4.26 per share
of Convertible Preferred Stock in the event the Company shall be liquidated or
dissolved; and (v) the right, following the payment of the Liquidation
Preference, to share equally with each share of Common Stock with respect to
any distribution made to the Company's stockholders upon the Company's
liquidation or dissolution. Each share of Convertible Preferred Stock is
convertible at the election of MUSI into one share of the Company's Common
Stock (subject to adjustments for subdivisions or combinations of the Common
Stock or reclassification of the Common Stock) during the 60-day period
commencing 370 days following the closing by the Company of an initial public
offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Certain
Transactions."
Directors' Limitation of Liability and Indemnification
The Certificate of Incorporation provides for the indemnification of the
Company's directors and officers to the fullest extent permitted under the
DGCL. As permitted by the DGCL, the Company's Certificate of Incorporation also
provides that directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director, except: (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or violation of law; (iii) for acts and
omissions relating to prohibited dividends
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<PAGE>
or distributions or the purchase or redemption of stock; or (iv) for any
transaction from which the director derives an improper personal benefit. As a
result of this provision, the Company and its stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Anti-Takeover Provisions; Section 203 of the Delaware General Corporation Law
The Company is governed by Section 203 of the DGCL, an anti-takeover law.
In general, this statute restricts a corporation from entering into certain
business combinations with an interested stockholder (defined as any person or
entity that is the beneficial owner of at least 15% of a corporation's voting
stock) or its affiliates for a period of three years after the date of the
transaction in which the person became an interested stockholder unless: (i)
the transaction is approved by the Board of Directors of the corporation prior
to such business combination; (ii) the interested stockholder acquires 85% of
the corporation's voting stock in the same transaction in which it exceeds 15%;
or (iii) the business combination is approved by the Board of Directors and by
a vote of two-thirds of the outstanding voting stock not owned by the
interested stockholder. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder.
The Company's Certificate of Incorporation and By-Laws include certain
provisions which may have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider in
its best interests, including attempts that might result in a premium over the
market price for the shares held by the stockholders and could make it more
difficult to remove incumbent management. The Company's Certificate of
Incorporation or By-Laws provides that: (i) directors may authorize the
issuance of Preferred Stock having rights and preferences established by the
Board of Directors without further approval by the stockholders; (ii) except as
otherwise required by law, vacancies in the Board of Directors may be filled
only by the remaining directors; and (iii) all nominations for candidates for
election as directors, other than nominations by or at the discretion of the
Board of Directors or a committee of the Board of Directors and all stockholder
proposals to be considered at annual or special meetings of the stockholders be
presented to the Company pursuant to an advance notice procedure set forth in
the Certificate of Incorporation. In general, notice of an intent to nominate a
director or to make a stockholder proposal to be considered at a meeting must
be received by the Company not less than 60 nor more than 90 days before the
meeting and must contain certain information concerning the nominee for
director or the proposal to be brought before the meeting and concerning
stockholders submitting the proposal. The affirmative vote of at least a
majority of the directors or the holders of at least two-thirds of the voting
power of the Company's stock is required to alter, amend, repeal or adopt any
provision inconsistent with the provisions described in this paragraph. See
"Description of Securities -- Preferred Stock."
The DGCL, the Certificate of Incorporation and the By-Laws may discourage
certain types of transactions involving an actual or potential change in
control of the Company.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, there will be 4,880,613 shares of Common
Stock (5,120,613 if the Over-Allotment Option is exercised in full) and 587,500
shares of Convertible Preferred Stock outstanding. Of such shares, all of the
1,600,000 shares sold in the Offering (1,840,000 if the Over-Allotment Option
is exercised in full) will be freely transferable without restriction or
further registration under the Securities Act unless acquired by an "affiliate"
of the Company within the meaning of the Securities Act. Upon completion of the
Offering, the existing stockholders of the Company will own 3,280,613 shares of
Common Stock and 587,500 shares of Con-vertible Preferred Stock. All of these
shares are deemed "restricted securities" as defined by Rule 144 of the
Securities Act ("Rule 144"). Upon expiration of the contractual restrictions
between the Company, its officers and directors and the Underwriter, but not
earlier than one year after the date of this Prospectus, the Common Stock will
be available for sale in the public market, subject to compliance with Rule
144.
Rule 144, as currently in effect, provides that a person (or persons whose
sales are aggregated) who is an affiliate of the Company, or who has
beneficially owned shares for at least one year which were issued and sold in
reliance upon certain exemptions from registration under the Securities Act
("Restricted Shares"), is entitled to sell within any three month period a
number of shares that does not exceed the greater of one percent of the then
outstanding shares of Common Stock or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. However, a person who has beneficially owned Restricted Shares for at
least two years and who is not an affiliate of the Company may sell such shares
under Rule 144 without regard to volume limitations, manner-of-sale provisions,
notice requirements or the availability of current public information about the
Company.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 of the Securities Act ("Rule 701")
may be relied upon with respect to the resale of securities originally
purchased from the Company by its employees, directors, officers, consultants
or advisors prior to the date the issuer becomes subject to the reporting
requirements of the Exchange Act, pursuant to written compensatory benefit
plans or written contracts relating to the compensation of such persons. In
addition, the Commission has indicated that Rule 701 will apply to typical
stock options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this Prospectus).
Securities issued in reliance on Rule 701 are restricted securities and,
subject to the contractual restrictions described above, beginning one year
after the date of this Prospectus, may be sold by persons other than affiliates
subject only to the manner of sale provisions of Rule 144 and by Affiliates
under Rule 144 without compliance with its one-year minimum holding period
requirements.
Subject to certain limited exceptions, the holders of shares of Common
Stock and Convertible Preferred Stock, sold by the Company prior to the
Offering, have agreed not to transfer or otherwise dispose of any securities of
the Company for a period following the closing of the Offering, without the
prior written consent of the Underwriter. See "-- Lock-Up Agreements."
Prior to the Offering, there has been no public market for the Common
Stock, and no predictions can be made as to the effect, if any, that market
sales of Restricted Shares or the availability of Restricted Shares for sale
will have on the market price prevailing from time to time. See "Risk Factors
- -- Effect of Options and Underwriter's Option on Stock Price." Nevertheless,
sales of substantial amounts of Restricted Shares in the public market could
adversely affect prevailing market prices.
Up to 160,000 additional shares of Common Stock may be purchased by the
Underwriter through the exercise of the Underwriter's Option during the period
commencing on the closing of the Offering and ending on the fifth anniversary
of such date. The holders of the Underwriter's Option will have certain demand
and "piggyback" registration rights with respect to the shares of Common Stock
underlying such options. Such shares of Common Stock issuable upon exercise of
the Underwriter's Option may be freely tradable, provided that the Company
satisfies certain securities registration and qualification requirements in
accordance with the terms of the Underwriter's Option. See "-- Registration
Rights" and "Underwriting."
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<PAGE>
Registration Rights
The Company has granted certain demand and "piggyback" registration rights
with respect to the 160,000 shares of Common Stock issuable upon exercise of
the Underwriter's Option. Subject to certain conditions and limitations, the
registration rights granted to such holders give such holders the right to
register all or any portion of the Common Stock held by them or issuable upon
the exercise of the Underwriter's Option (collectively, the "Registrable
Securities"), in connection with any registration by the Company of shares of
Common Stock or securities substantially similar to the Common Stock. The
Underwriter is entitled to exercise demand registration rights to require the
Company to register under the Securities Act the shares issuable upon exercise
of the Underwriter's Option not more than twice. See "Underwriting."
The Other Stockholders Agreement provides that MUSI, at any time following
the 18 month anniversary of the Offering, may require the Company to register,
on two occasions, at the Company's expense, all, or an amount exceeding
$500,000, of the MUSI's Common Stock in a public offering pursuant to the
Securities Act. The Other Stockholders Agreement grants to MUSI, Gregory S.
Frisby and Jeffry D. Frisby the right to "piggyback" their Common Stock in any
registration by the Company of its Common Stock, other than the Offering,
subject to the right of the managing underwriter to restrict or limit the
registration of such shares if the number of such shares requested to be sold
would have an adverse effect on the Company's offering. The expenses incurred
in connection with a "piggyback" registration, other than underwriters
documents and commissions, are to be paid by the Company. In the event MUSI,
Gregory S. Frisby or Jeffry D. Frisby own less than 25% percent of the number
of the Company's Common Stock owned by them on the date of the Other
Stockholders Agreement, their rights against the Company under the Other
Stockholders Agreement will terminate.
The registration rights described herein are subject to certain notice
requirements, timing restrictions and volume limitations which may be imposed
by the underwriters of an offering. The Company is required to bear the
expenses of all such registrations, except for the expenses associated with the
second of the demand registrations, if applicable, granted to the holders of
the Underwriter's Option, and the underwriting discounts and commissions
relating to the sale of the shares of Common Stock held by such investors.
Lock-Up Agreements
Subject to the limited exceptions described below, and pursuant to the
Underwriting Agreement, the Company and pursuant to lock-up agreements with the
Underwriter, all of the existing stockholders of the Company and all of the
existing option holders of the Company as of the effective date of the
Registration Statement, have agreed not to offer, issue, sell, contract to
sell, grant any option for the sale of or otherwise dispose of any securities
of the Company for a period of 24 months from the date of closing of the
Offering, without the prior written consent of the Underwriter. Notwithstanding
these lock-up agreements, any stockholder subject to such agreement may sell
his, her or its shares of Common Stock commencing 12 months after the
completion of the Offering in the event that the last sale price for the Common
Stock on its principal exchange has been at least 200% of the initial public
offering price for a period of 20 consecutive trading days ending within five
days of the date of such sale, and such sale is completed at a price in excess
of 200% of the initial public offering price. Furthermore, MUSI may sell its
shares commencing 18 months after the completion of the Offering. The
Underwriter currently has no plans, proposals, arrangements or understandings
to modify, shorten or waive the lock-up agreements.
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UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement (the form of which has been filed as an exhibit to the
Registration Statement on Form SB-2, of which this Prospectus forms a part), to
purchase from the Company all of the shares of Common Stock offered hereby. The
Underwriting Agreement provides that the obligations of the Underwriter are
subject to certain conditions precedent and that the Underwriter shall be
obligated to purchase all of the shares of Common Stock if any are purchased by
the Underwriter.
The Underwriter has advised the Company that it proposes to offer the
shares of Common Stock offered hereby to the public at the offering price set
forth on the cover page of this Prospectus. The Underwriter may allow to
certain dealers, who are members of the National Association of Securities
Dealers (the "NASD"), concessions not in excess of $______ per share of Common
Stock, of which not in excess of $______ may be reallowed to other dealers who
are members of the NASD. After the commencement of this Offering, the Offering
price, the concessions and the reallowance may be changed. The Underwriter has
agreed to allow MUSI to purchase up to ten percent of the shares of Common
Stock to be offered to the public at the public Offering price.
The Company has granted the Over-Allotment Option to the Underwriter,
exercisable during the 45-day period after the closing date of the Offering, to
purchase up to an aggregate of 240,000 additional shares of Common Stock at the
Offering price, less underwriting discounts and commissions. The Underwriter
may exercise such option only for the purpose of covering over-allotments made
in connection with the sale of the Common Stock offered hereby.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of three percent of the aggregate offering price of the shares of
Common Stock offered hereby (including any shares of Common Stock purchased
pursuant to the Over-Allotment Option), of which $40,000 has been paid to date.
The Company also has agreed to sell to the Underwriter, or its designees,
the Underwriter's Option to purchase 160,000 shares at a price of $.001 per
option. The Underwriter's Option will be exercisable for a period of five
years, commencing on the closing date of the Offering, at an initial per share
exercise price equal to 120% of the initial public offering price per share.
The Underwriter's Option cannot be transferred, assigned or hypothecated for
one year from the date of issuance, except that it may be assigned in whole or
in part, to any successor, officer or partner of the Underwriter (or to
officers or partners of any such successor or partner). The Underwriter's
Option may be exercised on one or a number of occasions as to all or a portion
of the shares covered by the option, and will contain certain registration
rights and anti-dilution provisions providing for appropriate adjustment of the
exercise price and number of shares which may be purchased upon exercise, upon
the occurrence of certain events. See "Risk Factors -- Effect of Options and
Underwriter's Option on Stock Price."
The Company has granted to the Underwriter two "demand" registration
rights for the sale of the shares of Common Stock underlying the Underwriter's
Option, for a period of five years after the closing of the Offering, of which
one registration will be at the Company's expense. The Company also has granted
to the Underwriter, for a period of seven years after the date of closing of
the Offering, unlimited "piggyback" registration rights for the sale of the
shares of Common Stock underlying the Underwriter's Option. See "Shares
Eligible for Future Sale."
The Company also has agreed that for a period of three years following the
completion of the Offering, it will use its best efforts (including the
solicitation of proxies) to elect one designee of the Underwriter to the Board
of Directors of the Company.
The foregoing discussion of the material terms and provisions of the
Underwriting Agreement is qualified in its entirety by reference to the
detailed provisions of the Underwriting Agreement.
Pursuant to the Underwriting Agreement, the Company and all of the
existing stockholders of the Company as of the effective date of the
Registration Statement, have agreed not to offer, issue, sell, contract to
sell, grant any option for or otherwise dispose of any securities of the
Company for a period of 24 months from the date of closing of the Offering
(MUSI may sell its shares after 18 months), without the prior written consent
of the Underwriter except for: (i) options granted pursuant to the Employee
Stock Option Plan and the issuance of Common Stock upon the exercise of such
options; (ii) the issuance of securities in connection with any merger or
acquisition approved by a majority of the independent directors of the Company;
and (iii) the issuance of
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<PAGE>
shares of Common Stock to unaffiliated third parties at fair market value
pursuant to a Private Placement approved by a majority of the independent
directors of the Company, commencing 12 months after the Offering has closed.
Notwithstanding these lock-up arrangements, any stockholder subject to such
arrangement may sell shares of Common Stock commencing 12 months after the
completion of the Offering in the event that the last sale price for the Common
Stock on its principal exchange has been at least 200% of the Offering price
for a period of 20 consecutive trading days ending within five days of the date
of such sale, and such sale is completed at a price in excess of 200% of the
initial public offering price or upon the closing of a follow-up public
offering underwritten by a major bracket or large regional underwriting firm
and which raises at least $20 million in gross proceeds. The Underwriter has no
current or future plans, proposals, arrangements or understandings to modify,
shorten or waive the lock-up arrangements. The Company will file a
post-effective amendment to the registration statement of which this Prospectus
constitutes a part, in the event that the Underwriter waives the lock-up
agreements with respect to ten percent or more of the shares held by existing
stockholders of the Company, or will revise the Prospectus if the lock-up is
waived with respect to five percent to ten percent of the shares held by
existing stockholders of the Company.
The Underwriter may engage in certain transactions which may stabilize,
maintain or otherwise affect the price of the Common Stock. Such transactions
may include over-allotments of Common Stock and purchases of the Common Stock.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the Offering price of the shares of Common Stock offered
and sold in the Offering has been determined by arms length negotiation between
the Company and the Underwriter and does not necessarily bear any relationship
to the Company's book value, assets, past operating results, financial
condition, or other established criteria of value. Factors considered in
determining such price include an assessment of the Company's recent financial
results and current financial condition, future prospects of the Company, the
qualifications of the Company's management and other relevant factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Ruskin, Moscou, Evans & Faltischek, P.C., Mineola, New
York. Certain legal matters in connection with the Offering will be passed upon
for the Underwriter by Kramer, Levin, Naftalis & Frankel, New York, New York.
EXPERTS
The financial statements of the Company at December 31, 1997 and for each
of the two years in the period ended December 31, 1997 appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
in this Prospectus, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT AUDITORS
In December 1996, after the completion of the audit of the Company's 1995
financial statements, the Company dismissed KPMG Peat Marwick LLP ("KPMG") as
its independent auditors. The report of KPMG on the Company's financial
statements for 1995 contained no adverse opinion or disclaimer of opinion, and
was not qualified or modified as to uncertainty, audit scope or accounting
principles. In connection with its audit for the year ended December 31, 1995,
there have been no disagreements with KPMG on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of KPMG would
have caused them to make reference thereto in their report on the financial
statements for such year. The decision to change firms was approved by the
Company's Board of Directors.
The Company engaged Ernst & Young LLP as its new independent auditors in
December 1996.
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During the year ended December 31, 1995 and until completion of the audit
of the Company's 1995 financial statements, the Company did not consult with
Ernst & Young LLP on items which (i) were or should have been subject to
Statement on Auditing Standards No. 50 or (ii) concerned the subject matter of
a disagreement or reportable event with KPMG.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 (the "Registration Statement") under the Securities Act with respect to
the shares of Common Stock offered hereby. This Prospectus, which forms a part
of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and such exhibits and
schedules, which may be inspected without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Northwestern Atrium Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511 or Seven World Trade Center, New York, New York
10048. Copies of such material may also be obtained at prescribed rates from
the Public Reference Section of the Commission in Washington, D.C. 20549.
Statements contained in the Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding the
Company, the address of such site is http://www.sec.gov.
61
<PAGE>
Frisby Technologies, Inc.
Financial Statements
Contents
<TABLE>
<S> <C>
Report of Independent Auditors ........................................................... F-2
Balance Sheet as of December 31, 1997 .................................................... F-3
Statements of Operations for the Years Ended December 31, 1996 and 1997 .................. F-4
Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1996 and
1997 ................................................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1996 and 1997 .................. F-6
Notes to Financial Statements ............................................................ F-7
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
The Stockholders
Frisby Technologies, Inc.
We have audited the accompanying balance sheet of Frisby Technologies,
Inc. as of December 31, 1997, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the two years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Frisby Technologies, Inc.
at December 31, 1997, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Melville, New York
February 27, 1998
F-2
<PAGE>
Frisby Technologies, Inc.
Balance Sheet
<TABLE>
<CAPTION>
December 31,
1997
-------------
<S> <C>
Assets
Current assets:
Cash ................................................................................... $ 375,222
Accounts receivable--billed ............................................................ 358,452
Accounts receivable--unbilled .......................................................... 52,150
Inventory .............................................................................. 247,686
Recoverable and prepaid income taxes ................................................... 26,902
Other current assets ................................................................... 7,192
----------
Total current assets .................................................................... 1,067,604
Property and equipment, net ............................................................. 61,323
Deferred transaction costs .............................................................. 138,908
----------
Total assets ............................................................................ $1,267,835
==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable ....................................................................... $ 353,427
Accrued expenses and other current liabilities ......................................... 63,143
License fees payable ................................................................... 184,640
----------
Total current liabilities ............................................................... 601,210
Accrued license agreement costs ......................................................... 101,250
----------
Total liabilities ....................................................................... 702,460
Commitments
Stockholders' equity:
Preferred Stock, 1,000,000 shares authorized; no shares issued or outstanding .......... --
Common Stock, $.001 par value; 10,000,000 shares authorized; 3,280,613 shares issued and
outstanding .......................................................................... 3,281
Additional paid-in capital ............................................................. 1,540,575
Accumulated deficit .................................................................... (978,481)
----------
Total stockholders' equity .............................................................. 565,375
----------
Total liabilities and stockholders' equity .............................................. $1,267,835
==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
Frisby Technologies, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Year ended
December 31
-----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Revenues:
Product sales ......................................... $ 13,638 $ 474,179
Research and development projects ..................... 1,119,549 486,700
Licenses and royalties ................................ 75,000 390,960
---------- ----------
Total revenues ......................................... 1,208,187 1,351,839
---------- ----------
Cost of sales:
Products .............................................. 11,581 452,377
Research and development projects ..................... 1,004,457 257,843
Licenses and royalties ................................ 19,553 265,350
---------- ----------
Total cost of sales .................................... 1,035,591 975,570
---------- ----------
Gross profit ........................................... 172,596 376,269
Selling and marketing expense .......................... 82,995 315,169
General and administrative expense ..................... 207,263 899,620
---------- ----------
Loss from operations ................................... (117,662) (838,520)
Interest expense ....................................... 18,636 36,666
---------- ----------
Loss before income taxes ............................... (136,298) (875,186)
Income tax (benefit) provision ......................... (48,642) 44,792
---------- ----------
Net loss ............................................... $ (87,656) $ (919,978)
========== ==========
Net loss per common share -- basic and diluted ......... $ (.03) $ (.32)
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
Frisby Technologies, Inc.
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Stock Additional Retained
---------------------- Paid-in Earnings
Shares Amount Capital (Deficit) Total
----------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 ..................... 2,839,286 $ 500 -- $ 29,153 $ 29,653
Net loss ....................................... -- -- -- (87,656) (87,656)
--------- ------ ---------- ---------- ----------
Balance at December 31, 1996 ................... 2,839,286 500 -- (58,503) (58,003)
Sale of common stock and option, net of
$956,644 of related costs and expenses......... 441,327 2,781 1,540,575 -- 1,543,356
Net loss ....................................... -- -- -- (919,978) (919,978)
--------- ------ ---------- ---------- ----------
Balance at December 31, 1997 ................... 3,280,613 $3,281 $1,540,575 $ (978,481) $ 565,375
========= ====== ========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
Frisby Technologies, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended
December 31
------------------------------
1996 1997
------------- --------------
<S> <C> <C>
Operating activities
Net loss ................................................ $ (87,656) $ (919,978)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation ......................................... 15,065 15,121
Deferred income tax (benefit) provision .............. (21,740) 44,792
Changes in assets and liabilities:
Accounts receivable ................................. 16,813 (226,656)
Inventory ........................................... (32,204) (199,712)
Recoverable and prepaid income taxes ................ (26,902) --
Other current assets ................................ 269 (2,269)
Accrued license agreement costs ..................... 39,509 --
Accounts payable .................................... 74,108 260,190
Accrued expenses and other current liabilities 16,408 29,965
License fees payable ................................ 7,446 177,194
Payments to related party ........................... (43,655) (10,550)
Income taxes payable ................................ (27,872) --
--------- ----------
Net cash used in operating activities ................... (70,411) (831,903)
--------- ----------
Investing activities
Capital expenditures .................................... (26,072) --
--------- ----------
Net cash used in investing activities ................... (26,072) --
--------- ----------
Financing activities
Net proceeds from private placement ..................... -- 1,543,356
Net proceeds from (repayments of) notes payable ......... 110,000 (250,000)
Borrowings from related party ........................... -- 517,000
Repayment to related party .............................. -- (517,000)
Payment of transaction costs ............................ -- (138,908)
Principal payments of capital lease obligation .......... (10,186) --
--------- ----------
Net cash provided by financing activities ............... 99,814 1,154,448
--------- ----------
Net increase in cash .................................... 3,331 322,545
Cash--beginning of year ................................. 49,346 52,677
--------- ----------
Cash--end of year ....................................... $ 52,677 $ 375,222
========= ==========
Supplemental information
Interest paid ........................................... $ 18,636 $ 36,666
Income taxes paid ....................................... $ 25,179 --
</TABLE>
See accompanying notes.
F-6
<PAGE>
Frisby Technologies, Inc.
Notes to Financial Statements
1. Organization and Business
The Company is a technology development company engaged in the development
and commercialization of thermal management products for use in a broad range
of consumer and industrial products. The Company's Thermasorb(R) and
ComforTemp(R) products utilize licensed patents and the Company's proprietary
MicroPCM technology to enhance thermal characteristics (i.e., insulation,
cooling or temperature control properties) in a variety of consumer and
industrial products.
On December 19, 1997, the Board of Directors authorized and the
stockholders ratified an amendment to the Company's certificate of
incorporation increasing the number of authorized shares of Common Stock to
10,000,000 shares, changing the par value of the Common Stock to $.001 and
authorizing 1,000,000 shares of "blank check" preferred stock, having such
rights and preferences and issuable in such series as may from time to time be
determined by the Company's Board of Directors. On December 23, 1997, the Board
of Directors authorized: (i) a 5,679-for-1 stock split of the outstanding
shares of common stock; and (ii) the reservation of 250,000 shares of common
stock for issuance upon exercise of options which may be granted under the
Company's Stock Option Plan. Effect has been given to the stock split as if it
occurred on January 1, 1996. All common share data has been restated to reflect
the stock split.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company accounts for long-term contracts based on the
percentage-of-completion method based on the relationship of total costs
incurred to date to estimated total costs at completion. Adjustments to cost
estimates are made periodically and related changes reflected in operations
cumulative to the date of change. Revenue on cost-plus-fixed-fee contracts is
recognized to the extent of costs incurred plus a proportionate amount of the
fee earned. Revenue recognized on uncompleted contracts in excess of amounts
billed is presented as "Accounts receivable -- unbilled" in the accompanying
balance sheet. Billings are made in accordance with the respective terms of
such contracts. Provisions for estimated losses, if any, on uncompleted
contracts are made in the period in which such losses are determined.
Revenues from sales of products are recognized upon shipment. License
revenues are recorded when the Company has satisfactorily completed all of its
related obligations pursuant to the underlying agreement. Royalty revenues are
recorded when the Company's strategic partners report sales of products
containing Thermasorb(R) and ComforTemp(R) to their customers.
Depreciation and Amortization
The Company's fixed assets are stated at cost. Depreciation is provided
over the estimated useful lives (three to ten years) of the assets under the
straight-line method. Leasehold improvements are amortized on a straight-line
basis over the shorter of the lease term or the estimated useful life of the
asset.
Loss Per Share
Shares used in the computation of both the basic and diluted loss per
share for the years ended December 31, 1996 and 1997 were 2,839,286 and
2,842,913, respectively, representing the weighted-average shares outstanding
for each year. There were no dilutive securities for either 1996 or 1997.
Fair Value of Financial Instruments
The book values of the cash, accounts receivable, accounts payable and
accrued liabilities approximate their fair values principally because of the
short-term maturities of these instruments.
F-7
<PAGE>
Frisby Technologies, Inc.
Notes to Financial Statements -- (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
Inventories
Inventories consist substantially of finished goods and are stated at the
lower of cost or market. Cost is determined by the weighted average method.
Advertising Expense
The cost of advertising is expensed as incurred. The Company incurred
approximately $33,000 and $212,000 of advertising costs for the years ended
December 31, 1996 and 1997, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Significant Concentrations
The Company currently outsources the manufacture of all of its products,
including Thermasorb(R) and ComforTemp(R) to a limited number of manufacturers.
The Company and its Thermasorb(R) supplier have entered into an arrangement
that provides firm, fixed pricing for all of the Company's anticipated
requirements for Thermasorb(R) additives, as well as favorable pricing and
delivery terms for short run and prototype production volumes. Pursuant to the
arrangement, the Company has placed a blanket purchase order for all of its 1998
requirements of Thermasorb(R). The Company has also received written assurances
from the supplier regarding its desire to enter into a long-term supply
agreement for the manufacture of the Company's Thermasorb(R) additive. All of
the Company's ComforTemp(R) will be manufactured by a different vendor pursuant
to a memorandum of understanding.
The Company does a significant amount of business with the United States
government and a limited number of strategic partners. Total revenues from the
United States government comprised approximately 93% of the Company's total
revenues for the year ended December 31, 1996. Total revenues from the United
States government and two strategic partners comprised approximately 83% (36%,
37% and 10%) of the Company's total revenues for the year ended December 31,
1997.
At December 31, 1997, the United States government and two strategic
partners accounted for approximately 81% (22%, 45%, and 14%) of the Company's
accounts receivable. Consistent with industry standards, receivables are
payable in accordance with the terms of the underlying contracts and collateral
is not required.
4. Property and Equipment
Property and equipment consist of the following:
December 31,
1997
-------------
Leasehold improvements ................................. $ 36,336
Furniture .............................................. 14,247
Equipment .............................................. 56,340
--------
106,923
Less accumulated depreciation and amortization ......... 45,600
--------
$ 61,323
========
F-8
<PAGE>
Frisby Technologies, Inc.
Notes to Financial Statements -- (Continued)
5. Note Payable
During 1997, the Company's available line of credit for $250,000 with a
bank (the "Line"), was increased to $500,000 and on December 30, 1997, the
Company repaid all amounts outstanding with a portion of the proceeds from the
Private Placement (see Note 10). The Line is maintained for working capital
purposes. The Line bears interest at .5% above the bank's prime rate and
expires on June 30, 1998.
Substantially all of the Company's assets are pledged as security for any
outstanding borrowings under the Line. The Line is also secured by a joint
guaranty from the chief executive officer, a member of the Board of
Directors and Frisby Aerospace, Inc. (see Note 7).
6. Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Significant components of
the Company's deferred tax assets are as follows:
December 31,
1997
-------------
License agreement costs ............................. $ 42,000
Net operating loss carryforward ..................... 332,000
Other ............................................... (2,000)
----------
Total deferred tax assets ........................ 372,000
Valuation allowance for deferred tax assets ......... (372,000)
----------
Net deferred tax assets .......................... $ --
==========
As a result of losses from operations, at December 31, 1997, the Company
has available a net operating loss carryforward ("NOL") of approximately
$848,000 for Federal income tax purposes that expires in 2012.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the period in
which the NOL can be utilized and the temporary differences become deductible.
Since the Company has incurred losses in previous years and it anticipates
additional losses through the third quarter of 1999, the Company has established
a valuation allowance for deferred tax assets at December 31, 1997.
Significant components of the income tax provision (benefit) are as
follows:
Year Ended
December 31,
-------------------------
1996 1997
------------- ---------
Current:
Federal ......... $ (25,541) $ --
State ........... (1,361) --
--------- -------
(26,902) --
--------- -------
Deferred:
Federal ......... (19,081) 36,000
State ........... (2,659) 8,792
--------- -------
(21,740) 44,792
--------- -------
Total ............ $ (48,642) $44,792
========= =======
F-9
<PAGE>
Frisby Technologies, Inc.
Notes to Financial Statements -- (Continued)
6. Income Taxes -- (Continued)
The income tax benefit differs from the amounts computed by applying the
statutory United States Federal income tax rate as a result of the following:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------
1996 1997
------------- --------------
<S> <C> <C>
Benefit for Federal income taxes at the statutory rate ......... $ (46,341) $ (297,563)
State income taxes, net of Federal income tax benefit .......... (2,653) (29,979)
Other .......................................................... 352 532
Valuation allowance for deferred tax assets .................... -- 371,802
--------- ----------
$ (48,642) $ 44,792
========= ==========
</TABLE>
7. Related Party Transactions
Frisby Aerospace, Inc. ("Frisby Aerospace"), certain stockholders of which
are also stockholders of the Company, charges the Company for space and related
services. These charges, which are non-interest bearing, are based upon
estimates of square footage used for facilities and actual expenses incurred by
Frisby Aerospace on behalf of the Company. Management believes that such
allocations are reasonable. These charges aggregated approximately $51,000 and
$57,000 for the years ended December 31, 1996 and 1997, respectively, and are
included in cost of sales in the accompanying statement of operations. The
Company also received unsecured, non-interest bearing advances from Frisby
Aerospace aggregating $517,000 during the year ended December 31, 1997. In
addition, Frisby Aerospace provides the Company with certain facilities,
accounting, clerical and office services without charge. The value of such
services are not deemed material and accordingly, have not been recorded in the
accompanying financial statements.
The assets of Frisby Aerospace were sold to an unrelated third party on
February 10, 1998. The Company anticipates that the loss of the facilities and
services it has received from Frisby Aerospace can be replaced at a reasonably
cost.
A portion of the proceeds received from the Private Placement (See Note
10) was used to repay the amounts owed to Frisby Aerospace in full on December
30, 1997.
8. License Arrangements and Other Commitments
(a) The Company signed an Exclusive License Agreement (the "TRDC License")
in 1995 with a research and development corporation which holds innovative
proprietary technology in microencapsulated and thermal management technologies
and with which the Company had an existing agreement since 1991. The TRDC
License gives the Company the exclusive worldwide right to develop and
commercialize this technology with respect to certain applications in exchange
for royalties that range from 1% to 5% of product sales revenue and 12.5% to
50% of license fees and royalty revenues, as defined. Minimum annual payments
are required in accordance with the TRDC License and are payable as follows:
1998 $ 54,000
1999 78,000
2000 102,000
2001 126,000
2002 and thereafter 150,000
The Company is expensing such minimum annual payments on a straight-line
basis over the period in which such payments fluctuate. Accordingly, the charge
was approximately $73,000 for each of the years ended December 31, 1996 and
1997.
(b) The rights to the TRDC Technology relating to MicroPCM Fibers and
Fabrics were licensed by TRDC to Outlast Technologies, Inc. ("Outlast") prior
to the Company obtaining the TRDC License. In order to expand its rights in the
TRDC Technology, in January 1998, the Company entered into an agreement with
Outlast which
F-10
<PAGE>
Frisby Technologies, Inc.
Notes to Financial Statements -- (Continued)
8. License Arrangements and Other Commitments -- (Continued)
expands the rights of the Company to include the combination of the Company's
products with fibers and fabrics. Under the terms of the agreement, the Company
paid Outlast $100,000 as a license payment related to periods prior to the
execution of the agreement and such amount has been charged to cost of sales
for the year ended December 31, 1997. In addition, the agreement provides for
the Company to meet minimum annual payments of $150,000 to $600,000 per year
from 1998 through 2002, provided that the Company elects to maintain the
exclusivity granted by the license. If subsequent to the initial licensing
period the Company elects to extend the exclusivity granted by the license, the
minimum annual payment for the five years thereafter will be $1,000,000.
(c) The Company is obligated under several operating leases for its
operating facility and equipment expiring at various dates in 1998. The
operating facility is leased from Frisby Aerospace (see Note 7). This lease
expired on November 30, 1997 and the Company continues to lease the facility
from Frisby Aerospace on a month to month basis. Total rental expense for the
years ended December 31, 1996 and 1997, was approximately $45,000, and $61,000,
respectively.
(d) The Company entered into an operating lease agreement with an unrelated
entity for a facility in North Carolina. The lease term is for 20 years and
monthly payments are expected to commence in June 1998. Future minimum payments
under the lease are as follows:
1998 $ 63,000
1999 126,000
2000 126,000
2001 132,000
2002 138,000
Thereafter 2,203,000
----------
$2,788,000
==========
Upon execution of the North Caroline lease, two shareholders of the Company
each received a five percent equity interest in the lessor which vests over a
ten year period. Notwithstanding the equity interest, the Company believes that
the rental payments represent an arms-length price fo the lease.
(e) The Company utilizes software and related technologies throughout its
business that will be affected by the date change in the year 2000. System
modifications or replacements are underway or planned which should make all
significant computer systems at the Company compliant with the year 2000
requirement. Anticipated spending for these modifications will be expensed as
incurred and is not expected to have a material impact on the Company's ongoing
results of operations.
9. Retirement Plan
Effective January 1, 1997, the Company adopted a 401(k)/Profit Sharing
Plan (the "Plan") for the benefit of all its eligible employees. The Plan is
funded from contributions by employees for their own account and does not
provide for any mandatory or matching contributions by the Company. All
employees of the Company on the effective date of the Plan immediately became
eligible. An employee who became employed after January 1, 1997 will become
entitled to participate in the Plan after the completion of six months of
service and the attainment of 21 years of age. Under the Plan, participants
will be permitted to contribute from their compensation any amount up to the
lesser of 20% of their annual gross salary or the maximum deferral allowed
under the Internal Revenue Code. The Company will be entitled to make optional
profit sharing contributions for any plan year in its discretion. During the
year ended December, 1997, the Company did not make any contributions to the
Plan.
10. Private Placement
On December 29, 1997, the Company sold 441,327 shares of its Common Stock
and an option to purchase 587,500 shares of the Company's Convertible Preferred
Stock at an exercise price of $4.26 per share until February 27, 1998 to a
foreign investor for an aggregate purchase price of $2,500,000. The Company has
allocated $353,000 of the purchase price as the estimated fair value of the
option. This transaction resulted in net proceeds of approximately $1,600,000,
after the payment of related costs and expenses. The Convertible Preferred Stock
is convertible into Common Stock at the election of the investor for a 60-day
period commencing on the 370th day following the anticipated initial public
offering. On February 27, 1998, the foreign investor exercised the Convertible
Preferred Stock Option.
F-11
<PAGE>
===============================================================================
No person has been authorized in connection with any offering made
hereby to give any information or to make any representation other than those
contained in this Prospectus in connection with the Offering made hereby, and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or any Underwriter. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
security other than the shares of Common Stock offered hereby, nor does it
constitute an offer to sell or a solicitation of any offer to buy any of the
securities offered hereby to any person in any jurisdiction in which it is
unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that the information contained herein is correct as of any time
subsequent to the dates as of which such information is furnished or that there
has been no change in the affairs of the Company since such date.
--------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary ....................... 3
Risk Factors ............................. 9
Use of Proceeds .......................... 20
Dividend Policy .......................... 21
Dilution ................................. 22
Capitalization ........................... 23
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ............................ 24
Business ................................. 29
Management ............................... 46
Certain Transactions ..................... 51
Principal Stockholders ................... 54
Description of Securities ................ 55
Shares Eligible for Future Sale .......... 57
Underwriting ............................. 59
Legal Matters ............................ 60
Experts .................................. 60
Change in Independent Auditors ........... 60
Additional Information ................... 61
Index to Financial Statements ............ F-1
--------------------------
Until _____, 1998 (25 days after the date hereof), 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 Underwriter
and with respect to their unsold allotments or subscriptions.
===============================================================================
<PAGE>
===============================================================================
1,600,000 Shares
FRISBY LOGO
Common Stock
--------------------------
Prospectus
--------------------------
BARINGTON CAPITAL GROUP
, 1998
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers provided that this provision
shall not eliminate or limit the liability of a directors: (i) for any breach
of the director's duty of loyalty to the Company or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) arising under Section 174 of the DGCL; or
(iv) for any transaction from which the director derived an improper personal
benefit.
The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the Company's By-Laws, any agreement, vote of
stock or otherwise.
The Company's Certificate of Incorporation eliminates the personal
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the DGCL.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such
persons in their official capacities if such person acted in good faith and in
a manner that he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the applicable provisions, the Company has been informed that, in
the opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
Other Expenses of Issuance and Distribution
The following table sets forth the various expenses payable by the Company
in connection with the sale and distribution of the securities being
registered, other than underwriting discounts and the Underwriter's non-
accountable expense allowance. All of the amounts shown are estimated except
the Securities and Exchange Commission registration fee and the NASD filing
fee.
Total
-----------
SEC registration fee ........................ $ 4,795.52
Nasdaq SmallCap Market listing fee .......... 6,840.00
NASD filing fee ............................. 2,125.00
BSE application fee ......................... 7,750.00
Printing and engraving expenses ............. 120,000.00
Legal fees and expenses ..................... 225,000.00
Accounting fees and expenses ................ 145,000.00
Transfer agent and registrar fee ............ 3,500.00
Miscellaneous ............................... 84,989.48
-----------
Total ..................................... $600,000.00
===========
II-1
<PAGE>
Exhibits
<TABLE>
<S> <C>
** 1.1 Form of Underwriting Agreement
** 1.2 Form of Underwriter's Option Agreement
** 3.1.1 Articles of Incorporation (North Carolina)
** 3.1.2 Articles of Amendment to Articles of Incorporation dated December 23, 1997 (North Carolina)
* 3.1.3 Form of Certificate of Incorporation (Delaware)
** 3.2.1 By-Laws (North Carolina)
* 3.2.2 Form of By-Laws (Delaware)
* 4.1 Form of Common Stock Certificate
4.2 Option Agreement dated December 29, 1997 between MUSI Investments, S.A. and the Company
* 5.1 Opinion of Ruskin, Moscou, Evans & Faltischek, P.C.
*10.1 Stock Option Plan
*10.2 Employment Agreement dated December 8, 1997 between the Company and Gregory S. Frisby
10.3 Employment Agreement dated December 6, 1997 between the Company and Douglas J. McCrosson
*10.4 Shareholder Agreement dated December 10, 1997 between Gregory S. Frisby and Jeffry D. Frisby
10.5 Stockholders Agreement dated December 29, 1997 between Gregory S. Frisby, Jeffry D. Frisby
and MUSI Investments, S.A.
10.6 Line of Credit Agreement with European American Bank
c10.7.1 License Agreement dated May 1, 1995 between the Company and TRDC
10.7.2 Assignment of License Agreement effective January 3, 1997 from TRDC to Delta Thermal Systems, Inc.
c10.8 License Agreement effective January 1, 1998 between the Company and Outlast Technologies, Inc.
c10.9 License Agreement dated March 31, 1997 between the Company and Fly Technologies, Inc.
c10.10 License Agreement dated January 23, 1997 between the Company and Wells Lamont Division,
Marmon Holdings, Inc.
c10.11 License Agreement dated February 1, 1997 between the Company and Cove Shoe Company, Inc.
c10.12.1 License Agreement dated May 22, 1996 between the Company and Thermo Solutions, Inc. (f/k/a
Temptop Container Systems, Inc.) ("Thermo Solutions")
c10.12.2 Memorandum of Understanding dated January 22, 1998 between the Company and Thermo Solutions
c10.13 License Agreement dated February 10, 1997 between the Company and Genfoot, Inc. and Genfoot
America, Inc.
p10.14 Contract No. 00178-96-C-3014 between the Company and the United States of America (Naval
Surface Warfare Division)
p10.15 Contract No. F08637-97-C-6017 between the Company and the United States of America (325th
Contracting Squadron/LGCX)
p10.16 Contract No. F33615-93-C-3409 between the Company and the United States of America
(Department of Air Force Material Command (ASC) Wright Laboratory (WL/FLKF))
c10.17 Arrangement dated January 21, 1998 between the Company and Minnesota Mining &
Manufacturing, Inc.
c10.18 Memorandum of Understanding dated October 23, 1997 between the Company and Lendell
Manufacturing, Inc.
c10.19 Memorandum of Understanding dated April 14, 1997 between the Company and Bell Sports Corp.
c10.20 Memorandum of Understanding dated July 9, 1997 between the Company and CamelBak/FasTrak
Systems, Inc.
c10.21 Memorandum of Understanding dated December 11, 1997 between the Company and Foamex
International, Inc.
c10.22 Memorandum of Understanding dated January 15, 1998 between the Company and LaCrosse
Footwear, Inc.
10.23 Lease dated March 2, 1998 between Piedmont Institute for Research & Technology II, LLC, as
landlord, and the Company, as tenant
10.24 Lease dated January 13, 1993 between Frisby Aerospace, as landlord, and the Company, as tenant
10.25 Lease dated September 1, 1994 between Charles Winburn, as landlord, and the Company, as tenant
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
11.1 Statement re: computation of per share earnings
*16.1 Letter on change in certifying accountant
24.1 Consent of Ernst & Young LLP
*24.2 Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in Exhibit 5.1)
**25.1 Power of Attorney (included on signature page)
</TABLE>
- ------------
* to be filed by amendment
** previously filed
p filed in paper form
c portions of this exhibit have been omitted and have been separately filed
with the Commission pursuant to Securities Act Rule 406
All other schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements or notes thereto.
Recent Sales of Unregistered Securities
In December 1997, the Company sold 441,327 shares of its Common Stock to
MUSI in a privately negotiated transaction under Section 4(2) of the Securities
Act, the Private Placement for a purchase price of $2,500,000. MUSI is
beneficially owned by a single accredited non-U.S. investor. In connection with
the Private Placement, the Company granted to MUSI an option to purchase up to
587,500 shares of Convertible Preferred Stock for an exercise price of $4.26
per share expiring on February 27, 1998 which MUSI exercised on February 27,
1998. The Convertible Preferred Stock has a preference in dividends and
liquidation and is convertible at the election of MUSI into an equal number of
shares of Common Stock during a 60-day period commencing on the 370th day
following completion of an initial public offering by the Company.
Undertakings
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 foregoing provisions, 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 of 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 issues.
The undersigned Company hereby undertakes to provide to the Underwriter,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective by the Commission.
(2) For the purpose of determining any liability under the Securities Act,
each Post-Effective Amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable ground to believe that it meets all of
the requirements of filing on Form SB-2 and authorizes this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned, in
the City of New York, State of New York, on March 9, 1998.
FRISBY TECHNOLOGIES, INC.
By: /s/ Gregory S. Frisby
--------------------------
Gregory S. Frisby, President
Dated: March 9, 1998
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf thereunto duly authorized in the City of New York, State of New York.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gregory S. Frisby Chairman of the Board of Directors, President, March 9, 1998
- ----------------------- Chief Executive Officer and Principal Financial
Gregory S. Frisby and Accounting Officer
* Director March 9, 1998
- -----------------------
Jeffry D. Frisby
* Director March 9, 1998
- -----------------------
Pietro A. Motta
</TABLE>
*By: /s/ Gregory S. Frisby
- ------------------------------------------
Gregory S. Frisby, Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Page No.
- -------- --------
<S> <C> <C>
** 1.1 Form of Underwriting Agreement
** 1.2 Form of Underwriter's Option Agreement
** 3.1.1 Articles of Incorporation (North Carolina)
** 3.1.2 Articles of Amendment to Articles of Incorporation dated December 23, 1997 (North Carolina)
* 3.1.3 Form of Certificate of Incorporation (Delaware)
** 3.2.1 By-Laws (North Carolina)
* 3.2.2 Form of By-Laws (Delaware)
* 4.1 Form of Common Stock Certificate
4.2 Option Agreement dated December 29, 1997 between MUSI Investments, S.A. and the Company
* 5.1 Opinion of Ruskin, Moscou, Evans & Faltischek, P.C.
*10.1 Stock Option Plan
*10.2 Employment Agreement dated December 8, 1997 between the Company and Gregory S. Frisby
10.3 Employment Agreement dated December 6, 1997 between the Company and Douglas J. McCrosson
*10.4 Shareholder Agreement dated December 10, 1997 between Gregory S. Frisby and Jeffry D. Frisby
10.5 Stockholders Agreemen dated December 29, 1997 between Gregory S. Frisby, Jeffry D. Frisby
and MUSI Investments, S.A.
10.6 Line of Credit Agreement with European American Bank
c10.7.1 License Agreement dated May 1, 1995 between the Company and TRDC
10.7.2 Assignment of License Agreement effective January 3, 1997 from TRDC to Delta Thermal Systems, Inc.
c10.8 License Agreement effective January 1, 1998 between the Company and Outlast Technologies, Inc.
c10.9 License Agreement dated March 31, 1997 between the Company and Fly Technologies, Inc.
c10.10 License Agreement dated January 23, 1997 between the Company and Wells Lamont Division,
Marmon Holdings, Inc.
c10.11 License Agreement dated February 1, 1997 between the Company and Cove Shoe Company, Inc.
c10.12.1 License Agreement dated May 22, 1996 between the Company and Thermo Solutions, Inc. (f/k/a
Temptop Container Systems, Inc.) ("Thermo Solutions")
c10.12.2 Memorandum of Understanding dated January 22, 1998 between the Company and Thermo Solutions
c10.13 License Agreement dated February 10, 1997 between the Company and Genfoot, Inc. and Genfoot
America, Inc.
p10.14 Contract No. 00178-96-C-3014 between the Company and the United States of America (Naval
Surface Warfare Division)
p10.15 Contract No. F08637-97-C-6017 between the Company and the United States of America (325th
Contracting Squadron/LGCX)
p10.16 Contract No. F33615-93-C-3409 between the Company and the United States of America
(Department of Air Force Material Command (ASC) Wright Laboratory (WL/FLKF))
c10.17 Arrangement dated January 21, 1998 between the Company and Minnesota Mining &
Manufacturing, Inc.
c10.18 Memorandum of Understanding dated October 23, 1997 between the Company and Lendell
Manufacturing, Inc.
c10.19 Memorandum of Understanding dated April 14, 1997 between the Company and Bell Sports Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibits Page No.
- -------- --------
<S> <C> <C>
c10.20 Memorandum of Understanding dated July 9, 1997 between the Company and CamelBak/FasTrak
Systems, Inc.
c10.21 Memorandum of Understanding dated December 11, 1997 between the Company and Foamex
International, Inc.
c10.22 Memorandum of Understanding dated January 15, 1998 between the Company and LaCrosse
Footwear, Inc.
10.23 Lease dated March 2, 1998 between Piedmont Institute for Research & Technology II, LLC, as
landlord, and the Company, as tenant
10.24 Lease dated January 13, 1993 between Frisby Aerospace, as landlord, and the Company, as tenant
10.25 Lease dated September 1, 1994 between Charles Winburn, as landlord, and the Company, as tenant
11.1 Statement re: computation of per share earnings
*16.1 Letter on change in certifying accountant
24.1 Consent of Ernst & Young LLP
*24.2 Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in Exhibit 5.1)
**25.1 Power of Attorney (included on signature page)
</TABLE>
- ------------
* to be filed by amendment
** previously filed
p filed in paper form
c portions of this exhibit have been omitted and have been separately filed
with the Commission pursuant to Securities Act Rule 406
<PAGE>
OPTION AGREEMENT,
Dated as of December 29, 1997
Between
MUSI Investments S.A.
and
Frisby Technologies, Inc.
<PAGE>
OPTION AGREEMENT
This Option Agreement (this "Agreement") is made and entered into as of
December 29, 1997, by and between MUSI Investments S.A., a Luxembourg societe
anonyme ("Investor"), and Frisby Technologies, Inc., a North Carolina
corporation (the "Company").
RECITALS:
A. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto have entered into a Purchase Agreement (the "Purchase
Agreement") which sets forth the terms of the purchase by Investor from the
Company of the Initial Shares.
B. In connection with the transactions contemplated under the Purchase
Agreement, the Company desires to grant to Investor an option to acquire
additional shares of Common Stock.
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. DEFINITIONS AND CERTAIN INTERPRETIVE MATTERS
I.1. Defined Terms. In addition to the terms defined elsewhere herein,
terms used herein which are not defined herein will have the meanings ascribed
to them in the Purchase Agreement.
I.2. Certain Interpretive Matters. This Agreement will be interpreted
in accordance with the provisions of the Purchase Agreement.
II. THE OPTION
II.1. Option Grant. On the terms and subject to the conditions set
forth in this Agreement, for $10.00 and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Company hereby
grants to Investor an option (the "Option") to purchase up to 587,500 shares of
Convertible Preferred Stock (the "Option Shares") at a price per share equal to
$4.26 (the "Exercise Price").
II.2. Vesting and Exercise of Option. (a) The Option may be exercised
in whole or part at any time and from time to time from and after the date
hereof. Notwithstanding the foregoing, this Agreement and the Option shall
terminate and expire on the earlier of (i) February 27, 1998 or (ii) the date on
which all of the Option Shares are purchased pursuant to exercise of the Option.
<PAGE>
(b) Investor may exercise the Option by giving the Company a
notice (an "Exercise Notice") which specifies (i) the total number of Option
Shares to be purchased, (ii) the aggregate Exercise Price payable in respect of
such Option Shares, and (iii) a date not earlier than 5 Business Days nor later
than 10 Business Days from the date of the Exercise Notice for the closing of
such purchase (the "Option Closing Date"). The closing of any complete or
partial exercise of the Option (the "Option Closing") will take place at the
principal executive offices of the Company.
II.3. The Closing. Subject to adjustment as contemplated by Section
2.4, on each Option Closing Date, (a) Investor shall pay to the Company the
aggregate Exercise Price in immediately available funds for the Option Shares
being purchased, (b) the Company will deliver to Investor a certificate or
certificates evidencing the Option Shares acquired in connection therewith, and
(c) each of the parties will take such additional actions as may be reasonably
requested by the other to carry out the intent and purposes hereof.
II.4. Adjustments to Option Shares. (a) In the event of any change in
the outstanding equity securities of the Company by reason of any stock dividend
or stock split that would alter the percentage of equity interest in the Company
to be acquired by Investor hereunder, the number of Option Shares subject to the
Option shall be adjusted appropriately so as to provide that upon exercise of
the Option, Investor will acquire the same percentage of equity interest in the
Company as Investor would have acquired prior to such stock dividend or stock
split.
(b) The Company will not effect (i) any change in the
outstanding shares of the capital stock in the Company as a result of any
recapitalization, combination, consolidation or merger of the Company into
another Person or other similar transaction, unless, prior thereto, the Company
and all other Persons participating in the transaction shall have executed and
delivered to Investor (or any permitted assignee) an agreement reasonably
satisfactory to it that provides that Investor (or any permitted assignee) will
have the right thereafter, upon exercise of the Option and payment of the
Exercise Price in effect immediately prior to such event, to purchase, on the
same terms and conditions that were available to the other Persons, the kind and
amount of shares of the Convertible Preferred Stock and other securities, assets
and property that Investor (or any permitted assignee) would have been entitled
to receive upon or after the happening of any such transaction had Investor (or
any permitted assignee) exercised the entire Option immediately prior to such
event, or (ii) a distribution of the proceeds of any sale, transfer, license,
lease or other disposition, financing or refinancing of all or any portion of
the assets or property of the Company outside of the ordinary course of
business.
(c) The Company shall provide prompt written notice to
Investor as to any event requiring an adjustment to the number of Option Shares.
Prior to the termination of the Option, Investor shall have the right,
exercisable upon notice to the Company, to inspect the records of the Company
with respect to its security holders and others who may have rights to acquire
equity securities of the Company.
<PAGE>
III. REPRESENTATIONS AND WARRANTIES
III.1. Representations and Warranties of the Company. Each of the
representations and warranties of the Company set forth in the Purchase
Agreement are hereby incorporated herein by reference as if stated herein in
their entirety. In addition, the Company hereby represents and warrants to
Investor as follows:
(a) The Option Shares which are subject to the Option are
presently authorized but unissued and such Option Shares will remain
reserved and available for issuance upon the timely exercise of the
Option. The Option Shares to be purchased upon any complete or partial
exercise of the Option will be validly issued upon payment of the
Exercise Price and such Option Shares, when so issued upon such
exercise, will be duly and validly issued, fully paid and free and
clear of all Liens, claims and encumbrances and the holder thereof will
be entitled to all of the rights and benefits afforded holders of
shares of the Convertible Preferred Stock;
(b) The execution and delivery of this Agreement and
performance by the Company of its obligations hereunder will not
conflict with or result in a breach of or constitute a default under
any options or rights to purchase or acquire, or agreements,
arrangements, commitments or understandings relating to, any of the
shares of the capital stock of the Company, and the exercise of any
rights under any such agreement, arrangement, commitment or
understanding will not have an adverse effect on the rights of Investor
hereunder.
IV. MISCELLANEOUS
IV.1. Notices. All notices and other communications required or
permitted hereunder will be in writing and, unless otherwise provided in this
Agreement, will be deemed to have been duly given when delivered in person or by
a nationally recognized overnight courier service or when dispatched during
normal business hours by electronic facsimile transfer (confirmed in writing by
mail simultaneously dispatched) to the appropriate party at the address
specified below:
(a) if to Investor, to:
MUSI INVESTMENTS S.A.
c/o CMB Compagnie Monegasque de Banque
23, avenue de la Costa
BP 167 MC98003 Monaco
Attention: Dott. Luca Bassani Antivari
Fax: 011 377 9325 0869
<PAGE>
with a copy to:
Jones, Day, Reavis & Pogue
62 rue du Faubourg Saint-Honore
75008 Paris, France
Attention: Peter R. Sternberg, Esq.
Fax: 011 33 (1) 49 24 04 71
(b) if to the Company, to:
Frisby Technologies, Inc.
417 South Main Street
Freeport, New York 11520
Attention: Gregory S. Frisby
Fax: (516) 378-0262
with a copy to:
Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501-4366
Attention: Irvin Brum, Esq.
Fax: (516) 663-6641
or to any changed address of which the parties are notified in accordance with
this Section. All such notices, requests and other communications will be deemed
received on the date of receipt by the recipient thereof if received prior to 5
p.m. in the place of receipt and such day is a business day in the place of
receipt. Otherwise, any such notice, request or communication will be deemed not
to have been received until the next succeeding business day in the place of
receipt.
IV.2. Amendments and Waivers. (a) Any provision of this Agreement may
be amended or waived if, but only if, such amendment or waiver is in writing and
is signed, in the case of an amendment, by each party to this Agreement, or in
the case of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder will operate as a waiver thereof nor will any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided will be cumulative and not exclusive of any rights or
remedies provided by law.
IV.3. Expenses. Except as otherwise provided in the Purchase Agreement,
each of the parties will pay all of their own expenses incurred in connection
with the transactions contemplated by this Agreement.
<PAGE>
IV.4. Successors and Assigns. The provisions of this Agreement will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that no party may assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement without
the consent of the other parties hereto; provided further, however, that
Investor may assign the Option to any Person to whom Investor transfers the
Initial Shares.
IV.5. No Third Party Beneficiaries. This Agreement is for the sole
benefit of the parties hereto and their permitted assigns and nothing herein
expressed or implied will give or be construed to give to any person or entity,
other than the parties hereto and such permitted assigns, any legal or equitable
rights hereunder.
IV.6. Governing Law. This Agreement will be governed by, and construed
in accordance with, the law of the State of New York, without regard to the
conflict of laws rules of such State.
IV.7. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
IV.8. Counterparts. This Agreement may be signed in any number of
counterparts, each of which will be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IV.9. Headings. The headings in this Agreement are for convenience of
reference only and will not control or affect the meaning or construction of any
provisions hereof.
IV.10. Entire Agreement. This Agreement and the Purchase Agreement
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement. This Agreement and the Purchase Agreement supersede
all prior agreements and understandings, both oral and written, among the
parties with respect to the subject matter of this Agreement and the Purchase
Agreement.
IV.11. Severability. If any provision of this Agreement or the
application of any such provision to any person or circumstance is held invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
such invalidity, illegality or unenforceability will not affect any other
provision hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
FRISBY TECHNOLOGIES, INC.
By: /s/ Gregory S. Frisby
-------------------------------------------
Name: Gregory S. Frisby
Title: Chairman and Chief Executive Officer
MUSI INVESTMENTS S.A.
By: /s/ Luca Bassani Antivari
------------------------------------
Name: Dott. Luca Bassani Antivari
Title: President
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of December 31, 1997, by and between
FRISBY TECHNOLOGIES, INC., a North Carolina corporation with its principal
office located at 417 South Main Street, Freeport, New York 11520 (the
"Company"), and DOUGLAS J. McCROSSON, residing at 40 Tucker Drive, Bayport, New
York 11705 (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company is engaged in the development and licensing of
thermal management technologies and products (the "Company's Business"); and
WHEREAS, the Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement, and the Executive is
willing to serve in the employ of the Company on a full-time basis for said
period, and upon the other terms and conditions hereinafter provided.
NOW, THEREFORE, the Company and the Executive, intending to be legally
bound, agree as follows:
1. Employment.
The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company, all in accordance with the terms and
conditions hereof, for a term commencing on January 1, 1998 and ending (subject
to the provisions of Article 5 hereof) on December 31, 2000 (the "Term").
2. Duties.
2.1 During the Term, the Executive shall be employed by the
Company and shall serve as its Vice President of Market Development, and shall
perform such duties relating to the Company, comparable to such duties and
powers performed and had by him for the past two (2) years.
2.2 During the Term, the Executive shall devote his full time
and best efforts exclusively for the benefit of the Company and shall not, as
more fully provided in paragraph 7, engage, directly or indirectly, in any other
business, employment or occupation which is competitive with the business of the
Company.
2.3 The Company acknowledges and agrees that the Executive
shall be permitted to engage in activities with not-for-profit, educational
and/or governmental entities which are, in the sole discretion of the Board of
Directors of the Company, consistent with the Company's interests and prospects.
<PAGE>
3. Compensation.
3.1 As full compensation for his services and undertakings
pursuant to the terms of this Agreement, the Executive shall receive a base
salary at the rate of Eighty Eight Thousand Four Hundred ($88,400) Dollars per
year during 1998, and Ninety Six Thousand Two Hundred ($96,200) Dollars and One
Hundred Five Thousand Three Hundred ($105,300) Dollars per year during 1999 and
2000, respectively (collectively, the "Base Compensation"). The Base
Compensation shall be payable at such regular times and intervals as the Company
customarily pays its employees. If elected as a corporate officer or director of
the Company, or any subsidiary, the Executive shall serve in such capacities
without additional compensation.
3.2 The Executive shall be entitled to participate in and
receive, on the same basis as other executive employees of the Company, the
benefits under any pension plans or bonus plans of the Company and shall be
included in the Company's health plan (including hospitalization, medical and
major medical), life, prescription drug, accident and disability insurance plans
or programs and any other employee benefit or fringe benefit plans, perquisites
or arrangements which the Company makes available generally to other executive
employees of the Company.
3.3 At the sole discretion of the Board of Directors of the
Company, the Executive may be awarded bonuses, stock options or rights to profit
sharing.
3.4 The Executive shall be entitled to up to Four Hundred
($400) Dollar per month as reimbursement for actual automobile lease payments on
an appropriate executive vehicle (payable on the first day of each month
commencing February 1, 1998) for the Term of this Agreement. The Company shall
not purchase, or reimburse Executive for the cost of, any relevant insurance for
said automobile, fuel, mileage, or repairs.
3.5 The Company shall deduct from the Executive's Base
Compensation and bonus any federal, state or city withholding taxes, social
security contributions and any other amounts which may be required to be
deducted or withheld by the Company pursuant to any federal, state or city laws,
rules or regulations.
3.6 The Company shall reimburse the Executive, or cause him to
be reimbursed, for all reasonable out-of-pocket expenses incurred by him in the
performance of his duties hereunder or in furtherance of the business and/or
interests of the Company; provided, however, that the Executive shall have
previously furnished to the Company an itemized account, satisfactory to the
Company, in substantiation of such expenditures.
<PAGE>
4. Indemnification.
The Company undertakes, to the extent permitted by law, to
indemnify and hold the Executive harmless from and against all claims, damages,
losses and expenses by third parties, including reasonable attorneys' fees and
disbursements, arising out of the performance by the Executive of his duties
pursuant to this Agreement, in furtherance of the Company's business and within
the scope of his employment.
5. Termination.
5.1 (a) The Executive's employment hereunder shall terminate
automatically as of the date of his death or upon the Executive becoming
eligible for benefits under the Company's long term disability plan as in effect
from time to time, or if no disability plan is in effect, upon the Executive
becoming permanently disabled. For purposes of this Agreement, the Executive
shall be deemed to be permanently "disabled" if he has been unable to perform
his duties for six (6) consecutive months or any nine (9) months in any twelve
(12) month period, all as conclusively determined in good faith by the Board of
Directors of the Company.
(b) Upon termination of the Executive's employment
under circumstances described in Section 5.1(a) above, the Company shall
promptly pay and provide to the Executive (or, in the event of his death, to his
surviving spouse or such other beneficiary as the Executive may designate in
writing, or if there is neither, to his estate):
(i) his earned but unpaid Base Compensation
and accrued vacation pay as of the date of termination of his employment with
the Company;
(ii) the benefits, if any, to which he is
entitled as a former employee under the Company's employee benefit plans and
programs and compensation plans and programs in which he was a participant;
(iii) any reimbursements due to him under
Section 3.6 the benefits, if any, to which he is entitled as a former employee
under the Company's employee benefit plans and programs and compensation plans
and programs in which he was a participant; and
(iv) an amount of Base Compensation at the
then current rate equal to the Base Compensation payable for a period of two (2)
months.
<PAGE>
5.2 The Company may, at any time at its option, terminate the
employment of Executive under this Agreement for "cause" and Executive shall
forfeit the right to receive any and all further payments hereunder, other than
the right to receive any compensation then due and payable to Executive pursuant
to Article 3 hereof through to the date of termination. "Cause" shall be deemed
to be the commission of any of the following acts by the Executive:
(a) The Executive shall have committed any material
breach of any of the provisions or covenants of this Agreement;
(b) The Executive shall have committed any act of
willful misconduct or gross negligence in the performance of his duties or
obligations hereunder, or, without proper cause, shall have willingly refused or
habitually neglected to perform his employment duties or obligations under this
Agreement;
(c) The Executive shall have committed any act of
dishonesty, breach of trust, fraud or embezzlement; or
(d) The Executive shall have been convicted of, or
shall have plead guilty or nolo contendere to, a felony or indictable offense
(unless committed in the reasonable, good faith belief that the Executive's
actions were in the best interests of the Company and its stockholders and would
not violate criminal law).
5.3 If the Company elects to terminate this Agreement as set
forth above, it shall deliver notice of such intention to Executive, describing
with reasonable detail, the action or omission of the Executive constituting the
act of default (the "Termination Notice"), and thereupon no further payments of
any type shall be made or shall be due or payable to Executive hereunder, except
as provided in the first sentence of Article 5.2; provided, however, with
respect to any act of default set forth in clauses (a) and (b) of Article 5.2,
prior to any termination by the Company of Executive's employment, Executive
shall first have an opportunity to cure or remedy such act of default within
thirty (30) days following the Termination Notice.
<PAGE>
5.4 The Company may terminate the Executive's employment in
its sole discretion for any reason on not less than thirty (30) days written
notice to the Executive. If the Executive is terminated for reasons other than
death, disability or the occurrence of any of the acts set forth in Article 5.2
(a) - (d) hereof, Executive shall be entitled to receive as severance pay (in
addition to any compensation then due and payable to Executive pursuant to
Article 3 hereof through the date of termination) an amount equal to four (4)
months of his Base Compensation which shall be calculated based on his Base
Compensation on the date of termination. The Executive shall also continue to
receive his automobile reimbursement under Paragraph 3.4 for an additional four
(4) months. The Executive shall also be entitled to the prorated portion of any
bonus or stock options that have been declared by the Board of Directors of the
Company but which are unpaid at the time of termination.
5.5 The Executive may terminate his employment by written
notice to the Board of Directors of the Company, under circumstances where the
Company has committed a material breach of its obligations under this Agreement
and such termination shall be effective if such breach continues for a period of
thirty (30) days following such notice.
5.6 If the Executive elects to terminate this Agreement as set
forth in Section 5.5, Executive shall be entitled to receive as severance pay
(in addition to any compensation then due and payable to Executive pursuant to
Article 3 hereof through the date of termination) an amount equal to four (4)
months of his Base Compensation which shall be calculated based on his Base
Compensation on the date of termination. The Executive shall also continue to
receive his automobile reimbursement under Paragraph 3.4 for an additional four
(4) months.
6. Vacation Policy.
The Executive shall receive three (3) weeks paid vacation for
each year of Term. Notwithstanding anything else herein, if Executive is
terminated for any reason, he shall receive compensation for the pro-rated
portion of any unused vacation time that he has accrued. Vacation leave may not
be carried forward to any subsequent year unless the Executive has been
requested to delay his vacation due to business circumstances, as conclusively
determined in good faith by the Board of Directors of the Company.
<PAGE>
7. Covenants and Representations.
(a) The Executive has not, and unless authorized or instructed
in writing by the Board of Directors of the Company the Executive shall not,
except as required in the conduct of the Company's business, use or disclose to
others, any of the Company's inventions or discoveries or its secret or
confidential information, knowledge or data (oral, written, or in
machine-readable form) which the Executive may have obtained or will obtain
during the course of or in connection with the Executive's employment,
including, without limitation, such inventions, discoveries, information,
knowledge, know-how or data relating to machines, equipment, products, services,
systems, software, research and/or development, designs, compositions, formulae,
processes, manufacturing procedures or business methods, information relating to
present and prospective marketing, sales and advertising programs and agreements
with representatives or prospective representatives of the Company, present or
prospective sources of supply or any other business arrangements of the Company,
including but not limited to, customers, customer lists, costs, prices and
earnings, whether or not developed by the Executive, by others in the Company or
obtained by the Company from third parties, and irrespective of whether or not
such inventions, discoveries, information, knowledge, know-how or data have been
identified by the Company as secret or confidential, unless and until, and then
only to the extent that, such inventions, discoveries, information, knowledge,
know-how or data become available to the public otherwise than by the
Executive's act or omission.
<PAGE>
(b) (i) The Executive agrees to disclose immediately to the
Company or any persons designated by it and to assign to the Company at its
option, or its successors or assigns, all inventions made, discovered, conceived
or first reduced to practice by the Executive, solely or jointly with others, at
any time during the time while employed by the Company which inventions are
made, discovered or conceived either in the course or such employment or within
one (1) year of termination of his employment (whether such termination of
employment is voluntary or involuntary, such invention shall be deemed to have
arisen out of and been made, discovered or conceived by the Executive during his
employment by the Company, unless established to have been made, discovered or
conceived after the termination of such employment), or with the use of the
Company's time, material, facilities or funds, or which relate to or are
suggested by any subject matter with which the Executive's employment by the
Company may bring the Executive into contact, or which relate to any
investigations or obligations undertaken by the Company; and the Executive
hereby grants and agrees to grant the right to the Company and its nominees to
obtain, for its own benefit and in its own name (entirely at its expense)
patents and patent applications including original, continuation, reissue,
utility and design patents, and applications, patents of addition, confirmation
patents, registration patents, petty patents, utility models, etc., and all
other types of patents and the like, and all renewals and extensions of any of
them for those inventions in any and all countries; and the Executive shall
assist the Company without further charge during the period of the Executive's
employment and thereafter, through counsel designated by the Company to execute,
acknowledge, and deliver all such further papers, including assignments,
applications for Letters Patent (of the United States or of any foreign
country), oaths, disclaimers or other instruments and to perform such further
acts, including giving testimony or furnishing evidence in the prosecution or
defense of appeals, interferences, suits and controversies relating to any of
the aforesaid inventions, applications and patents as may be deemed necessary by
the Company or its nominees to effectuate the vesting or perfecting in the
Company or its nominees of all right, title and interest in and to said
inventions, applications and patents.
(ii) The Executive agrees to disclose immediately to
the Company or any persons designated by it and to assign to the Company, at its
option, or its successors or assigns, all works of authorship, including all
writings, manuals, computer programs, software and hardware, written or created
by the Executive solely or jointly with others, at anytime during the course of
his employment by the Company, which works are made or conceived either in the
course of such employment, or with the use of the Company's time, material,
facilities or funds, or which relate to or are suggested by any subject matter
with which the Executive's employment by the Company may bring the Executive
into contact or which relate to any investigations or obligations undertaken by
the Company; and the Executive hereby agrees that all such works are works made
for hire, of which the Company is the author and the beneficiary of all rights
and protections afforded by the law of copyright in any and all countries; and
the Executive will assist the Company without further charge during the term of
his employment and thereafter, through counsel designated by the Company, to
execute, acknowledge, and deliver all such further papers, including
assignments, applications for copyright registration (in the United States or in
any foreign country), oaths, disclaimers or other instruments, and to perform
such further acts, including giving testimony or furnishing evidence in the
prosecution or defense of appeals, interferences, suits and controversies
relating to any of the aforesaid works, as may be deemed necessary by the
Company or its nominees to effectuate the vesting or perfecting in the Company
or its nominees of all rights and interest in and to said works and copies
thereof, including the exclusive rights of copying and distribution.
<PAGE>
(iii) Executive agrees to submit to the Board of
Directors of the Company, within a reasonable length of time prior to
dissemination, the text of any speech, professional paper, article or similar
communication created by Executive which relates to the Company's present or
future business or research and development endeavors. The Company will
determine whether any Confidential Information is contained in the
communication, and will notify Executive if the dissemination of the
communication is permitted under the terms of this Agreement.
(c) The Executive shall not during the
"Non-Competition Period," (i) engage in business of the type conducted (or
proposed to be conducted) by the Company or its subsidiaries or solicit business
of the type conducted (or proposed to be conducted) by the Company from any
person, firm or entity which was a licensee, customer or prospective customer of
the Company during the period of his employment hereunder or induce or attempt
to induce any such licensee or customer of the Company to reduce its business
with the Company, solicit (or attempt to solicit) any employees of the Company
to leave the employ of the Company or offer or cause to be offered employment to
any person who was employed by the Company during the period of his employment
hereunder; (ii) engage in, represent or be connected with, as a shareholder,
member of a limited liability entity, partner or owner, or as an officer,
director, employee, sales representative, proprietor, consultant, associate,
agent, co-venturer, investment adviser or otherwise, any business or activity
competing with the business of the Company or its subsidiaries or affiliates or
any part thereof as conducted by them (or proposed to be conducted) during the
Term. The term "Non-Competition Period" as used herein means a period commencing
on the date hereof and ending three (3) years after the end of the Term. For
purposes of determining whether the Executive is permitted to be a shareholder
of a corporation, the Executive's ownership of less than 5% of the issued and
outstanding securities of a company whose securities are publicly-traded in any
U.S. or non-U.S. securities exchanges shall be permitted.
(d) All computer software, computer programs, source
codes, object codes, magnetic tapes, printouts, samples, notes, records,
reports, documents, customer lists, photographs, catalogs and other writings,
whether copyrightable or not, relating to or dealing with the Company's business
and plans, and those of others entrusted to the Company which are prepared or
created by the Executive or which may come into his possession at any time
during his employment, are the property of the Company, and upon termination of
his employment, the Executive agrees to return all such computer software,
computer programs, source codes, object codes, magnetic tapes, printouts,
samples, notes, records, reports, documents, customer lists, photographs,
catalogs and writings and all copies thereof to the Company.
<PAGE>
(e) If any of the rights or restrictions contained or
provided for in this Agreement shall be deemed by a court of competent
jurisdiction to be unenforceable by reason of the extent, duration or
geographical scope, the parties hereto contemplate that the court shall reduce
such extent, duration, geographical scope and enforce this Agreement in its
reduced form for all purposes in the manner contemplated hereby. Should any of
the provisions of this Agreement require judicial interpretation, it is agreed
that the court interpreting or construing this Agreement shall not apply a
presumption that any provision shall be more strictly construed against one
party by reason of the rule of construction that a document is to be construed
more strictly against the party who itself or through its agents prepared the
same, it being agreed that both parties and their respective agents have
participated in the preparation of this Agreement.
8. Injunction.
It is recognized and hereby acknowledged by the Executive that
a breach or violation by the Executive of any of the covenants or agreements
contained in this Agreement may cause irreparable harm and damage to the Company
hereto, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and acknowledges that the Company shall be
entitled to an injunction, without posting any bond or security in connection
therewith, from any court of competent jurisdiction enjoining and restraining
any breach or violation of any of the restrictive covenants contained in Article
7 of this Agreement by the Executive or his associates, partners or agents,
either directly or indirectly, and that such right to injunction shall be
cumulative and in addition to whatever other rights or remedies the Company may
possess. Nothing contained in this Article 8 shall be construed to prevent the
Company from seeking and recovering from the Executive damages sustained as a
result of any breach or violation by the Executive of any of the covenants or
agreements contained in this Agreement, and that in the event of any such
breach, the Company shall avail itself of all remedies available both at law and
at equity.
9. Compliance with Other Agreements.
The Executive represents and warrants to the Company that the
execution of this Agreement by him and his performance of his obligations
hereunder will not, with or without the giving of notice, the passage of time or
both, conflict with, result in the breach of any provision of or the termination
of, or constitute a default under, any agreement to which the Executive is a
party or by which the Executive is or may be bound.
<PAGE>
10. Miscellaneous.
10.1 Notices. Any notice or other communication to a party
under this Agreement shall be in writing, and if by use of the mail shall be
considered given when mailed by certified mail, return receipt requested, to the
party at the following address or at such other address as the party may specify
by notice to the other in the manner provided for herein:
(a) If to the Company:
417 South Main Street
Freeport, New York 11520
Attention: President
with a copy to:
Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
Attention: Irvin Brum, Esq.; and
(b) If to the Executive:
40 Tucker Drive
Bayport, New York 11705
with a copy to:
---------------------
---------------------
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10.2 Benefit. This Agreement shall be binding upon and inure
to the benefit of the respective parties hereto and their legal representatives,
successors and assigns. Insofar as the Executive is concerned this Agreement,
being personal, cannot be assigned.
10.3 Validity. The invalidity or unenforceability of any
provisions hereof shall in no way affect the validity or enforceability of any
other provision.
<PAGE>
10.4. Entire Agreement. The Agreement constitutes the entire
Agreement between the parties, and supersedes all existing agreements between
them, with the sole exception of the ___________ Confidentiality Agreement,
dated ___________, which shall remain in full force and effect and which has
been attached hereto. It may only be changed or terminated by an instrument in
writing signed by both parties. The covenants of the Executive contained in
Article 7 of this Agreement shall survive the termination of this Agreement and
the expiration of the Term.
10.5 New York Law to Govern. This Agreement shall be governed
by, construed and interpreted in accordance with the laws of the State of New
York.
10.6 Corporate Action. The execution and delivery of this
Agreement by the Company has been authorized and approved by all requisite
corporate action.
10.7 Waiver of Breach. The failure of a party to insist on
strict adherence to any term of this Agreement on any occasion shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any term of this Agreement. Any waiver hereto
must be in writing.
10.8 Counterparts. This Agreement may be executed in one (1)
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. 10.9 Paragraph
Headings. Paragraph headings are inserted herein for convenience only and are
not intended to modify, limit or alter the meaning of any provision of this
Agreement. 10.10 Survival. All provisions hereof which by their nature shall
survive the termination of the Executive's employment, including, without
limitation, the provisions in Section 7, shall survive the termination of the
Executive's employment.
IN WITNESS WHEREOF, the parties hereto have set their hands and
executed this Agreement as of the day and year first above written.
FRISBY TECHNOLOGIES, INC.
By: /s/ Gregory S. Frisbey
------------------------------------------
Gregory S. Frisby, Chief Executive Officer
/s/ Douglas J. Mccrosson
------------------------------------------
DOUGLAS J. McCROSSON
<PAGE>
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT dated December 29, 1997 among FRISBY
TECHNOLOGIES, INC., a North Carolina corporation (the "Company"), JEFFRY D.
FRISBY ("J. Frisby"), GREGORY S. FRISBY ("G. Frisby")(each of J. Frisby and G.
Frisby, a "Frisby Stockholder" and, collectively, the "Frisby Stockholders"),
and MUSI INVESTMENTS S.A., a Luxemburg societe anonyme ("MUSI") (each of the
Frisby Stockholders and MUSI, a "Stockholder" and, collectively, the
"Stockholders").
RECITALS
A. J. Frisby owns 1,419,643 shares of Common Stock, G. Frisby owns
1,419,643 shares of Common Stock and MUSI owns 441,327 shares of Common Stock,
which shares, collectively, constitute 100% percent of the outstanding capital
stock of the Company.
B. The Company and the Stockholders believe it would be in their mutual
best interest to ensure a degree of continuity of management and ownership of
and certain rights in respect of the Company by imposing certain restrictions
and obligations on the ownership, retention and disposition of the capital stock
of the Company.
NOW, THEREFORE, the parties hereto agree as follows:
I. DEFINITIONS
1.1. Definitions.
(a) Capitalized terms used herein which are not otherwise
defined herein shall have the meaning ascribed to them in the Purchase
Agreement. In addition to the terms defined elsewhere herein, the following
terms have the following meanings when used herein with initial capital letters:
"Agreement" means this agreement, as the same may be amended from time
to time.
<PAGE>
"Board of Directors" means the Board of Directors of the Company.
"Closing Date" means the date hereof.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.001 per share, of
the Company.
"Convertible Preferred Stock" means the convertible preferred stock of
the Company as more particularly described in that certain Certificate of
Designation, attached as Exhibit A to the Purchase Agreement.
"Director" means a member of the Board of Directors.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Frisby Permitted Transferee" means, with respect to any Frisby
Stockholder, (i) any spouse or lineal descendant of such Frisby Stockholder,
(ii) any trust (or equivalent estate planning entity) where all of the
beneficial interest is held by such Frisby Stockholder and/or his spouse and/or
lineal descendants, or (iii) any other Frisby Stockholder; provided, however,
that each such transferee will be a Frisby Permitted Transferee for purposes of
this Agreement only if such transferee shall have executed and delivered to each
of MUSI and the Company an instrument reasonably satisfactory to MUSI pursuant
to which such transferee will have agreed to be bound by all of the terms of
this Agreement applicable to its transferor.
"Frisby Stockholder Group" means each of the Frisby Stockholders or any
Frisby Permitted Transferee.
"Initial Public Offering" means the first Public Offering of equity
securities of the Company.
"Public Offering" means any primary or secondary public offering of
equity securities of the Company pursuant to an effective registration statement
under the Securities Act, other than pursuant to a registration on Form S-4 or
Form S-8 or any successor or similar form.
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<PAGE>
"Pro Rata" means, with respect to any offer including Securities, an
offer based on the relative percentages of Securities then held by all of the
holders of Securities to whom such offer is made.
"Purchase Agreement" means the Purchase Agreement dated as of the date
hereof between the Company and MUSI.
"Registrable Securities" means shares of Common Stock; provided that
such securities will cease to be Registrable Securities when and to the extent
that (i) a registration statement relating to such securities shall have been
declared effective by the Commission and such securities shall have been
disposed of pursuant to such effective registration statement, (ii) such
Registrable Securities have been transferred to a party in violation of this
Agreement,(iii) such Registrable Securities have ceased to be outstanding, or
(iv) such Registrable Securities are sold without registration pursuant to Rule
144.
"Registration Expenses" means all (i) registration and filing fees with
the Commission, (ii) fees and expenses of compliance with state securities or
blue sky laws (including reasonable fees and disbursements of a qualified
independent underwriter, if any, counsel in connection therewith and the
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) printing expenses, (iv)
internal expenses of the Company (including, without limitation, all salaries
and expenses of officers and employees performing legal or accounting duties),
(v) fees and expenses of counsel and independent public accountants for the
Company, (vi) fees and expenses of any additional experts retained by the
Company in connection with such registration, (vii) fees and expenses of listing
the Registrable Securities, if any, (viii) rating agency fees, (ix) transfer
taxes, and (x) reasonable fees and expenses of one counsel for the selling
Stockholders.
"Rule 144" means Rule 144 under the Securities Act, as such rule may be
amended from time to time.
"Securities" means the Common Stock and Convertible Preferred Stock.
"Third Party" means a prospective purchaser of the Securities in an
arm's-length transaction where such purchaser is not the Company, an Affiliate
of the Company or an Affiliate of any Stockholder or a Frisby Permitted
Transferee.
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<PAGE>
"Transferee" means any Person to whom any Stockholder Transfers any
Securities (other than in a sale pursuant to an effective registration statement
or without registration pursuant to Rule 144) in accordance with this Agreement
and who agrees to be bound by and to comply with all applicable provisions of
this Agreement.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as a principal in connection with a distribution of such Registrable
Securities and not as part of such dealer's market-making activities.
(b) Except as otherwise provided herein, any right or action
that may be taken at the election of the Frisby Stockholder Group will be taken
by a representative of the Frisby Stockholder Group (the "Frisby Group
Representative") on behalf thereof. The initial Frisby Group Representative will
be G. Frisby. Upon the death or permanent disability of G. Frisby, the Frisby
Stockholder Group may designate a successor Frisby Group Representative upon
vote of the members thereof holding a majority of the Common Stock not held by
G. Frisby or his estate; provided, however, that (i) if no such successor is so
designated within 30 calendar days from such death or permanent disability, such
successor will be a member of the Frisby Stockholder Group designated by MUSI
and (ii) in the event that no Person is acting as the Frisby Group
Representative as of the time any action is otherwise to be taken hereunder by
the Frisby Group Representative or the Frisby Stockholder Group, such action may
be taken on behalf of the entire Frisby Stockholder Group by written action or
consent of the holders of a majority of shares of Common Stock then held by the
members of the Frisby Stockholder Group. Any change in the Frisby Group
Representative will become effective upon notice in accordance with Section 6.3.
(c) For purposes of this Agreement, any action or consent
contemplated to be taken or given by MUSI and its permitted Transferees will be
effective if taken or given, as the case may be, by MUSI or its permitted
Transferees which own the largest portion of the Securities owned by MUSI and
all of its permitted Transferees as of the relevant time.
4
<PAGE>
II. RIGHTS AND OBLIGATIONS WITH
RESPECT TO TRANSFER
2.1. Transfers. Until the fifth anniversary of the Closing
Date, no Frisby Stockholder may offer, sell, assign, grant a participation in,
pledge or otherwise transfer ("Transfer") any interest in any of its Common
Stock without the prior written consent of MUSI, other than (i) to any Frisby
Permitted Transferee, (ii) as provided in Articles II or III of this Agreement,
or (iii) in sales made pursuant to an effective registration statement or
without registration pursuant to Rule 144 after the Initial Public Offering.
2.2. Restrictive Legend. (a) Each certificate representing
Securities owned by any Stockholder will include the following legend (in
addition to such legends as may be appropriate under applicable securities
laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCKHOLDERS AGREEMENT, DATED AS OF
[INSERT THE DATE OF THIS AGREEMENT], AS FROM TIME TO TIME AMENDED, A COPY OF
WHICH MAY BE OBTAINED FROM FRISBY TECHNOLOGIES, INC.
(b) Each certificate representing Securities owned by any
Stockholder or any Transferee thereof (other than shares that have been sold
pursuant to an effective registration statement under the Securities Act or in
accordance with Rule 144 under the Securities Act) will (unless otherwise
permitted by the provisions of Section 2.2(c)) include a legend substantially as
follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM.
(c) Any Stockholder may, upon providing evidence (which, if
required by the Company, may include an opinion of counsel) reasonably
satisfactory to the Company, that such Securities either are not "restricted
securities" (as defined in Rule 144) or may be sold pursuant to Rule 144(k),
exchange the certificate representing such Securities for a new certificate that
does not bear a legend relating to restrictions under the securities laws.
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<PAGE>
2.3. Third Party Transfers. (a) If any Stockholder desires to
Transfer any of its Securities (other than pursuant to a Public Offering) to a
Third Party (a "Selling Stockholder"), such Selling Stockholder may not effect
such Transfer of such Securities (the "Offered Stock") to a Third Party (a
"Third Party Sale") unless such Stockholder complies with this Section 2.3.
(b) Prior to consummating a Third Party Sale, the Selling
Stockholder will deliver to each other Stockholder (the "Non-Offering
Stockholders") a written notice (an "ROFO Offer Notice") specifying (i) the
aggregate amount of cash consideration (the "Offer Price") for which the Selling
Stockholder proposed to sell the Offered Stock in such proposed Third Party
Sale, (ii) the identity and name of the purchaser, and if applicable, such
purchaser's ultimate beneficial owner(s), in such Third Party Sale, and (iii)
all other material terms of such proposed Third Party Sale. If a Non-Offering
Stockholder delivers to the Selling Stockholder a written notice (an "Acceptance
Notice") within 20 Business Days following the delivery of the ROFO Offer Notice
(such 20 Business Day period being referred to herein as the "ROFO Acceptance
Period") stating that the Non-Offering Stockholder is willing to purchase all of
the Offered Stock for the Offer Price and on the other terms set forth in the
Offer Notice, the Selling Stockholder will sell all (but not less than all) of
the Offered Stock to such Non-Offering Stockholder and such Non-Offering
Stockholder will purchase such Offered Stock from the Selling Stockholder, on
the terms and subject to the conditions set forth below; provided, however, that
if more than one Non-Offering Stockholder so notifies the Selling Stockholder
within the ROFO Acceptance Period that it is willing to purchase all of the
Offered Stock for the Offer Price and on the terms set forth in the Offer
Notice, the Offered Stock and the Offer Price will be allocated among such
Non-Offered Stockholders (each, a "Purchasing Stockholder") proportionately
based upon their respective percentage ownership interest in the Company or as
may otherwise be specified by such Purchasing Stockholders.
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<PAGE>
(c) The consummation of any purchase of any Offered Stock by a
Purchasing Stockholder pursuant to this Section 2.3 (the "ROFO Closing") will
occur not earlier than 10 calendar days nor later than 120 calendar days
following the delivery of the Acceptance Notice (the intervening period being
referred to herein as the "ROFO Closing Period") at the principal executive
offices of the Company. At the ROFO Closing, (i) the Selling Stockholder will
deliver to the Purchasing Stockholder one or more certificates evidencing all of
the Offered Stock duly endorsed for transfer to the Purchasing Stockholder,
together with such other duly executed instruments or documents as may
reasonably be required to permit the Purchasing Stockholder to acquire the
Offered Stock free and clear of any claims, liens, pledges, options,
encumbrances, security interests, commitments and other restrictions of any kind
(collectively, "Encumbrances"), except for Encumbrances created by this
Agreement, federal or state securities laws, the Purchasing Stockholder or
specified in the Offer Notice, and (ii) the Purchasing Stockholder will deliver
to the Selling Stockholder by wire transfer to an account designated by the
Selling Stockholder an amount in immediately available funds equal to the Offer
Price. In the event that any Third Party Sale provides that a portion of the
Offer Price is to be paid over time, as a condition to the obligation of the
Selling Stockholder to sell the Offered Stock, the Purchasing Stockholder will
provide the Selling Stockholder with suitable collateral as security for such
future payment obligations.
(d) If no Acceptance Notice relating to a proposed Third Party
Sale shall have been delivered to the Selling Stockholder prior to the
expiration of the ROFO Acceptance Period, if the Non-Offering Stockholders shall
not have delivered to the Selling Stockholder, prior to the expiration of the
ROFO Acceptance Period, written confirmation of the Non-Offering Stockholder's
intent not to purchase the Offered Shares ("Stockholder Rejection Notice"), or
if the ROFO Closing fails to occur prior to the expiration of the ROFO Closing
Period (unless the Purchasing Stockholder was ready, willing and able prior to
the expiration of the ROFO Closing Period to consummate the transaction to be
consummated by the Purchasing Stockholder at the ROFO Closing or the Purchasing
Stockholder was not so ready, willing and able to consummate the transaction to
be so consummated by the Purchasing Stockholder at the ROFO Closing as a result
of the Selling Stockholder's failure reasonably to cooperate in good faith with
the efforts of the Purchasing Stockholder to consummate such transaction), the
Selling Stockholder may consummate the proposed Third Party Sale in accordance
with this Section 2.3(d).
(e) The Selling Stockholder may consummate a Third Party Sale
that it is otherwise entitled to consummate pursuant to this Section 2.3(d)
only:
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(i) during the 60 calendar day period immediately following
the sooner to occur of (x) the expiration of the ROFO Acceptance Period
(in the event that no Acceptance Notice was timely delivered to the
Selling Stockholder), or (y) the Selling Stockholder's receipt of the
Stockholder Rejection Notice from the Non-Offering Stockholder, or the
60 calendar day period immediately following the expiration of the ROFO
Closing Period (in the event that an Acceptance Notice was timely
delivered to the Selling Stockholder but the ROFO Closing failed to
timely occur),
(ii) at a price at least equal to the Offer Price, and
(iii) upon non-price terms no less favorable to the Selling
Stockholder than those set forth in the Offer Notice.
(f) This Section 2.3 shall, with respect to MUSI, terminate
and be of no further force and effect upon expiration of the "lock-up" period to
which the Stockholders agree to be bound in connection with the Initial Public
Offering and, with respect to the Frisby Stockholder Group, continue in effect
after the expiration of such "lock-up" until the fifth anniversary of the date
hereof.
(g) Shares of Securities acquired by a Third Party pursuant to
a Third Party Sale shall no longer subject to the restrictions contained in this
Section 2.3.
2.4. Improper Transfer. (a) Any attempt to Transfer any
Securities not in compliance with this Agreement will be null and void and
neither the Company nor any transfer agent of the Company will register, or
otherwise recognize in the Company's records, any such improper Transfer. Any
cost or loss incurred as a result of any such attempt to transfer shall be borne
by the Stockholder who attempted such improper Transfer.
(b) No Stockholder will enter into any transaction or series
of transactions for the purpose or with the effect of, directly or indirectly,
denying or impairing the rights or obligations of any Person under this
Agreement, and any such transaction will be null and void and, to the extent
that such transaction requires any action by the Company, it will not be
registered or otherwise recognized in the Company's records or otherwise.
2.5. Transferees. Except as otherwise specifically provided
herein, any and all provisions of this Agreement which apply to the Stockholders
will apply with equal force to any Transferee.
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III. REGISTRATION RIGHTS
3.1. Required Registration. (a) In the event that the Company
has not completed an Initial Public Offering of Common Stock prior to the third
anniversary of this Agreement, MUSI or the Frisby Group Representative, on
behalf of the Frisby Stockholder Group, may require the Company, by providing it
with a written request, to register under the Securities Act all or part of the
Registrable Securities of such Stockholder (a "Required Registration"). Such
request will specify the number of shares of Registrable Securities proposed to
be offered for sale by such Stockholder and will also specify the intended
method of disposition thereof.
(b) If the Stockholder so elects, the offering of the
Stockholder's Registrable Securities pursuant to the Required Registration will
be in the form of an underwritten offering. The Board of Directors will select
the managing Underwriter and any additional underwriters in connection with the
offering.
(c) If, in connection with the Required Registration, the
Company or any other Stockholders also propose to sell securities and the
managing Underwriter of an offering described in this Section 3.1 advises the
Company, the requesting Stockholder and such other Stockholders in writing that
the success or pricing of the offering would be materially and adversely
affected by the inclusion of all of the securities requested to be included,
then the Company will include in such registration (i) first, the Registrable
Securities requested to be included by the Stockholder who made the Required
Registration, (ii) second, the securities the Company proposes to offer for
sale, which number of securities to be registered will be reduced to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing Underwriter, and (iii)
third, such number of Registrable Securities as the other Stockholders propose
to offer for sale and the managing Underwriter recommends be included in such
offering, allocated pro rata among such Stockholders.
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3.2. MUSI Demand Registrations. (a) At any time and from time
to time following the eighteen month anniversary of the Initial Public Offering,
MUSI may make written requests for registration under the Securities Act of all
or part of MUSI's Registrable Securities (a "MUSI Demand Registration");
provided, however, that the Company will not be obliged to effect a MUSI Demand
Registration on more than two (2) occasions. Such request will specify the
number of shares of Registrable Securities proposed to be sold and will also
specify the intended method of disposition thereof.
(b) If MUSI so elects, the offering of the MUSI Registrable
Securities pursuant to such MUSI Demand Registration will be in the form of an
underwritten offering. MUSI will select the managing Underwriter(s) and any
additional participants in connection with the offering.
(c) If, in connection with any MUSI Demand Registration, the
Company or any other Stockholder also proposes to sell securities and the
managing Underwriter of an offering described in this Section 3.2 advises the
Company, MUSI and the other Stockholders in writing that the success or pricing
of the offering would be materially and adversely affected by the inclusion of
all of the securities requested to be included, then the Company will include in
such registration (i) first, the Registrable Securities MUSI proposes to offer
for sale, which number of securities will be reduced to the extent necessary to
reduce the total amount of securities to be included in the offering to the
amount recommended by such managing Underwriter, (ii) second, the securities the
Company proposes to offer for sale, which number of securities will be reduced
to the extent necessary to reduce the total amount of securities to be included
in the offering to the amount recommended by such managing Underwriter and (iii)
third, the Registrable Securities the other Stockholders propose to offer for
sale and the managing Underwriter recommends be included in such offering,
allocated pro rata among such Stockholders.
(d) Notwithstanding the foregoing provisions of this Section
3.2, in the event the Company receives notice of a MUSI Demand Registration, the
Company may elect once, and only once, by written notice to MUSI within 20 days
after receipt of such notice, to proceed with a registration of Common Stock for
the Company's account in lieu of proceeding with the MUSI Demand Registration,
in which case the provisions of Section 3.3 (and not this Section 3.2) will
apply. If the Company exercises the right described in the preceding sentence,
MUSI will not be deemed (for purposes of determining the number of future MUSI
Demand Registrations that may be demanded under the terms of this Agreement) to
have exercised the right to request a MUSI Demand Registration unless at least
50% of the Registrable Securities that MUSI desired to include in such
registration were included pursuant to Section 3.3
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(e) Notwithstanding any other provision hereof, MUSI will not
initiate a demand registration unless it proposes to include therein Registrable
Securities which it believes in good faith to have a value of at least $500,000.
3.3. Piggy-Back Registration. (a) If the Company proposes to
file a registration statement under the Securities Act with respect to an
offering of any shares of Common Stock (i) for its own account (other than a
registration statement on Form S-4 or S-8 (or any substitute form that may be
adopted by the Commission)) or (ii) for the account of any holders of its
securities, then the Company will give written notice of such proposed filing to
the holders of Registrable Securities as soon as practicable (provided that
holders of Registrable Securities will be given such notice not less than 20
calendar days prior to the deadline set by the Company for electing to include
Registrable Securities in such offering), and such notice will offer such
holders the opportunity, subject to the limitations provided in Section 3.3(b),
to register such number of shares of Registrable Securities as such Stockholders
may request on the same terms and conditions as the registration of the
Company's or such other holders' securities.
(b) Notwithstanding anything contained herein, if the managing
Underwriter of an underwritten offering under this Section 3.3 advises the
Company in writing that the success or pricing of the offering would be
materially and adversely affected by the inclusion of all of the securities
requested to be included, then the Company will include in such registration (i)
first, the securities the Company proposes to offer for sale and (ii) second,
the number of other securities of the Company (including, without limitation,
Registrable Securities) so requested to be included which in the opinion of the
managing Underwriter can be sold, allocated pro rata among the Stockholders
proposing to offer Registrable Securities for sale.
(c) A request by MUSI or the Frisby Stockholder Group to
include Registrable Securities in a proposed underwritten offering pursuant to
this Section 3.3 will not be deemed to be a request for a demand registration
pursuant to Sections 3.1 or 3.2.
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IV. REGISTRATION PROCEDURES
4.1. Filings; Information. Whenever MUSI or the Frisby
Stockholder Representative (the "Registering Stockholder") request that any
Registrable Securities be registered pursuant to Article III, the Company will
use its best efforts to effect the registration of such Registrable Securities
as promptly as is practicable, and in connection with any such request:
(a) The Company will as expeditiously as possible prepare and
file with the Commission a registration statement on any form for which the
Company then qualifies and which counsel for the Company deems appropriate and
available for the sale of the Registrable Securities to be registered thereunder
in accordance with the intended method of distribution thereof, and use its best
efforts to cause such filed registration statement to become and remain
effective for a period of not less than 90 days; provided, however, that if the
Company furnishes to the Registering Stockholder a certificate signed by the
Company's Chief Executive Officer, President or any Vice-President stating that
in his good faith judgment it would be detrimental or otherwise disadvantageous
to the Company or its stockholders for such a registration statement to be filed
as expeditiously as possible, the Company will have a period of not more than 90
calendar days within which to file such registration statement measured from the
date of the Company's receipt of the Registering Stockholder's request for
registration in accordance with Article III.
(b) The Company will, if requested, prior to filing such
registration statement or any amendment or supplement thereto, furnish to the
Registering Stockholder and each applicable managing Underwriter, if any, copies
thereof, and thereafter furnish to the Registering Stockholder and each such
Underwriter, if any, such number of copies of such registration statement,
amendment and supplement thereto (in each case including all exhibits thereto
and documents incorporated by reference therein) and the prospectus included in
such registration statement (including each preliminary prospectus) as the
Registering Stockholder or each such Underwriter may reasonably request in order
to facilitate the sale of the Registrable Securities.
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(c) After the filing of the registration statement, the
Company will promptly notify the Registering Stockholder of any stop order
issued or, to the Company's knowledge, threatened to be issued by the Commission
and take all reasonable actions required to prevent the entry of such stop order
or to remove it if entered.
(d) The Company will endeavor to qualify the Registrable
Securities for offer and sale under such other securities or blue sky laws of
such jurisdictions in the United States as the Registering Stockholder
reasonably requests; provided, however, that the Company will not be required to
(i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subsection (d), (ii) subject
itself to taxation in any such jurisdiction, or (iii) consent to general service
of process in any such jurisdiction.
(e) The Company will as promptly as is practicable notify the
Registering Stockholder at any time when a prospectus relating to the sale of
the Registrable Securities is required by law to be delivered in connection with
sales by an Underwriter or dealer, of the occurrence of any event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and promptly make available to the Registering Stockholder
and to the Underwriters any such supplement or amendment. The Registering
Stockholder agrees that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in the preceding sentence, the
Registering Stockholder will forthwith discontinue the offer and sale of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until receipt by the Registering Stockholder and the
Underwriters of the copies of such supplemented or amended prospectus and, if so
directed by the Company, the Registering Stockholder will deliver to the Company
all copies, other than permanent file copies then in the Registering
Stockholder's possession, of the most recent prospectus covering such
Registrable Securities at the time of receipt of such notice. In the event the
Company gives such notice, the Company will extend the period during which such
registration statement will be contained effective as provided in Section 4.1(a)
by the number of days during the period from and including the date of the
giving of such notice to the date when the Company will make available to the
Registering Stockholder such supplemented or amended prospectus.
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(f) The Company will enter into customary agreements
(including an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate the sale
of such Registrable Securities.
(g) The Company will furnish to the Registering Stockholder
and to each Underwriter a signed counterpart, addressed to the Registering
Stockholder or such Underwriter, of (i) an opinion or opinions of counsel to the
Company and (ii) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such matters
of the type customarily covered by opinions or comfort letters, as the case may
be, as the Registering Stockholder or the managing Underwriter may reasonably
request.
(h) The Company will make generally available to its security
holders, as soon as reasonably practicable, an earnings statement covering a
period of 12 months, beginning within three months after the effective date of
the registration statement, which earnings statement will satisfy the provisions
of Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(i) The Company will use its reasonable efforts to cause all
such Registrable Securities to be listed on each securities exchange on which
similar securities issued by the Company are then listed or, if not so listed,
on a national securities exchange.
The Company may require the Registering Stockholder promptly
to furnish in writing to the Company such information regarding the Registering
Stockholder, the plan of distribution of the Registrable Securities and other
information as the Company may from time to time reasonably request or as may be
legally required in connection with such registration.
4.2. Registration Expenses. Registration Expenses incurred in
connection with any registration made or requested to be made pursuant to
Article III will be borne by the Company, whether or not any such registration
statement becomes effective, to the extent permitted by applicable law. The
Registering Stockholder will pay, on a pro rata basis, any underwriting fees,
discounts or commissions attributable to the sale of the Registrable Securities.
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4.3. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Stockholder registering shares pursuant to
Article III, its officers and directors, and each Person, if any, who controls
each such Stockholder within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages, liabilities and expenses caused by any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities (as amended or supplemented if
the Company will have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information
furnished in writing to the Company by or on behalf of such Stockholder
expressly for use therein; provided, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus will not inure to the
benefit of any Stockholder if a copy of the current prospectus was not provided
to the applicable purchaser by such Stockholder and such current copy of the
prospectus would have cured the defect giving rise to such loss, claim, damage,
liability or expense. The Company also agrees to indemnify any Underwriters of
the Registrable Securities, their officers and directors and each Person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Stockholders provided in this Section 4.3.
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4.4. Indemnification by Stockholders. Any Stockholder
registering shares pursuant to Article III agrees, severally but not jointly, to
indemnify and hold harmless the Company, its officers and Directors and each
Person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such Stockholder, but only with
reference to information related to such Stockholder furnished in writing by or
on behalf of such Stockholder expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto or any preliminary prospectus; provided, however, that in no
event will the liability of any Stockholder under this Section 4.4 be greater in
amount than the dollar amount of the proceeds received by such Stockholder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation. Each such Stockholder also agrees to indemnify and hold harmless any
Underwriters of the Registrable Securities, their officers and directors and
each Person who controls such Underwriters on substantially the same basis as
provided for in the underwriting agreement relating to such offering.
4.5. Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) is instituted involving
any Person in respect of which indemnity may be sought pursuant to Section 4.3
or Section 4.4, such Person will promptly notify the Person against whom such
indemnity may be sought in writing and the indemnifying party upon request of
the indemnified party will retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and will pay the fees and
disbursements of such counsel related to the proceeding; provided, however, that
the failure to so notify the indemnifying party shall not relieve the
indemnifying party from any liability that it may otherwise have to such
indemnified person, except to the extent the indemnifying person shall have been
materially prejudiced by such failure. In any such proceeding, any indemnified
party will have the right to retain its own counsel, but the fees and expenses
of such counsel will be at the expense of such indemnified party unless (a) the
indemnifying party and the indemnified party have mutually agreed to the
retention of such counsel or (b) the named parties to any such proceeding
(including any impleaded parties) include both the indemnified party and the
indemnifying party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them, in
which case the fees and expenses of such counsel will be paid by the Company. It
is understood that the indemnifying party will not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for all such indemnified parties, and
that all such fees and expenses will be reimbursed as they are incurred. In the
case of the retention of any such separate firm for the indemnified parties,
such firm will be designated in writing by the indemnified parties. The
indemnifying party will not be liable for any settlement of any proceeding
effected without its consent, but if settled with such consent, or if there be a
final judgment for the plaintiff, the indemnifying party will indemnify and hold
harmless such indemnified parties from and against any loss or liability (to the
extent stated above) by reason of such settlement or judgment.
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4.6. Contribution. (a) If the indemnification provided for
herein is for any reason unavailable to the indemnified parties in respect of
any losses, claims, damages or liabilities referred to herein, then each such
indemnifying party, in lieu of indemnifying such indemnified party, will
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company, the Stockholders and
any Underwriter in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative fault of the Company, Stockholders
registering shares pursuant to Article III and the Underwriter will be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
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(b) The Company and each Stockholder registering shares of
Common Stock pursuant to Article III agree that it would not be just and
equitable if contribution pursuant to this Section 4.6 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding subsection.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
subsection will be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.6, no Underwriter will be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Stockholder
registering shares pursuant to Article III will be required to contribute any
amount in excess of the amount by which the total price at which the Registrable
Securities of such Stockholder were offered to the public (less underwriters'
discounts and commissions) exceeds the amount of any damages which such
Stockholder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
4.7. Participation in Underwritten Registrations. No Person
may participate in any underwritten registration hereunder unless such Person
(a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements, lock-up agreements and other
documents reasonably required under the terms of such underwriting arrangements
and these registration rights.
4.8. Rule 144. The Company will file any reports required to
be filed by it under the Securities Act and the Exchange Act and will take such
further action as any Stockholder may reasonably request to the extent required
from time to time to enable the Stockholders to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144, as such Rule may be amended from time to time,
or other appropriate rule or regulation adopted by the Commission. Upon the
request of any Stockholder, the Company will deliver to the Stockholder a
written statement as to whether the Company has complied with such reporting
requirements.
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4.9. Restrictions on Public Sale by Holders of Registrable
Securities. If and to the extent requested by the Company, in the case of a
non-underwritten Public Offering, and if and to the extent requested by the
managing Underwriter or Underwriters, in the case of an underwritten Public
Offering, each of the Stockholders agree not to effect, except as part of such
registration, any sale of the shares of Securities or a similar security of the
Company, or any securities convertible into or exchangeable or exercisable for
such Securities during such time period to which the Company agrees not to
effect any sale of securities in connection therewith, or to which the
Registering Stockholder agrees if the Company does not include any securities
therein. In addition, each of the Stockholders agrees to execute any customary
lock-up agreement reasonably requested by the managing Underwriter to confirm
its agreement in accordance with the preceding sentence, but only if identical
lock-up agreements are required of all principal Stockholders. Without limiting
the generality of the foregoing, MUSI agrees that it and any of its transferees
will, in connection with the Initial Public Offering, enter into a lock-up
agreement for a period of up to eighteen months or, if MUSI does not exercise
its option and acquire the Option Shares, twenty-four months.
V. CERTAIN ARRANGEMENTS
5.1. Board of Directors. (a) Immediately upon execution of
this Agreement, the Stockholders will (i) elect those individuals set forth on
Schedule 5.1 as Directors of the Company, and (ii) cause the Board of Directors
to adopt the By-laws in the form of Exhibit 5.1. Thereafter, each Stockholder
agrees to vote all shares of Securities as to which it has voting rights for the
election as Directors of the Company of (i) one persons designated from time to
time by MUSI and (ii) four persons designated from time to time by the Frisby
Group Representative.
(b) Each of the Stockholders further agrees to vote all the
shares of Securities with respect to which it has voting rights, and to cause
all persons designated by it as Directors to vote (i) in favor of the removal
from the Board of Directors, upon notice to the other Stockholders, of any
person or persons designated by MUSI or the Frisby Group Representative, as the
case may be, and to elect to the unexpired term of each Director so removed
another person designated by MUSI or the Frisby Group Representative, as the
case may be, and (ii) in the event of any vacancy on the Board of Directors by
reason of death or resignation, to elect to such unexpired term another person
designated in accordance with Section 5.1(a) by the Stockholder that designated
the deceased or resigned Director.
5.2. Certain Board Actions. The parties agree that without the
prior unanimous approval of the Directors designated by MUSI and the Frisby
Group Representative, the Company will not:
(a) amend its charter or By-laws;
(b) effect an Initial Public Offering which provides for the
issuance of more than 1,900,000 shares of Common Stock (without giving
effect to any shares of Common Stock to be offered pursuant to the
Underwriter's over-allotment option) or at a price per share not within
the range set forth in the Barington Agreement;
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(c) other than as contemplated by the Purchase Agreement and
the Ancillary Agreements, make or enter into any contract or commitment
involving the payment of money, provision of services or the lending of
any funds to any Stockholder or any Affiliate of any Stockholder other
than in the ordinary course of business;
(d) make or enter into or amend any employment agreement,
bonus or severance arrangement with any Frisby Stockholder;
(e) issue, grant, deliver, sell, redeem or purchase any shares
of the Company's capital stock or any options or warrants with respect
to any such shares of the Company's capital stock other than (i)
pursuant to the Option Agreement, (ii) pursuant to any Public Offering
of capital stock,(iii) as contemplated by clause 5.2(j) below or (iv)
any other issuances which, in the aggregate, do not exceed three
percent (3%) of the Company's capital stock on a fully-diluted basis;
(f) acquire any asset costing in excess of $250,000 or make or
agree to make any capital expenditure in excess of $250,000;
(g) merge or consolidate with any other Person or sell all or
substantially all of the assets of the Company;
(h) acquire all or substantially all of the assets of another
Person or enter into a partnership or joint venture with another
Person, which acquisition, partnership or joint venture has a
transaction value in excess of $250,000.
(i) incur any indebtedness for borrowed money in excess of
$500,000 or guarantee any such indebtedness or sell any debt securities
of the Company or guarantee any debt securities of any Person;
(j) adopt any employee stock option plan, or any stock
appreciation, phantom stock, profit participation or similar agreement
or arrangement other than an employee stock option plan containing
those terms set forth in Schedule 5.2;
(k) sell, mortgage, pledge, dispose or transfer all or a
material portion of the Company's assets or business, other than
licensing agreements or arrangements entered into in the ordinary
course of business;
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(l) make or enter into, amend or modify in any respect, any
term or provision of any contract, commitment, arrangement or
transaction involving Barington Capital Group, L.P. or Triangle
Research and Development Corporation;
(m) purchase any real property;
(n) dissolve, liquidate, recapitalize or reorganize the
Company;
(o) commence any case, proceeding or other action relating to
bankruptcy or reorganization of the Company;
(p) distribute income or assets or declare any dividends; or
(q) enter into new lines of business.
Subject to the requirement of any applicable law, a Director's
status as an "interested director" with respect to any matter enumerated above
shall not preclude such Director from participating in, and voting on, such
matter.
5.3. Financial Information. From and after the date hereof,
the Company will transmit to MUSI copies of all financial information and other
information concerning the Company's operations at the same time such financial
and other information is given to the Directors. Without limiting the foregoing,
the Company will provide MUSI by facsimile monthly financial statements and
other financial information prepared for management on a regular basis, material
business transaction information and such other information concerning the
Company as may be reasonably requested by MUSI from time to time.
5.4. Key Man Insurance. The Company agrees to acquire and
maintain a "Key Man" insurance policy in the amount of at least $2,500,000 (the
"Insurance Amount") in respect of G. Frisby with the Company to be named as
beneficiary under such policy. The Insurance Amount shall be adjusted from time
to time as the Board of Directors shall deem necessary or desirable.
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5.5. Confidentiality Obligation. MUSI agrees that the
provisions of that certain Confidentiality Agreement dated November 14, 1997
(the "Confidentiality Agreement") between Dott. Luca Bassani Antivari and Ernst
& Young LLP shall apply to MUSI with respect to all information provided to it
pursuant to Section 5.3 of this Agreement as though MUSI were a party to such
Confidentiality Agreement. In addition, prior to the disclosure to MUSI of any
trade secrets, know-how or other confidentiality and proprietary intellectual
property rights of the Company, MUSI will enter into an appropriate
confidentiality and non-disclosure agreement with the Company.
5.6. LIDC Guaranty. In the event that the Company is required
to make any payment to the Long Island Development Corporation ("LIDC") pursuant
to that certain guaranty dated as of December 4, 1994 made by the Company in
favor of LIDC, G. Frisby agrees to reimburse the Company the entire amount of
any such payment.
VI. MISCELLANEOUS
6.1. Headings. The headings in this Agreement are for
convenience of reference only and will not control or affect the meaning or
construction of any provisions hereof.
6.2. Entire Agreement. This Agreement, the Purchase Agreement
and the Option Agreement constitute the entire agreement between the parties
with respect to the subject matter of this Agreement. This Agreement, the
Purchase Agreement and the Option Agreement supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter of this Agreement, the Purchase Agreement and the Option
Agreement. None of this Agreement, the Purchase Agreement or any Option
Agreement is intended to confer upon any Person other than the parties hereto
and thereto any rights or remedies hereunder or thereunder. In the event of any
conflict between the provisions of this Agreement and that certain Shareholder
Agreement dated as of December 10, 1997 by and among the Company, J. Frisby, and
G. Frisby, the applicable provisions of this Agreement will prevail.
22
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6.3. Notices. Any notice, request, instruction or other
document required or permitted to be given hereunder by any party hereto to
another party hereto will be in writing and will be given to such party at its
address set forth in Annex I attached hereto, with, in the case of the Company,
a copy sent to Secretary, Frisby Technologies, Inc. at its principal executive
offices or, in the case of a Transfer permitted hereunder, to the address of the
Transferee specified by it upon notice given in accordance with the terms
hereof, or to such other address as the party to whom notice is to be given may
provide in a written notice to the party giving such notice, a copy of which
written notice will be on file with the Secretary of the Company. Each such
notice, request or other communication will be effective (i) if given by
certified mail, 72 hours after such communication is deposited in the mails with
certified postage prepaid addressed as aforesaid, (ii) one Business Day after
being furnished to a nationally recognized overnight courier for next Business
Day delivery, and (iii) on the date sent if sent by electronic facsimile
transmission, receipt confirmed.
6.4. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York, without regard
to the conflict of laws rules of such state.
6.5. Severability. The invalidity or unenforceability of any
provisions of this Agreement in any jurisdiction will not affect the validity,
legality or enforceability of the remainder of this Agreement in such
jurisdiction or the validity, legality or enforceability of this Agreement,
including any such provision, in any other jurisdiction, it being intended that
all rights and obligations of the parties hereunder will be enforceable to the
fullest extent permitted by law.
6.6. Termination; Termination of Rights. This Agreement may be
terminated at any time by an instrument in writing signed by the Company and
Stockholders owning at least 90% of the Securities. At such time as any
Stockholder owns 25% or less of the Securities owned by such Stockholder on the
date hereof, all of such Stockholder's rights hereunder, including without
limitation such Stockholder's rights under Articles II and III, will terminate;
provided, however, that all of such Stockholder's obligations hereunder will
remain in full force and effect.
6.7. Successors, Assigns and Transferees. The provisions of
this Agreement will be binding upon and inure to the benefit of the parties
hereto and their respective heirs, successors and permitted assigns. Except as
expressly contemplated hereby, neither this Agreement nor any provision hereof
will be construed so as to confer any right or benefit upon any Person other
than the parties to this Agreement and their respective successors and permitted
assigns.
23
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6.8. Amendments; Waivers. (a) No failure or delay on the part
of any party in exercising any right, power or privilege hereunder will operate
as a waiver thereof, nor will any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided will be cumulative and not
exclusive of any rights or remedies provided by law.
(b) Neither this Agreement nor any term or provision hereof
may be amended or waived except by an instrument in writing signed, in the case
of an amendment or waiver, by the Company and Stockholders owning at least 90%
of the Common Stock.
6.9. Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be an original with the same effect
as if the signatures thereto and hereto were upon the same instrument.
6.10. Remedies. The parties hereby acknowledge that money
damages would not be adequate compensation for the damages that a party would
suffer by reason of a failure of any other party to perform any of the
obligations under this Agreement. Therefore, each party hereto agrees that
specific performance is the only appropriate remedy under this Agreement and
hereby waives the claim or defense that any other party has an adequate remedy
at law.
24
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6.11. Consent to Jurisdiction. Each of the Stockholders and
the Company irrevocably submits to the non-exclusive jurisdiction of any court
located in the Borough of Manhattan or the United States Federal Court sitting
in the Southern District of New York over any suit, action or proceeding arising
out of or relating to this Agreement. Each of the Stockholders and the Company
consents to process being served in any such suit, action or proceeding by
serving a copy thereof upon the agent for service of process, provided that to
the extent lawful and possible, written notice of such service will also be
mailed to such Stockholders or the Company, as the case may be. Each of the
Stockholders and the Company agrees that such service will be deemed in every
respect effective service of process upon such Stockholders or the Company, as
the case may be, in any such suit, action or proceeding and will be taken and
held to be valid personal service upon such Stockholder or the Company, as the
case may be. Nothing in this subsection will affect or limit any right to serve
process in any manner permitted by law, to bring proceedings in the courts of
any jurisdiction or to enforce in any lawful manner a judgment obtained in one
jurisdiction in any other jurisdiction. Each of the Stockholders and the Company
waives any right it may have to assert the doctrine of forum non conveniens or
to object to venue to the extent any proceeding is brought in accordance with
this Section 6.11.
6.12. Termination Upon Initial Public Offering. Upon an
Initial Public Offering, the parties will effect an amendment to this Agreement
to provide for the deletion of clauses (a), (b), (c), (d), (f), (g), (h), (i),
(k), (l), (m), (p) and (q) of Section 5.2 of this Agreement and any other
appropriate amendments to Articles II, III and V of this Agreement.
6.13. Termination of Certain Right. MUSI's right to designate
Directors pursuant to Section 5.1 and MUSI's rights under Section 2.3 shall
terminate if (a) Dott. Luca Bassani Antivari ceases to own, directly or
indirectly, a majority of the voting securities of MUSI, or (b) MUSI transfers
fifty percent (50%) or more of its Securities to one or more Permitted
Transferees.
25
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FRISBY TECHNOLOGIES, INC.
By: /s/ Gregory S. Frisby
--------------------------------------
Name: Gregory S. Frisby
Title: Chairman & Chief Executive Officer
STOCKHOLDERS:
/s/ Gregory S. Frisby
----------------------------------------
Gregory S. Frisby
/s/ Jeffry D. Frisby
----------------------------------------
Jeffry D. Frisby
MUSI INVESTMENTS S.A.
By: /s/ Luca Bassani Antivari
------------------------------------
Name: Dott. Luca Bassani Antivari
Title: President
26
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Schedule 5.1
Initial Directors of the Company
Avv. Pietro Alessandro Motta
G. Frisby
J. Frisby
27
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Schedule 5.2
Employee Stock Option Terms
Amount of Option Shares: Not more than 10% of the Company's Capitol Stock, on
a fully diluted basis.
Vesting: Proportionate vesting over a minimum of 36 months
(credit for prior periods of employment).
Exercise Price: Based on a fair market value as determined by the
Board of Directors.
Repurchase: Prior to Initial Public Offering, Company has right
to re-purchase upon termination of participant's
employment at then fair market value.
28
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December 24, l997
Frisby Technologies, Inc.
417 South Main Street
Freeport, NY 11520
Re: $500,000 line of credit
Gentlemen:
European American Bank ("EAB") is pleased to advise you it holds
available for Frisby Technologies, Inc. (the "Borrower"), a corporation
organized and in good standing under the laws of the State of New York, a line
of credit (the "Line") in the amount of $500,000, subject to the following terms
and conditions:
1. Description of the Line:
Loans provided under the Line shall be evidenced by EAB's
standard Master Note (the "Note") in the amount of the Line, which Note shall
bear interest at a rate equal to 1/2% in excess of EAB's Prime Rate (the rate of
interest stated by EAB to be its Prime Rate in effect from time to time and
adjusted when said Prime Rate changes) computed on the basis of actual days
elapsed in a 360 day year.
Interest on the unpaid principal balance of the Note from time
to time outstanding shall be payable monthly in arrears commencing on the first
day of the month following the date of the first advance under the Note. Any
advance under the Line made by EAB in its discretion shall be in an amount not
less than $10,000 and the Borrower may prepay, in part or in full, at any time,
any loans outstanding under the Line in increments of not less than $10,000
without premium or penalty.
The Borrower acknowledges and agrees that the Line is
uncommitted and requests for advances or extensions of credit thereunder shall
be approved in the discretion of EAB, which may refuse to make an extension of
credit under the Line at any time without prior notice to the Borrower, and that
the performance or compliance by the Borrower of the agreements contained in
this letter, or in any other document or agreement evidencing or securing such
advances or extensions of credit, shall not obligate EAB to make an advance or
provide an extension of credit thereunder.
Subject to the terms and conditions hereof, the Line shall be
available until June 30, 1998.
<PAGE>
2. Guarantors:
Repayment of all loans, extensions of credit and financial
accommodations provided under the Line together with interest and costs thereon
shall be guaranteed, jointly and severally, by Gregory Frisby and Jeffry Frisby
(the "Individual Guarantors" ) and Frisby Aerospace, Inc. (the "Corporate
Guarantor") pursuant to EAB's standard Guarantee of All Liability.
3. Purpose of the Line:
The purpose of the Line shall be to support the Borrower's
short-term working capital needs.
4. Security for the Line:
The Line shall be secured by a first priority security
interest in all assets and personal property of the Borrower pursuant to EAB's
standard General Security Agreement and duly filed UCC-1 Financing Statements.
5. Financial Reporting:
The Borrower shall provide to EAB:
(i) As soon as available, but in any event within one
hundred twenty (120) days after the last day of its 1997 fiscal year, a balance
sheet of the Borrower, as of such last day of the fiscal year, and statements of
income and retained earnings and cash flows for such fiscal year prepared in
accordance with generally accepted accounting principles consistently applied,
in reasonable detail, such statements to be audited by a firm of independent
certified public accountants satisfactory to EAB.
(ii) As soon as available, but in any event within
one hundred twenty (120) days after the last day of its 1997 fiscal year, a
consolidated balance sheet of Frisby Industries Inc. ("Industries") and its
subsidiaries, as of such last day of the fiscal year, and consolidated
statements of income and retained earnings and cash flows for such fiscal year
prepared in accordance with generally accepted accounting principles
consistently applied, in reasonable detail, such statements to be audited by a
firm of independent certified public accountants satisfactory to EAB.
(iii) As soon as available, but in any event within
thirty (30) days after the end of each fiscal quarter, a balance sheet of the
Borrower and statements of income and retained earnings and cash flows of the
Borrower for such quarter, and the portion of the fiscal year through such date,
such statements to be prepared in accordance with generally accepted accounting
principles consistently applied, in reasonable detail, by the Borrower.
2
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(iv) As soon as available, but in any event within
sixty (60) days after the end of each fiscal quarter, a consolidated balance
sheet of Industries and its subsidiaries and consolidated statements of income
and retained earnings and cash flows for such quarter, and the portion of the
fiscal year through such date all in reasonable detail, such statements to be
internally prepared in accordance with generally accepted accounting principles
consistently applied.
Each of the financial statements specified in
Sections (i), (ii), (iii) and (iv) above shall be accompanied by a certificate
signed by the president or chief financial officer of the Borrower and
Industries, as the case may be, to the effect that such statements fairly
present the financial condition of the Borrower, Industries and its subsidiaries
as of the balance sheet date and results of the operations of the Borrower,
Industries and its subsidiaries for the period(s) then ended in accordance with
generally accepted accounting principles consistently applied.
(v) As soon as available, but in any event within
fifteen (15) days after the end of each calendar month, a schedule of accounts
receivable of the Corporate Guarantor, aged to show the number of days each such
account has been outstanding from its invoice date, in form satisfactory to EAB
and accompanied by a statement signed by the Corporate Guarantor's president or
chief financial officer to the effect that such statement is true, correct and
complete.
(vi) As soon as available, but in any event within
fifteen (15) days after the end of each calendar month, a Borrowing Base
Certificate of the Corporate Guarantor, in form and substance satisfactory to
EAB.
(vii) Within one hundred twenty (120) days after the
last day of the 1997 calendar year, the personal financial statement of each
Individual Guarantor, on EAB's standard form.
(viii) As soon as available, but in any event within
fifteen (15) days after the end of each calendar month, a statement, in such
form and in such detail as EAB may reasonably require, setting forth a
description of the Corporate Guarantor's inventory and its valuation as of the
end of such month, accompanied by a certificate signed by the Corporate
Guarantor's president or chief financial officer to the effect that such
statement is true and correct and for all statements after the first such
statement has been prepared in accordance with the Corporate Guarantor's prior
methods and procedure.
3
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(ix) Such other financial or additional information
as EAB may from time to time request.
6. Special Requirements:
a. The Borrower shall maintain as of June 30, 1998 a positive
net worth, as determined in accordance with generally accepted accounting
principles.
b. The Borrower shall maintain hazard insurance on its
inventory with a financially sound and reputable insurance company in such
amounts as are necessary to cover not less than the replacement cost of such
inventory and covering such risks as are usually carried by companies engaged in
the same or similar business which insurance policy shall be endorsed to name
EAB lender loss payee.
7. No Prior Agreements:
This letter replaces and supersedes that certain letter
agreement between the Borrower and EAB dated April 29, 1997.
8. Acceptance:
If the foregoing is acceptable, please so indicate by signing
and returning this letter before January 15, 1998, the date this letter will
otherwise expire, unless extended in writing by EAB.
Very truly yours,
EUROPEAN AMERICAN BANK
By: \s\ Douglas Schumacher
-----------------------------------
Douglas Schumacher
Vice President
Agreed and Accepted this
day of January, 1998
- -----
FRISBY TECHNOLOGIES, INC.
By: \s\ Greg Frisby
---------------------------------------
Name: Greg Frisby
Title: CEO
4
<PAGE>
Exhibit 10.7.1
LICENSE AGREEMENT DATED MAY 1, 1995 BETWEEN
THE COMPANY AND TRIANGLE RESEARCH AND DEVELOPMENT CORPORATION
INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
<PAGE>
Page 1 of 8
EXCLUSIVE LICENSE
AGREEMENT
This License Agreement, entered into this 1st day of May, 1995, (referred to as
the ("Agreement") is between:
Triangle Research and Development Corporation, a corporation organized under the
laws of the State of North Carolina, with an address P.O Box 12696, Research
Triangle Park, North Carolina 27709, hereinafter referred to as "TRDC", and
Frisby Technologies, Inc., a corporation organized under the laws of the State
of North Carolina, with its principal place of business at 417 South Main
Street, Freeport, New York 11520, hereinafter referred to as "Frisby".
RECITALS
WHEREAS, TRDC is a research and development corporation which has developed
patented and proprietary technologies relating to bulk and microencapsulated
phase change materials (hereinafter, "MicroPCMs") and;
WHEREAS, Frisby has the requisite expertise, facilities, capabilities and
personnel to develop and market commercial, industrial and government
applications of innovative technologies; and
WHEREAS, Frisby wishes to exclusively license the MicroPCM technologies of TRDC,
and TRDC desires to grant to Frisby an exclusive license to develop and market
all applications of the MicroPCM Technologies, with the exclusion of fibers and
fabrics with reversible, enhanced thermal storage properties, including, but not
limited to, U.S. Patent Number 4,756,758 (hereinafter "MicroPCM fibers and
fabrics"),
WITNESSETH, in consideration of the premises and covenants herein contained,
receipt of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
1.01 MicroPCMs. "MicroPCMs" means bulk and microencapsulated phase change
materials.
1.02 Bulk PCMs. "Bulk PCMs" means bulk phase change materials.
<PAGE>
Page 2 of 8
1.03 Technology. "Technology" means all of TRDC's interest in any proprietary
information, patents, inventions, developments, trade secrets, know-how and,
whether present or future, relating to all applications of MicroPCMs for all
commercial, industrial and government customers worldwide, with the exclusion of
MicroPCM fibers and fabrics.
1.04 End-Use Products. "End-Use Products" means any item containing the
Technology resulting from the Agreement which is presently or may be in the
future a salable product of Frisby.
1.05 Royalty. "Royalty" means [This information has been omitted in accordance
with a Confidential Treatment Request and has been filed separately with the
Commission.]
1.06 Sublicensee Payments. "Sublicensee Payments" means all moneys received by
Frisby from any sublicensees of the Licensed Technology, excluding moneys
received from Option To License Agreements.
1.07 Sales. "Sales" means the gross sales revenues of Frisby products
incorporating the Licensed Technology, less all applicable taxes, commissions
and shipping expenses.
1.08 Effective Date. This Agreement is effective when duly signed, with all
terms and conditions effective retroactively to January 1, 1995.
1.09 Territory. "Territory" means all commercial, industrial and government
markets and customers worldwide.
1.10 TRDC. "TRDC" means Triangle Research and Development Corporation, its
affiliates or any individuals, corporations or other institutions to which TRDC
ownership of the Technology has been transferred or assigned.
ARTICLE II - GRANT OF LICENSE
2.01 TRDC grants to Frisby the exclusive worldwide license to develop and
commercialize all patented and proprietary bulk and MicroPCM technologies of
TRDC, whether present or future, with the exception of MicroPCM fibers and
fabrics. This License includes, but is not limited to U.S. Patent numbers:
US Patent No. 4,807,696 MicroPCM Thermal Energy Storage
<PAGE>
Page 3 of 8
US Patent No. 4,911,232 Heat Transfer Using MicroPCM Slurries
US Patent No. 5,141,079 Two Component Cutting and Cooling Fluids
US Patent No. 5,224,356 Thermal Energy Absorbing and Conducting
Potting Materials
US Patent No. 5,415,222 Microclimate Cooling Garments
US Patent (pending) Moldable Foams with Reversible Enhanced
Thermal Storage
US Patent (pending) Thermal Insulating Coatings Using
MicroPCMs
*US Patent No. 5,366,801 Coated Fabric With Reversible Enhanced
Properties
*US Patent No.5,290,904 Thermally Enhanced Heat Shields
(*Note: Frisby's License for these patents exclude MicroPCM fibers and fabrics)
2.02 TRDC further grants to Frisby the exclusive rights and license with
exclusive rights to sublicense, to manufacture Bulk PCMs, MicroPCMs, end-use
products, and any improvements thereto, and to market, sell, use, lease or
distribute all applications of these product throughout the world, with the
exclusion of MicroPCM fibers and fabrics.
2.03 TRDC agrees that all improvements and new discoveries pertaining to bulk or
MicroPCMs developed by TRDC, with the exception of improvements relating to
MicroPCM fibers and fabrics, will become part of this agreement with the
exclusive license to Frisby granted hereby. This exclusive license agreement
includes all current and future uses of bulk and MicroPCM technologies,
including all non-thermal and electrorheological applications and uses for same.
2.04 Each Party agrees to inform the other Party of any and all improvements,
changes and information relating to Bulk and MicroPCM technologies as soon as
practical after that information is made available to the Party. This includes
the status of all Bulk and MicroPCM related research
<PAGE>
Page 4 of 8
and development efforts by Frisby, TRDC or any affiliates. All improvements,
changes and information shall be promptly incorporated as part of this
Agreement.
ARTICLE III - PAYMENTS
3.01 Payments to TRDC. All amounts owed by Frisby to TRDC in accordance with
section 3.03 herein, shall be paid within thirty days after the end of the
calendar quarter during which payments were received by Frisby from sales or
revenues described in sections 3.031, 3.032, 3.033 and 3.034. Each payment shall
be accompanied by a statement consisting of records sufficient to enable the
verification of amounts payable under this License.
3.03 Royalty Payments. Frisby agrees to pay royalties or fees to TRDC in
accordance with the following terms:
3.031 End-Use Product Sales and Government Development Contracts. On all sales
by Frisby of bulk PCMs, MicroPCMs and End-Use Products incorporating MicroPCMs,
with the exception of those exclusions identified below, which are based upon
the licensed technologies of TRDC, as well as on all direct government
development contracts related to the licensed Technology received by Frisby
during this exclusive license, Frisby agrees to pay TRDC a royalty or fee in
accordance with the following schedule:
[This information has been omitted in accordance with a Confidential Treatment
Request and has been filed separately with the Commission.]
Exclusions: All sales of MicroPCMs by Frisby to Gateway Technologies, Inc. are
excluded from the above provision, in accordance with Par. 3.032 below. In
addition, all MicroPCM sales to any customer, when the MicroPCMs have been
supplied directly by TRDC to Frisby, are excluded from the above royalties or
any associated fees.
3.032 Gateway Technologies, Inc. Product Sales - On all sales of MicroPCMs to
Gateway Technologies, Inc., Frisby will pay TRDC a royalty of [This information
has been omitted in accordance with a Confidential Treatment Request and has
been filed separately with the Commission.] in lieu of the percentages due in
3.031 above.
3.033 Sublicensee Payments. On all Sublicensee Payments received by Frisby from
third party Sublicencees, Frisby agrees to pay TRDC in accordance with the
following schedule. These payments include all sublicense fees and royalties
received from Frisby licensed third parties, but
<PAGE>
Page 5 of 8
exclude all Option To License fees and any in-kind or other non-cash fees and
payments received from any third parties.
[This information has been omitted in accordance with a Confidential Treatment
Request and has been filed separately with the Commission.]
3.034 License Fees Received From Pre-existing TRDC Third Parties: In lieu of the
royalties payable to TRDC under paragraph 3.033 above, TRDC will receive a
royalty of [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.] the
pre-existing TRDC accounts listed in Appendix T which has been attached hereto
and made a part hereof. In addition, if TRDC receives funded research contracts
by June 1, 1996 from Digital Equipment Corp., IBM or Intel Corporation as a
direct result of TRDC research projects proposed and submitted prior to December
15, 1995 to the companies, then the specific product applications developed
under that funded effort of the company will be added to Appendix T.
3.035 Minimum Payments To TRDC - Frisby agrees to a minimum annual payment to
TRDC of the following in accordance with the following yearly amounts. A minimum
payment is only due if the total payments due TRDC from license fees, royalties
or related fees, or R&D credits as described in section 3.036, in each year do
not exceed the minimum amounts shown below for that year.
1st Year $ 15,000.
2nd and 3rd Year $ 30,000.
4th Year $ 54,000.
5th Year $ 78,000.
6th Year $102,000.
7th Year $126,000.
8th and thereafter $150,000.
If the total of royalty payments, fees and R&D credits in a given year do not
meet or exceed the above Minimum Payments, then Frisby will pay TRDC the
difference between those amounts within thirty (30) days after the end of the
calendar year. If the total amounts paid TRDC is equal to or greater than the
above Minimum Payments, then no supplemental payments will be due to TRDC.
3.036 Research and Development Credits Against Annual Minimums - The parties
agree that [This information has
<PAGE>
Page 6 of 8
been omitted in accordance with a Confidential Treatment Request and has been
filed separately with the Commission.] of the contract price of all R&D
contracts accepted by TRDC from Frisby in a given year shall be applied towards
the minimum payment due to TRDC.
ARTICLE IV - INTELLECTUAL PROPERTY
4.01 Intellectual Property. All licensed products sold by TRDC during the term
of this License Agreement shall reference Frisby's designated Trademarks.
Further, TRDC shall not obtain any Trademarks or use any Tradenames that are
similar thereto on authorized sales of bulk or MicroPCMs to any third parties.
4.02 Patent Expenses. Frisby will pay all applicable patent expenses and filing
fees relating to the Bulk and MicroPCM technologies of TRDC exclusively licensed
to Frisby hereunder, whether present or future, as well as the appropriate
proportion of "shared patents" with other TRDC Licensees. All patent
applications and applicable bills for any patent related legal expenses relating
to the Technology exclusively licensed to Frisby must be approved by Frisby
prior to inclusion as part of this provision.
4.03 Patent Rights. TRDC represents and warrants that, to the best of its
knowledge and belief, the patents licensed herein are valid and enforceable in
the United States, that it is the sole and exclusive owner thereof in the United
States, that it has the full right, power, and authority to enter into this
Agreement and to grant the rights, licenses and privileges hereby granted by
TRDC to Frisby, and to perform all of its obligations hereunder. TRDC also
warrants that, with the exception of MicroPCM fibers and fabrics which have been
licensed to Gateway Technologies, Inc. under a prior License, it has not granted
to any other firm or person any right or license to use the patents in
connection with the sale, use or distribution of the Technologies Licensed to
Frisby under this Agreement.
4.04 Infringement. Each Party shall promptly notify the other Party if it learns
of any infringement of any patent rights respecting the patents or Technology
licensed hereunder or of any unauthorized use of the Technology by any third
party. Both Parties shall take all appropriate actions necessary for the
protection of the patent or license rights granted herein.
ARTICLE V - MISCELLANEOUS PROVISIONS
5.01 Effect of Waiver. No waiver whether express or implied, of any breach of
any term, condition or obligation of this Agreement shall be construed as a
waiver of any subsequent breach of that term, condition or obligation, or any
other term, condition or obligation of this Agreement of the same or different
nature.
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Page 7 of 8
5.02. Notices. Any notice provided for in this Agreement must be in writing and
may be given by registered letter and shall be deemed to have been given when
such registered letter, properly addressed, is mailed. If such notice is given
otherwise than by registered letter, it shall be deemed to have been given when
delivered. If such notice is to be given to Frisby, copies shall be addressed to
Mr. Greg Frisby, Chief Executive Officer, Frisby Technologies, Inc., at 417
South Main Street, Freeport, New York 11520. If given to TRDC, copies shall be
addressed to Dr. David Colvin, Ph.D., President, at Triangle Research and
Development Corp., P0 Box 12696, Research Triangle Park, North Carolina 27709.
Any party hereto may at any time, by thirty (30) days written notice to the
others, designate any other address in place of those provided in this
paragraph.
5.03 Severability. It is understood and agreed by the Party to this Agreement
that if any part, term, or provision of this Agreement is held to be
unenforceable by United States courts or in conflict with applicable law, the
validity of the remaining portions or provisions shall not be affected, and the
rights and obligations of the parties hereto shall be construed and enforced
consistent with the intent of this Agreement.
5.04 Successors and Assigns. This Agreement shall inure to the benefit of the
successors or assigns of the Parties.
5.05 Choice of Law. This Agreement is to be governed by and interpreted in
accordance with the laws of the State of North Carolina.
5.06 Complete Agreement. This document comprises the entire Agreement with
respect to the subject matter hereof and supersedes all negotiations,
representations and warranties, commitments, offers, contracts and writings
prior to the date of this Agreement, except the Reciprocal Secrecy Agreement
between Frisby and TRDC dated September 6, 1994, incorporated herein and made a
part thereof Otherwise, the Parties to this Agreement are not to be bound by any
representations, warranties or agreements other than those set forth herein or
in a written amendment to this Agreement hereinafter entered into by the Parties
and duly executed by each party. Nothing stated in this Agreement shall be
construed against the drafting party solely because of the submission of this
Agreement to the other party.
<PAGE>
Page 8 of 8
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE DULY
EXECUTED, IN DUPLICATE, IN THE STATE OF NORTH CAROLINA.
FRISBY TECHNOLOGIES, INC. TRIANGLE RESEARCH &
DEVELOPMENT CORP.
By: \s\ Greg Frisby By: \s\ David P. Colvin
---------------------------- -----------------------------
Title: Chief Executive Officer Title: President
------------------------ --------------------------
Date: 1 May 1995 Date: 5 May 1995
------------------------- --------------------------
<PAGE>
APPENDIX T
Pre-Existing TRDC Accounts
Company/Individual Location Product(s)
Mullion Manufacturing Ltd. South Humberside, U.K. Hypothermia Garments
Safety Technical Services Liverpool, U.K. Marine Safety Products
Peter Gordon* Liverpool, U.K. Marine Safety Products
Ralph Vaughn* Roanoke Rapids, N.C. Food Packaging Products
Avram Bar-Cohen* Minneapolis, Minnesota Electronic Products
John Easton* Lincoln, Nebraska Agricultural Packaging
John Driscoll* Raleigh, North Carolina Power Electronics
ERG Inc. Oakland, California Heat Exchangers
Ophir Corporation Litteton, Colorado Lasers, Optics and Radar
Sparta Corporation Huntsville Alabama Laser ordnance
H & A Company San Diego, California Aircraft Electronics
Simula Corporation Asheville, NC and Aircraft Seating
Phoenix, Arizona
* includes all affiliates of the listed individual wherein that individual is an
employee, equity participant or paid consultant.
<PAGE>
Exhibit 10.7.2
ASSIGNMENT
This Assignment is entered into and is effective as of this the 3 day
of January, 1997 (hereinafter the "Assignment").
Triangle Research and Development Corporation, a corporation organized
and existing under the laws of the State of North Carolina, with an address of
Post Office Box 12696, Research Triangle Park, NC 27709 (hereinafter referred to
as "TRDC").
Delta Thermal Systems, Inc., a corporation organized and existing under
the laws of the State of North Carolina, with an address of Post Office Box
12696, Research Triangle Park, NC 27709 (hereinafter referred to as "Delta").
Frisby Technologies, Inc., a corporation organized and existing under
the laws of the State of North Carolina, with its principal place of business at
417 South Main Street, Freeport, NY 11520 (hereinafter referred to as "Frisby").
RECITALS
Whereas, an Exclusive License Agreement was entered into on May 1, 1995
(hereinafter the "License Agreement") between TRDC as licensor and Frisby as
licensee, wherein certain technology relating to Microencapsulated Phase Change
Material Technology was licensed, and
Whereas, TRDC desires to assign said License Agreement to Delta.
WITNESSETH, in consideration of the premises and covenants herein
contained, the receipt of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. TRDC hereby assigns, transfers and conveys to Delta, and Delta
hereby accepts assignment of the License Agreement.
Agreed to an accepted on the day and date first hereinabove written.
TRIANGLE RESEARCH & DELTA THERMAL SYSTEMS. INC.
DEVELOPMENT CORP.
By: \s\ David P. Colvin By: \s\ David P. Colvin
--------------------------- -----------------------------
David P. Colvin, President David P. Colvin, President
Attest: Attest:
\s\ Virginia S. Colvin \s\ Virginia S. Colvin
- ----------------------------- -----------------------------
Virginia S. Colvin, Secretary Virginia S. Colvin, Secretary
<PAGE>
Exhibit 10.8
LICENSE AGREEMENT EFFECTIVE JANUARY 1, 1998 BETWEEN
THE COMPANY AND OUTLAST TECHNOLOGIES, INC.
INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
<PAGE>
LICENSE AGREEMENT
This agreement ("Agreement"), which shall be effective as of January 1, 1998
("Effective Date"), is between: Outlast Technologies, Inc., a Colorado
corporation, with its principal place of business at 6235 Lookout Road, Boulder,
CO 80301 U.S.A. ("Outlast"); and Frisby Technologies, Inc., a North Carolina
corporation, with its principal place of business at 417 South Main Street,
Freeport, NY 11520 ("Frisby").
RECITALS
WHEREAS, Outlast has rights to make, have made, use, and sell certain technology
relating to certain products utilizing reversible thermal storage properties,
and
WHEREAS, Frisby is desirous of securing, and Outlast is willing to grant,
license rights to manufacture, sublicense and sell certain products utilizing
the Technology as defined below in Section 1.16,
NOW, THEREFORE, in consideration of the mutual covenants herein and for good and
valuable consideration, the adequacy and receipt of which are hereby
acknowledged, the parties hereto agree to the following terms and conditions:
ARTICLE 1
DEFINITIONS
1.1 "Affiliate" of Frisby shall mean an organization of which more than fifty
percent (50%), if a U.S. organization, or more than forty percent (40%), if a
foreign organization, of the voting stock or ownership is controlled directly or
indirectly by Frisby.
1.2 "Customer" shall mean a manufacturer of End-Use Products or an
intermediate product manufacturer, converter, combiner, distributor, or agent
who sells to a manufacturer of End-Use Products.
1.3 "End-Use Products" shall mean finished products which are intended to be
sold to consumers and are made in whole or in part from Licensed Products.
1.4 "Foam" shall mean any cellular material formed by the dispersion of gas
bubbles (whether internally chemically generated, externally incorporated, as by
chemical blowing agents, or physically incorporated, as by mechanical whipping
or frothing action) within a polymeric base material. Exemplary base material
polymers include, but are not limited to, polyurethane, ethylene/vinyl acetate
(EVA) copolymer, latex, polyethylene, polypropylene, butyl, silicone, cellulose
acetate, neoprene, epoxy, polystyrene, phenolic, and polyvinyl chloride (PVC).
As used herein "Foam" includes not only a single, continuous foam layer but also
multiple foam layers, if they are substantially continuously attached to one
another.
<PAGE>
1.5 "Frisby's Proprietary Information" shall mean any and all of Frisby's
confidential information, including without limitation data, know-how and
experience, whether scientific, technical, engineering, operational, marketing,
or of a business or economic nature, whether in writing, verbal, recorded, or in
some other physical form.
1.6 "Licensed Products" shall mean the following products: (i) MicroPCMs
intended for use in MicroPCM Foam, and (ii) MicroPCM Foam; wherein the MicroPCM
Foam standing alone, in either case, has thickness greater than two (2)
millimeters and is intended to be attached or joined by any means to fibers,
fiber products or fabric when used in the construction of an End-Use Product.
1.7 "Licensed Territory" shall mean worldwide.
1.8 "MicroPCM" shall mean microencapsulated phase change material.
1.9 "MicroPCM Foam" shall mean any Foam wherein MicroPCMs are combined with
the polymeric base material of the Foam prior to curing, resulting in a Foam
containing a plurality of MicroPCMs integral with and dispersed throughout at
least a longitudinal section of said Foam, and wherein substantially all of said
MicroPCMs are individually surroundingly encapsulated and embedded within said
Foam. "MicroPCM Foam" shall also mean any Foam with a thickness greater than two
(2) millimeters having applied thereto a polymeric coating, which coating (i)
contains a plurality of MicroPCMs integral with and dispersed throughout said
coating, (ii) has thickness greater than two (2) millimeters, (iii) is
substantially entirely on the surface of the Foam, and (iv) has been cured prior
to being attached or joined to any fibers, fiber products or fabric. For
purposes of clarity, the "MicroPCM Foam" as defined by the second sentence of
this Section 1.9 must have a total thickness greater than four (4) millimeters.
1.10 "Net Selling Price" shall mean money or any other consideration, exclusive
of sales taxes, custom duties, value added taxes, transportation, insurance and
reasonable allowances for returns, if any, charged for the sale or other
disposition of Licensed Products.
1.11 "Party" shall mean Frisby or Outlast.
1.12 "Parties" shall mean Frisby and Outlast.
1.13 "PCM" shall mean phase change material.
1.14 "Outlast's Proprietary Information" shall mean any and all of Outlast's
confidential information including without limitation data, know-how and
experience, whether scientific, technical, engineering, operational, marketing,
or of a business or economic nature, whether in writing, verbal, recorded, or in
some other physical form.
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1.15 "Recipients" shall mean the Parties and their respective directors,
officers, partners, employees, consultants, agents or representatives, and any
or all of them, to the extent such persons receive a Party's Proprietary
Information.
1.16 "Technology" shall mean the intellectual property licensed by Outlast from
Triangle Research and Development Corporation of Raleigh, NC, ("TRDC") pursuant
to the TRDC License. "Technology" shall also mean non-patented and
non-copyrighted Outlast Proprietary Information within the same scope and field
as the intellectual property licensed by Outlast from TRDC. "Technology" does
not include any patent which Outlast owns or in which Outlast has rights other
than patents licensed under the TRDC License.
1.17 "TRDC License" shall mean that certain License Agreement executed January
22, 1991 between TRDC and Gateway Technologies, Inc. (the former name of
Outlast).
1.18 "Valid Claim" shall mean the claim of a patent or a pending patent
application within the Technology which has not been held invalid or
unenforceable by a final unappealed or unappealable decision of a court of
competent jurisdiction or the appropriate administrative agency.
ARTICLE 2
GRANT OF LICENSE
2.1 Grant. Subject to the terms and conditions in this Agreement, Outlast
grants to Frisby a license under the Technology and within the Licensed
Territory to make, have made, use, and sell Licensed Products to Customers for
incorporation into End-Use Products. Frisby's rights under this Section 2.1
shall include the right to sublicense Customers and those who purchase from
Customers, either by sale of Licensed Products or by separate contract. The
license granted hereunder shall be exclusive, even to Outlast, through calendar
year 2002, but only so long as Frisby continues to make the minimum annual
payments set forth in Section 3.4. Subject to the terms and conditions in this
Agreement, Frisby may extend the period of exclusivity hereunder through
calendar year 2007, but only so long as Frisby continues to make the minimum
annual payments set forth in Section 3.4. Subject to the terms and conditions in
this Agreement, the Parties may, by mutual agreement, extend the period of
exclusivity hereunder for an additional five year period beginning with calendar
year 2008. Following the period(s) of exclusivity hereunder, the license granted
to Frisby shall be non-exclusive. Frisby may exercise the rights granted
hereunder itself or through (i) an organization of which more than eighty
percent (80%) of the voting stock or ownership is controlled directly or
indirectly by Frisby, or (ii) an Affiliate, provided that no owner (including
any direct owner and any person or entity which controls, is controlled by or is
under common control with a direct owner) of the voting stock or ownership of
such Affiliate competes with Outlast in providing fibers, fiber products or
fabrics with reversible thermal storage properties or products which incorporate
fibers, fiber products or fabrics with reversible thermal storage properties,
other than Licensed Products. In either such case, Frisby shall be primarily
responsible for the payment of royalties generated by any such organization or
Affiliate.
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2.2 Reservation of Rights. The Parties agree that Outlast is the sole and
exclusive owner or exclusive licensee of, and shall retain all right, title and
interest in and to the Technology, and Frisby shall have rights therein only as
provided for in accordance with this Agreement. Nothing in this Agreement shall
be deemed to convey to Frisby an interest in the Technology other than as stated
in Section 2.1 of this Agreement. Furthermore, nothing in this Agreement shall
be construed to limit Outlast's ability to make, have made, use, and sell
products incorporating the Technology, except as specifically provided herein.
Frisby acknowledges that, as respects the Technology, Outlast may sell any
product it owns or to which it has rights, except for the rights to Licensed
Products granted to Frisby during the exclusive periods, to any Customer.
Neither Frisby nor its Affiliates will challenge the validity of the Technology,
the validity of Outlast's license under the Technology, or the validity of
licenses granted under this Agreement with respect to any period during which
this Agreement is in effect. However, an agreement by Outlast affecting any of
the foregoing, or an award or court judgment that is binding on Outlast and
affects any of these matters, in a challenge by any person or entity other than
Frisby or its Affiliates, will inure to Frisby's benefit to the extent
applicable.
2.3 Trademark on Products. Unless otherwise agreed to in writing by Outlast,
Licensed Products, as defined in clause (ii) of Section 1.6, and End-Use
Products must be Branded (as defined herein) with a trademark which is wholly
owned by Frisby. Such Licensed Products and End-Use Products may not be Branded
with a third party trademark which relates to foams, fibers or fabrics with
reversible enhanced thermal storage properties. Such Licensed Products and
End-Use Products may also be Branded with one or more third party trademarks
which do not relate to foams, fibers or fabrics with reversible enhanced thermal
storage properties. For purposes of this Section 2.3, "Branded" means that
Licensed Products and End-Use Products must contain visible identification of a
solely-owned Frisby trademark on the product, or on the hangtag, or on the
packaging of a single product and must include the corresponding patent numbers
in accordance with Section 6.1. If Outlast no longer requires its trademark to
be used on any of its branded products, to include end-use products, then Frisby
shall no longer be obligated to the provisions of this Section 2.3.
2.4 Specific Products/Markets Reserved. Outlast has granted certain rights to
third party manufacturers and/or distributors in the products described below.
No Licensed Product may be sold for use in any of the following products until
the rights granted by Outlast expire without extension or become non-exclusive.
Once the rights granted by Outlast in a product described below expire without
extension or become non-exclusive, Frisby shall have the right to exercise the
license granted in Section 2.1 with respect to such product on a non-exclusive
basis. Outlast shall be entitled to extend the term of any rights granted to any
such parties upon such terms as Outlast may determine; provided, however, that
such extension must be granted to the same party that received the original
grant or a successor to all or substantially all of such party's business with
respect to such product. The products to which this Section 2.4 applies are as
follows:
a. Alpine ski boots,
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b. Hard shell touring ski boots,
c. Fire safety products, and
d. Reflective heat Shield products.
2.5 Scope of TRDC License. The Parties agree that MicroPCM Foam that is
attached or joined by any means to fibers, fiber products or fabric is within
the scope and field of the TRDC License and, therefore, is within that portion
of the Technology received from TRDC. The Parties further agree that, except as
it is attached or joined by any means to fibers, fiber products or fabric,
MicroPCM Foam is not within the scope and field of the TRDC license and,
therefore, is not within that portion of the Technology received from TRDC.
Neither Frisby nor its Affiliates will challenge the meaning of Technology as
set forth above in this Section with respect to any period during which this
Agreement is in effect. However, an agreement by Outlast that restricts the
scope of Outlast's license under the TRDC License, or an award or court judgment
that is binding on Outlast and restricts the scope of Outlast's license under
the TRDC License, in a challenge by any person or entity other than Frisby or
its Affiliates, will inure to Frisby's benefit hereunder by restricting the
definition and scope of "Licensed Products" to those within the so restricted
scope of the TRDC License, to the extent applicable. Frisby and its Affiliates
will not encourage or support (other than any support which is required to be
given under law) any third party in making any such challenge.
ARTICLE 3
FEES AND ROYALTIES
In consideration of the grant of license to Frisby as provided in Article 2,
Frisby shall make the following payments under this Article 3 to Outlast.
3.1 License Fees.
a. Patent License. Frisby shall pay to Outlast a patent use license fee
of One-Hundred Thousand Dollars ($100,000) to be paid upon execution of this
Agreement. By payment of this fee, Frisby and its Customers shall be deemed
licensed hereunder for all sales by Frisby of Licensed Products prior to January
1, 1998.
3.2 Patent Use Royalties. Commencing as of January 1, 1998, Frisby shall pay
the following patent use royalties for sales by Frisby and its Affiliates of
Licensed Products intended for incorporation into End-Use Products, where either
the Licensed Products or the End-Use Products are covered by at least one Valid
Claim:
a. Exclusive Rights. [This information has been omitted in accordance
with a Confidential Treatment Request and has been filed separately with the
Commission.] of Licensed Products sold during the period of time of this
Agreement in which Frisby's rights as provided in Section 2.1 are exclusive with
respect to such Licensed Products.
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b. Non-Exclusive Rights. [This information has been omitted in accordance
with a Confidential Treatment Request and has been filed separately with the
Commission.] of Licensed Products sold during the period of time of this
Agreement in which Frisby's rights are non-exclusive with respect to such
Licensed Products.
3.3 Sublicensee Royalty. In addition to the provisions of Section 3.2, Frisby
shall pay to Outlast sublicense royalties based on any and all remuneration,
other than as consideration for the sale of Licensed Products, received by
Frisby and its Affiliates with respect to Licensed Products or End-Use Products.
Without limiting the generality of the foregoing, such remuneration may come
from Customers of Licensed Products or their customers who manufacture End-Use
Products. Such remuneration may include, without limitation, any remuneration
relating to the use of any trademark in which Frisby has rights, but shall not
include remuneration paid to Frisby by its Customers for research, development,
or technical support services. The sublicense royalties shall be (i) [This
information has been omitted in accordance with a Confidential Treatment Request
and has been filed separately with the Commission.] while Frisby's rights under
this Agreement are exclusive; or (ii) [This information has been omitted in
accordance with a Confidential Treatment Request and has been filed separately
with the Commission.] while Frisby's rights under this Agreement are
non-exclusive (which exclusivity or non-exclusivity shall be determined without
regard to Section 2.4).
3.4 Minimum Annual Payments. In order to maintain the exclusivity of the rights
granted in Section 2.1, Frisby must pay, within the time period specified in
Section 3.6, the minimum annual payments as set forth below for each particular
year:
1998 $150,000
1999 $250,000
2000 $400,000
2001 $500,000
2002 $600,000
a. Subsequent Years. If prior to the expiration of the initial
exclusivity period in 2002, Frisby elects in writing to extend the exclusive
period of Section 2.1 through calendar year 2007, the minimum annual payment for
each of the years 2003 through 2007 shall be $1,000,000. If the Parties mutually
agree in writing to extend the exclusive period of Section 2.1 for an additional
five-year term beginning with calendar year 2008, the minimum annual payment for
each of such additional years shall be determined by mutual agreement. This
Agreement shall automatically become non-exclusive on the later of January 1,
2003 or the first day of January following any extension(s) specified in the
preceding two sentences, and once the Agreement becomes non-exclusive, Frisby
shall no longer be obligated to make minimum annual payments as set forth above.
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b. Offsets. Minimum annual payments, otherwise required to be paid by
Frisby to Outlast, shall be offset by one-hundred percent (100%) of all
royalties paid to Outlast with respect to any given calendar year of this
Agreement as specified in Sections 3.2 and 3.3 only.
c. Failure to Make Minimum Annual Payments. If Frisby fails to pay
Outlast minimum annual payments, as set forth in this Section 3.4 in any year,
then the exclusive rights granted to Frisby pursuant to this Agreement shall
immediately become non-exclusive, and Frisby shall no longer be obligated to
make minimum annual payments as set forth above. Notwithstanding anything herein
to the contrary, once Frisby's rights have become non-exclusive due to a failure
to make minimum annual payments, Frisby shall not be entitled to elect to
restore exclusivity as provided in Section 3.4(a).
3.5 Payment for Use of Proprietary Information. The patent use royalty rate as
set forth in Section 3.2 above shall not be reduced so long as there is
worldwide at least one patent or one pending patent application with a Valid
Claim covering any Licensed Product or End-Use Product. The Parties acknowledge
that Outlast has provided Proprietary Information to Frisby in order to assist
in the sales of Licensed Products and End-Use Products. Therefore, in the event
that there is no patent or pending patent application worldwide with a Valid
Claim covering any Licensed Product or End-Use Product, Frisby shall pay to
Outlast [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.] of that
amount specified in Section 3.2 for Licensed Products as a payment for the value
of above-referenced information provided by Outlast to Frisby. Notwithstanding
anything herein to the contrary, this Section 3.5 shall not apply with respect
to a sale in any country if it is in conflict with the laws of such country as
of the date in conflict.
3.6 Payments. Payments of monies owed under this Agreement shall be made within
forty-five (45) days following the close of each calendar quarter or when
otherwise due hereunder. Minimum annual payments, net of offsets, will be paid
within forty-five (45) days following the close of the 4th Quarter of each
calendar year.
3.7 Interest on Late Payments. If for any reason any payments owing to Outlast
are not paid when due, interest shall be payable on the unpaid balance at a rate
of one and one-half percent (1.5%) per month.
3.8 Allocation of Consideration. For purposes of determining its Net Selling
Price or the amount of remuneration received other than as consideration for the
sale of Licensed Products, Frisby shall fairly allocate revenues derived from a
single transaction or a series of related transactions with the same party
between (i) revenues which relate to the Licensed Products and (ii) revenues
which relate to the license or transfer of unrelated products of the provision
of services. Without limiting the generality of the foregoing, it is the
intention of the Parties that while Frisby shall be free to determine its
pricing, for purposes of determining its Net Selling Price or the amount of
remuneration received other than as consideration for the sale of Licensed
Products, Frisby shall allocate the aggregate revenues derived from a single
transaction or a
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series of related transactions with the same party in proportion to the
respective reasonable fair market value of the Licensed Products or the rights
relating thereto and the unrelated products or services in the transaction(s).
For purposes of determining royalties, transactions between Frisby and its
Affiliates shall be ignored and the final transaction by Frisby or one of its
Affiliates with a Customer which is not an Affiliate of Frisby, or their
customers who manufacture End-Use Products, shall be controlling.
ARTICLE 4
RECORD KEEPING AND REPORTING
4.1 Records. Frisby shall keep, at its principal place of business, complete
and accurate records and books of account showing quantities of each Licensed
Product maintained as inventory, sold or otherwise disposed of, the Net Selling
Price of each such Licensed Product, and the date of each such sale or
disposition. Frisby shall also keep, at its principal place of business,
complete and accurate records and books of account showing all other
remuneration received by Frisby, if any, from Customers of Licensed Products, or
their customers who manufacture End-Use Products, other than as consideration
for the sale of Licensed Products, with respect to Licensed Products or End-Use
Products, including without limitation any remuneration relating to the use of
any trademark in which Frisby has rights.
4.2 Quarterly Reports. Starting with first quarter of 1998, and not later than
forty-five (45) days after the close of each calendar quarter thereafter, Frisby
shall render written reports to Outlast, signed by a duly authorized officer of
Frisby and certified by such officer as accurate, to the best of his knowledge,
for each month in the preceding quarter of the following: (a) the quantity of
each Licensed Product sold or otherwise disposed of, (b) the Net Selling Price
of each Licensed Product sold or otherwise disposed of, (c) all other
remuneration received by Frisby, if any, from Customers of Licensed Products, or
their customers who manufacture End-Use Products, other than as consideration
for the sale of Licensed Products, with respect to Licensed Products or End-Use
Products, including without limitation any remuneration relating to the use of
any trademark in which Frisby has rights, and (d) the calculation of the
royalties owed to Outlast under Article 3 of this Agreement.
4.3 Annual Report. Frisby shall deliver to Outlast not later than ninety (90)
days after the close of each calendar year during the term of this Agreement (or
portion thereof in the event of prior termination for any reason), a statement
signed and certified by a duly authorized officer relating to said entire year,
setting forth the same information required to be submitted by Frisby in
accordance with Section 4.2 above.
4.4 Inspection. All of Frisby's records pertaining to this Agreement shall be
available for annual inspection and audit by an independent auditor selected
solely by Outlast during the term of this Agreement and for two years
thereafter. At Outlast's sole discretion, Outlast may cause an independent audit
to be made of such books and records in order to verify payments rendered
pursuant to this Agreement. Such inspections or audits shall be conducted during
normal
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business hours at Frisby's place of business upon reasonable advance notice and
not more than once per calendar year. Outlast shall pay the cost of such
independent audit unless the payments made to Outlast are found to be less than
ninety-five percent (95%) of those due to Outlast, in which event Frisby shall
pay the cost of such audit.
4.5 Invoices. For the purpose of facilitating inspection of Frisby's books and
records by Outlast's independent auditor, all invoices, bill, and bills of
lading and similar documents relating to sales and shipments of Licensed
Products shall bear a legend devised by Frisby to identify such Licensed
Products.
ARTICLE 5
DISCOVERIES AND INVENTIONS
5.1 Discoveries and Inventions. Frisby shall be entitled to develop
enhancements, modifications or improvements to the Licensed Products
("Improvement"). For Improvements that are conceived or reduced to practice
during the term of this Agreement, and to the extent they would be owned by
Frisby but for this Agreement, Frisby hereby assigns to Outlast its right, title
and interest in the field of the TRDC License in and to any such Improvements,
including proprietary information, inventions and know-how engendering the same.
To the extent that under applicable law, assignment by Frisby is invalid or
unenforceable, or to the extent the parties may agree that assignment should not
be made, Frisby grants to Outlast a worldwide, exclusive license to make, have
made, use and sell under so much of its rights in the Improvements. Upon
conception of each Improvement, Frisby shall, as soon as practicable, notify
Outlast in writing about the Improvement in accordance with Section 11.3,
including therein a complete description of the Improvement. For three (3)
months following disclosure by Frisby to Outlast, each Improvement shall not be
publicly disclosed, published, demonstrated, offered for sale or otherwise
divulged by Frisby without Outlast's written consent. During the term of this
Agreement, Frisby's license to make, use and sell Licensed Products shall
include non-exclusive rights under Improvements, which rights with respect to
the Improvements shall not require any royalty in addition to that set forth in
Sections 3.2 and 3.3.
5.2 Prosecution of Patent Applications. At the request of Outlast, and through
Outlast's attorneys, Frisby shall file and prosecute patent applications on
Improvements and shall assign or license rights thereto to Outlast, as and to
the extent specified in Section 5.1, all at Outlast's expense.
ARTICLE 6
PATENT MARKINGS
6.1 Patent Marking. Except for MicroPCMs sold by Frisby, Frisby shall mark all
Licensed Products and End-Use Products or their containers sold by Frisby under
this Agreement with the words "Patent No." and the numbers of the patent(s)
applicable to each Licensed Product. If no patent has been issued at the time of
sale or other disposal of Licensed Products by Frisby and the
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Licensed Product is the subject of patent(s) pending, Frisby shall mark all
Licensed Products or their containers with the words "Patent(s) Pending" or
"Patent(s) Applied For". Outlast shall inform Frisby as to the appropriate
patent numbers or patent application numbers for each specific Licensed Product.
Outlast shall be responsible for any mismarkings or false markings by Frisby
based upon the most current information supplied by Outlast at the time of sale
by Frisby. At Outlast's request, and at Outlast's expense, Frisby shall
undertake reasonable efforts to correct any such mismarkings or false markings
by Frisby which were based upon the most current information supplied by Outlast
at the time of sale by Frisby.
ARTICLE 7
TERM & TERMINATION
7.1 Term. Unless this Agreement is extended by mutual written agreement, it
shall automatically terminate on the later of (i) ten years after the date on
which Frisby's license rights become nonexclusive, or (ii) upon expiration of
the last to expire of the patents within the Technology.
7.2 Termination by Frisby. Frisby shall have the right to terminate this
Agreement on ninety (90) days written notice to Outlast.
7.3 Termination by Outlast. Outlast shall have the right to terminate this
Agreement by written notice to Frisby if Frisby fails to cure any breach or
default hereof provided: (i) Outlast gives Frisby notice specifying such breach
or default(s); and (ii) Frisby fails to cure or resolve the breach or default(s)
within ninety (90) days after such notice has been given. Failure of Frisby to
make a minimum annual payment shall give Outlast rights under Section 3.4c, not
rights under this Section 7.3.
7.4 Termination of Rights. Unless otherwise expressly provided, all rights
granted to Frisby by this Agreement shall terminate immediately upon expiration
or termination of this Agreement pursuant to this Article 7. Frisby and its
Affiliates and sublicensees shall immediately cease manufacture of Licensed
Products. Frisby and its Affiliates and sublicensees shall have six months to
use or dispose of their then-existing inventory of Licensed Products in
accordance with the terms of this Agreement, which disposition shall be reported
to Outlast in accordance with Article 4, accompanied by remittance in full of
royalties under Section 3.2 and sublicense royalties under Section 3.3 based
upon the royalty rate in effect as of the date of expiration or termination of
this Agreement. At the end of the six-month period, sales by Frisby and its
Affiliates and sublicensees of Licensed Products shall cease.
7.5 Submission of Report and Payment upon Termination. Upon expiration or
termination of this Agreement for any reason, Frisby shall render a written
report to Outlast stating the quantities and Net Selling Prices of all Licensed
Products sold or otherwise disposed of by Frisby during the period from the time
of the last report as set forth in Article 4 herein to the effective date of the
expiration or termination. The report from Frisby shall be accompanied by a
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remittance in full covering any payments due Outlast as of the effective date of
expiration or termination.
ARTICLE 8
ENFORCEMENT OR DEFENSE OF RIGHTS
AGAINST THIRD PARTIES
8.1 Third Party Infringement. Outlast and Frisby shall notify each other in
writing not more than thirty (30) days after learning of a possible infringement
of the Technology or of any imitation, unauthorized possession, knowledge, or
use of the Technology or of any claim by a third party that the Technology may
be infringing on the rights of a third party.
8.2 Joint Enforcement and Defense.
a. Frisby and Outlast, as party plaintiffs, shall jointly institute
legal proceedings against any third party that is reasonably believed to be
infringing the Technology with respect to a Licensed Product to which Frisby has
exclusive rights under this Agreement to eliminate such infringement.
Furthermore, Outlast and Frisby, as party defendants, shall jointly defend any
action brought by a third party against either Outlast or Frisby or both with
respect to the validity of either Parties' rights in the Technology as they
relate to a Licensed Product marketed by Frisby or its Affiliates, sublicensees
or Customers of Licensed Products, or their customers who manufacture End-Use
Products. Outlast and Frisby shall share equally all costs related to bringing
or defending any such action and shall share equally in any and all settlement
amounts, damages, license fees, and costs recovered or required to be paid
relating to any such action; provided, however, that if a third party's alleged
infringement relates both to a Licensed Product to which Frisby has exclusive
rights under this Agreement and one or more other products for which Frisby has
non-exclusive rights pursuant to Section 2.4 or no rights, Frisby's share of any
costs and any settlement amounts, damages, license fees, and costs recovered or
required to be paid in such action shall be 50% multiplied by the ratio of the
dollar amount of infringement with respect to the Licensed Product to which
Frisby has exclusive rights to the total dollar amount of the infringement.
b. Unless otherwise agreed by the Parties, Outlast shall have the sole
right to institute legal proceedings against any third party that is reasonably
believed to be infringing the Technology with respect to a Licensed Product to
which Frisby has non-exclusive rights under this Agreement to eliminate such
infringement. Outlast shall pay all costs related to bringing any such action.
Frisby, at Outlast's sole expense, shall reasonably cooperate in the prosecution
of any such action. Outlast shall be entitled to receive and retain the full
amount of any and all settlement amounts, damages, license fees, and costs
recovered or required to be paid relating to any such action.
c. With the exception of litigation that already has commenced by the
filing of appropriate pleadings in a court of law, or with respect to claims
which arise during the term of
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this Agreement relating to Frisby's use of the Technology as provided in Section
8.2a, upon expiration or termination of the term of this Agreement, any and all
rights of Frisby in resolving any claims hereunder will revert to Outlast. In
the event litigation has been commenced by Frisby and/or Outlast against a third
party infringer or against Frisby and/or Outlast as provided above within the
term of this Agreement but is not finally resolved by judgment or settlement
within said term, Frisby shall bear the same burden of expense for the
litigation or settlement thereof and will share in the recovery of such
litigation or settlement thereof, as if such litigation had been finally
resolved within the term of this Agreement.
8.3 Frisby's Failure to Enforce or Defend. In the event that Frisby fails to
jointly enforce or defend the Technology in breach of Section 8.2, Outlast may
institute legal proceedings against a third party infringer and shall defend
legal proceedings filed against it at its sole cost and expense and shall retain
all amounts received in costs, settlement or damages. Furthermore, if Frisby
fails to jointly enforce or defend the Technology and/or fails to pay its share
of the costs related to such defense or enforcement in breach of Section 8.2,
then the rights granted to Frisby pursuant to this Agreement shall immediately
become non-exclusive, which shall be Outlast's sole remedy with respect to such
failure by Frisby.
8.4 Joint Representation. Outlast and Frisby shall make every effort to agree
on representation by one lead counsel who is the most knowledgeable about the
Technology, as well as the claims involved in order to promote efficiency and to
reduce expenses incurred in the enforcement or defense of rights against third
parties. If the parties involved can not reach a decision on lead counsel,
Outlast shall make the final selection. Any party may choose to be separately
represented, however, in that instance, such party shall pay its own legal fees
and costs for such separate representation in addition to its share of the costs
related to joint representation.
8.5 Cooperation. The Parties shall cooperate fully in the enforcement or
defense of rights pursuant to this Article 8 including without limitation,
releasing information and documents relevant thereto and participation in any
litigation brought hereunder, to the extent specified.
8.6 Payment Obligations During Litigation. Frisby's obligation to pay royalties
and other sums due under this Agreement shall remain in full force and effect
during any litigation instituted pursuant to this Article 8 or during any
litigation or other dispute between the Parties.
ARTICLE 9
WARRANTY, LIABILITY, AND INDEMNIFICATION
9.1 Proprietary Rights Warranty. Outlast warrants that as of the date it
executes this Agreement, it knows of no claim of any third party relating to the
infringement by Outlast of such third party's rights in any patent or other
proprietary right relating to the use of the Technology. Frisby warrants that as
of the date it executes this Agreement, it knows of no claim of any third party
relating to the infringement by Frisby of such third party's rights in any
patent or other proprietary right relating to the use of Frisby's intellectual
property or Proprietary Information. In
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addition, each Party warrants that this Agreement does not contravene any other
agreement to which it is a party or it certificate of incorporation or by-laws.
9.2 TRDC License. Outlast warrants that to the best of its knowledge, (i) the
TRDC License is valid and binding upon TRDC and Outlast and is in full force and
effect, and (ii) Outlast has the right under the TRDC License to grant the
rights granted to Frisby pursuant to this Agreement.
9.3 Limitation of Liability. OTHER THAN AS EXPRESSLY SET FORTH IN SECTIONS 9.1
AND 9.2 ABOVE, FRISBY ACKNOWLEDGES AND AGREES THAT OUTLAST HAS NOT MADE, DOES
NOT MAKE, AND HEREBY DISCLAIMS, ANY REPRESENTATION, GUARANTY, CONDITION,
COVENANT OR WARRANTY OF ANY KIND WITH RESPECT TO ITS TECHNOLOGY, WHETHER WRITTEN
OR VERBAL, EXPRESS OR IMPLIED, IN FACT OR AT LAW, INCLUDING WITHOUT LIMITATION
ANY IMPLIED WARRANTY OF MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR USE.
EXCEPT WITH RESPECT TO INDEMNIFICATION OBLIGATIONS UNDER SECTION 9.4 OR BREACHES
OF ARTICLE 10, NEITHER PARTY SHALL, UNDER ANY CIRCUMSTANCE, BE LIABLE TO THE
OTHER FOR CONSEQUENTIAL, INDIRECT, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREIN, EVEN IF SUCH PARTY WAS APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES
OCCURRING.
9.4 Indemnification.
a. Use of Technology: Frisby. Frisby shall indemnify, defend, and hold
harmless Outlast from any and all claims, liabilities, losses, damages, costs,
and expenses (including reasonable attorneys fees and costs) which Outlast or
Frisby may sustain, whether for personal injury or otherwise, by reason of or as
a result of Frisby's (or its employees, officers, agents, or any person
connected with its business) design, operation of its business, marketing,
manufacture, or distribution of Licensed Products, including but not limited to:
(i) unfair or fraudulent advertising claims, warranty claims, and claims for
unauthorized use of any intellectual property right owned by a third party; (ii)
product defect or liability claims pertaining to the Licensed Products; and
(iii) failure to comply with any laws or regulations, including all of the
United States import/export laws and regulations.
b. Use of Technology: Outlast. Outlast shall indemnify, defend, and
hold harmless Frisby from any and all claims, liabilities, losses, damages,
costs, and expenses (including reasonable attorneys' fees and costs) which
Outlast or Frisby may sustain, whether for personal injury or otherwise, by
reason of or as a result of Outlast's (or its employees, officers, agents, or
any person connected with its business) design, operation of its business,
marketing, manufacture, or distribution of products made with or containing
Improvements, including but not limited to: (i) unfair or fraudulent advertising
claims, warranty claims, and claims for
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unauthorized use of any intellectual property right owned by a third party; (ii)
product defect or liability claims pertaining to such products; and (iii)
failure to comply with any laws or regulations, including all of the United
States import/export laws and regulations.
9.5 Insurance.
a. Frisby shall maintain, at its own expense in full force and effect
at all times during which Licensed Products are sold, product liability
insurance providing coverage against product liability claims relating to the
Licensed Products in an amount not less than $2,000,000.
b. Outlast shall maintain, at its own expense in full force and effect
at all times during which products made with or containing Improvements are
sold, product liability insurance providing coverage against product liability
claims relating to products made with or containing Improvements in an amount
not less than $2,000,000.
ARTICLE 10
CONFIDENTIALITY
10.1 Protection of Proprietary Information. Neither Party shall disclose or
permit any of their respective Recipients to disclose any of the other Party's
Proprietary Information. Neither Party shall use or permit any of their
respective Recipients to use any of the other Party's Proprietary Information
for any purpose other than the purposes of this Agreement. Neither party shall
photocopy, transcribe, or otherwise reproduce any of the other Party's
Proprietary Information, except as may be necessary for its use of a Party's
Proprietary Information for the purposes of this Agreement. Each of the Parties
shall (i) notify the other Party immediately of any unauthorized possession,
use, or knowledge of the other Party's Proprietary information; (ii) promptly
furnish full details of such possession, use, or knowledge to the other Party;
and (iii) reasonably cooperate with the other Party in any litigation against
third parties as may be deemed necessary by the other Party to protect its
proprietary rights in that Party's Proprietary Information. Each of the Parties
shall return, and shall cause their Recipients to return, all copies,
transcriptions, or other reproductions of, and any notes relating to, the other
Party's Proprietary Information to the other Party upon either: (a) the
accomplishment of the purpose for which the Proprietary Information was
provided, or (b) the expiration or termination of this Agreement. The Parties
acknowledge and agree that the other Party would be irreparably harmed if any of
a Party's Proprietary Information were to be disclosed to third parties, and
further agree that each Party shall have the right to seek and obtain injunctive
relief upon any violation of this Section 10.1, in addition to all of the rights
and remedies available at law or in equity. This Section shall not apply to
technical information regarding MicroPCMs per se or MicroPCM Foam per se or the
manufacturing of either.
10.2 Permitted Disclosures. Notwithstanding anything herein to the contrary, the
obligations of this Article 10 shall not apply with respect to any of a Party's
Proprietary Information that (i) was in the public domain at the time of
disclosure or subsequently entered the public domain other
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than through a breach of this Article 10, (ii) was in the possession of the
Recipient free of any obligation of confidentiality at the time of communication
to the Recipient, (iii) was rightfully communicated to the Recipient free of any
obligation of confidentiality subsequent to the time of communication to the
Recipient, or (iv) was independently developed by the Recipient or its employees
or agents. Frisby shall be permitted to disclose the introductory paragraph,
Article 1 (to the extent the terms used therein are used in Sections 2.1, 2.2,
2.3, 2.4 and 7.1), and Sections 2.1, 2.2, 2.3, 2.4, 5.1, 7.1, 7.2, 7.3 and 7.4
of this Agreement to sublicensees and potential sublicensees and Customers and
potential Customers who agree to hold the terms thereof in confidence. Outlast
and Frisby shall be permitted to disclose this Agreement to investors and
potential investors (i) who agree to hold its terms in confidence or (ii) as
required by law, regulation or order.
10.3 Term. The Parties agree that the obligations of each Party with respect to
any portion of the other party's Proprietary Information under this Agreement
shall extend until the earlier of (i) such time as the portion of the
Proprietary Information in question falls within one of the exceptions set forth
in Section 10.2 of this Agreement, and (ii) ten (10) years from the date on
which such Proprietary Information was first disclosed to the other Party.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Status of Parties. Nothing contained in this Agreement shall be deemed or
construed as creating a joint venture or partnership between the Parties.
Neither Party shall have the power to control the activities and operations of
the other and their status is, and at all times will continue to be, that of
independent contractors with respect to each other. Neither Party shall hold
itself out as having any authority or relationship in contravention of this
Section 11.1, and neither Party shall act on behalf of the other Party or enter
into any contracts, warranty, or representation as to any other matter on the
behalf of the other Party.
11.2 Effect of Waiver. No waiver whether express or implied, of any breach of
any term, condition, or obligation of this Agreement shall be construed as a
waiver of any subsequent breach of that term, condition, or obligation, or any
other term, condition, or obligation of this Agreement of the same or different
nature.
11.3 Notices. All notices or other communications which are required to be given
or may be given to Parties pursuant to the terms of this Agreement shall be
given in writing and delivered personally or by registered or certified mail,
postage prepaid. Notice shall be deemed given on the date of delivery in the
case of personal delivery or on the delivery date as specified in the return
receipt in the case of registered or certified mail. Notices to be given to
Outlast shall be addressed to Mr. Jonathan J. Erb, President, Outlast
Technologies, Inc., 6235 Lookout Road, Boulder, CO 80301, with a copy to Holland
& Hart LLP, 555 Seventeenth Street, Suite 3200, Denver, Colorado 80202,
Attention: Kevin S. Crandell. If given to Frisby, it shall be addressed to Mr.
Greg Frisby, CEO, Frisby Technologies, Inc., 417 South Main Street, Freeport, NY
11520,
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with a copy to Fish & Richardson P.C., 45 Rockefeller Plaza, Suite 2800, New
York, New York 10011, Attention: William J. Hone. Either Party hereto may at any
time, by thirty (30) days written notice to the other, designate any other
person or address in place of those provided in this Section 11.3.
11.4 Severability. The Parties acknowledge and agree that, should any provision
of this Agreement be determined to violate or contravene any law, such provision
shall be severed or modified to the extent necessary to comply with the
applicable law, and such modified provision and the remainder of the provisions
hereof shall continue in full force and effect.
11.5 Successors and Assigns. This Agreement shall inure to the benefit of the
successors, or assigns of the Parties. The license granted by this Agreement
shall be binding on any successor to ownership or control of the Licensed
Products. Frisby shall not have any right to assign or, except as provided under
this Agreement, sublicense its rights under this Agreement without the sole
written consent of Outlast, which shall not be unreasonably withheld. Name
changes and changes of the state of incorporation shall not require approval.
Outlast shall be able to assign its rights under this Agreement freely and
without constraint. In the event of a merger or consolidation between Outlast
and a surviving corporation, or if an entity purchases or otherwise acquires
all, or substantially all, of the assets of that segment of Outlast's business
relating to the subject matter of this Agreement, Outlast shall be able to
assign this Agreement as a whole to the surviving corporation or purchasing or
acquiring entity and, thereafter, Outlast shall have no further liability to
Frisby pursuant to this Agreement; provided, however, that such surviving or
acquiring entity first agrees in writing to be bound by the terms and conditions
of this Agreement.
11.6 Modification. Except as specifically provided otherwise herein, this
Agreement shall only be modified by written agreement of both Parties.
11.7 Binding Arbitration. Any disputes between the Parties relating to or
arising out of the interpretation or performance of this Agreement, shall be
finally settled in Denver, Colorado, by arbitration under the rules then in
effect of the American Arbitration Association by three arbitrators appointed in
accordance with such rules. The arbitrators shall decide the issues presented
applying the substantive laws of the State of Colorado, without regard to the
conflicts of laws principles of such state, except as to the patentability,
validity, enforceability, scope or infringement of patents and patent
applications, which shall be governed by the law of the granting jurisdiction.
The award of the arbitrators shall be in writing, shall be final and binding
upon the Parties and shall not be appealed from or contested in any court. The
arbitrators shall have the authority to award any remedy or relief that a court
of the State of Colorado could order or grant, including, without limitation,
specific performance of any obligation created under this Agreement, the
issuance of an injunction, or the imposition of sanctions for abuse or
frustration of the arbitration process. No Party shall, in connection with any
proceedings held pursuant to this Section 11.7, be required to furnish any bond.
Should either Party fail to appear or be represented at the arbitration
proceedings after due notice in accordance with the rules, then the arbitrators
may nevertheless render a decision in the absence of said Party and such
decision shall
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have the same force and effect as if the absent Party had been present, whether
or not it shall be adverse to the interests of said Party. Any award rendered
hereunder may be entered for enforcement, if necessary, in any court of
competent jurisdiction, and the Party against whom enforcement is sought shall
bear the expenses, including attorneys' fees, of enforcement. The prevailing
party in any arbitration brought pursuant to this Section 11.7 or other suit
relating to this Agreement shall be entitled to its costs and reasonable
attorneys' fees.
11.8 Injunctive Relief. The Parties acknowledge that the Technology possesses a
special, unique, and extraordinary character which makes difficult the
assessment of the monetary damage which would be sustained by Outlast as a
result of Frisby's breach of this Agreement, and that irreparable injury would
be caused to Outlast by such breach. Accordingly, Outlast shall have the right
to seek and obtain immediate and permanent injunctive and other equitable
relief, without the necessity of posting a bond, cash or otherwise, in the event
of a breach of this Agreement by Frisby, in addition to any and all rights or
remedies otherwise available to Outlast at law or in equity.
11.9 Authorization. The Parties acknowledge that this Agreement is valid,
legal, and binding upon such Party. Outlast represents and warrants that the
person signing this Agreement on behalf of Outlast is duly authorized to bind
Outlast to the terms and conditions of this Agreement. Frisby represents and
warrants that the person signing this Agreement on behalf of Frisby is duly
authorized to bind Frisby to the terms and conditions of this Agreement.
11.10 Headings and Captions. The headings or captions in this Agreement are
inserted for convenience and identification only and are in no way intended to
describe, interpret, define, or limit the scope, extent, or intent of this
Agreement or any provisions hereof.
11.11 Entire Agreement. The Parties agree that this Agreement contains the
entire understanding and Agreement between the Parties and supersedes all
previous communications, proposals, representations, and agreements, whether
oral or written, and whether related in any way to the purpose of this Agreement
or not. This Agreement is binding upon the Parties and neither Party shall
challenge its validity. This Agreement shall not be construed against the
drafting Party solely because of the submission of the Agreement to the other
Party. Each Party has had an opportunity to consult with its own legal counsel
and has not relied upon representations or warranties of the other Party except
as set forth in this Agreement.
11.12 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same instrument.
11.13 Choice of Law and Jurisdiction. This Agreement shall be interpreted in
accordance with the laws of the State of Colorado, without regard to the
conflicts of laws principles of such State, except as to the patentability,
validity, enforceability, scope or infringement of patents and patent
applications, which shall be governed by the law of the granting jurisdiction
and Frisby submits itself to personal jurisdiction in the state of Colorado.
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11.14 Survival. Except as otherwise provided herein, the provisions of this
Agreement that by their sense and context are intended to survive performance by
either or both parties shall also survive the expiration or termination of this
Agreement.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE DULY
EXECUTED, IN DUPLICATE, AS OF THE EFFECTIVE DATE.
OUTLAST TECHNOLOGIES, INC.
BY: \s\Jonathan Erb
- ------------------------------------------
NAME: Jonathan Erb
- ------------------------------------------
TITLE: President/CEO DATE: 1/9/98
FRISBY TECHNOLOGIES, INC.
BY: \s\Greg Frisby
- ------------------------------------------
NAME: Greg Frisby
- ------------------------------------------
TITLE: Chairman and CEO DATE: 1/9/98
---------------- ------
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Exhibit 10.9
LICENSE AGREEMENT DATED MARCH 31, 1997 BETWEEN
THE COMPANY AND FLY TECHNOLOGIES, INC.
INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
<PAGE>
LICENSE AGREEMENT
This License Agreement, entered into this 31st day of March, 1997 (referred to
as the "Agreement") is between:
FLY TECHNOLOGIES, INC., a corporation doing business at 7450 Whitehall Street,
Fort Worth, Texas, 76118, hereinafter referred to as "Fly Tech ", and
Frisby Technologies, Inc., a corporation organized under the laws of the State
of North Carolina, with its principal place of business at 417 South Main
Street, Freeport, New York 11520, hereinafter referred to as "Frisby".
RECITALS
WHEREAS, Frisby is the exclusive worldwide licensee of certain patented and
proprietary thermal management technologies and information relating to
microencapsulated phase change materials (hereinafter "MicroPCMs") with the
right to sublicense; and
WHEREAS, Fly Tech wishes to sublicense Frisby's technologies relating to
MicroPCMs for Fly Tech's exclusive use in selected products for the worldwide
fishing and hunting gear marketplace; and
NOW, THEREFORE, in consideration of the premises and covenants herein contained,
receipt of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
1.01 MicroPCMs. "MicroPCMs" means microencapsulated phase change materials.
1.02 Thermasorb. "Thermasorb" means ThermasorbTM which is the name of Frisby's
thermal additive products based upon its licensed MicroPCM technology.
Thermasorb is a trademark of Frisby.
1.03 ComforTemp. "ComforTemp" means ComforTempTM which is the name of Frisby's
insulating foam products based upon Frisby's licensed MicroPCM technology.
ComforTemp is a trademark of Frisby.
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1.04 Technology. "Technology" means all of Frisby's interest in any inventions,
developments, proprietary information, patents, trademarks, trade names, trade
secrets, know-how and improvements, whether present or future, relating to
MicroPCMs, Thermasorb, and ComforTemp and their incorporation into commercial,
industrial and military products, but specifically excluding fibers or fabrics
which are coated or embedded with MicroPCMs.
1.05 End-Use Product. "End-Use Product" means
(a) insulated waders for fishing, hunting, or other outdoor sports or
activities; and, (b) any other item containing the Technology or
service performed incorporating the Technology into any product that is
presently, or may one day be, a sellable product or service of Fly
Tech, and which is approved by Frisby as being within the scope of the
license granted by this Agreement.
1.06 Royalty. "Royalty" means [This information has been omitted in accordance
with a Confidential Treatment Request and has been filed separately with the
Commission.]
1.07 Sublicensee Payments. "Sublicensee Payments" means all monies or other
consideration received by Fly Tech from any sublicensees for use of the
Technology.
1.08 Patent. "Patent" means all patents and applications for patents, including,
but not limited to, those that are identified in Exhibit "B" and foreign
counterparts thereof, as well as all continuations, continuations-in-part,
divisions and renewals of such Patents. Additionally, Patent means all further
patents which may be granted regarding a Patent, as well as all reissues,
reexaminations, extensions, patents of additions, patents of importation
thereof, and any common law rights associated with such Patents.
1.09 Proprietary Information. " Proprietary Information" means all of the
following information and materials, whether or not patentable or protected by a
copyright, to which Fly Tech receives, or has received, access or which Fly Tech
develops or has developed, all or in part, as a result, whether direct or
indirect, of the Agreement set forth herein: (i) Frisby's: production processes,
marketing techniques, purchasing or supply information, price lists, financial
information, customer names and requirements, customer data and other
information relating to the MicroPCMs, Thermasorb, ComforTemp and/or any
derivation thereof; (ii) discoveries, context and ideas, and the embodiment
thereof, including without limitation the nature and results of research and
development activities, processes, formulations, techniques and "know how";
(iii) any other materials or information directly related to the MicroPCMs,
Thermasorb, ComforTemp and any technology derived from these items; and (iv) all
inventions and ideas which are derived from, or relate to, Fly Tech's access to
or knowledge of any of the above-enumerated materials and information.
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1.10 Net Sales Revenues. "Net Sales Revenues" means the revenues generated by or
to Fly Tech from the sale, lease, or use of End-Use Products whether during the
term of this Agreement or subsequently, less the following amounts: reasonable
discounts, rebates, or returns actually allowed or granted, all applicable taxes
related to the sale and/or use of the End-Use Product, and initial
transportation charges of the End-Use Products to customers.
1.11 Effective Date. This Agreement is effective when duly signed by the Parties
and Frisby receives the Fee, or the initial installment of the Fee as the case
may be.
ARTICLE II - GRANT OF LICENSE
2.01 Exclusive License. Frisby grants to Fly Tech a worldwide license to utilize
the Technology in order to make, use, sublicense, sell and lease End-Use
Products, including but not limited to the right to use Frisby's ComforTemp and
Thermasorb Trademarks in the promotion, advertising, and marketing of such
products. This License is exclusive with respect to utilizing the Technology in
the End-Use Products, but does not preclude or limit Frisby from licensing the
Technology to others for products and services other than those listed in this
Agreement as End-Use Products or which Frisby subsequently acknowledges in
writing to be End-Use Products. Any sublicensing by Fly Tech may only be for
End-Use Products and shall require that any sublicensee use Frisby as the sole
source of supply for ComforTemp and Thermasorb. Fly Tech will not disclose the
Technology to any sublicensee or subcontractor unless that party has agreed in
writing to hold all Proprietary Information in confidence and to use the
Technology solely for the purpose of designing, developing, manufacturing,
assembling or selling the End-Use Products or their components for Fly Tech.
2.02 Term of Agreement. The initial term of this Agreement is for a period
beginning with the Effective Date and ending at 11:59 p.m. on December 31, 1999.
Provided Fly Tech is not in breach of this Agreement and Fly Tech places a
binding purchase order with Frisby not later than May 31, 1999 for at least
50,000 yards of ComforTemp foams to support Fly Tech's fiscal year 2000
production, this Agreement will be automatically extended for an additional one
(1) year period until 11:59 p.m. on December 31, 2000.
2.03 Relationship of Parties. Each party is an independent contractor and under
no circumstances shall any party be deemed to be a legal representative, express
or implied agent, or employee of another party. No act of any party, and no
assistance given from one party to the other, shall be construed to alter this
independent contractor relationship.
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ARTICLE III - PROVISION OF COMFORTEMP AND THERMASORB
3.01 Provision of Thermasorb and ComforTemp. Sole Source Supply. The sole source
of supply for all Thermasorb and ComforTemp to Fly Tech (for use by Fly Tech,
its subcontractors, sublicensees, or affiliates) to support product development
and production shall be Frisby, unless Frisby provides an express written waiver
of that right and any such waiver will be only as to a particular order and not
of Frisby's right to be the sole source of supply under this Agreement. Frisby
shall arrange for the supply of all Thermasorb and ComforTemp required by Fly
Tech, its subcontractors, Sublicensees, and/or affiliates.
3.02 Purchase Requirement. At the time of signing this Agreement, Fly Tech
agrees to place a purchase order with Frisby for each type and thickness of
ComforTemp foam desired by Fly Tech. The purchase order, and any subsequent
purchase orders, shall reflect the volume desired in each variety of ComforTemp,
minimum purchase requirements, minimum delivery requirements, and shall be based
on Frisby's then current price list. A current price list is attached to this
Agreement as Exhibit A and Frisby agrees to honor such price list for period of
at least thirty (30) days after this Agreement is fully signed by the parties.
In order to obtain favorable volume discounts, Frisby grants Fly Tech the right
to submit a binding purchase order for all of Fly Tech's anticipated ComforTemp
foam needs during the initial term of this Agreement. This special purchase
right expires thirty (30) days after the Effective Date. The exercise of this
right by Fly Tech does not limit Fly Tech's ability to subsequently purchase
additional quantities of ComforTemp foam at the then current pricing.
3.03 Delivery of Product. Fly Tech agrees to submit its purchase orders to
Frisby at least ninety (90) days in advance of Fly Tech's on-dock need dates.
Further, Fly Tech agrees to maintain an adequate on-hand inventory of ComforTemp
to support all its orders due within ninety (90) days. Delivery of goods shall
be F.O.B. at the site of ComforTemp manufacture, unless otherwise agreed in a
writing signed by both Fly Tech and Frisby.
ARTICLE IV - PAYMENTS
4.01 Payments to Frisby. All amounts owed by Fly Tech to Frisby for supply of
Thermasorb and ComforTemp or any products or services related thereto provided
by Frisby to Fly Tech shall be paid within thirty (30) days after billing by
Frisby. Frisby will bill Fly Tech for such products at the time the products are
shipped to Fly Tech.
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4.02 Fee. Fly Tech acknowledges upon signing of this Agreement a Fee of [This
information has been omitted in accordance with a Confidential Treatment Request
and has been filed separately with the Commission.]
4.03 Active Promotion By Fly Tech. As consideration for the license granted
under this Agreement, Fly Tech agrees to pursue active promotional efforts for
the End-Use Products. At a minimum, active promotional efforts means Fly Tech
will:
[a] design and produce at least one (1) style of End-Use
Product for Fly Tech's 1997 product line which will be introduced and promoted
at the September 1997 Flyfishing Show;
[b] design several End-Use Products for the 1998 product line
of Fly Tech and/or its affiliates;
[c] actively support leading retailers who wish to create
private label waders that incorporate ComforTemp by promptly responding to
inquiries, providing samples and requisite information, and providing such other
encouragement and support as needed to create a private label wader for the
retailer;
[d] aggressively promote the sale of End-Use Products by, at a
minimum, prominently displaying the End-Use Products at all appropriate fishing,
hunting, and outdoor trade shows;
[e] include End-Use Products as part of any Fly Tech
sponsored tournaments or events, with the ComforTemp name and its Trademark
prominently featured in all promotional materials;
[f] prominently feature the ComforTemp name and its Trademark
in all brochures, advertising and promotional literature that promote the
End-Use Products;
[g] prominently display the ComforTemp name and its Trademark
on "hang tags" on all End-Use Products; and
[h] feature the ComforTemp name and its Trademark in all
consumer advertising related to End-Use Products.
4.04 Royalty Payments. In addition to the active promotional efforts, Fly Tech
agrees to pay Frisby [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.] The Royalties due shall be paid to Frisby within thirty (30) days
following the end of each calendar quarter in which the sales occur.
4.05 Sublicensee Payments. In addition to the active promotional efforts and
Royalties, Fly Tech agrees to pay Frisby [This information has been omitted in
accordance with a Confidential Treatment Request and has been filed separately
with the Commission.] Such payments shall be due and payable to Frisby within
thirty days following the end of each calendar quarter in which payments were
received by Fly Tech.
4.06 Records Inspection. Fly Tech shall maintain adequate books and records in
connection with activity under this Agreement. Once per year Frisby may audit
the
5
<PAGE>
relevant books and records of Fly Tech to ensure compliance with the terms of
this Agreement upon reasonable written notice to Fly Tech. Any such audit shall
be conducted during regular business hours at Fly Tech's offices and shall not
interfere unreasonably with Fly Tech's business activities. Fly Tech agrees in
advance to provide all information reasonably relevant to conducting such an
audit and that all information provided will be true and correct to the best of
Fly Tech's knowledge.
ARTICLE V - INTELLECTUAL PROPERTY
5.01 Frisby's Intellectual Property. Fly Tech acknowledges that the Technology
and the chemical formulations of Thermasorb and ComforTemp are proprietary and
confidential and constitute valuable commercial assets of Frisby. Fly Tech, and
any of its related parties, consultants, subcontractors, sublicensees, or
affiliates, shall not incorporate the Technology in any applications other than
those licensed to Fly Tech under this Agreement.
5.02 Reports of Technical Results. Fly Tech agrees that all information and
evaluation results generated by Fly Tech, its consultants, subcontractors,
affiliates, or sublicensees, or otherwise obtained during the term of this
Agreement, which are related to the Technology, shall be the exclusive property
of Frisby, with rights to same licensed to Fly Tech for the term of this
Agreement.
5.03 Reporting Obligations. If Fly Tech or its employees, contractors,
affiliates, agents, or sublicensees makes a discovery or invention during the
term of this Agreement which relates to the Technology, Fly Tech shall promptly
make such discovery known to Frisby in writing. If the parties jointly develop,
or Fly Tech independently develops, patentable intellectual property related to
the Technology, then that technology will be deemed Technology under this
Agreement and licensed to Fly Tech accordingly.
5.04 Trademarks. ComforTemp and Thermasorb are Frisby's Trademarks regarding the
Technology licensed in this Agreement. Except for the licensed right to use
Frisby's Trademarks as set forth herein, during the term of this Agreement and
any time after, Fly Tech shall not obtain any right, title or interest to
Frisby's Trademarks. All licensed products sold by Fly Tech under the terms of
this License Agreement shall appropriately reference one or more of Frisby's
Trademarks for ComforTemp or Thermasorb, as designated by Frisby. Further, Fly
Tech shall not obtain at any time Trademarks or use any Tradenames that are
confusingly similar (as that term is construed under federal trademark law) to
the Trademarks that are the subject of this Agreement .
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ARTICLE VI - REPRESENTATIONS AND WARRANTIES
6.01 Representation. Frisby represents that it is the exclusive worldwide
licensee of and has the right to license or sublicense the Technology, that it
has not and will not enter into any conflicting agreement, and that it will pay
any renewal or other fees and take any other action necessary for the
maintenance of the Patents, Trademarks, and License and to maintain the
confidential nature of the Proprietary information in light of the Royalties
paid under this Agreement. If use of the Technology is enjoined, Frisby shall
provide a suitable substitute or refund all License Fees paid under this
Agreement
6.02 Indemnification. Frisby agrees to protect, defend, indemnify and hold Fly
Tech harmless from any action brought by a third party alleging an infringement
based on the use of the Technology by Fly Tech as licensed under this Agreement.
The monetary limit of this indemnity is reasonable defense costs and the extent
of Fees paid to Frisby under this Agreement. Under this indemnity provision, the
term "Fees" includes Royalties if Fly Tech is ordered as part of the
infringement action to disgorge any part of the sales revenue which generated
the Royalties. This indemnification specifically excludes any action brought by
a third party which claims that Fly Tech has breached any prior or existing
agreement with the third party. Further, Fly Tech agrees to protect, defend,
indemnify and hold Frisby harmless for reasonable defense costs arising from any
action against Frisby which arises out of any such contract action .
ARTICLE VII - TECHNICAL AND MARKETING ASSISTANCE
7.01 Support. The parties agree to use their mutual best efforts in support of
the development and introduction of new products which incorporate the
Technology, as well as the promotion and sales of the End-Use Products. As to
Fly Tech, this will mean the active promotional efforts as set forth above. For
Frisby, this will mean the reasonable support of Fly Tech's End-Use Products by
including it in Frisby promotions regarding products incorporating ComforTemp,
as well as appearance by Frisby personnel at a reasonable number of sales
presentations and trade shows in order to answer any technical questions that
potential customers may have regarding ComforTemp.
ARTICLE VIII - MISCELLANEOUS PROVISIONS
8.01 Effect of Waiver. No waiver whether express or implied, of any breach of
any term, condition, or obligation of this Agreement shall be construed as a
waiver of any subsequent breach of that term, condition, or obligation, or any
other term, condition, or obligation of this Agreement of the same or different
nature.
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8.02 Notices. Any notice provided for in this Agreement must be in writing. If
the notice is given by certified mail, the notice will be deemed to have been
given when such certified letter, properly addressed, is mailed. If such notice
is given by any other means, it will be deemed to have been given at the time of
receipt by the addressee. If such notice is to be given to Fly Tech, copies
shall be addressed to Mr. Gerry Walton, President, Fly Tech, Inc., 7450
Whitehall Street, Fort Worth, Texas, 76118. If given to Frisby, copies shall be
addressed to Mr. Greg Frisby, Chief Executive Officer, Frisby Technologies,
Inc., 417 S. Main Street, Freeport, NY 11520. At any time during this Agreement
after giving thirty (30) days advance written notice, either party may designate
a replacement address for delivery of formal notices.
8.03 Severability. It is understood and agreed by the parties to this Agreement
that if any part, term or provision of this Agreement is held to be illegal by
United States courts or in conflict with applicable law, the validity of the
remaining portions of the provision shall not be affected, and the rights and
obligations of the parties shall be construed and enforced consistent with the
intent of this Agreement.
8.04 Interpretation Presumption. This Agreement has been negotiated by the
parties hereto and by the respective attorneys for each party. The parties
represent and warrant to one another that each has, by counsel or otherwise,
actively participated in the finalization of this Agreement, and in the event of
a dispute concerning the interpretation of this Agreement, each party hereby
waives the doctrine that an ambiguity should be interpreted against the party
which has drafted the document.
8.05 Remedies and Defaults. Each party acknowledges and agrees that unless
otherwise stated in this Agreement, the remedies provided in this Agreement
shall be in addition to, and not in lieu of, any other remedies provided at law
or in equity, including, but not limited to, such injunctive or other equitable
relief as may be deemed appropriate by a court of competent jurisdiction. If a
party defaults in the performance of its obligations under this Agreement and
fails to cure such default within thirty (30) days after receipt of written
notice of such default, the non-defaulting party shall have the right to
immediately terminate this Agreement and the license provided herein.
Notwithstanding termination of this Agreement, the obligation to pay Royalties
shall not terminate for so long as End-Use Products are sold.
8.06 Successors and Assigns. This Agreement shall inure to the benefit of the
successors, heirs, representatives, or assigns of the parties. However, Fly Tech
shall not assign its obligations or interests under this Agreement without prior
written approval from Frisby.
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8.07 Choice of Law and Dispute Resolution. This Agreement is to be governed by
and interpreted in accordance with the laws of the State of New York. If a
dispute arises between the parties regarding the interpretation or enforcement
of this Agreement, the prevailing party shall be entitled to an award of its
reasonable attorneys' fees in addition to any other relief awarded.
8.08 Complete Agreement. This Agreement, including its exhibits, comprises the
entire understanding between the parties and supersedes all negotiations,
representations and warranties, commitments, offers, contracts and writings
prior to the date of this Agreement. Otherwise, the parties to this Agreement
are not to be bound by any representations or warranties other than those set
forth herein or in a written amendment subsequently entered into by the parties
and duly executed by each party.
8.09 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same instrument.
8.10 Warranty of Authority. The individuals actually executing this Agreement
personally represent and warrant that they have the necessary power and
authority to execute this Agreement on behalf of the party they represent, and
that their signatures are sufficient to make this Agreement the binding and
enforceable obligation of such party.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE DULY
EXECUTED.
FLY TECHNOLOGIES, INC. FRISBY TECHNOLOGIES, INC.
By: /s/ Donald C. Walton By: /s/ Gregory S. Frisby
------------------------- -----------------------------
Its: President Its: Chief Executive Officer
Exhibits to be attached:
"A" - [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
"B" - Patent List
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Attachment A
FRISBY TECHNOLOGIES, INC.
[This information has been omitted in accordance with a Confidential Treatment
Request and has been filed separately with the Commission.
<PAGE>
APPENDIX B -
Licensed Intellectual Property
United States Patents
No. 5,499,460 Moldable Foam Insole with Reversible Enhanced
Thermal Storage
Pat. Pend. Thermally Enhanced Foam Insulation
No. 5,290,904 Thermally Enhanced Heat Shields (Shared with
Gateway Technologies, Inc., Boulder, CO)
Pat. Pend. Thermal Insulating Coatings Using MicroPCMs
No. 4,807,696 Thermal Energy Storage Apparatus Using Encapsulated
Phase Change Materials
No. 4,911,232 Heat Transfer Using MicroPCM Slurries
No. 5,224,356 Thermal Energy Absorbing and Conducting Potting
Materials
No. 5,415,222 Microclimate Cooling Garments
No. 5,366,801 Fabric With Reversible Enhanced Thermal Properties
(Shared with Gateway Technologies, Inc., Boulder, CO)
<PAGE>
Exhibit 10.10
LICENSE AGREEMENT DATED JANUARY 23, 1997 BETWEEN THE COMPANY AND
WELLS LAMONT DIVISION, MARMOM HOLDINGS, INC.
INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
<PAGE>
LICENSE AGREEMENT
This License Agreement, entered into this 23rd day of January, 1997 (referred
to as the "Agreement") is between:
Wells Lamont Division, Marmon Holdings, Inc., a corporation doing business at
6640 West Touhy Avenue, Niles, Illinois, 60714-4587, hereinafter referred to as
"Wells Lamont ", and
Frisby Technologies, Inc., a corporation organized under the laws of the State
of North Carolina, with its principal place of business at 417 South Main
Street, Freeport, New York 11520, hereinafter referred to as "Frisby".
RECITALS
WHEREAS, Frisby is the exclusive worldwide licensee of certain patented and
proprietary thermal management technologies and information relating to
microencapsulated phase change materials (hereinafter "MicroPCMs"); and
WHEREAS, Wells Lamont wishes to sublicense Frisby's technologies relating to
MicroPCMs for Wells Lamont's exclusive use in the worldwide handwear marketplace
and selected other thermal protection products in the worldwide marketplaces
listed in Exhibit A; and
NOW, THEREFORE, in consideration of the premises and covenants herein contained,
receipt of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
1.01 MicroPCMs. "MicroPCMs" means microencapsulated phase change materials.
1.02 Thermasorb. "Thermasorb" means ThermasorbTM which is the name of Frisby's
thermal additive products based upon its licensed MicroPCM technology.
Thermasorb is a trademark of Frisby.
1.03 ComforTemp. "ComforTemp" means ComforTempTM which is the name of Frisby's
insulating foam products based upon Frisby's licensed MicroPCM technology.
ComforTemp is a trademark of Frisby.
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1.04 Technology. "Technology" means all of Frisby's interest in any inventions,
developments, proprietary information, patents, trademarks, trade names, trade
secrets, know-how and improvements, whether present or future, relating to
MicroPCMs, Thermasorb, and ComforTemp and their incorporation into commercial,
industrial and military products, but specifically excluding fibers or fabrics
which are coated or embedded with MicroPCMs.
1.05 End-Use Product. "End-Use Product" means any item containing the Technology
or service performed incorporating the Technology into an End-Use Product that
is presently, or may one day be, a salable product or service of Wells Lamont,
and which is included in the list of licensed products in Exhibit "A".
1.06 Royalty. "Royalty" means [This information has been omitted in accordance
with a Confidential Treatment Request and has been filed separately with the
Commission.]
1.07 Sublicensee Payments. "Sublicensee Payments" means all monies or other
consideration received by Wells Lamont from any sublicensees for use of the
Technology.
1.08 Patent. "Patent" means all patents and applications for patents, including,
but not limited to, those that are identified in Exhibit "C" and foreign
counterparts thereof, as well as all continuations, continuations-in-part,
divisions and renewals thereof, all patents which may be granted thereon, and
all reissues, reexaminations, extensions, patents of additions and patents of
importation thereof, and any common law rights associated therewith.
1.09 Proprietary Information. " Proprietary Information" means all of the
following information and materials, whether or not patentable or protected by a
copyright, to which Wells Lamont receives, or has received, access or which
Wells Lamont develops or has developed, all or in part, as a result, whether
direct or indirect, of the Agreement set forth herein: (i) production processes,
marketing techniques, purchasing or supply information, price lists, financial
information, customer names and requirements, customer data and other
information relating to the MicroPCMs, Thermasorb, ComforTemp and/or any
derivation thereof; (ii) discoveries, context and ideas, and the embodiment
thereof, including without limitation the nature and results of research and
development activities, processes, formulations, techniques and "know how";
(iii) any other materials or information related to the MicroPCMs, Thermasorb,
ComforTemp and/or any derivation thereof; and (iv) all inventions and ideas
which are derived from, or relate to, Wells Lamont's access to or knowledge of
any of the above-enumerated materials and information.
1.10 Net Sales Revenues. "Net Sales Revenues" means the revenues generated by
Wells Lamont from the sale of End-Use Products whether during the term of this
Agreement or thereafter, less the following amounts: reasonable discounts,
rebates, or returns actually allowed or granted, all applicable taxes related to
the sale and/or use of the End-Use Product, and initial transportation charges
of the Wells Lamont product(s) to customers.
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1.11 Effective Date. This Agreement is effective when duly signed by the Parties
and Frisby receives the License Fee, or the initial installment of the License
Fee as the case may be.
ARTICLE II - GRANT OF LICENSE
2.01 Exclusive License. Frisby grants to Wells Lamont a worldwide license to
utilize the Technology in order to make, use, sublicense, sell and lease End-Use
Products as listed in Exhibit A for a period of three (3) years and to use
Frisby's ComforTemp and Thermasorb Trademarks in the promotion, advertising, and
marketing of such products. This License is exclusive with respect to utilizing
the Technology in the End-Use Products, but does not preclude or limit Frisby
from licensing the Technology to others for products and services other than
those listed in Exhibit "A". Any sublicensing by Wells Lamont may only be for
End-Use Products and shall require that any sublicensee use Frisby as the sole
source of supply for ComforTemp and Thermasorb. Wells Lamont will not disclose
the Technology to any sublicensee or subcontractor unless that party has agreed
in writing to hold all information in confidence and to use the Technology
solely for the purpose of designing, developing, manufacturing, assembling or
selling the End-Use Product or components thereof for Wells Lamont.
2.02 Term of Agreement. The term of the license granted by this Agreement is
three (3) years which commences upon the Effective Date. Provided Wells Lamont
is not in breach of this Agreement, it shall have two (2) consecutive options to
extend this Agreement, each option being for an additional one (1) year period.
To exercise an option, Wells Lamont must give a written notice delivered to
Frisby not later than November 1st of the year preceding the year for which the
option would apply. The notice must commit Wells Lamont to make the annual
minimum purchase specified for the particular option year as stated under the
Annual Purchase Minimums section of this Agreement.
2.03 Relationship of Parties. Each Party is an independent contractor and under
no circumstances shall any party be deemed to be a legal representative, express
or implied agent, or employee of another party. No act of any party, and no
assistance given from one Party to the other, shall be construed to alter this
independent contractor relationship.
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ARTICLE III - PROVISION OF COMFORTEMP AND THERMASORB
3.01 Provision of Thermasorb and ComforTemp. Sole Source Supply. The sole source
of supply for all Thermasorb and ComforTemp to Wells Lamont (for use by Wells
Lamont, its subcontractors, sublicensees, or affiliates) to support product
development and production shall be Frisby, unless Frisby provides an express
written waiver of that right and any such waiver will be only as to a particular
order and not of Frisby's right to be the sole source of supply under this
Agreement. Frisby shall arrange for the supply of all Thermasorb and ComforTemp
required by Wells Lamont, its subcontractors, Sublicensees, and/or affiliates,
to be delivered FOB at the site of manufacture of the Thermasorb or ComforTemp.
Frisby agrees to supply all such products to Wells Lamont at terms no less
favorable than the most favorable terms offered to comparable commercial
customers during the term of this Agreement. Frisby agrees that the ComforTemp
and Thermasorb supplied hereunder shall meet the specifications represented by
Frisby. If, from time to time, such materials do not meet the specifications
represented by Frisby, Wells Lamont shall notify Frisby of such failure. Frisby
shall promptly provide replacement goods which meet the previously represented
specifications or, if such specifications cannot be reasonably met, Frisby shall
return the purchase price of the unacceptable goods to Wells Lamont which shall
be Frisby's sole liability to Wells Lamont for materials not meeting
specifications.
3.02 Annual Purchase Minimums. Wells Lamont agrees to make the annual minimum
purchases ("APM") of ComforTemp foams and/or bulk Thermasorb. If the annual
total of all purchases by Wells Lamont of ComforTemp or Thermasorb does not meet
or exceed the APM level of a given year, Wells Lamont agrees to pay Frisby the
sum of [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.] on the
difference between the actual purchases and the APM for that given year which
amount shall be Wells Lamont's sole liability to Frisby for Wells Lamont's
failure to meet the APM. Any such difference must be paid within thirty (30)
days of the end of the calendar year that the APM is not met. If Wells Lamont's
purchases within a given year exceed the APM, the excess volume may be applied
toward the APM for the following year. For calculation of purchase volumes, a
1/2 lb. purchase of Thermasorb is equal to 1 Lineal Yard of ComforTemp.
Annual Purchase Minimum (APM)
Calendar Year (In Lineal Yards at 45 inch width)
------------- ----------------------------------
1997 10,000
1998 40,000
1999 70,000
2000 90,000 (1st Option Year)
2001 100,000 (2nd Option Year)
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3.03 Delivery of Product. Not later than December 1st of each year during this
Agreement and any option periods, Wells Lamont and Frisby shall establish a
blanket purchase order for Wells Lamont's needs during the coming calendar year.
The establishment of a blanket purchase order does not void or alter Wells
Lamont's responsibilities under this Agreement for the APM. When Frisby releases
specific shipments to be applied against the blanket purchase order, the
shipments shall be released not less than ninety (90) days preceding the date
Wells Lamont needs the shipment on-dock as expressly communicated to Frisby at
time of establishing the blanket purchase order. Wells Lamont agrees to maintain
an adequate on-hand inventory of ComforTemp to support all its orders due within
ninety (90) days. Wells Lamont and Frisby will determine all other terms and
conditions of sale prior to the first blanket order for ComforTemp.
3.04 Late Delivery. If Frisby fails to meet a specific delivery date as
established in accordance with the above procedure and Wells Lamont is unable to
fulfill an order as a direct result of that failure, Frisby will pay Wells
Lamont a fee equal to thirty percent (30%) of the price Wells Lamont was to pay
on the ComforTemp or Thermasorb required to support the unfulfilled order which
amount shall be Frisby's sole liability to Wells Lamont for such failure. If two
(2) deliveries from Frisby are late in a given calendar year and the lateness
results in lost sales by Wells Lamont, then the APM for that year will not
apply.
ARTICLE IV - PAYMENTS
4.01 Payments to Frisby. All amounts owed by Wells Lamont to Frisby for supply
of Thermasorb and ComforTemp or any products or services related thereto
provided by Frisby to Wells Lamont shall be paid within thirty (30) days after
billing by Frisby.
4.02 License Fees. In addition to Royalties, Wells Lamont agrees to pay Frisby a
License Fee of [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.] The License Fee will be payable as follows: [This information has
been omitted in accordance with a Confidential Treatment Request and has been
filed separately with the Commission.]
4.03 Royalty Payments. In addition to the License Fee, Wells Lamont agrees to
pay Frisby royalties ("Royalties") of [This information has been omitted in
accordance with a Confidential Treatment Request and has been filed separately
with the Commission.], whether such sales occur during the effective term of the
License or thereafter. The Royalties due shall be paid to Frisby within thirty
(30) days following the end of each calendar quarter.
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<PAGE>
4.04 Sublicensee Payments. In addition to License Fees and Royalties, Wells
Lamont agrees to pay Frisby [This information has been omitted in accordance
with a Confidential Treatment Request and has been filed separately with the
Commission.] of any and all Sublicensee Payments paid to Wells Lamont. Such
payments shall be due and payable to Frisby within thirty days following the end
of each calendar quarter in which payments were received by Wells Lamont.
4.05 Records Inspection. Wells Lamont shall maintain adequate books and records
in connection with activity under this Agreement. Frisby may audit the relevant
books and records of Wells Lamont to ensure compliance with the terms of this
Agreement upon reasonable notice to Wells Lamont. Any such audit shall be
conducted during regular business hours at Wells Lamont's offices and shall not
interfere unreasonably with Wells Lamont's business activities.
ARTICLE V - INTELLECTUAL PROPERTY
5.01 Frisby's Intellectual Property. Wells Lamont acknowledges that the
Technology and the chemical formulation of Thermasorb is proprietary and
confidential and constitutes a valuable commercial asset of Frisby. Wells
Lamont, and any of its related parties, consultants, subcontractors,
sublicensees, or affiliates, shall not incorporate the Technology in any
applications other than those licensed to Wells Lamont herein. Proprietary
information disclosed by either party hereunder shall be subject to the terms of
the Reciprocal Secrecy Agreement between the parties which is attached to this
Agreement, and made a part of it, as Exhibit "D".
5.02 Reports of Technical Results. Wells Lamont agrees that all information and
evaluation results generated by Wells Lamont, its consultants, subcontractors,
affiliates, or sublicensees, or otherwise obtained during the term of this
License, which are related to the Technology, shall be the exclusive property of
Frisby, with rights to same licensed to Wells Lamont for the term of this
License.
5.03 Reporting Obligations. If Wells Lamont or its employees, contractors,
affiliates, agents, or sublicensees makes a discovery or invention during the
term of this License which relates to the Technology, Wells Lamont shall
promptly make such discovery known to Frisby in writing. If the parties jointly
develop, or Wells Lamont independently develops, patentable intellectual
property related to the Technology, then that technology will be deemed
Technology under this Agreement and licensed to Wells Lamont accordingly.
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<PAGE>
5.04 Trademarks. ComforTemp and Thermasorb are Frisby's Trademarks regarding the
Technology licensed in this Agreement. Except for the licensed right to use
Frisby's Trademarks as set forth herein, during the term of this Agreement and
any time after, Wells Lamont shall not obtain any right, title or interest to
Frisby's Trademarks. All licensed products sold by Wells Lamont under the terms
of this License Agreement shall appropriately reference one or more of Frisby's
Trademarks for ComforTemp or Thermasorb, as designated by Frisby. Further, Wells
Lamont shall not obtain any Trademarks or use any Tradenames that are similar
thereto at any time.
ARTICLE VI - REPRESENTATIONS AND WARRANTIES
6.01 Representation. Frisby represents that it has the right to license the
Technology, that it has not and will not enter into any conflicting agreement,
and that it will pay any renewal fees necessary for the maintenance of the
Patents. If use of the Technology is enjoined, Frisby shall provide a suitable
substitute or refund all License Fees paid under this Agreement
6.02 Indemnification. Frisby agrees to protect, defend, indemnify and hold Wells
Lamont harmless from any action brought by a third party alleging an
infringement based on the licensed use of the Technology. The monetary limit of
this indemnity is reasonable defense costs and the extent of License Fees paid
to Frisby under this Agreement. This indemnification specifically excludes any
action brought by a third party which claims that Wells Lamont has breached any
prior or existing agreement with the third party. Further, Wells Lamont agrees
to protect, defend, indemnify and hold Frisby harmless from any action against
Frisby which arises out of any such claims.
ARTICLE VII - TECHNICAL AND MARKETING ASSISTANCE
7.01 Support. The parties agree to use their mutual best efforts in support of
the development and introduction of new products which incorporate the
Technology, as well as the promotion and sales of the End-Use Products. As to
Wells Lamont, this will mean the active introduction and marketing of the
End-Use Products and the use of Frisby's ComforTemp and Thermasorb Trademarks in
the promotions, marketing, and advertising for the End-Use Products. For Frisby,
this will mean the promotion of the End-Use Products to the United States
Government, as well as the active promotion of the End-Use Products as a
prominent part of advertising and promotions for ComforTemp and Thermasorb.
Depicting the End-Use Products or Wells Lamont's name as a part of Frisby's
advertising and promotions will be subject to the reasonable approval of Wells
Lamont. For purposes of this Agreement, Frisby will be considered to have
actively promoted ComforTemp and Thermasorb during a given year if it sets and
expends an annual promotional budget for ComforTemp and Thermasorb equal to at
least ten percent (10%) of the ComforTemp Net Sales Revenue paid by Wells Lamont
to Frisby for the prior year. If Frisby's advertising and promotional
expenditures during a given year exceed that level, the excess over 10% will be
carried forward and applied to the advertising requirements for the subsequent
years under this Agreement.
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ARTICLE VIII - MISCELLANEOUS PROVISIONS
8.01 Effect of Waiver. No waiver whether express or implied, of any breach of
any term, condition, or obligation of this Agreement shall be construed as a
waiver of any subsequent breach of that term, condition, or obligation, or any
other term, condition, or obligation of this Agreement of the same or different
nature.
8.02 Notices. Any notice provided for in this Agreement must be in writing. If
the notice is given by certified mail, the notice will be deemed to have been
given when such certified letter, properly addressed, is mailed. If such notice
is given by any other means, it will be deemed to have been given at the time of
receipt by the addressee. If such notice is to be given to Wells Lamont, copies
shall be addressed to Mr. Gordon Garrett, Vice President, Wells Lamont, 6640
West Touhy Avenue, Niles, Illinois 60714-4587. If given to Frisby, copies shall
be addressed to Mr. Greg Frisby, Chief Executive Officer, Frisby Technologies,
Inc., 417 S. Main Street, Freeport, NY 11520. Either party hereto may at any
time, by thirty (30) days written notice to the other, designate any other
address in place of those provided in this paragraph.
8.03 Severability. It is understood and agreed by the parties to this Agreement
that if any part, term or provision of this Agreement is held to be illegal by
United States courts or in conflict with applicable law, the validity of the
remaining portions of provision shall not be affected, and the rights and
obligations of the parties hereto shall be construed and enforced consistent
with the intent of this Agreement.
8.04 Interpretation Presumption. This Agreement has been negotiated by the
parties hereto and by the respective attorneys for each party. The parties
represent and warrant to one another that each has, by counsel or otherwise,
actively participated in the finalization of this Agreement, and in the event of
a dispute concerning the interpretation of this Agreement, each party hereby
waives the doctrine that an ambiguity should be interpreted against the party
which has drafted the document.
8.05 Remedies and Defaults. Each party acknowledges and agrees that unless
otherwise stated herein the remedies provided in this Agreement shall be in
addition to, and not in lieu of, any other remedies provided at law or in
equity, including, but not limited to, such injunctive or other equitable relief
as may be deemed appropriate by a court of competent jurisdiction. If a party
defaults in the performance of its obligations under this Agreement and fails to
cure such default within thirty (30) days after receipt of written notice of
such default, the non-defaulting party shall have the right to immediately
terminate this Agreement and the license provided herein. Notwithstanding
termination of this Agreement, the obligation to pay Royalties shall not
terminate for so long as End-Use Products are sold.
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8.06 Successors and Assigns. This Agreement shall inure to the benefit of the
successors, heirs, representatives, or assigns of the parties. However, Wells
Lamont shall not assign its obligations or interests under this Agreement
without prior written approval from Frisby.
8.07 Choice of Law and Dispute Resolution. This Agreement is to be governed by
and interpreted in accordance with the laws of the State of New York. If a
dispute arises between the parties regarding the interpretation or enforcement
of this Agreement, the prevailing party shall be entitled to an award of its
reasonable attorneys' fees in addition to any other relief awarded.
8.08 Complete Agreement. This document, including its exhibits, comprises the
entire agreement with respect to the subject matter hereof and supersedes all
negotiations, representations and warranties, commitments, offers, contracts and
writings prior to the date of this Agreement. Otherwise, the parties to this
Agreement are not to be bound by any representations or warranties other than
those set forth herein or in a written amendment hereinafter entered into by the
parties and duly executed by each party.
8.09 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same instrument.
8.10 Warranty of Authority. The individuals actually executing this Agreement
personally represent and warrant that they have the necessary power and
authority to execute this Agreement on behalf of the party they represent, and
that their signatures are sufficient to make this Agreement the binding and
enforceable obligation of such party.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE DULY
EXECUTED.
WELLS LAMONT DIVISION FRISBY TECHNOLOGIES, INC.
MARMON HOLDINGS, INC.
By: ________________________ By: ______________________
Its: _______________________ Its: Chief Executive Officer
Exhibits to be attached:
"A" - Products to which License Applies
"B" - [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
"C" - Patent List
"D" - Reciprocal Secrecy Agreement
10
<PAGE>
Exhibit A
Licensed End-Use Products
1. Protective handwear, including gloves, mittens, oven mitts and the like.
2. [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
3. [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
<PAGE>
Exhibit B
COMFORTEMP(TM) FOAM [This information has been omitted in
accordance with a Confidential Treatment Request and has been filed separately
with the Commission.
<PAGE>
Exhibit C
MicroPCM Patent Protection Listing
In accordance with the Exclusive License Agreement between Frisby Technologies,
Inc. and Triangle Research and Development Corporation (hereinafter TRDC) dated
1 May, 1995, TRDC has greanted to Frisby the exclusive worldwide license to
develop and commercialize all patented and proprietary bulk PCM and MicroPCM
technologies of TRDC, whether present or future, with the exception of fibers
and fabrics embedded or coated with MicroPCMs. Frisby's legal Licensse includes,
but is not limited to, U.S. Patent numbers:
US Patent No. 4,807,696 MicroPCM Thermal Energy Storage
US Patent No. 4,911,232 Heat Transfer Using MicroPMC Slurries
US Patent No. 5,141,079 Two Component Cutting and Cooling Fluids
US Patent No. 5,224,356 Thermal Energy Absorbing and Conducting
Potting Materials
US Patent No. 5,415,222 Microclimate Cooling Garments
US Patent No. 5,499,460 Moldable Foams with Reversible Enhanced
Thermal Storage
US Patent (pending) Thermal Insulating Coatings Using MicroPCMs
US Patent (pending) Thermally Enhanced Foam Insulation
*US Patent No. 5,366,801 Coated Fabric With Reversible Enhanced
Properties
*US Patent No. 5,290,904 Thermally Enhanced Heat Shields
*Note: Frisby's License for these patents include all applications except fibers
and fabrics embedded or coated with MicroPCMs.
<PAGE>
Exhibit D
RECIPROCAL SECRECY AGREEMENT
This Agreement is made by and between Wells Lamont Division, Marmon Holdings,
Inc. having an office at 6640 West Touhy, Niles, Illinois 60714 (hereinafter
"Wells Lamont"), and Frisby Technologies having an office at 417 South Main
Street, Freeport, New York 11520 (hereinafter "Frisby").
Each and all of the above-mentioned companies shall also be hereinafter referred
to as "the party" or "the parties" respectively.
WHEREAS, the parties propose to hold discussions and exchange information that
each respectively considers proprietary to itself to assist considerations of
mutual business interest in relation to the development and application of
Microencapsulated & Bulk Phase Change Materials incorporated into gloves and
related apparel for commercial, industrial and military applications worldwide
(hereinafter "INFORMATION").
NOW, THEREFORE, the parties agree as follows:
1. Each party agrees that for a period ending December 31, 2000, they will not
disclose INFORMATION as shall be disclosed by the other party in
documentary form or, if disclosed orally, as shall be confirmed in writing
within thirty (30) days thereafter, to any third party or use the same for
any purpose other than that contemplated herein, without the disclosing
party's prior written consent. Each party further agrees to limit access to
such INFORMATION within its company to those of its employees, affiliates
and representatives who may reasonably require the same in order to enable
it to fulfill the purpose stated above for which it is receiving the
INFORMATION. Each such employee or representative shall have entered into
an agreement with the receiving party pursuant to which she/he has agreed
to retain in confidence all INFORMATION which may come into her/his
possession as a result of employment activities;
2. The obligation of paragraph 1 shall not apply to such portions of the
INFORMATION disclosed hereunder that (i) are known to the receiving party
prior to the time of disclosure, as demonstrated by appropriate documentary
evidence antedating disclosure to the receiving party by the disclosing
party, or (ii) shall have been or become in the public domain through no
act or failure to act on the party of the receiving party or its employees,
representatives or affiliates or (iii) shall be lawfully furnished to the
receiving party by a third party having a bona fide right to disclose same
without restriction to the benefit of the disclosing party to this
Agreement or (iv) shall be independently developed by the receiving party
subsequent to receipt from the disclosing party and substantiated by
reasonable documentation or (v) are required by law to be disclosed.
3. Each party agrees that it will not, without the written permission of the
other party, use the INFORMATION which it is obligated hereunder to
maintain in confidence for any reason other than to enable the receiving
party to determine the technical and economic feasibility of its business
interests based on the INFORMATION; and that in no event will the receiving
party itself commercially practice or cause to be practiced by a third
party the technology represented by the INFORMATION which it is obligated
hereunder to hold confidential without the expressed written permission of
the disclosing party.
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<PAGE>
4. It is understood that no right or license is granted to the receiving party
by the disclosing party in connection with the INFORMATION disclosed
hereunder.
5. Nothing herein shall obligate either party to disclose to the other party
particular information and the receiving party shall have the right to
refuse or accept any particular proprietary information which is offered.
6. Any documents, data, drawings, materials, samples or specifications
supplied by either party, and all copies thereof, shall be returned upon
request or within 30 days after expiration or termination of this
Agreement.
7. Samples, data and materials supplied by either party or prepared at either
party's direction hereunder shall be deemed to contain confidential
information of the supplying party.
8. Wells Lamont acknowledges that the chemical formulation of the shell of the
Microencapsulated Phase Change Materials is proprietary and confidential
and constitutes a valuable commercial asset of Frisby. Neither Wells
Lamont, nor any of its subcontractors, affiliates or customers shall do any
evaluation of the MicroPCMs which would cause Wells Lamont to become
knowledgeable of the chemical composition of the microcapsule shell
material.
9. Neither Wells Lamont nor any of its customers, subcontractors or affiliates
shall place any Bulk or Microencapsulated Phase Change Material technology
into production unless a mutually acceptable License Agreement has been
executed between Wells Lamont and Frisby.
10. This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers or representatives as of this day and year given
below.
WELLS LAMONT DIVISION, FRISBY TECHNOLOGIES, INC.
MARMON HOLDINGS, INC.
By /s/ David Rehm By /s/ Gregory S. Frisby
--------------------------------- ---------------------------------
Name David Rehm Name Gregory S. Frisby
--------------------------------- ---------------------------------
Title Vice President & Controller Title Chief Executive Officer
--------------------------------- ---------------------------------
Date January 15, 1996 Date January 12, 1996
--------------------------------- ---------------------------------
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<PAGE>
Exhibit 10.11
LICENSE AGREEMENT DATED FEBRUARY 1, 1997 BETWEEN THE COMPANY AND
COVE SHOE COMPANY, INC.
INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION]
<PAGE>
LICENSE AGREEMENT
This License Agreement (the "Agreement"), entered into this 1st day of February,
1997 (referred to as the "Agreement") is between:
Cove Shoe Company, Inc., a division of H.H. Brown Shoe Company, a corporation
doing business at 107 Highland Street, Martinsburg, PA 16662, hereinafter
referred to as "Cove", and
Frisby Technologies, Inc., a corporation organized under the laws of the State
of North Carolina, with its principal place of business at 417 South Main
Street, Freeport, New York 11520, hereinafter referred to as "Frisby".
RECITALS
WHEREAS, Frisby is the exclusive worldwide licensee of certain patented and
proprietary thermal management technologies and information relating to
microencapsulated phase change materials (hereinafter "MicroPCMs"); and
WHEREAS, Cove wishes to sublicense Frisby's technologies relating to MicroPCMs
for Cove's exclusive use in selected segments of the worldwide footwear
marketplace; and
NOW, THEREFORE, in consideration of the premises and covenants herein contained,
receipt of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I- DEFINITIONS
1.01 MicroPCMs. "MicroPCMs" means microencapsulated phase change materials.
1.02 Thermasorb. "Thermasorb" means Thermasorb(TM) which is the name of Frisby's
thermal additive products based upon its licensed MicroPCM technology.
Thermasorb is a trademark of Frisby.
1.03 ComforTemp. "ComforTemp" means ComforTemp(TM) which is the name of Frisby's
insulating foam products based upon Frisby's licensed MicroPCM technology.
ComforTemp is a trademark of Frisby.
1.04 Technology. "Technology" means all of Frisby's interest in any inventions,
developments, proprietary information, patents, trademarks, trade names, trade
secrets, know-how and improvements, whether present or future, relating to
MicroPCMs, Thermasorb, and ComforTemp and their incorporation into commercial,
industrial and military products.
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1.05 End-Use Product. "End-Use Product" means boots or other footwear containing
the Technology or service performed incorporating the Technology into a product
that is presently, or may one day be, a salable product or service of Cove.
End-Use Products are specifically limited to the following styles of boots:
Military, Military Style, Miner, Firefighter, Electrical Utility Lineman, and
Outdoor, all of which will be made with Goodyear welt construction.
1.06 Royalties. "Royalty" or "Royalties" means [This information has been
omitted in accordance with a Confidential Treatment Request and has been filed
separately with the Commission.] The Royalty percentage will be based on the
schedule detailed in the section 4.03 of this Agreement titled "Royalty
Payments".
1.07 Sublicensee Payments. "Sublicensee Payments" means all monies or other
consideration received by Cove from any sublicensees for use of the Technology.
1.08 Patent. "Patent" means all patents and applications for patents, including,
but not limited to, those that are identified in Exhibit "B" and foreign
counterparts thereof, as well as all continuations, continuations-in-part,
divisions and renewals thereof, all patents which may be granted thereon, and
all reissues, reexaminations, extensions, patents of additions and patents of
importation thereof, and any common law rights associated therewith.
1.09 Proprietary Information. "Proprietary Information" means all of the
following information and materials, whether or not patentable or protected by a
copyright, to which Cove receives, or has received, access or which Cove
develops or has developed, all or in part, as a result, whether direct or
indirect, of the Agreement set forth herein: (i) production processes, marketing
techniques, purchasing or supply information, price lists, financial
information, customer names and requirements, customer data and other
information relating to the MicroPCMs, Thermasorb, ComforTemp and/or any
derivation thereof; (ii) discoveries, context and ideas, and the embodiment
thereof, including without limitation the nature and results of research and
development activities, processes, formulations, techniques and "know how";
(iii) any other materials or information related to the MicroPCMs, Thermasorb,
ComforTemp and/or any derivation thereof; and (iv) all inventions and ideas
which are derived from, or relate to, Cove's access to or knowledge of any of
the above-enumerated materials and information.
1.10 Net Sales Revenues. "Net Sales Revenues" means the revenues generated by
Cove from the sale of End-Use Products whether during the term of this Agreement
or thereafter, less the following amounts: discounts and reasonable rebates
actually allowed or granted, returns of End-Use Products which are reasonable in
light of total revenues generated from sale of End-Use Products and which are
actually made, all applicable taxes related to the sale and/or use of the
End-Use Product, and initial transportation charges of the Cove product(s) to
customers.
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<PAGE>
1.11 Effective Date. This Agreement is effective when duly signed by the Parties
and Frisby receives the cash portion of the License Fee as detailed in Section
4.02 of this agreement titled "License Fee".
ARTICLE II - GRANT OF LICENSE
2.01 Exclusive License. Frisby grants to Cove a worldwide license to utilize the
Technology in order to design, develop, manufacture, and/or assemble the End-Use
Products. This license includes the right to use Frisby's ComforTemp and
Thermasorb Trademarks in the promotion, advertising, and marketing of the
End-Use Products. This License is exclusive with respect to utilizing the
Technology in the End-Use Products, but does not preclude or limit Frisby from
licensing the Technology to others for products and services other than under
the End-Use Products. Any sublicensing by Cove may only be for End-Use Products
consistent with the terms and conditions of this Agreement and shall require
that any sublicensee use Frisby as the sole source of supply for ComforTemp and
Thermasorb. Cove will not disclose the Technology to any sublicensee or
subcontractor unless that party has agreed in writing to hold all information in
confidence and to use the Technology solely for the purpose of designing,
developing, manufacturing, assembling or selling the End-Use Product or
components thereof for Cove.
2.02 Term of Agreement. As to End-Use Products styled for Military, Military
Style, Miner, Firefighter, and Electrical Utility Lineman, the license granted
herein is for a term of three (3) years from the Effective Date. As to End-Use
Products in the Outdoor style, this license shall be for one (1) year from the
Effective Date. Cove has the right to extend the license as to Outdoor style
End-Use Products for an additional one (1) year; provided, by October 1, 1997,
Cove has accepted orders for at least 10,000 pairs of the Outdoor style End-Use
Product. For purposes of calculating the 10,000 pairs, Cove may include any
Outdoor style orders accepted by its sublicensees. Cove may exercise this right
to extend the license as to Outdoor Style End-Use Products by delivering to
Frisby a written notice extending that license accompanied by proof that it or
its sublicensees have accepted orders for at least 10,000 pairs of End-Use
Products in the Outdoor Style. However, Frisby reserves the right to request and
approve reasonable and verifiable documentation of the 10,000 accepted orders.
If the written notice is not delivered by
October 1, 1997, the license and the right to extend the license as to Outdoor
Style End-Use Products expires.
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<PAGE>
2.03 Relationship of Parties. Each party is an independent contractor and under
no circumstances shall any party be deemed to be a legal representative, express
or implied agent, or employee of another party. No act of any party, and no
assistance given from one party to the other, shall be construed to alter this
independent contractor relationship.
ARTICLE III- PROVISION OF COMFORTEMP AND THERMASORB
3.01 Provision of Thermasorb and ComforTemp. The sole source of supply for all
Thermasorb and ComforTemp required by Cove (or any of its subcontractors,
sublicensees, or affiliates) to support product development and production shall
be Frisby, unless Frisby provides an express written waiver of that right. Any
waiver of that right will be only as to a particular order and not of Frisby's
right to be the sole source of supply under this Agreement. Frisby shall arrange
for an adequate and available supply of Thermasorb and ComforTemp to Cove, to be
delivered FOB at the site of manufacture of the Thermasorb or ComforTemp. Frisby
agrees to supply all such products to Cove at terms no less favorable than the
most favorable terms offered to comparable commercial customers during the term
of this Agreement.
3.02 Annual Purchase Minimums. Upon signing this Agreement, Cove shall provide
Frisby with a blanket purchase order regarding each type of ComforTemp required
for its production and development needs over the next two (2) years. The
blanket purchase order shall be made according to the pricing list which is
attached and incorporated into this Agreement as Exhibit "A" and Frisby agrees
to honor the pricing as to the blanket purchase order for two (2) years from the
Effective Date. Specific orders released to Cove during that two year period
will be applied against the blanket purchase order. If Cove does not purchase
the full amount of each variety of ComforTemp as specified in the blanket
purchase order, Cove will be invoiced at the end of the two year period for the
price difference between the volumes released in each variety of ComforTemp and
the volumes stated for each such variety in the blanket purchase order. Not
later than December 1st , 1998, Cove and Frisby shall establish a blanket
purchase order for Cove's needs during the final calendar year (1999) of this
Agreement's term.
3.03 Delivery of Product. When Frisby releases specific shipments to be applied
against the blanket purchase order, the shipments shall be released not less
than ninety (90) days preceding the date Cove needs the shipment on-dock as
expressly communicated to Frisby at time of establishing the blanket purchase
order. Cove agrees to maintain an adequate on-hand inventory of ComforTemp to
support all its orders due within ninety (90) days.
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<PAGE>
ARTICLE IV - PAYMENTS
4.01 Payments to Frisby. All amounts owed by Cove to Frisby for supply of
Thermasorb and ComforTemp or any products or services related thereto provided
by Frisby to Cove shall be paid within thirty days after billing by Frisby.
4.02 License Fees. In addition to Royalties, Cove agrees to pay Frisby a License
Fee ("License Fee") of [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.] due in full upon signing of this Agreement by Cove. As additional
License Fee, Cove agrees to perform each of the following:
(a) design and produce at least one type of End-Use Product in the
Outdoor style (by way of example, insulated hunting boot which
incorporates the Technology) for inclusion in Cove's 1997 "In the
Wild" line of boots;
(b) design and produce at least one other type of End-Use Product from
the other types of End-Use Products (i.e. military, military
style, miner, firefighter, or electric utility lineman) and make
that End-Use Product available for sale by August 31, 1997;
(c) aggressively promote the sale of both of the End-Use Products
described in subsections (a) and (b) above by, at a minimum,
displaying the End-Use Products at all applicable trade shows
where the products of Cove or H.H. Brown Shoe Company, Inc. will
be displayed;
(d) preparing viewgraph presentations, such as Powerpoint, for sales
meetings with prospective customers; and
(e) prominently featuring ComforTemp(TM) and the ComforTemp(TM) logo
in all brochures, advertising, and promotional literature that
includes the End-Use Products.
4.03 Royalty Payments. In addition to the License Fee, Cove agrees to pay Frisby
royalties ("Royalties") on [This information has been omitted in accordance with
a Confidential Treatment Request and has been filed separately with the
Commission.] in accordance with the schedule set forth below. The Royalties will
be paid whether such sales occur during the term of this Agreement or
thereafter. The Royalties due shall be paid to Frisby within thirty (30) days
following the end of each calendar quarter.
[This information has been omitted in accordance with a Confidential Treatment
Request and has been filed separately with the Commission.
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4.04 Sublicensee Payments. In addition to License Fees and Royalties, Cove
agrees to pay Frisby [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.] of any and all Sublicensee Payments paid to Cove. Such payments
shall be due and payable to Frisby within thirty days following the end of each
calendar quarter in which payments were received by Cove.
4.05 Records Inspection. Cove shall maintain adequate books and records in
connection with activity under this Agreement. Frisby may audit the relevant
books and records of Cove to ensure compliance with the terms of this Agreement
upon reasonable notice to Cove. Any such audit shall be conducted during regular
business hours at Cove's offices and shall not interfere unreasonably with
Cove's business activities.
ARTICLE V - INTELLECTUAL PROPERTY
5.01 Frisby's Intellectual Property. Cove acknowledges that the Technology and
the chemical formulation of Thermasorb is proprietary and confidential and
constitutes a valuable commercial asset of Frisby. Cove, and any of its related
parties, consultants, subcontractors, sublicensees, or affiliates, shall not
incorporate the Technology in any applications other than those End-Use Products
as specifically licensed to Cove herein. Proprietary information disclosed by
either party hereunder shall be subject to the terms of the Reciprocal Secrecy
Agreement between the parties which is attached to this Agreement, and made a
part of it, as Exhibit "C".
5.02 Reports of Technical Results. Cove agrees that all information and
evaluation results generated by Cove, its consultants, subcontractors,
affiliates, or sublicensees, or otherwise obtained during the term of this
Agreement, which are related to the Technology, shall be the exclusive property
of Frisby, with rights to same licensed to Cove for the term of this Agreement.
5.03 Reporting Obligations. If Cove or its employees, contractors, affiliates,
agents, or sublicensees makes a discovery or invention during the term of this
Agreement which relates to the Technology, Cove shall promptly make such
discovery known to Frisby in writing. If the parties jointly develop, or Cove
independently develops, patentable intellectual property related to the
Technology, then that technology will be deemed Technology under this Agreement
and licensed to Cove accordingly.
5.04 Trademarks. ComforTemp(TM) and Thermasorb(TM) are Frisby's Trademarks
regarding the Technology licensed in this Agreement. Except for the licensed
right to use Frisby's Trademarks as set forth herein, during the term of this
Agreement and any time after, Cove shall not obtain any right, title or interest
to Frisby's Trademarks. All licensed products sold by Cove under the terms of
this Agreement shall appropriately reference one or more of Frisby's Trademarks
for ComforTemp or Thermasorb, as designated by Frisby. Further, Cove shall not
obtain any Trademarks or use any Tradenames that are similar thereto at any
time.
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ARTICLE VI - REPRESENTATIONS AND WARRANTIES
6.01 Representation. Frisby hereby represents and warrants that it has the right
to license the Technology to Cove, that it has not or will not enter into an
agreement which would conflict with the exclusive nature of this agreement, and
that it will pay any renewal fees necessary for the maintenance of the Patents.
Frisby also certifies that, to the best of its knowledge, Cove's use of the
Technology does not violate or infringe on the intellectual property rights of
any third party.
ARTICLE VII - TECHNICAL AND MARKETING ASSISTANCE
7.01 Support. Each party agrees to use its best efforts in support of the
development and introduction of new products which incorporate the Technology,
as well as the promotion and sales of the End-Use Products. As to Cove, this
will mean the active development and introduction of new products incorporating
the Technology, as well as the marketing and promotion of the End-Use Products.
For Frisby, this will mean the promotion of the End-Use Products as part of its
promotions for ComforTemp and Thermasorb. Frisby further agrees that within
three (3) years of the Effective Date, Frisby will subcontract with Cove (or
arrange for a third party subcontract with Cove) for research and development
efforts and the funds to support Cove's research and development efforts will be
in an amount at least equal to the cash portion of the License Fee. Frisby
further agrees, subject to its sole discretion, to support Cove at a reasonable
number of sales presentations and trade shows by providing Frisby personnel to
answer technical questions concerning the Technology posed by potential
customers.
ARTICLE VIII- MISCELLANEOUS PROVISIONS
8.01 Effect of Waiver. No waiver whether express or implied, of any breach of
any term, condition, or obligation of this Agreement shall be construed as a
waiver of any subsequent breach of that term, condition, or obligation, or any
other term, condition, or obligation of this Agreement of the same or different
nature.
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8.02 Notices. Any notice provided for in this Agreement must be in writing. If
the notice is given by certified mail, the notice will be deemed to have been
given when such certified letter, properly addressed, is mailed. If such notice
is given by any other means, it will be deemed to have been given at the time of
receipt by the addressee. If such notice is to be given to Cove, copies shall be
addressed to Mr. Charles Covatch, V.P., c/o Cove Shoe Company, Inc., 107
Highland Street, Martinsburg, PA 16662. If given to Frisby, copies shall be
addressed to Mr. Greg Frisby, Chief Executive Officer, Frisby Technologies,
Inc., 417 S. Main Street, Freeport, NY 11520. Either party hereto may at any
time, by thirty (30) days written notice to the other, designate any other
address in place of those provided in this paragraph.
8.03 Severability. It is understood and agreed by the parties to this Agreement
that if any part, term or provision of this Agreement is held to be illegal by
United States courts or in conflict with applicable law, the validity of the
remaining portions of provision shall not be affected, and the rights and
obligations of the parties hereto shall be construed and enforced consistent
with the intent of this Agreement.
8.04 Interpretation Presumption. This Agreement has been negotiated by the
parties hereto and by the respective attorneys for each party. The parties
represent and warrant to one another that each has, by counsel or otherwise,
actively participated in the finalization of this Agreement, and in the event of
a dispute concerning the interpretation of this Agreement, each party hereby
waives the doctrine that an ambiguity should be interpreted against the party
which has drafted the document.
8.05 Remedies and Defaults. Each party acknowledges and agrees that the remedies
provided in this Agreement shall be in addition to, and not in lieu of, any
other remedies provided at law or in equity, including, but not limited to, such
injunctive or other equitable relief as may be deemed appropriate by a court of
competent jurisdiction. If a party defaults in the performance of its
obligations under this Agreement, including but not limited to payment of any
monies hereunder for License Fees, Royalties, or materials supplied and that
party fails to cure such default within thirty (30) days after receipt of
written notice of such default, the non-defaulting party shall have the right to
immediately terminate this Agreement and the license provided herein.
Notwithstanding termination of this Agreement, the obligation to pay Royalties
shall not terminate for so long as End-Use Products are sold which contain the
Technology.
8.06 Successors and Assigns. This Agreement shall inure to the benefit of the
successors, heirs, representatives, or assigns of the parties. However, Cove
shall not assign their obligations or interests under this Agreement without
prior written approval from Frisby.
8
<PAGE>
8.07 Choice of Law and Dispute Resolution. This Agreement is to be governed by
and interpreted in accordance with the laws of the State of New York. All
disputes and differences of any kind arising under this Agreement which can not
be settled amicably by the parties shall be submitted to arbitration in New York
City. The arbitration shall be finally settled in accordance with the rules of
Arbitration of the American Arbitration Association by one or more arbitrators
appointed in accordance with the above mentioned rules. The decision of the
arbitration tribunal shall be final and binding upon the parties and may be
enforced in any court of competent jurisdiction, and no party shall seek redress
against the other in any court or tribunal except solely for the purpose of
obtaining execution of the arbitration award or of obtaining a judgment
consistent with the award. The parties shall bear their own costs and expenses
related to any arbitration or legal proceeding and shall share equally in the
costs, expenses and fees paid to or reimbursed on behalf of the arbitrator(s).
8.08 Complete Agreement. This document, including its Exhibits, comprises the
entire agreement with respect to the subject matter hereof and supersedes all
negotiations, representations and warranties, commitments, offers, contracts and
writings prior to the date of this Agreement. Otherwise, the Parties to this
Agreement are not to be bound by any representations or warranties other than
those set forth herein or in a written amendment hereinafter entered into by the
parties and duly executed by each party.
8.09 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same instrument.
8.10 Warranty of Authority. The individuals actually executing this Agreement
personally represent and warrant that they have the necessary power and
authority to execute this Agreement on behalf of the party they represent, and
that their signatures are sufficient to make this Agreement the binding and
enforceable obligation of such party.
9
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE DULY
EXECUTED.
COVE SHOE COMPANY, INC. FRISBY TECHNOLOGIES, INC.
a division of H.H. Brown Shoe Co., Inc.
By: /s/ Charles E. Covatch By: /s/ Gregory S. Frosby
-------------------------- -----------------------------
Its: Vice President Its: Chief Executive Officer
Exhibits to be attached:
"A" - [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
"B" - List of Patents
"C" - Reciprocal Secrecy Agreement
10
<PAGE>
Exhibit A
COMFORTEMP FOAM [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.
<PAGE>
APPENDIX B -
Licensed Intellectual Property
United States Patents
No. 5,499,460 Moldable Foam Insole with Reversible Enhanced
Thermal Storage
Pat. Pend. Thermally Enhanced Foam Insulation
No. 5,290,904 Thermally Enhanced Heat Shields (Shared with
Gateway Technologies, Inc., Boulder, CO)
Pat. Pend. Thermal Insulating Coatings Using MicroPCMs
No. 4,807,696 Thermal Energy Storage Apparatus Using Encapsulated
Phase Change Materials
No. 4,911,232 Heat Transfer Using MicroPCM Slurries
No. 5,224,356 Thermal Energy Absorbing and Conducting Potting
Materials
No. 5,415,222 Microclimate Cooling Garments
No. 5,366,801 Fabric With Reversible Enhanced Thermal Properties
(Shared with Gateway Technologies, Inc., Boulder, CO)
<PAGE>
Exhibit C
RECIPROCAL SECRECY AGREEMENT
This Agreement is made by and between Cove Shoe Company, Inc., having an address
of 107 Highland Street, Martinsburg, PA 16662, (hereinafter "Cove") and Frisby
Technologies having an office at 417 So. Main Street, Freeport, New York 11520
(hereinafter "Frisby").
Each and all of the above-mentioned companies shall also be hereinafter referred
to as "the party" or "the parties" respectively.
WHEREAS, the parties propose to hold discussions and exchange information that
each respectively considers proprietary to itself to assist considerations of
mutual business interest to in relation to the development and application of
Microencapsulated Bulk Phase Change Materials into cold weather footwear for
various commercial and military applications, the "INFORMATION".
NOW, THEREFORE, the parties agree as follows:
1. Each party agrees that for a period ending December 31, 2000, they will not
disclose INFORMATION as shall be disclosed by the other party in
documentary form or, if disclosed orally, as shall be confirmed in writing
within thirty (30) days thereafter, to any third party or use the same for
any purpose other than that contemplated herein, without the disclosing
party's prior written consent. Each party further agrees to limit access to
such INFORMATION within its company to those of its employees, and
representatives who may reasonably require the same in order to enable it
to fulfill the purpose stated above for which it is receiving the
INFORMATION. Each such employee or representative shall have entered into
an agreement with the receiving party pursuant to which she/he has agreed
to retain in confidence all INFORMATION which may come into her/his
possession as a result of employment activities;
2. The obligation of paragraph 1 shall not apply to such portions of the
INFORMATION disclosed hereunder that (i) are known to the receiving party
prior to the time of disclosure, as demonstrated by appropriate documentary
evidence antedating disclosure to the receiving party by the disclosing
party, or (ii) shall have been or become in the public domain through no
act or failure to act on the part of the receiving party or its employees
or (iii) shall be lawfully furnished to the receiving party by a third
party having a bona fide right to disclose same without restriction to the
benefit of the disclosing party to this Agreement of (iv) shall be
independently developed by the receiving party subsequent to receipt from
the disclosing party and substantiated by reasonable documentation.
<PAGE>
3. Each party agrees that it will not, without the written permission of the
other party, use the INFORMATION which it is obligated hereunder to
maintain in confidence for any reason other than to enable the receiving
party to determine the technical and economic feasibility of its business
interests based on the INFORMATION; and that in no event will the receiving
party itself commercially practice or cause to be practiced by a third
party the technology represented by the INFORMATION which it is obligated
hereunder to hold confidential without the expressed written permission of
the disclosing party.
4. It is understood that no right or license is granted to the receiving party
by the disclosing party in connection with the INFORMATION disclosed
hereunder.
5. Nothing herein shall obligate either party to disclose to the other party
particular information and the receiving party shall have the right to
refuse or accept any particular proprietary information which is offered.
6. Any documents, drawings, materials, samples or specifications supplied by
either party, and all copies thereof, shall be returned upon request or
within 30 days after expiration or termination of this Agreement.
7. Samples and materials supplied by either Party or prepared at either
Party's direction hereunder shall be deemed to contain confidential
information of the supplying party.
8. Cove acknowledges that the chemical formulation of the shell of the
Microencapsulated Phase Change Materials is proprietary and confidential
and constitutes a valuable commercial asset of Frisby. Neither Cove, nor
any of its subcontractors, affiliates or customers shall do any evaluation
which would cause Cove to become knowledgeable of the chemical composition
of the capsule shell material or evaluate the use of the Microencapsulated
Phase Change Materials in any other application than those known to Frisby.
9. Neither Cove nor any of its customers, subcontractors or affiliates shall
place any Microencapsulated Phase Change Material technology into
production unless a mutually acceptable License Agreement or other
arrangement has been executed between Cove and Frisby.
<PAGE>
10. This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers or representatives as of this day and year given
below.
Cove SHOE COMPANY FRISBY TECHNOLOGIES, INC.
By: \s\ Tom Neal By: \s\ Greg Frisby
--------------------------- -----------------------------
Name: Tom Neal Name: Greg Frisby
--------------------------- -----------------------------
Title: President Title: Chief Executive Officer
--------------------------- -----------------------------
Date: 3/13/95 Date: 21 February 1995
--------------------------- -----------------------------
<PAGE>
Exhibit 10.12.1
LICENSE AGREEMENT DATED MAY 22, 1996 BETWEEN
THE COMPANY AND THERMO SOLUTIONS, INC.
(F/K/A TEMPTOP CONTAINER SYSTEMS, INC.
INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
<PAGE>
Page 1 of 9
LICENSE AGREEMENT
This License Agreement, entered into this 22nd day of May, 1996 (referred to as
the "Agreement") is between:
Temptop Container Systems, Inc., a corporation organized under the laws of
Minnesota, with an address at 7400 Metro Boulevard, Suite 100, Edina, Minnesota
55439, hereinafter referred to as "Temptop", and
Frisby Technologies, Inc., a corporation organized under the laws of the State
of North Carolina, with its principal place of business at 417 South Main
Street, Freeport, New York 11520, hereinafter referred to as "Frisby".
RECITALS
WHEREAS, Frisby is the exclusive worldwide licensee of certain patented and
proprietary thermal management technologies and information relating to phase
change materials (hereinafter "PCMs") and microencapsulated phase change
materials (hereinafter "MicroPCMs") and;
WHEREAS, Temptop wishes to sublicense Frisby's technologies relating to PCMs and
MicroPCMs for Temptop's exclusive use in certain thermal container and
transportation products and services as listed in Exhibit A; and
NOW, THEREFORE, in consideration of the premises and covenants herein contained,
receipt of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
1.01 MicroPCMs. "MicroPCMs" means microencapsulated phase change materials.
1.02 PCMs. "PCMs" means bulk phase change materials.
1.03 MicroPCM Slurries. "MicroPCM Slurries" means slurries, coolants or
other fluids which contain MicroPCMs.
<PAGE>
Page 2 of 9
1.04 Technology. "Technology" means all of Frisby's interest in any inventions,
developments, proprietary information, patents, trademarks, trade names, trade
secrets, know-how and improvements, whether present or future, relating to PCMs,
MicroPCMs, and MicroPCM Slurries and their incorporation into commercial,
industrial and military products.
1.05 End-Use Product. "End-Use Product" means any item containing the Technology
or service performed incorporating the Technology that is presently, or may one
day be, a salable product or service of Temptop, and which is included in the
list of licensed products in Exhibit A.
1.06 Royalty. "Royalty" means [This information has been omitted in accordance
with a Confidential Treatment Request and has been filed separately with the
Commission].
1.07 Sublicensee Payments. "Sublicensee Payments" means all moneys or
other consideration received by Temptop from any sublicensees for use of the
Technology.
1.08 Patent. "Patent" means all patents and applications for patents, including,
but not limited to, those that are identified in Exhibit "C", and foreign
counterparts thereof, as well as all continuations, continuations-in-part,
divisions and renewals thereof, all patents which may be granted thereon, and
all reissues, reexaminations, extensions, patents of additions and patents of
importation thereof, and any common law rights associated therewith.
1.09 Proprietary Information. "Proprietary Information" means all of the
following information and materials, whether or not patentable or protected by a
copyright, to which Temptop receives, or has received, access or which Temptop
develops or has developed, all or in part, as a result, whether direct or
indirect, of the Agreement set forth herein: (i) production processes, marketing
techniques, purchasing or supply information, price lists, financial
information, customer names and requirements, customer data and other
information relating to the PCMs, MicroPCMs, MicroPCM Slurries and/or any
derivation thereof; (ii) discoveries, context and ideas, and the embodiment
thereof, including without limitation the nature and results of research and
development activities, processes, formulations, techniques and "know how";
(iii) any other materials or information related to the PCMs, MicroPCMs,
MicroPCM Slurries and/or any derivation thereof; and (iv) all inventions and
ideas which are derived from, or relate to, Temptop's access to or knowledge of
any of the above-enumerated materials and information.
1.10 Net Sales Revenues. "Net Sales Revenues" means the revenues generated by
Temptop from the sale of End-Use Products, less the following amounts: discounts
and reasonable rebates actually allowed or granted, all applicable taxes related
to the sale and/or use of the End-Use Product, and initial transportation
charges of the Temptop product(s) to customers.
<PAGE>
Page 3 of 9
1.11 Effective Date. This Agreement is effective when duly signed by the
Parties.
ARTICLE II - GRANT OF LICENSE
2.01 Exclusive License. Frisby grants to Temptop a worldwide license to utilize
the Technology in order to make, use, sublicense, sell and lease End-Use
Products as listed in Exhibit A for a period of ten (10) years. This License is
exclusive with respect to utilizing the Technology in the End-Use Products, but
does not preclude or limit Frisby from licensing the Technology for other
products and services than those listed in Exhibit "A". Temptop will not
disclose the Technology to any Sublicensee or subcontractor unless that party
has agreed in writing to hold all information in confidence and to use the
technology solely for the purpose of designing, developing, manufacturing,
assembling or selling the End-Use Product or components thereof for Temptop.
2.02 Best Effort Support. The Parties hereto agree to support the product
development, commercial application, sales, marketing and promotion of End-Use
Products incorporating the Technology with best efforts for the life of this
Agreement.
2.03 Relationship of Parties. Each Party is an independent contractor and under
no circumstances shall any party be deemed to be a legal representative, express
or implied agent, or employee of another party. No act of any party, and no
assistance given from one Party to the other, shall be construed to alter this
independent contractor relationship.
ARTICLE III - PROVISION OF MICROPCMS
3.01 Provision of PCMs, MicroPCMs and MicroPCM Slurries. Frisby shall be the
sole source of supply for all PCMs, MicroPCMs, and MicroPCM Slurries for
Temptop, its Sublicensees and subcontractors for the term of this License.
Frisby shall arrange for the supply of an adequate and available supply of PCMs,
MicroPCMs or MicroPCM Slurries to Temptop at Frisby's pricing contained in
Exhibit B, FOB at the site of MicroPCM or PCM manufacture. Frisby agrees to
supply all such products to Temptop at terms no less favorable than the most
favorable terms offered to comparable commercial customers for the full term of
this Agreement. In order to support production lead-times and customer
requirements, Temptop shall maintain an adequate inventory of MicroPCMs on hand
to support all orders due within one hundred and twenty (120) days. Temptop and
Frisby will determine all other terms and conditions of sale prior to Temptop's
first order for MicroPCMs.
<PAGE>
Page 4 of 9
ARTICLE IV - PAYMENTS
4.01 Payments to Frisby. All amounts owed by Temptop to Frisby for supply of
PCMs, MicroPCMs, MicroPCM Slurries or any products or services related thereto
provided by Frisby to Temptop shall be paid within thirty days after billing by
Frisby.
4.02 License Fees. In addition to royalties, Temptop agrees to pay Frisby a
License Fee of [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.], payable as ten (10) successive annual payments of [This
information has been omitted in accordance with a Confidential Treatment Request
and has been filed separately with the Commission.] in accordance with the
following schedule:
March 1, 1996 [This information has been omitted in accordance
with a Confidential Treatment Request and has been
filed separately with the Commission.]
January 1, 1997 [This information has been omitted in accordance
with a Confidential Treatment Request and has been
filed separately with the Commission.]
January 1, 1998 [This information has been omitted in accordance
with a Confidential Treatment Request and has been
filed separately with the Commission.]
January 1, 1999 [This information has been omitted in accordance
with a Confidential Treatment Request and has been
filed separately with the Commission.]
January 1, 2000 [This information has been omitted in accordance
with a Confidential Treatment Request and has been
filed separately with the Commission.]
January 1, 2001 [This information has been omitted in accordance
with a Confidential Treatment Request and has been
filed separately with the Commission.]
January 1, 2002 [This information has been omitted in accordance
with a Confidential Treatment Request and has been
filed separately with the Commission.]
January 1, 2003 [This information has been omitted in accordance
with a Confidential Treatment Request and has been
filed separately with the Commission.]
<PAGE>
Page 5 of 9
January 1, 2004 [This information has been omitted in accordance
with a Confidential Treatment Request and has been
filed separately with the Commission.]
January 1, 2005 [This information has been omitted in accordance
with a Confidential Treatment Request and has been
filed separately with the Commission.]
The Parties hereto further agree that at any time before May 1, 2001, Temptop
may purchase a paid-up license for the remainder of the term of this Agreement
by paying Frisby an amount equal to the difference between [This information has
been omitted in accordance with a Confidential Treatment Request and has been
filed separately with the Commission.] and the amount of all annual license fees
previously paid by Temptop.
4.03 Royalty Payments. In addition to License fees, Temptop agrees to pay Frisby
a royalty of [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.] whether such sales occur during the effective term of the License
or thereafter The royalties due shall be paid to Frisby within thirty days
following the end of each calendar quarter.
4.04 Sublicensee Payments. In addition to License Fees and Royalties, Temptop
agrees to pay Frisby [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.] percent of any and all Sublicensee Payments paid to Temptop. Such
payments shall be due and payable to Frisby within thirty days following the end
of each calendar quarter in which payments were received by Temptop.
4.05 Records Inspection. Temptop shall maintain adequate books and records in
connection with activity under this Agreement. Frisby may audit the relevant
books and records of Temptop to ensure compliance with the terms of this
Agreement upon reasonable notice to Temptop. Any such audit shall be conducted
during regular business hours at Temptop's offices and shall not interfere
unreasonably with Temptop's business activities.
<PAGE>
Page 6 of 9
ARTICLE V - INTELLECTUAL PROPERTY
5.01 Frisby's Intellectual Property. Temptop acknowledges that the Technology
and the chemical formulation of the shell of the MicroPCM is proprietary and
confidential and constitutes a valuable commercial asset of Frisby. Temptop, and
any of its related Parties, consultants, subcontractors or affiliates, shall not
evaluate the use of the Technology or the MicroPCMs in any applications other
than those licensed to Temptop herein. Proprietary information disclosed by
either party hereunder shall be subject to the terms of the Reciprocal Secrecy
Agreement between the parties, dated June 13, 1995, irrespective of any
termination of this Agreement.
5.02 Reports of Technical Results. Temptop agrees that all information and
evaluation results generated by Temptop or otherwise obtained during the term of
this License, which is related to the Technology, shall be the exclusive
property of Frisby, with rights to same licensed to Temptop for the term of this
License.
5.03 Reporting Obligations. If Temptop or its employees, contractors,
affiliates, agents, or sublicensees makes a discovery or invention during the
term of this License which relates to the Technology or MicroPCMs, Temptop shall
promptly make such discovery known to Frisby in writing.
5.04 Trademarks. Except for the licensed right to use Frisby's Trademarks as set
forth herein, during the term of this Agreement, nor at any time after, Temptop
shall not obtain any right, title or interest to Frisby's Trademarks. All
licensed products sold by Temptop under the terms of this License Agreement
shall appropriately reference one or more of Frisby's designated Trademarks, as
designated by Frisby. Further, Temptop shall not obtain any Trademarks or use
any Tradenames that are similar thereto at any time.
ARTICLE VI - REPRESENTATIONS AND WARRANTIES
6.01 Representation. Frisby hereby represents and warrants that they have the
right to license the Technology to Temptop, that they have not or will not enter
into an agreement which would conflict with the exclusive nature of this
agreement, and that they will pay any renewal fees necessary for the maintenance
of the Patents. Frisby also certifies that, to the best of its knowledge,
Temptop's use of the Technology does not violate or infringe on the intellectual
property rights of any third party.
6.02 Intellectual Property Indemnification. Frisby agrees to indemnify and hold
Temptop harmless with respect to any suit, claim or proceeding brought against
Temptop by a third party alleging that Temptop's or a Temptop customer or
Sublicensees authorized use of the Technology constitutes an infringement of a
patent, copyright, or trademark or a misuse of proprietary or trade secret
information.
<PAGE>
Page 7 of 9
6.03 Limitation of Liability. In no event shall either Party be liable to the
other Party for incidental or consequential damages. Temptop agrees to indemnify
and hold Frisby harmless from any third party suit, claim or proceeding brought
against Frisby that arise from or are occasioned by Temptop's use of the
Technology.
<PAGE>
Page 8 of 9
ARTICLE VII - TECHNICAL AND MARKETING ASSISTANCE
7.01 Support. Frisby agrees to reasonably assist Temptop in its efforts to
incorporate the Technology into End-Use Products and to market End-Use Products.
The manner and arrangements under which the assistance and support services will
be provided under this article will be jointly agreed to by Frisby and Temptop.
ARTICLE VIII - MISCELLANEOUS PROVISIONS
8.01 Effect of Waiver. No waiver whether express or implied, of any breach of
any term, condition, or obligation of this Agreement shall be construed as a
waiver of any subsequent breach of that term, condition, or obligation, or any
other term, condition, or obligation of this Agreement of the same or different
nature.
8.02 Notices. Any notice provided for in this Agreement must be in writing and
may be given by registered letter and shall be deemed to have been given when
such registered letter, properly addressed, is mailed. If such notice is given
otherwise than by registered letter, it shall be deemed to have been given when
delivered. If such notice is to be given to Temptop, copies shall be addressed
to Mr. Mark Wallace, President, Temptop Container Systems, Inc., 7400 Metro
Boulevard, Suite 100, Edina, Minnesota 55439. If given to Frisby, copies shall
be addressed to Mr. Greg Frisby, Chief Executive Officer, Frisby Technologies,
Inc., 417 S. Main Street, Freeport, NY 11520. Either party hereto may at any
time, by thirty (30) days written notice to the other, designate any other
address in place of those provided in this paragraph.
8.03 Severability. It is understood and agreed by the parties to this Agreement
that if any part, term or provision of this Agreement is held to be illegal by
United States courts or in conflict with applicable law, the validity of the
remaining portions of provision shall not be affected, and the rights and
obligations of the parties hereto shall be construed and enforced consistent
with the intent of this Agreement.
8.04 Interpretation Presumption. This Agreement has been negotiated by the
Parties hereto and by the respective attorneys for each party. The parties
represent and warrant to one another that each has, by counsel or otherwise,
actively participated in the finalization of this Agreement, and in the event of
a dispute concerning the interpretation of this Agreement, each party hereby
waives the doctrine that an ambiguity should be interpreted against the party
which has drafted the document.
<PAGE>
Page 9 of 9
8.04 Remedies. Each Party acknowledges and agrees that the remedies provided in
this Agreement shall be in addition to, and not in lieu of, any other remedies
provided at law or in equity, including, but not limited to, such injunctive or
other equitable relief as may be deemed appropriate by a court of competent
jurisdiction.
8.05 Successors and Assigns. This Agreement shall inure to the benefit of the
successors, heirs, representatives, or assigns of the parties. However, Temptop
shall not assign their obligations or interests under this Agreement without
prior written approval from Frisby.
8.06 Choice of Law and Dispute Resolution. This Agreement is to be governed by
and interpreted in accordance with the laws of the State of New York. All
disputes and differences of any kind arising under this Agreement which can not
be settled amicably by the Parties shall be submitted to arbitration. The
arbitration shall be finally settled in accordance with the rules of Arbitration
of the American Arbitration Association by one or more arbitrators appointed in
accordance with the above mentioned rules. The decision of the arbitration
tribunal shall be final and binding upon the Parties and may be enforced in any
court of competent jurisdiction, and no party shall seek redress against the
other in any court or tribunal except solely for the purpose of obtaining
execution of the arbitration award or of obtaining a judgment consistent with
the award. The parties shall bear their own costs and expenses related to any
arbitration or legal proceeding and shall share equally in the costs, expenses
and fees paid to or reimbursed on behalf of the arbitrator(s).
8.07 Complete Agreement. This document comprises the entire agreement with
respect to the subject matter hereof and supersedes all negotiations,
representations and warranties, commitments, offers, contracts and writings
prior to the date of this Agreement, except the Reciprocal Secrecy Agreement
between the Parties dated June 13, 1995, incorporated herein and made a part
thereof. Otherwise, the Parties to this Agreement are not to be bound by any
representations or warranties other than those set forth herein or in a written
amendment hereinafter entered into by the parties and duly executed by each
party.
8.08 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same instrument.
8.09 Warranty of Authority. The individuals actually executing this Agreement
personally represent and warrant that they have the necessary power and
authority to execute this Agreement on behalf of the party they represent, and
that their signatures are sufficient to make this Agreement the binding and
enforceable obligation of such party.
<PAGE>
Page 10 of 9
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE DULY
EXECUTED.
TEMPTOP CONTAINER SYSTEMS, INC. FRISBY TECHNOLOGIES, INC.
By: \s\ Mark W. Wallace By: \s\ Greg Frisby
---------------------------- -------------------------------
Title: President Title: Chief Executive Officer
--------------------------- ----------------------------
Date: May 22, 1996 Date: 22 May 1996
--------------------------- ---------------------
<PAGE>
PROPRIETARY
Exhibit A
Licensed End-Use Products
1. Klimate Keepers
2. Klimate Keeper Tops
3. Pallet Covers
4. Speedwalls
5. Pallet Bases
6. Transport Trailers
7. Gel Packs For Food Related Transportation Applications
8. Foam Supply, Inc. Applications, per mutual agreement of the Parties
9. Custom Engineered Interiors For All Temptop Products
10. Ocean Going Shipping Containers
11. Air Cargo Shipping Containers
<PAGE>
Exhibit 10.12.2
MEMORANDUM OF UNDERSTANDING DATED JANUARY 22, 1998 BETWEEN
THE COMPANY AND THERMO SOLUTIONS, INC.
INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
<PAGE>
Memorandum of Understanding
between
Frisby Technologies, Inc.
and
Thermo Solutions, Inc.
January 22, 1998
The Parties hereto agree to revise the existing License Agreement between the
Parties, dated May 22, 1996, in order to better reflect the specific product
offerings of Thermo Solutions as well as to establish certain performance
requirements under the License, subject to the provisions and understandings
which follow:
1. Scope of License - Frisby grants Thermo Solutions an exclusive license
through December 31, 1998 to make, use, and sell certain shipping and/or storage
containers for temperature sensitive food products, as defined in Exhibit A (the
"licensed products") incorporating the Technology worldwide. Thermo Solutions is
further granted the rights to extend this exclusive license for two additional
one year options, at it's sole discretion, by committing to the Annual Purchase
Minimums in Section 5 herein by not later than September 30 of the preceding
year. The Parties further agree that certain other products may be added to this
Agreement, on a case by case basis, subject to the written mutual agreement of
the Parties.
2. License Fee - In return for the exclusive License granted above, Thermo
Solutions agrees to pay Frisby annual License Fee payments in accordance with
the following schedule:
June 30, 1998 [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with
the Commission.]
*June 30, 1999 [This information has been omitted in accordance with a
Confidential Treatment *option years Request and has been filed
separately with the Commission.]
*June 30, 2000 [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with
the Commission.]
In addition to the above fee(s), Thermo Solutions agrees to perform each of the
following actions:
1. Design and produce at least one style of food storage or delivery
container incorporating Thermasorb(R) or ComforTemp(R) as part of
Thermo Solution's 1998 product line.
2. Aggressively promote the sale of these licensed products by, at a
minimum:
o prominently displaying the ComforTemp or Thermasorb based product
at one or more appropriate industry trade shows in each year of
the License;
<PAGE>
o prominently featuring ComforTemp, Thermasorb and their logos in
at least one brochure, advertisement and piece of promotional
literature that includes the Licensed product in each year of the
License;
o prominently displaying the ComforTemp or Thermasorb hangtag
and/or mutually agreeable marking on all products sold containing
ComforTemp:
3. Royalties - In addition to the above License fee(s), Thermo Solutions agrees
to pay Frisby the following royalty [This information has been omitted in
accordance with a Confidential Treatment Request and has been filed separately
with the Commission.] The royalties are to be paid to Frisby within thirty days
following the end of each calendar quarter.
- --------------------------------------------------------------------------------
1998 [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed
separately with the Commission.]
- --------------------------------------------------------------------------------
1999 and thereafter [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed
separately with the Commission.]
- --------------------------------------------------------------------------------
4. Sole Source Supply - The Parties hereto agree that Frisby will be sole source
of supply for all ComforTemp foams and/or Thermasorb additives that may be
required by Thermo Solutions, their subcontractors and/or affiliates to support
all product development efforts and production requirements.
5. Purchase Minimums - In addition to any other amounts owed hereunder, Thermo
Solutions agrees to the following Annual Purchase Minimums of Thermasorb or
ComforTemp:
1998 2,000 lb.
*1999 20,000 lb.
*2000 50,000 lb. *option years
For calculation purposes, 1 lb. of Thermasorb equals 1 yard of ComforTemp foam.
The purchase orders shall reflect volume brackets, pricing, minimum purchase
requirements and minimum delivery requirements in accordance with Frisby's then
current price list.
6. Delivery of Product - In order to protect production lead times and customer
requirements, Thermo Solutions shall maintain an adequate inventory of
ComforTemp and Thermasorb on hand to support all order due within ninety (90)
days. All POs will be issued to Frisby by Thermo Solutions not less than ninety
(90) days preceding Thermo Solutions' on-dock need dates.
7. Intellectual Property - All Technology licensed to Thermo Solutions under
this Agreement remains the exclusive intellectual property of Frisby for the
commercial life of the Technology. However, if the Parties jointly develop, or
Thermo Solutions develops independently, patentable intellectual property
related to the licensed Technology during the term of this License, then that
Technology will become part of this Agreement with the License thereto granted
to Thermo Solutions in accordance with the License provisions in effect at that
time. Both Parties maintain their exclusive rights to previously developed
technology or any intellectual property not related to the Technology
independently developed by either party during the term of this License.
<PAGE>
8. Best Effort Support - Both Parties hereto agree to support new product
development, new product introduction, promotion and sales of all licensed
products incorporating the Technology with the best efforts of the Parties. This
will include the active introduction and promotion of new products containing
the Technology by Thermo Solutions, and the reasonable technical support by
Frisby of Thermo Solutions products containing the Technology.
FRISBY TECHNOLOGIES, INC. THERMO SOLUTIONS, INC.
\s\ Greg Frisby \s\ Mark Krivoruchka
- ----------------------------- -----------------------------------
Greg Frisby, Chairman and CEO Mark Krivoruchka, President and CEO
Exhibit A - END-USE PRODUCTS
1. Insulated shipping and/or storage containers and container systems with
dimensions between 0.5 cubic feet and 6 cubic feet, including container
accessories related thereto, for temperature sensitive food products.
<PAGE>
Exhibit 10.13
LICENSE AGREEMENT DATED FEBRUARY 10, 1997 BETWEEN
THE COMPANY AND GENFOOT, INC. AND GENFOOT AMERICA, INC.
[INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
<PAGE>
LICENSE AGREEMENT
This License Agreement (the "Agreement"), entered into this 10th day of
February, 1997 (referred to as the "Agreement") is between:
Genfoot, Inc., and Genfoot America, Inc., corporations doing business at 554
Montee' de Liesse, Montreal (Quebec), Canada H4T1P1, hereinafter collectively
referred to as "Genfoot", and
Frisby Technologies, Inc., a corporation organized under the laws of the State
of North Carolina, with its principal place of business at 417 South Main
Street, Freeport, New York 11520, hereinafter referred to as "Frisby".
RECITALS
WHEREAS, Frisby is the exclusive worldwide licensee of certain patented and
proprietary thermal management technologies and information relating to
microencapsulated phase change materials (hereinafter "MicroPCMs"); and
WHEREAS, Genfoot wishes to sublicense Frisby's technologies relating to
MicroPCMs for Genfoot's non-exclusive use in selected segments of the worldwide
footwear marketplace; and
NOW, THEREFORE, in consideration of the premises and covenants herein contained,
receipt of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
1.01 MicroPCMs. "MicroPCMs" means microencapsulated phase change materials.
1.02 Thermasorb. "Thermasorb" means Thermasorb(TM) which is the name of Frisby's
thermal additive products based upon its licensed MicroPCM technology.
Thermasorb is a trademark of Frisby.
1.03 ComforTemp. "ComforTemp" means ComforTemp(TM) which is the name of Frisby's
insulating foam products based upon Frisby's licensed MicroPCM technology.
ComforTemp is a trademark of Frisby.
2
<PAGE>
1.04 Technology. "Technology" means all of Frisby's interest in any inventions,
developments, proprietary information, patents, trademarks, trade names, trade
secrets, know-how and improvements, whether present or future, relating to
MicroPCMs, Thermasorb, and ComforTemp and their incorporation into commercial,
industrial and military products. The Technology does not include fibers and
fabrics coated or embedded with MicroPCMs.
1.05 End-Use Product. "End-Use Product" means boots or other footwear containing
the Technology or service performed incorporating the Technology into a product
that is presently, or may one day be, a marketable product or service of
Genfoot. End-Use Products are specifically limited to the following style of
footwear: Cold Weather Insulated Pac Boots with Rubber Bottoms.
1.06 Patent. "Patent" means all patents and applications for patents, including,
but not limited to, those that are identified in Exhibit "B" and foreign
counterparts thereof, as well as all continuations, continuations-in-part,
divisions and renewals thereof, all patents which may be granted thereon, and
all reissues, reexaminations, extensions, patents of additions and patents of
importation thereof, and any common law rights associated therewith.
1.07 Proprietary Information. "Proprietary Information" means information and
materials, whether or not patentable or copyrightable, to which Genfoot
receives, or has received, access or which Genfoot develops, or has developed,
as either a direct or indirect result of this Agreement as follows: (i)
production processes, marketing techniques, purchasing or supply information,
price lists, financial information, customer names and requirements, customer
data and other information relating to the MicroPCMs, Thermasorb, ComforTemp
and/or any derivation thereof; (ii) discoveries, context and ideas, and the
embodiment thereof, including without limitation the nature and results of
research and development activities, processes, formulations, techniques and
"know how"; (iii) any other materials or information related to the MicroPCMs,
Thermasorb, ComforTemp and/or any derivation thereof; and (iv) all inventions
and ideas which are derived from, or relate to, Genfoot's access to or knowledge
of any of the above-enumerated materials and information.
1.08 Effective Date. This Agreement is effective on the date it is duly signed
by both parties and any cash portion of a License Fee required to be paid at
time of signing this Agreement is actually received by Frisby.
3
<PAGE>
ARTICLE II - GRANT OF LICENSE
2.01 Non-Exclusive License. Frisby grants to Genfoot a worldwide non-exclusive
license to utilize the Technology in order to design, develop, manufacture,
and/or assemble the End-Use Products. This license includes the right to use
Frisby's ComforTemp and Thermasorb Trademarks in the promotion, advertising, and
marketing of the End-Use Products. This License is non-exclusive with respect to
utilizing the Technology in the End-Use Products and does not preclude or limit
Frisby from licensing the Technology to others for products and services,
including products or services similar to the End-Use Products. Genfoot will not
disclose the Technology to any subcontractor unless that party has agreed in
writing to hold all information in confidence and to use the Technology solely
for the purpose of designing, developing, manufacturing, assembling or selling
the End-Use Product or components thereof for Genfoot. Sublicensing of the
Technology by Genfoot is expressly prohibited.
2.02 Term of Agreement. The non-exclusive license granted herein is for a term
of two (2) years from the Effective Date. Genfoot has the right to extend the
license for an additional one (1) year; provided, that by September 30, 1998,
Genfoot has purchased and taken delivery of Three Hundred Seventy Five Thousand
(375,000) square feet of ComforTemp. Genfoot may exercise this right to extend
the license by delivering to Frisby a written notice extending this license. The
written notice must be accompanied by proof that Genfoot has purchased and taken
delivery of at least 375,000 square feet of ComforTemp. Frisby reserves the
right to request and approve reasonable and verifiable documentation that at
least 375,000 square feet of ComforTemp has been purchased and delivered to
Genfoot. If the written notice is not delivered by September 30, 1998, the right
to extend the license expires.
2.03 Relationship of Parties. Each party is an independent contractor and under
no circumstances shall any party be deemed to be a legal representative, express
or implied agent, or employee of another party. No act of any party, and no
assistance given from one party to the other, shall be construed to alter this
independent contractor relationship.
ARTICLE III - PROVISION OF COMFORTEMP AND THERMASORB
3.01 Provision of Thermasorb and ComforTemp. The sole source of supply for all
Thermasorb and ComforTemp required by Genfoot (or any of its subcontractors) to
support product development and production shall be Frisby, unless Frisby
provides an express written waiver of that right. Any waiver of that right will
be only as to a particular order and not of Frisby's right to be the sole source
of supply under this Agreement. Frisby shall arrange for an adequate and
available supply of Thermasorb and ComforTemp to Genfoot, to be delivered FOB at
the site of manufacture of the Thermasorb or ComforTemp. Frisby agrees to supply
all such products to Genfoot at terms no less favorable than the most favorable
terms offered to comparable commercial customers during the term of this
Agreement.
4
<PAGE>
3.02 Annual Purchase Minimums. At the time of signing this Agreement, Genfoot
shall provide Frisby with a purchase commitment letter specifying the total
linear yardage of each variety of ComforTemp that Genfoot will purchase during
the two (2) year term of this license. Genfoot's specific purchase orders made
during the term of this Agreement will be credited against the total sum
specified in the purchase commitment letter. Specific purchase orders for any
variety of ComforTemp must be in minimum units of One Thousand (1,000) linear
yards. The purchase price for each variety of ComforTemp shall be based on the
then current price list as applied to the purchase volume level specified in
Genfoot's initial purchase commitment letter. If Genfoot does not purchase the
full amount of each variety of ComforTemp as specified in the purchase
commitment letter, Genfoot will be invoiced on or about December 31, 1998, for
the price difference between the volumes released in each variety of ComforTemp
and the volumes stated for each variety in the purchase commitment letter. The
invoice price will be based on the then applicable price list.
3.03 Delivery of Product. Specific purchase orders must be issued to Frisby not
less than ninety (90) days before Genfoot needs the shipment on-dock as
expressly communicated to Frisby at time of issuing the specific purchase order.
Genfoot agrees to maintain an adequate on-hand inventory of ComforTemp to
support all its orders due within ninety (90) days.
ARTICLE IV - PAYMENTS
4.01 Payments to Frisby. All amounts owed by Genfoot to Frisby for supply of
Thermasorb and ComforTemp or any products or services related thereto provided
by Frisby to Genfoot shall be paid within thirty days after billing by Frisby.
4.02 License Fees. Genfoot agrees to perform each of the following actions as a
License Fee ("License Fee") for this Agreement:
(a) design and produce at least one type of End-Use Product for
inclusion in the Genfoot display at the Outdoor Retailer's Show in
January of 1997;
(b) aggressively promote the sale of the End-Use Products described
directly above in subsection (a) above by, at a minimum,
1. prominently featuring the ComforTemp(TM) logo along with the
End-Use Products in Genfoot's 1997 catalog;
2. displaying the End-Use Products at all trade shows where the
products of Genfoot will be displayed;
3. prominently featuring ComforTemp(TM) and the ComforTemp(TM)
logo in all brochures, advertising, and promotional
literature that includes the End-Use Products.
5
<PAGE>
4.03 Records Inspection. Genfoot shall maintain adequate books and records in
connection with activity under this Agreement. Frisby may audit the relevant
books and records of Genfoot to ensure compliance with the terms of this
Agreement upon reasonable notice to Genfoot. Any such audit shall be conducted
during regular business hours at Genfoot's offices and shall not interfere
unreasonably with Genfoot's business activities.
ARTICLE V - INTELLECTUAL PROPERTY
5.01 Frisby's Intellectual Property. Genfoot acknowledges that the Technology
and the chemical formulation of the Technology is proprietary and confidential
and constitutes a valuable commercial asset of Frisby. Genfoot, and any of its
related parties, consultants, subcontractors, shall not incorporate the
Technology in any applications other than those End-Use Products as specifically
licensed to Genfoot herein. Proprietary information disclosed by either party
hereunder shall be subject to the terms of the Reciprocal Secrecy Agreement
between the parties which is attached to this Agreement, and made a part of it,
as Exhibit "C".
5.02 Reports of Technical Results. Genfoot agrees that all information and
evaluation results generated by Genfoot, its consultants, subcontractors,
affiliates, or sublicensees, or otherwise obtained during the term of this
Agreement, which are related to the Technology, shall be the exclusive property
of Frisby, with rights to same licensed to Genfoot for the term of this
Agreement.
5.03 Reporting Obligations. If Genfoot or its employees, contractors,
affiliates, agents, or sublicensees makes a discovery or invention during the
term of this Agreement which relates to the Technology, Genfoot shall promptly
make such discovery known to Frisby in writing. If the parties jointly develop,
or Genfoot independently develops, patentable intellectual property related to
the Technology, then that technology will be deemed Technology under this
Agreement and licensed to Genfoot accordingly.
5.04 Trademarks. ComforTemp(TM) and Thermasorb(TM) are Frisby's Trademarks
regarding the Technology licensed in this Agreement. Except for the licensed
right to use these Frisby Trademarks, during the term of this Agreement, Genfoot
shall not obtain any right, title or interest to Frisby's Trademarks. All
licensed products sold by Genfoot under the terms of this Agreement shall
appropriately reference one or more of Frisby's Trademarks for ComforTemp or
Thermasorb, as designated by Frisby. Further, Genfoot shall not obtain any
Trademarks or use any Tradenames that are similar thereto at any time.
6
<PAGE>
ARTICLE VI - REPRESENTATIONS AND WARRANTIES
6.01 Representation. Frisby represents that it has the right to license the
Technology to Genfoot and that it will pay any renewal fees necessary for the
maintenance of the Patents. If the use of the Technology is enjoined, Frisby
shall provide a suitable substitute or refund any License Fees paid hereunder
ARTICLE VII - TECHNICAL AND MARKETING ASSISTANCE
7.01 Support. Each party agrees to use its best efforts in support of the
development and introduction of new products which incorporate the Technology,
as well as the promotion and sales of the End-Use Products. As to Genfoot, this
will mean the active development and introduction of new products incorporating
the Technology, as well as the marketing and promotion of the End-Use Products.
For Frisby, this will mean the promotion of the End-Use Products as part of its
promotions for ComforTemp and Thermasorb, including promotions to the United
States government. Frisby further agrees, subject to its sole discretion, to
support Genfoot at a reasonable number of sales presentations and trade shows by
providing Frisby personnel to answer technical questions concerning the
Technology posed by potential customers.
ARTICLE VIII - MISCELLANEOUS PROVISIONS
8.01 Effect of Waiver. Neither an express nor implied waiver of any breach of
any term, condition, or obligation of this Agreement shall be construed as a
waiver of any subsequent breach of that term, condition, or obligation, or any
other term, condition, or obligation of this Agreement of the same or different
nature.
8.02 Notices. Any notice provided for in this Agreement must be in writing. If
the notice is given by certified mail, the notice will be deemed to have been
given when such certified letter, properly addressed, is mailed. If such notice
is given by any other means, it will be deemed to have been given at the time of
receipt by the addressee. If such notice is to be given to Genfoot, copies shall
be addressed to Mr. Gordon Cook c/o Genfoot, Inc., 554 Montee' de Liesse,
Montreal (Quebec), Canada H4T1P1. If given to Frisby, copies shall be addressed
to Mr. Greg Frisby, Chief Executive Officer, Frisby Technologies, Inc., 417 S.
Main Street, Freeport, NY 11520. Either party hereto may at any time, by thirty
(30) days written notice to the other, designate any other address in place of
those provided in this paragraph.
7
<PAGE>
8.03 Severability. It is understood and agreed by the parties to this Agreement
that if any part, term or provision of this Agreement is held to be illegal by a
state or federal court of competent jurisdiction or in conflict with applicable
law, the validity of the remaining portions of provision shall not be affected,
and the rights and obligations of the parties hereto shall be construed and
enforced consistent with the intent of this Agreement.
8.04 Interpretation Presumption. This Agreement has been negotiated by the
parties hereto or by the respective attorneys for each party. The parties
represent and warrant to one another that each has, by counsel or otherwise,
actively participated in the finalization of this Agreement, and in the event of
a dispute concerning the interpretation of this Agreement, each party hereby
waives the doctrine that an ambiguity should be interpreted against the party
which has drafted the document.
8.05 Remedies and Defaults. Each party acknowledges and agrees that the remedies
provided in this Agreement shall be in addition to, and not in lieu of, any
other remedies provided at law or in equity, including, but not limited to, such
injunctive or other equitable relief as may be deemed appropriate by a court of
competent jurisdiction. If a party defaults in the performance of its
obligations under this Agreement, including but not limited to payment of any
monies hereunder for License Fees, or materials supplied, and that party fails
to cure such default within thirty (30) days after receipt of written notice of
such default, the non-defaulting party shall have the right to immediately
terminate this Agreement and the license provided herein. In the event such a
termination occurs, the terms of the Reciprocal Secrecy Agreement, a copy of
which is attached to this Agreement as an exhibit, shall remain in full force
and effect.
8.06 Successors and Assigns. The parties will have the right to assign their
respective rights and obligations under this Agreement to third parties;
provided, however, Genfoot shall not assign its obligations or interests under
this Agreement without prior written approval from Frisby. This Agreement shall
inure to the benefit of the successors, heirs, representatives, or assigns of
the parties subject to the restrictions contained herein.
8.07 Choice of Law and Dispute Resolution. This Agreement is to be governed by,
and interpreted in accordance with, the laws of the State of New York (USA). All
disputes and differences of any kind arising under this Agreement which can not
be settled amicably by the parties shall be submitted to arbitration in New York
City, New York. The arbitration shall be finally settled in accordance with the
rules of Arbitration of the American Arbitration Association by one or more
arbitrators appointed in accordance with the above mentioned rules. The decision
of the arbitration tribunal shall be final and binding upon the parties and may
be enforced in any court of competent jurisdiction in the United States of
America or Canada, and no party shall seek redress against the other in any
court or tribunal except solely for the purpose of obtaining execution of the
arbitration award or of obtaining a judgment consistent with the award. The
parties shall bear their own costs and expenses related to any arbitration or
legal proceeding and shall share equally in the costs, expenses and fees paid or
reimbursed to the arbitrator(s).
8
<PAGE>
8.08 Complete Agreement. This document, including its Exhibits, comprises the
entire agreement with respect to the subject matter hereof and supersedes all
negotiations, representations and warranties, commitments, offers, contracts and
writings prior to the date of this Agreement. Otherwise, the parties to this
Agreement are not to be bound by any representations or warranties other than
those set forth herein, including the Reciprocal Secrecy Agreement which is an
exhibit to this Agreement, or in a written amendment to this Agreement
hereinafter entered into and executed by each party.
8.09 Counterparts. This Agreement may be executed in one or more counterparts,
and each deemed an original, but all of which constitute one and the same
instrument.
8.10 Warranty of Authority. The individuals actually executing this Agreement
personally represent and warrant that they have the necessary power and
authority to execute this Agreement on behalf of the party they represent, and
that their signatures are sufficient to make this Agreement the binding and
enforceable obligation of such party.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE DULY
EXECUTED.
GENFOOT, INC. FRISBY TECHNOLOGIES, INC.
By: /s/ Gordon Cook By: /s/ Gregory S. Frisby
---------------------- ------------------------------------
Gordon Cook, President Greg Frisby, Chief Executive Officer
GENFOOT AMERICA, INC.
By: /s/ Gordon Cook
----------------------
Gordon Cook, President
Exhibits to be attached:
"A" - [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
"B" - List of Patents
"C" - Reciprocal Secrecy Agreement
9
<PAGE>
Exhibit A
COMFORTEMP(TM) [This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately with the
Commission.]
10
<PAGE>
APPENDIX B -
Licensed Intellectual Property
United States Patents
- ---------------------
No. 5,499,460 Moldable Foam Insole with Reversible Enhanced
Thermal Storage
Pat. Pend. Thermally Enhanced Foam Insulation
No. 5,290,904 Thermally Enhanced Heat Shields (Shared with
Gateway Technologies, Inc., Boulder, CO)
Pat. Pend. Thermal Insulating Coatings Using MicroPCMs
No. 4,807,696 Thermal Energy Storage Apparatus Using Encapsulated
Phase Change Materials
No. 4,911,232 Heat Transfer Using MicroPCM Slurries
No. 5,224,356 Thermal Energy Absorbing and Conducting Potting
Materials
No. 5,415,222 Microclimate Cooling Garments
No. 5,366,801 Fabric With Reversible Enhanced Thermal Properties
(Shared with Gateway Technologies, Inc., Boulder, CO)
11
<PAGE>
Exhibit C
RECIPROCAL SECRECY AGREEMENT
This Agreement is made by and between Genfoot, Inc. having an office at 554
Montee de Liesse, Montreal, Quebec, Canada H4T 1P1, (hereinafter "Genfoot") and
Frisby Technologies having an office at 417 So. Main Street, Freeport, New York
11520 (hereinafter "Frisby").
Each and all of the above-mentioned companies shall also be hereinafter referred
to as "the party" or "the parties" respectively.
WHEREAS, the parties propose to hold discussions and exchange information that
each respectively considers proprietary to itself to assist considerations of
mutual business interest in relation to the development and application of
Microencapsulated Phase Change Materials (MicroPCM) into boots and shoes for
military, commercial and industrial applications (the "INFORMATION".
NOW, THEREFORE, the parties agree as follows:
1. Each party agrees that for a period ending December 31, 2005, it will not
disclose INFORMATION as shall be disclosed by the other party in
documentary form or, if disclosed orally, as shall be confirmed in writing
within thirty (30) days thereafter, to any third party or use the same for
any purpose other than that contemplated herein, without the disclosing
party's prior written consent. Each party further agrees to limit access to
such INFORMATION within its company to those of its employees and
representatives who may reasonably require the same in order to enable it
to fulfill the purpose stated above for which it is receiving the
INFORMATION. Each such employee or representative shall have entered into
an agreement with the receiving party pursuant to which she/he has agreed
to retain in confidence all INFORMATION which may come into her/his
possession as a result of employment activities;
2. The obligation of paragraph 1 shall not apply to such portions of the
INFORMATION disclosed hereunder that (i) are known to the receiving party
prior to the time of disclosure, as demonstrated by appropriate documentary
evidence antedating disclosure to the receiving party by the disclosing
party, or (ii) shall have been or become in the public domain through no
act or failure to act on the part of the receiving party or its employees
or (iii) shall be lawfully furnished to the receiving party by a third
party having a bona fide right to disclose same without restriction to the
benefit of the disclosing party to this Agreement.
12
<PAGE>
3. Each party agrees that it will not, without the written permission of the
other party, use the INFORMATION which it is obligated hereunder to
maintain in confidence for any reason other than to enable the receiving
party to determine the technical and economic feasibility of its business
interests based on the INFORMATION; and that in no event will the receiving
party itself commercially practice or cause to be practiced by a third
party the technology represented by the INFORMATION which it is obligated
hereunder to hold confidential without the expressed written permission of
the disclosing party.
4. It is understood that no right or license is granted to the receiving party
by the disclosing party in connection with the INFORMATION disclosed
hereunder.
5. Nothing herein shall obligate either party to disclose to the other party
particular information and the receiving party shall have the right to
refuse or accept any particular proprietary information which is offered.
6. Any documents, drawings, materials, samples or specifications supplied by
either party, and all copies thereof, shall be returned upon request or
within 30 days after expiration or termination of this Agreement.
7. Samples and materials supplied by either party or prepared at either
party's direction hereunder shall be deemed to contain confidential
information of the supplying party.
8. Neither Genfoot, nor any of its subsidiaries, customers, subcontractors or
sales representatives shall evaluate the use of MicroPCMs in any other
application than those known to Frisby.
9. Genfoot shall not place any of this Microencapsulated Phase Change Material
technology into production unless a mutually acceptable License Agreement
or other arrangement has been executed between Genfoot and Frisby.
10. This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers or representatives as of this day and year given
below.
13
<PAGE>
GENFOOT, INC. FRISBY TECHNOLOGIES, INC.
By: \s\ Stephen Cook By: \s\ Douglas McCrosson for
----------------- --------------------------
Name: Stephen Cook Name: Greg Frisby
---------------- ------------------------
Title: V.P. Title: Chief Executive Officer
--------------- -----------------------
Date: May 14/95 Date: May 3, 1995
---------------- -----------------------
14
<PAGE>
Exhibit 10.17
LETTER AGREEMENT DATED JANUARY 10, 1998
BETWEEN THE COMPANY AND MINNESOTA MINING &
MANUFACTURING, INC.
[INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
<PAGE>
Medical Specialties
3M Health Care 3M Center
St. Paul, MN 55144
612-733-1110
January 21, 1998
Ms. Barbara Musco
Frisby Technologies
417 South Main Street
Freeport, NY 11520
Fax: 516-378-0262
Dear Barbara,
Per today's telephone conversation, I confirm our agreement to the 1998
Thermasorb volumes and pricing laid out in the Attachment A of your letter of
January 15.
I confirm, additionally, that the payment terms will be net 30 days from invoice
and that Frisby Technologies will provide a schedule of delivery for the fill
materials to be provided. Lead time of 4-6 weeks after receipt of fill materials
can be expected.
We look forward to a year of further growth of the Thermasorb products and
finalizing our supply agreement for the ongoing program.
Thanks again and best regards,
\s\ W. Nigel Powell
- ----------------------------
W. Nigel Powell
Business Development Manager
Cosmetic Materials
<PAGE>
Attachment A
Non-Binding, Estimate; Thermasorb(R) Production Requirements - 1998
<TABLE>
<CAPTION>
Frisby P/N Fill Material Qty. Lbs (Est.) Price Per Lb.
- ------------------------- ---------------------- ----------------------- -------------------------------------------------------
<S> <C> <C> <C>
Thermasorb 83 Octadecane 10,000** [This information has been omitted in accordance with
a Confidential Treatment Request and has been filed
separately with the Commission.]
Thermasorb 83 Octadecane 60,000 [This information has been omitted in accordance with
a Confidential Treatment Request and has been filed
separately with the Commission.]
Thermasorb 122 C23/27 Blend* 4,000 [This information has been omitted in accordance with
a Confidential Treatment Request and has been filed
separately with the Commission.]
Thermasorb 65 Hexadecane 4,000 [This information has been omitted in accordance with
a Confidential Treatment Request and has been filed
separately with the Commission.]
Thermasorb 96 C20/24* 2,500 [This information has been omitted in accordance with
a Confidential Treatment Request and has been filed
separately with the Commission.]
Thermasorb 43 Tetradecane 2,500 [This information has been omitted in accordance with
a Confidential Treatment Request and has been filed
separately with the Commission.]
</TABLE>
- ---------------
* Will be provided to 3M blended
** Carry over from PO 1219 and will be assessed a 5% surcharge [This information
has been omitted in accordance with a Confidential Treatment Request and has
been filed separately with the Commission.] per pound
Total Production.............. 83,000 lbs.
New Production................ 73,0000 lbs.
o Frisby will agree to 3M manufacturing all the above Production Requirements on
or before 5/31/98.
o Frisby will accept delivery of all of the above Production Requirements except
Thermasorb 83, Octadecane, 60K lbs. on or before 5/31/98.
o Frisby will accept delivery of Thermasorb 83, Octadecane, 60K lbs. on or
before 12/31/98.
<PAGE>
Exhibit 10.18
MEMORANDUM OF UNDERSTANDING DATED OCTOBER 23, 1997
BETWEEN THE COMPANY AND LENDELL
MANUFACTURING, INC.
[INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
<PAGE>
Memorandum of Understanding
between
Frisby Technologies, Inc.
and
Lendell Manufacturing, Inc.
October 23, 1997
Whereas, Lendell Manufacturing, Inc. (hereinafter "LMI") is an exclusive
manufacturer of ComforTemp(TM) LX, one type of Frisby's patented ComforTemp(TM)
product line of foams. ComforTemp(TM) LX is a series of foams that contain LMI's
proprietary hydrophilic pre-polymer, PrePol, in combination with Frisby's
proprietary thermal additive, Thermasorb(TM). The Parties hereto agree to
establish a License Agreement in order to provide LMI with certain rights to
develop and sell selected products that incorporate Frisby's patented
COMFORTEMPTM LX hydrophilic open cell polyurethane foams subject to the
provisions and understandings which follow:
1. Scope of License - Effective January 1, 1998, Frisby grants LMI a three (3)
year exclusive license, with two additional option years, to make, use, and sell
clinical and institutional mattresses, consumer mattresses and wheelchair lumbar
and seat wedge cushions containing either (a) a Visco-elastic ComforTemp(TM)
Lxfoam or (b) a Visco-elastic foam laminated to ComforTemp(TM) LXfoam into the
worldwide marketplace (hereinafter referred to collectively as the "Licensed
Products"). If, during the first two years of the Agreement, LMI has met all of
its obligations for maintaining an exclusive license as outlined in paragraphs 2
through 7 below, then LMI may, during the third year of the Agreement, but no
later than 6 months prior to termination, exercise the option for the following
year.
2. License Fee - In return for the exclusive License granted above and in lieu
of an up-front License fee, LMI agrees to perform each of the following actions:
1. Introduce at least one style of Licensed Product incorporating COMFORTEMP(TM)
LX for inclusion in the 1998 product line launch,
2. Aggressively promote the sale of these Licensed Products by, at a minimum:
prominently displaying the Licensed Products at applicable trade shows;
o prominently featuring the COMFORTEMPTM logo in all advertising, brochures and
promotional literature that includes the Licensed product at an advertising
level of not less than $50,000 US;
<PAGE>
o prominently displaying the COMFORTEMP(TM) hangtag (provided by Frisby), or an
equivalent permanent label, on all Licensed Products.
3. Royalties - In addition to the above, LMI agrees to pay Frisby [This
information has been omitted in accordance with a Confidential Treatment Request
and has been filed separately with the Commission.] The royalties are to be paid
to Frisby within thirty days following the end of each calendar quarter.
4. Sole Source Supply - The Parties hereto agree that Frisby will be sole source
of supply for all THERMASORB(TM) additives that may be required by LMI, their
subcontractors and/or affiliates to support product development efforts and
production requirements. Frisby will provide these materials in accordance with
the price list in effect at the time of purchase order placement.
5. Purchase Requirements - Prior to signing the License, both Parties agree to
establish mutually agreeable minimum annual Thermasorb(TM) purchase requirements
for use in the manufacture of the Licensed Products for each year of the
agreement, including the option years. LMI will be required to meet these
minimum annual purchase levels from sales orders of the Licensed Products each
calendar year of the Agreement in order to maintain their exclusive rights for
the following year. If the minimum volume is not purchased, then LMI's rights
will automatically revert to non-exclusive rights for the following calendar
year.
6. Delivery Of Product - In order to protect production lead times and customer
requirements, LMI shall maintain an adequate inventory of Thermasorb(TM) on hand
to support all orders due within ninety (90) days. All POs will be issued to
Frisby by LMI not less than ninety (90) days preceding LMI's on-dock need dates.
7. Intellectual Property - All intellectual property associated with Frisby's
microencapsulated phase change material technology, including, but not limited
to, ComforTemp foam and Thermasorb microcapsules, remains the exclusive
intellectual property of Frisby. All intellectual property associated with LMI's
hydrophilic foam production technology, including, but not limited to, PrePol
pre-polymers, remains the exclusive intellectual property of LMI. Jointly
developed intellectual property will be treated in accordance with the duly
signed Exclusive Purchase and Supply Agreement dated _______.
8. Best Effort Support - Both Parties hereto agree to support new product
development, new product introduction, promotion and sales of all licensed
products incorporating the Technology with the best efforts of the Parties. This
will include the active introduction of new products containing the Technology
by LMI and the reasonable support by Frisby of LMI products containing the
Technology. Frisby agrees to support
<PAGE>
LMI at a reasonable number of sales presentations and trade shows in order to
answer any technical questions that potential customers may have.
FRISBY TECHNOLOGIES, INC. LENDELL MANUFACTURING, INC.
/s/ Gregory S. Frisby /s/ Lendell Williams
- --------------------------------------- ---------------------------------
Greg Frisby, Chief Executive Officer Lendell Williams, President
<PAGE>
Exhibit 10.19
MEMORANDUM OF UNDERSTANDING DATED APRIL 14, 1997
BETWEEN THE COMPANY AND BELL SPORTS CORP.
[INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
<PAGE>
Frisby/Bell Sports MOU
Page 2 of 2
Memorandum of Understanding
between
Frisby Technologies, Inc.
and
Bell Sports Corporation
April 14, 1997
The Parties hereto agree to establish a License Agreement in order to provide
Bell Sports (hereinafter "Bell") with certain rights to develop and sell
selected products that incorporate Frisby's patented ComforTemp(TM) foams and
THERMASORB(TM) thermal additives (hereinafter "the Technology"), subject to the
provisions and understandings which follow:
1. Scope of License - Frisby grants Bell a two (2) year exclusive license to
make, use, and sell Snow Board and Ski Helmets incorporating the Technology into
the worldwide marketplace.
2. License Fee - In return for the exclusive License granted above and in lieu
of an up-front License fee, Bell agrees to perform each of the following
actions:
a) Design and produce at least one style (SKU) of snowboarding helmet
incorporating COMFORTEMP(TM) for inclusion in the 1997 product line,
b) Design and incorporate COMFORTEMP(TM) into all other snowboarding and premium
ski helmets, including the children's line, for the 1997 mid-season or the 1998
product line, and
c) Aggressively promote the sale of these licensed products by, at a minimum:
o prominently displaying the COMFORTEMP(TM) helmets at all applicable winter
sports industry trade shows;
o including the COMFORTEMP(TM) helmet as part of any Bell-sponsored skiing
events/tours with COMFORTEMP(TM) prominently featured in promotional
materials as provided by Bell and approved by Bell;
o prominently featuring the COMFORTEMP(TM) logo in all advertising, brochures
and promotional literatuRe that includes the Licensed product. Bell agrees
to spend not less than $25,000 US on "advertising" (i.e., media insertions,
point of purchase signage, brochures, creative products costs) for
COMFORTEMP(TM) based products;
o prominently displaying the COMFORTEMP(TM) hangtag (provided by Frisby) on
all Bell helmets sold containing COMFORTEMP(TM);
o featuring COMFORTEMP(TM) in all consumer advertising related to Bell
helmets containing COMFORTEMP(TM).
<PAGE>
Frisby/Bell Sports MOU
Page 3 of 2
3. Royalties - In addition to the above, Bell agrees to pay Frisby a royalty on
[This information has been omitted in accordance with a Confidential Treatment
Request and has been filed separately with the Commission.]:
[This information has been omitted in accordance with a Confidential Treatment
Request and has been filed separately with the Commission.
]
The royalties are to be paid to Frisby within thirty days following the end of
each calendar quarter.
4. Sole Source Supply - The Parties hereto agree that Frisby will be sole source
of supply for all Thermasorb(TM) additives and/or COMFORTEMP(TM) foams that may
be required by Bell, their subcontractors and/or affiliates to support product
development efforts and production requirements for the ski and snowboard
helmets.
5. Purchase Requirements - Upon signing of the License, Bell agrees to place
purchase orders for each type of COMFORTEMP required (i.e., COMFORTEMP(TM)
50T83, 50T65, etc.). The purchase orders shall reflect volume brackets, pricing,
minimum purchase requirements and minimum delivery requirements in accordance
with [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
6. Delivery Of Product - In order to protect production lead times and customer
requirements, Bell shall maintain an adequate inventory of COMFORTEMP(TM) on
hand to support all orders due within ninety (90) days. All POs will be issued
to Frisby by Bell not less than ninety (90) days preceding Bell's on-dock need
dates.
7. Intellectual Property - All Technology licensed to Bell under this Agreement
remains the exclusive intellectual property of Frisby for the commercial life of
the Technology. However, if the Parties jointly develop, or Bell develops
independently, patentable intellectual property related to the licensed
Technology during the term of this License, then that Technology will become
part of this Agreement with the License thereto granted to Bell in accordance
with the License provisions in effect at that time.
8. Best Effort Support - Both Parties hereto agree to support new product
development, new product introduction, promotion and sales of all licensed
products incorporating the Technology with the best efforts of the Parties. This
will include the active introduction of new products containing the Technology
by Bell and the reasonable support by Frisby of Bell products containing the
Technology. Frisby agrees to support Bell at not less than two sales
<PAGE>
Frisby/Bell Sports MOU
Page 4 of 2
presentations and trade shows in order to answer any technical questions that
potential customers may have.
FRISBY TECHNOLOGIES, INC. BELL SPORTS, INC.
/s/ Gregory S. Frisby /s/ Bell Sports, Inc.
- --------------------------------------- ----------------------------------
Greg Frisby, Chief Executive Officer
<PAGE>
Frisby/Bell Sports MOU
Page 5 of 2
Attachment A
FRISBY TECHNOLOGIES, INC.
[This information has been omitted in accordance with a Confidential Treatment
Request and has been filed separately with the Commission.
]
<PAGE>
Exhibit 10.20
MEMORANDUM OF UNDERSTANDING DATED JULY 9, 1997
BETWEEN THE COMPANY AND CAMELBAK/FASTRAK
SYSTEMS, INC.
[INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
<PAGE>
Memorandum of Understanding
between
Frisby Technologies, Inc.
and
CamelBak/FasTrak Systems, Inc.
July 9, 1997
The Parties hereto agree to establish a License Agreement in order to provide
FasTrak Systems, Inc. (hereinafter "FasTrak") with certain rights to develop and
sell selected products that incorporate Frisby's patented COMFORTEMP(TM) foams
and THERMASORB(TM) thermal additives (hereinafter "the Technology"), subject to
the provisions and understandings which follow:
1. Scope of License - Frisby grants FasTrak a two (2) year exclusive license to
make, use, and sell selected End-Use Products incorporating the Technology into
the worldwide marketplace. For purposes of this Agreement, End-Use Products are:
Cold-weather personal and portable hydration systems for commercial and military
use.
2. License Fee - In return for the exclusive License granted above, and in lieu
of a License fee, FasTrak agrees, at a minimum, to perform the following
actions:
o Design, produce and market at least one style (SKU) of winter hydration
system incorporating COMFORTEMP(TM) for inclusion in the Winter 1997/98
product line,
o Aggressively promote the sale of all End-Use Products by, at a minimum:
o prominently displaying End-Use Products containing COMFORTEMP(TM)
(ComforTemp(TM) banner, featured booth placement, etc.) at the 1997
Outdoor Retailer Summer Show in Salt Lake City, and all other
appropriate trade shows;
o including COMFORTEMP(TM) - based hydration systems as a featured part
of all FasTrak-sponsored events/tours with COMFORTEMP(TM) prominently
highlighted and positioned in all promotional materials;
o featuring COMFORTEMP(TM) insulating foams as part of all FasTrak
sales, advertising and promotional materials for FasTrak's upcoming
snowboarding "compatibility program";
o prominently featuring the COMFORTEMP(TM) logo in all advertising,
brochures and promotional materials for all End-Use Products;
o prominently displaying the COMFORTEMP(TM) hangtag (provided by Frisby)
on all FasTrak End-Use Products sold containing COMFORTEMP(TM);
o featuring COMFORTEMP(TM) in all consumer advertising related to all
End-Use Products from FasTrak containing COMFORTEMP(TM).
<PAGE>
3. Sole Source Supply - The Parties hereto agree that Frisby will be sole source
of supply for all Thermasorb(TM) additives and/or COMFORTEMP(TM) foams that may
be required by FasTrak, their subcontractors and/or affiliates to support
product development efforts and production requirements.
4. Purchase Requirements - Upon signing of the License, FasTrak agrees to place
purchase orders for each type of COMFORTEMP required (i.e., COMFORTEMP(TM)
83LX9, 65LX9, etc.). The purchase orders shall reflect volume brackets, pricing,
minimum purchase requirements and minimum delivery requirements in accordance
with [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
5. Delivery Of Product - In order to protect production lead times and customer
requirements, FasTrak shall maintain an adequate inventory of COMFORTEMP(TM) on
hand to support all orders due within ninety (90) days. All POs will be issued
to Frisby by FasTrak not less than ninety (90) days preceding FasTrak's on-dock
need dates.
6. Intellectual Property - All Technology licensed to FasTrak under this
Agreement remains the exclusive intellectual property of Frisby for the
commercial life of the Technology. However, if the Parties jointly develop, or
FasTrak develops independently, patentable intellectual property related to the
licensed Technology during the term of this License, then that Technology will
become part of this Agreement with the License thereto granted to FasTrak in
accordance with the License provisions in effect at that time.
7. Joint Development - The parties agree to begin an expedited joint development
effort to develop and test the application of the Technology to FasTrak products
for hot weather recreational use as well as for industrial and military
applications such as firefighting and troop hydration products. These
development efforts will include, at a minimum, the evaluation of COMFORTEMP(TM)
as a replacement and/or complement to all foams and insulation currently used by
FasTrak. FasTrak agrees to pay for all materials required to develop and
assemble these prototype systems, and Frisby agrees to perform all reasonable
in-house thermal testing for same at no charge to FasTrak.
8. Best Effort Support - Both Parties hereto agree to support new product
development, new product introduction, promotion and sales of all licensed
products incorporating the Technology with the best efforts of the Parties. This
will include the active introduction of new products containing the Technology
by FasTrak and the reasonable support by Frisby of FasTrak products containing
the Technology. Frisby agrees to support FasTrak at a reasonable number of sales
presentations and trade shows in order to answer any technical questions that
potential customers may have. The Parties agree to collaborate on public
relations and media releases respecting this Agreement and products developed
containing the Technology.
FRISBY TECHNOLOGIES, INC. FASTRAK SYSTEMS, INC.
/s/ Gregory S. Frisby 7-17-97 /s/ Fastrak Systems, Inc. 7/11/97
- ------------------------------ ----------------------------------
Chief Executive Officer President
<PAGE>
Attachment A
FRISBY TECHNOLOGIES, INC.
[This information has been omitted in accordance with a Confidential Treatment
Request and has been filed separately with the Commission.]
<PAGE>
Exhibit 10.21
MEMORANDUM OF UNDERSTANDING DATED DECEMBER 11, 1997 BETWEEN
THE COMPANY AND FOAMEX INTERNATIONAL, INC.
[INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
<PAGE>
Memorandum of Understanding
between
Frisby Technologies, Inc.
and
Foamex International, Inc.
December 11, 1997
The Parties have agreed, in principle, to establish a License Agreement in order
to provide Foamex International, Inc. (hereinafter "Foamex") with certain rights
to manufacture selected foam products that contain microencapsulated phase
change materials (hereinafter "the Technology"), and to sell same under Frisby's
ComforTemp(R) tradename, subject to the provisions and understandings below.
This document, while not binding upon either party, sets forth the status of
negotiations to date. The parties commit to continuing their good faith
negotiations so as to execute a final and binding agreement within the next
thirty (30) days. The parties recognize, however, that nothing herein commits
either party to a final contract.
1. Scope of License
(a) License to Sell: Frisby grants Foamex a five (5) year Co-Exclusive
License, with a two (2) year option based on TBD annual volume guarantees, to
sell ComforTemp polyurethane foams worldwide. Frisby Technologies will remain
the only other source that can sell ComforTemp polyurethane foams during this
exclusive license.
(i) Frisby grants to Foamex the right to sublicense their
rights to develop and sell ComforTemp based products to
selected end-product manufacturers, subject to the prior
written approval of Frisby.
(ii) The Territory of the license to sell shall be worldwide.
(b) License To Manufacture: Frisby grants Foamex a five (5) year
exclusive License, with a two (2) year option based on TBD pricing guarantees,
to manufacture polyurethane ComforTemp foams, with the sole exception of
ComforTemp LX and DX foams supplied by LMI under their existing license, within
the Territory*. All non-LMI polyurethane foams that are sold within the
Territory by Frisby will be supplied by Foamex to Frisby at a mutually agreeable
distributor discount.
(i) Frisby does not grant to Foamex the rights to sublicense
the manufacture of ComforTemp to a third party.
(ii) The Territory of the license to manufacture shall be the
Americas. However, if Foamex formally commits to establish a
manufacturing facility for ComforTemp polyurethane foams
outside of the Territory, then that region will be added by
Frisby to the licensed territory hereunder.
<PAGE>
(iii) Frisby cannot guarantee that certain customers will
specify Foamex foams.
2. License Fees and Requirements:
In return for the exclusive license granted above, Foamex agrees, at a minimum,
to provide the following to Frisby:
(i) A one time, up-front License Fee of [This information has
been omitted in accordance with a Confidential Treatment
Request and has been filed separately with the Commission.],
payable at signing of the License,
(ii) Technical Support payments of [This information has been
omitted in accordance with a Confidential Treatment Request
and has been filed separately with the Commission.] on the
tenth (10th) day of each month from 2/98 through 5/98 and from
1/99 through 4/99,
(iii) A Purchase Order for 3,000 lb. of Thermasorb(R)
development quantities at [This information has been omitted
in accordance with a Confidential Treatment Request and has
been filed separately with the Commission.] deliverable by
January 23, 1998,
(iv) In addition to the above fees, Foamex will pay Frisby
[This information has been omitted in accordance with a
Confidential Treatment Request and has been filed separately
with the Commission.] of any sublicense fees and royalty
income related to the Technology received by Foamex from any
third parties, and
(v) Foamex will prominently feature the ComforTemp logo in all
advertising, brochures, sales sheets, and other promotional
materials and at all appropriate trade shows.
3. Sole Source Supply:
1. Microcapsules: The Parties hereto agree that Frisby Technologies
will be the sole source of supply for all microencapsulated phase change
materials (i.e., Thermasorb) that are required by Foamex, and any of their
Sublicensees or affiliates, for the life of this agreement. Frisby will offer to
Foamex Frisby's best available pricing for same.
2. ComforTemp: Except for those materials purchased from LMI under its'
existing license from Frisby, Foamex will be Frisby's sole source of ComforTemp
polyurethane foams within the Territory at not-to-exceed pricing and terms to be
agreed upon prior to execution of License. Frisby and Foamex will also establish
a mutually agreeable distributor discount from the Foamex price list for sales
by Frisby.
<PAGE>
4. Delivery of Product:
In order to protect production lead-times and customer requirements, Foamex
shall maintain an adequate inventory of Thermasorb additives on hand to support
all orders due within ninety (90) days. Further, the Parties will agree on
standard reorder lead-times and other terms of sale prior to License execution.
5. Intellectual Property:
Intellectual property relating t the licensed Technology, developed by either
party under this Agreement, shall remain the exclusive intellectual property of
Frisby, and will be subsequently included within the Foamex License. Any
manufacturing and/or process improvements that are solely developed by Foamex
relating to the manufacture of the licensed foam products, as well as any
intellectual property not related to the technology shall remain the exclusive
Intellectual property of Foamex.
6. Product Support, New Product Development and News Releases:
1. Foamex will maintain a dedicated in-house development and
manufacturing effort to develop new applications of ComforTemp polyurethane
foams for existing and new customer applications throughout the full term of the
License.
2. If Frisby intends to develop and/or launch new, non-polyurethane
ComforTemp foam product offerings, Foamex will be given the opportunity, on a
case-by-case basis and subject to a Foamex commitment to invest appropriate
development resources at that time, to participate in the project.
3. Foamex agrees to support Frisby and its' customers at a reasonable
number of sales and/or technical meetings in order to address any technical
questions the third party may have.
4. The parties agree to collaborate on all public relations and media
releases respecting this Agreement and all products developed or sold by any
party containing the Technology.
FRISBY TECHNOLOGIES, INC. FOAMEX INTERNATIONAL, INC.
\s\ Greg Frisby \s\ Andrea Farace
- ----------------------------- --------------------------------------------
Greg Frisby, Chairman and CEO Andrea Farace, Chairman and CEO
<PAGE>
Exhibit 10.22
MEMORANDUM OF UNDERSTANDING DATED JANUARY 15, 1998
BETWEEN THE COMPANY AND LACROSSE FOOTWEAR, INC.
[INFORMATION PLACED IN BRACKETS [ ] HAS BEEN
OMITTED IN ACCORDANCE WITH A CONFIDENTIAL
TREATMENT REQUEST PURSUANT TO RULE 406 AND
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
<PAGE>
Frisby/LaCrosse MOU
Page 2 of 3
January 15, 1998
Memorandum of Understanding
between
Frisby Technologies, Inc.
and
LaCrosse Footwear, Inc.
January 15, 1998
The Parties hereto agree to establish a License Agreement in order to provide
LaCrosse Footwear, Inc. (hereinafter "LaCrosse") with certain rights to develop
and sell selected products that incorporate Frisby's patented ComforTemp(R)
foams and Thermasorb(R) thermal additives (hereinafter "the Technology"),
subject to the provisions and understandings which follow:
1. Scope of License - Frisby grants LaCrosse a two (2) year non-exclusive
license to make, use, and sell selected End-Use Products incorporating the
Technology into the worldwide footwear marketplace. For purposes of this
Agreement, End-Use Products include only:
Cold weather, rubber bottom insulated pac boots
End Use Products shall specifically exclude welt-constructed boots which have
been previously licensed exclusively to Cove Shoe Company, Division of H.H.
Brown Shoe Company, Inc.
2. License Fee - In return for the License granted above, and in lieu of a
License fee, LaCrosse agrees, at a minimum, to perform the following actions:
o Design, produce and market a minimum of three styles (SKUs) of rubber
bottom boots incorporating ComforTemp(TM) for inclusion in the Fall/Winter
98 product line. At least one of these styles shall include sizes for Women
and Boys;
o Aggressively promote the sale of all End-Use Products by, at a minimum:
o prominently displaying End-Use Products containing ComforTemp
(ComforTemp signage, featured booth placement, etc.) at the 1998
Outdoor Retailer Winter Market Show in Salt Lake City, and all other
appropriate trade shows (SHOT Show, WSA, etc.);
o prominently featuring the ComforTemp logo (camera-ready artwork to be
provided by Frisby) in all advertising, brochures and promotional
materials for all End-Use Products;
<PAGE>
Frisby/LaCrosse MOU
Page 3 of 3
January 15, 1998
o prominently displaying the ComforTemp hangtag (provided by Frisby at
no charge to LaCrosse) on all End-Use Products sold by LaCrosse
containing ComforTemp;
o featuring ComforTemp in all consumer advertising related to all
End-Use Products from LaCrosse containing ComforTemp.
3. Royalties - In addition to the above, LaCrosse agrees to pay Frisby a royalty
on [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.] The
royalties are to be paid to Frisby within thirty days following the end of each
calendar quarter and shall be calculated based upon [This information has been
omitted in accordance with a Confidential Treatment Request and has been filed
separately with the Commission.]
4. Sole Source Supply - The Parties hereto agree that Frisby will be sole source
of supply for all Thermasorb additives and/or ComforTemp foams that may be
required by LaCrosse, their subcontractors and/or affiliates to support product
development efforts and production requirements.
5. Purchase Requirements - Upon signing of the License, LaCrosse must issue a
purchase commitment letter for the total linear yardage of ComforTemp foam that
they expect to take delivery of in 1998. This letter must include a non-binding
estimated delivery schedule for 1998 shipments. LaCrosse will be permitted to
issue individual purchase orders against this letter in accordance with a
mutually agreeable delivery schedule. Each purchase order must be for at least
1,000 linear yards of a specific type (e.g. 83LX) and thickness (e.g. 6 mm). The
purchase price of each type and thickness of ComforTemp shall be determined by
the [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.] at the
volume level specified in the commitment letter. Each type of ComforTemp is
assortable by thickness to attain volume levels. Prices listed are F.O.B. origin
(Clemmons, NC).
6. Delivery Of Product - LaCrosse shall maintain an adequate inventory of
ComforTemp(TM) on hand to support all orders due within thirty (30) days. All
POs will be issued to Frisby by LaCrosse not less than thirty (30) days
preceding LaCrosse's on-dock need dates.
7. Co-operative Advertising - The Parties agree to advertise and promote the
Technology and products containing the Technology to the maximum extent
practical. Frisby agrees to advertise ComforTemp and LaCrosse products
containing ComforTemp, at the discretion and subject to the reasonable approval
of LaCrosse. For 1998, Frisby will budget related advertising expenditures of at
least [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.] as stated
in the commitment letter of paragraph 5 above. For 1999, Frisby will budget at
least [This information has been omitted in accordance with a Confidential
Treatment Request and has been filed separately with the Commission.]
<PAGE>
Frisby/LaCrosse MOU
Page 4 of 3
January 15, 1998
8. Intellectual Property - All Technology licensed to LaCrosse under this
Agreement remains the exclusive intellectual property of Frisby for the
commercial life of the Technology. However, if the Parties jointly develop, or
LaCrosse develops independently, patentable intellectual property related to the
licensed Technology during the term of this License, then that Technology will
become part of this Agreement with the License thereto granted to LaCrosse in
accordance with the License provisions in effect at that time.
9. Best Effort Support - Frisby agrees to support LaCrosse at a reasonable
number of sales presentations, sales meetings and trade shows in order to answer
any technical questions that potential customers or salespeople may have. The
Parties agree to collaborate on public relations and media releases respecting
this Agreement and products developed containing the Technology.
FRISBY TECHNOLOGIES, INC. LACROSSE FOOTWEAR, INC.
/s/ Gregory S. Frisby /s/ Pat Gantert
- ----------------------------- ----------------------------------
Greg Frisby Pat Gantert
Chairman & Chief Executive Officer President & Chief Executive Officer
<PAGE>
Frisby/LaCrosse MOU
Page 5 of 3
January 15, 1998
Attachment A
FRISBY TECHNOLOGIES, INC.
[This information has been omitted in accordance with a Confidential Treatment
Request and has been filed separately with the Commission.
]
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STATE OF NORTH CAROLINA)
LEASE AGREEMENT
COUNTY OF FORSYTH )
THIS LEASE, (the "Lease") made and entered into this, 2nd day of MARCH,
1998, by and between Piedmont Institute for Research and Technology II, LLC
hereinafter called "LANDLORD" and FRISBY TECHNOLOGIES, INC., hereinafter
referred to as "TENANT".
RECITALS:
IN CONSIDERATION of the mutual covenants contained herein, the parties
agree as follows:
1. Description of Leased Premises. Landlord is the owner of a 95,413 SF
Building (the "Building") located at 111 North Chestnut Street, Winston-Salem,
Forsyth County, North Carolina, 27101 being more fully described on Exhibit "A"
attached hereto and hereby made a part hereof.
The leased space shall consist of that portion of said Building and other
improvements in the approximate amount of 25,108 SF, located 111 North Chestnut
Street, Winston-Salem, North Carolina, 27101, hereinafter referred to as
Premises being more fully described and shown on the attached floor plan as
Exhibit "B". The Premises shall be for the exclusive use of Tenant, its agents,
servants, employees and invitees for showroom and related uses.
Landlord represents and warrants that it is the owner in fee simple of
the Premises and that there are no covenants, restrictions or zoning or other
regulations which prevent or are violated by, this Lease or the use of the
Premises as contemplated herein.
2. Term: The term of this Lease shall be for a period of Twenty (20) years,
beginning on date Landlord tenders premises to Tenant (in turnkey condition as
more specifically described in the attached specifications and floor plan) the
"Commencement Date" and continue for Two Hundred and Forty (240) consecutive
months through the "Termination Date". Landlord shall deliver Premises to Tenant
One Hundred Fifty (150) days following Tenant's approval of plans.
3. Base Rent: Tenant shall pay for rental for the Premises in the amount of:
Months Annually Monthly
------- ----------- ----------
1-36 $125,540.00 $10,461.67
37-72 $138,094.00 $11,507.83
73-120 $150,648.00 $12,554.00
121-240 $139,349.40 $11,612.45
Tenant shall have the right to expand into the contiguous basement at any
time upon 180 days notice to Landlord. Tenant shall pay for rental for this
space in the amount of
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$5.00 per square foot per year or payable in monthly installments. Upon
notification by Tenant to Landlord of its intent to occupy the basement,
Landlord will at its expense upfit the space as per the plans. The level of
upfit will not exceed that of the plans and specifications provided by Randolph
C. Henning, Architect dated December 22, 1997 attached hereto as Exhibit "C" and
incorporated herein by reference.
In the event Tenant does not elect to expand into the basement by the
24th month after occupancy, then the rental for the Premises for the remaining
term of the lease will increase by $0.50 per square foot per year payable at
$1,046.17 per month.
4. Tenant to Pay Pro-Rata Share of Operating Expenses:
(A) Tenant shall pay electricity to the demised premises.
(B) The Premises contains 25,108 square feet of rentable area which comprises
26.31 percent of the total Building rentable area of 95,413 square feet.
(C) For purposes of this section, the term "Lease Year" shall mean a period of
twelve (12) months or less, commencing with the term commencement date and
ending on the following December 31st; each successive period of twelve (12)
months or less commencing with January 1, immediately preceding the expiration
of the term.
(D) Tenant shall pay an amount equal to 26.31 percent of the operating expenses
for those services of the Building. For the purpose of this paragraph,
"Operating Expenses" shall mean (but not to be limited to) the following
incurred by the Landlord with respect to the Building of which the Premises form
a part: property taxes, casualty and liability insurance, water, sewer, building
maintenance and repairs to common areas and tenant premises, pest control,
security services, management fees (not to exceed 4% of base rent) and all other
expenses paid in connection with the operation of the Building properly
chargeable against income. These expenses will be itemized and billed monthly
with payment due with the following month's rent. Failure to pay these expenses
on a timely basis will be considered a material breach of this Lease entitling
Landlord to exercise any rights or remedies contained herein or provided by law
or other authority.
(E) Any refunds or credits that are received by Landlord with respect to
operating expenses billed to tenants shall be credited to each such tenant's
account in the billing cycle following the receipt of refund or credit by
Landlord.
(F) Tenant may inspect Landlord's books and records relating to operating
expenses for the Building. Tenant may conduct any reasonable examination of the
books and records at the Landlord's place of business with provided written
notice is sent to Landlord not less than 10 days prior to any inspection.
5. Occupancy and Acceptance of Premises: Landlord shall deliver actual
possession of the Premises to Tenant on the Commencement Date. Tenant may accept
early occupancy, provided however, in such event Tenant shall pay to Landlord
base rental calculated on a daily basis assuming a 365 day year, for each day
Tenant shall occupy the Premises prior to the
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Commencement Date. If permission is given to Tenant to occupy the Demised
Premises prior to the date of commencement of the term hereof such occupancy
shall be subject to all the provisions of this Lease except those relating to
the term of this Lease.
In the event the Premises are not completed and ready for Tenant's
occupancy by the Commencement Date as set forth above, the parties hereto shall
execute an Amendment modifying this Lease to confirm the actual commencement
date and termination date of the Lease Term. In the event the Premises are not
ready by the Commencement Date, Landlord shall have thirty (30) additional days
to complete. If the Premises are still not ready then Landlord shall provide
office space for Tenant's use for up to ten (10) persons at no cost and shall
give Tenant a credit of $345.00 per day against future rental due under this
lease.
6. Late Payment of Rent: All monthly installments of rent herein stipulated
are due in advance, without prior offset of deduction, on the first (1st) of
each month during the term hereof. All rents not received by the Landlord by the
tenth (10th) day of each month during the term hereof shall be past due and
Tenant shall be charged a late fee equal to 10% of the total monthly amount due.
Landlord shall invoice Tenant for any such past due rent charges.
7. Use: The Premises shall be used and occupied only for Office, Research
and Development, Prototype Assembly and Storage use and shall not be used or
occupied for any other purpose without the prior written consent of Landlord.
These uses are permitted pursuant to the Conditions, Covenants and Restrictions
applicable to tenants in the Downtown Research Park. Tenant shall not conduct,
or allow to be conducted, on or within the Premises any business or permit any
act which in any way increases the cost of fire insurance on the Building or
constitutes a nuisance or is contrary to or in violation of the laws, statutes
or ordinances of local, state or federal governments having jurisdiction. Any
violation of this provision by Tenant shall be a material breach of this lease,
entitling Landlord to exercise any rights or remedies contained herein or
provided by law or other authority.
8. Quiet Enjoyment: The Landlord covenants that Tenant, upon paying the
Landlord the rental stipulated herein together with all other charges reserved
herein, and performing the covenants, promises and agreements herein, shall
peaceably and quietly have, hold and enjoy the Premises and all rights,
easements, appurtenances and privileges belonging or appertaining thereto,
during the full term hereby granted and any extensions or renewals thereof.
9. Common Areas: As used in this Lease, Common Areas shall mean all areas of
the entire building which are available for the common use of Tenant and which
are not held for the exclusive use of the Tenant or other Tenants, including but
not limited to corridors, restrooms, stairs, elevators, the parking areas and
entrances and exits thereto, driveways and truck serviceways, sidewalks,
landscaped areas, access roads and other areas and facilities provided for the
common or joint use and benefit of occupants of the building, their employees,
agents, customers and invitees.
Tenant agrees to abide by and conform to Building Rules and Regulations
and shall be responsible for the compliance with same by its employees, agents,
customers and
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invitees. The failure of Landlord to enforce any such Rules and Regulations
shall not be deemed to be a waiver. Pursuant to Paragraph 4 Tenant is obligated
to pay Landlord it's proportionate share of any such costs.
10. Assignment and Subletting: Tenant covenants and agrees that neither this
Lease nor the term hereby granted, nor any part thereof, will be assigned,
mortgaged, pledged, encumbered or otherwise transferred, by operation of law or
otherwise, and that the Premises will not be sublet or advertised for subletting
or occupied, by anyone other than Tenant, or for any purpose other than as
hereinabove set forth, without the prior written consent of Landlord, not to be
unreasonably withheld.
11. Landlord's Repairs: The Landlord shall maintain and keep in good
condition and repair the roof, supporting walls, sewage sanitary system and
shall effect repairs necessary. The Landlord shall also maintain and repair
plumbing, mechanical, heating and air conditioning and electrical systems
installed by Landlord, floor and wallcoverings, light fixtures, window frames
and glass, window blinds, doors, door locks, and security systems, if any.
Pursuant to Paragraph 4 Tenant is obligated to pay Landlord it's proportionate
share of any such costs. However, the Landlord shall not be responsible for such
maintenance and repairs in the event the same are required as a result of the
negligence or willful act of the Tenant or its clients, customers, licensees,
assignees, agents, employees or invitees and further, in any such event, the
cost of such maintenance and repairs so required shall be the sole
responsibility of the Tenant.
12. Tenant's Repairs/Alterations: The Tenant shall submit to the Landlord
for Landlord's prior written approval all of the plans and specifications for
any structural alterations, additions or improvements in and to the Premises All
such alterations, additions or improvements shall be made in accordance with
applicable city, county, state and federal laws and ordinances, and building and
zoning rules and regulations. Tenant shall be liable for all damages or injuries
which may result to any person or property by reason of or resulting from any
alterations, additions or improvements made by it to the Premises and shall hold
the Landlord harmless with respect thereto. All additions and improvements made
by the Tenant shall become a part of the Premises and shall, upon the
termination or expiration of this Lease, belong to the Landlord.
At Landlord's option, Landlord may require that Tenant remove any or all
alterations or improvements at Tenant's expense upon termination of the Lease.
13. Subordination and Attornment: Tenant agrees that this Lease shall be
subject and subordinate to any mortgages or deeds of trust now or hereafter
placed upon the Premises and to all modifications thereto. Subordination is
conditioned upon non disturbance. Tenant agrees at any time to execute any and
all documents necessary to effectuate this subordination. Tenant agrees to
attorn to the mortgagee, trustee, or beneficiary under any such mortgage or deed
of trust or the purchaser at a sale pursuant to the foreclosure thereof. In the
event of the sale, assignment, or transfer by Landlord of its interest in the
Premises to a successor in interest who expressly assumes the obligation of the
Landlord hereunder, the Landlord shall thereupon be released or discharged from
all of its covenants and obligations hereunder, except such
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obligations shall have accrued prior to any such sale, assignment, or transfer;
and Tenant agrees to look solely to any successor in interest of the landlord
for performance of any such obligations.
14. Change in Ownership of Premises: If the ownership of the Premises or the
name or address of the party entitled to receive rent hereunder shall be
changed, the Tenant shall, until receipt of proper notice of such change,
continue to pay the rent and other charges herein reserved accrued and to accrue
hereunder to the party to whom and in the manner in which the last preceding
installment of rent or other charge has paid, and each such payment shall, to
the extent thereof, exonerate and discharge the Tenant.
15. Condemnation: If the whole of the Building or such substantial portion
thereof as will make Premises unusable for the purposes referred to herein
shall, be condemned by any legally constituted authority for any public use or
purpose, then in either of said events the term hereby granted shall cease from
the time when possession thereof is taken by the condemning authority, and
rental shall be accounted for as between Landlord and Tenant as of that date. In
the event the portion condemned is such that the remaining portion can, after
restoration and repair, be made useable for Tenant's purposes, then this Lease
shall not terminate; however, the rent shall be reduced equitably to the amount
of the Premises taken. In such an event, Landlord shall make such repairs as may
be necessary as soon as the same can be reasonably accomplished. Such
termination, however, shall be without prejudice to the rights of either
Landlord or Tenant, or both, to recover compensation and damage caused by
condemnation from condemnor. It is further understood and agreed that neither
the Tenant nor Landlord shall have any rights in any award made to the other by
any condemnation authority.
16. Right of Landlord to Enter: The Tenant agrees that upon reasonable
notice the Landlord or its agents may at all reasonable times enter upon the
Premises for the purpose of inspection or repair of the Building or the Building
systems and such other purposes as Landlord may deem necessary or proper for the
reasonable protection of Landlord's interest in the Premises, the same shall be
done without interference with Tenant's use of the Premises and shall be subject
to Tenant's reasonable requirements concerning security and access. In addition,
the Landlord may enter the Premises upon reasonable notice at all reasonable
times to exhibit the Premises to prospective purchasers. During the three (3)
months immediately preceding the final expiration of the term created hereunder
or any renewal thereof, the Landlord may exhibit the Premises upon reasonable
notice to prospective Tenants and/or affix a notice that the Premises are for
rent; such notice shall not be greater than four (4) square feet in area, and
shall be affixed to a suitable part thereof, exclusive of doors and windows and
so as to not obstruct the Tenant's signs.
17. Taxes: Landlord agrees to pay, before they become delinquent, all taxes,
assessments and governmental charges of any kind and nature whatsoever
(hereinafter collectively referred to as "Taxes") lawfully levied or assessed
against the Building and the grounds, parking areas, driveways and alleys around
the Building, except any taxes attributable to the operation of Tenant's
business or Tenant's property. Pursuant to Paragraph 4 Tenant is obligated to
pay Landlord it's proportionate share of any such costs.
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If at any time during the term of this Lease, the present method of
taxation shall be changed so that in lieu of the whole or any part of any taxes,
assessments or governmental charges levied, assessed or imposed on real estate
and the improvements thereof, there shall be levied, assessed or imposed on
Landlord a capital levy or other tax directly on the rents received therefrom
and/or a franchise tax, assessment, levy or charge measured by or based, in
whole or in part, upon such rents for the present or any future building or
buildings on the Premises, then all such taxes, assessments, levies or charges,
or the part thereof so measured or based, shall be deemed to be included within
the term "taxes" for the purposes hereof.
18. Fire and Extended Coverage Insurance: Landlord agrees to keep in force
policies of fire and extended coverage insurance which shall insure the Building
against such perils or loss as Landlord may deem appropriate including vandalism
and malicious mischief, in an amount equal to one hundred percent (100%) of the
replacement cost of the Building and the improvements installed by the Landlord.
Pursuant to Paragraph 4 Tenant is obligated to pay Landlord it's proportionate
share of any such costs.
Tenant agrees to maintain and keep in force, at its expense and
throughout the term hereof, insurance against fire and such other risks as are
from time-to-time included in standard extended coverage endorsements including
vandalism and malicious mischief, insuring Tenant's stock-in-trade, trade
fixtures, furniture, furnishings, floor and wall coverings, special equipment
and all other items of personal property of Tenant located on or within the
Premises and all such other improvements as are made by the Tenant to the
Premises.
Landlord and Tenant hereby mutually release and discharge the other from
loss or damage to the described Premises or the contents, including any
improvements and betterments located in or on the described Premises, to the
extent such loss or damage is insured by the described fire and extended
coverage insurance.
Both Landlord and Tenant agree to furnish the other a certificate of
insurance evidencing the required fire and extended coverage insurance and
giving the certificate holder thirty (30) days notice of intent to cancel,
non-renew or amend such insurance.
If Tenant elects to satisfy this condition by self insuring, it may do
so provided it provides Landlord and Landlord's insurance agent with (1)
documentation establishing values of Tenant installed fixtures, furnishings,
equipment, inventory and process equipment or other material used in Tenant's
operation; (2) provide Landlord with financial statements and other information
evidencing Tenant's financial ability to maintain the Premises and contents as
self insured and (3) that Landlord's attorney shall prepare an agreement
regarding subrogation of claims in the event of a casualty loss of Tenant's
fixtures, furnishings and/or inventory.
19. Damage and Destruction: In the event the Premises are damaged by any
peril covered by standard policies of fire and extended coverage insurance to an
extent which is less than fifty percent (50%) of the cost of replacement of the
Premises, the damage to that portion of the Premises which Landlord is obligated
to insure pursuant to the immediately preceding paragraph hereof, shall promptly
be repaired by landlord, at Landlord's expense but in no event shall Landlord be
required to repair or replace Tenant's stock-in-trade, trade fixtures,
furniture,
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furnishings, special equipment and personal property which Tenant is required to
insure pursuant to the immediately preceding paragraph hereof. In the event of
such damage and (a) Landlord is not required to repair as provided herein, or
(b) the Premises are damaged to the extent of fifty percent (50%) or more of the
cost of replacement of the Premises, or (c) the Building is damaged to the
extent of fifty percent (50%) or more of the cost of replacement, or (d) such
damage is twenty-five percent (25%) or more of the cost of replacement of the
Premises and the same occurs during the last year of initial term or any
extensions or renewal terms of this Lease, then, in any such event (s), Landlord
may elect either to repair or rebuild the Premises or the Building of which the
Premises are a part, as the case may be, or to terminate this Lease upon giving
notice of such election, in writing, to Tenant within ninety (90) days after the
happening of the event causing such damage.
If such damage, repairing or rebuilding shall render the Premises
untenantable, in whole or in part, a proportionate abatement of the rent and
additional rent stipulated herein shall be allowed from the date such damage
occurred until the date Landlord completes the repairs or rebuilding, said
proportion shall be computed on the basis of the relation which the gross
leasable area of the space rendered untenantable bears to the gross leasable
area of the Premises. If Landlord is required or elects to repair the Premises
as provided herein, Tenant shall repair or replace its floor and wall coverings
pursuant to the terms hereof, in a manner and to at least a condition equal to
that prior to such damage or destruction; in addition, Tenant shall repair or
replace its stock-in-trade, trade fixtures, furniture, furnishings, special
equipment in a manner and to a condition Tenant deems appropriate and adequate
for the conduct of its business within the Premises. In addition, Tenant is
hereby given the sole option to terminate this Lease in the event repairing or
rebuilding to be effected by Landlord and required hereunder cannot be completed
within one hundred twenty (120) days from the date of the occurrence of the
damage and destruction.
20. Liability of Landlord: Tenant waives all claims against Landlord for
damages to goods or for injuries to persons on or about the Premises or common
areas from any causes arising at any time other than damages or injuries
directly resulting from Landlord's negligence. The Tenant will indemnify
Landlord on account of any damage or injury to any persons, or to the goods of
any person, arising from the use of the Premises by the Tenant, or arising from
the failure of Tenant to keep the Premises in good condition as provided herein.
The Landlord shall indemnify Tenant on account of any damage or injury to any
persons, or to goods of any person, arising from the use of the Premises by the
Landlord. Landlord shall not be liable to the Tenant for any damage by or from
any act of negligence of any other occupancy of the same Building. The Tenant
agrees to pay for all damages to the Building, as well as all damage or injuries
suffered by Tenant or occupants thereof caused by Tenant's negligence.
Landlord is specifically not responsible under any circumstance for any
damage to any computer, computer component, or computer peripheral, hardware or
software damaged by any interruption, usage or variation for whatever reason in
the electrical distribution system in the building, unless resulting from
Landlord's negligence.
21. Liability Insurance: In addition to the policies of fire and extended
coverage insurance to be kept and maintained by Landlord and Tenant pursuant to
paragraph 20
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hereinabove, Landlord and Tenant shall each obtain and keep in force during the
term hereof and any extension or renewal terms, policies of commercial general
liability providing bodily injury and property damage liability with combined
single limits of not less than One Million Dollars ($1,000,000.00). The Tenant
shall, in addition, name the Landlord as additional insured under such liability
policy. Pursuant to Paragraph 4 Tenant is obligated to pay Landlord it's
proportionate share of any such costs.
Both Landlord and Tenant agree to furnish the other a certificate of
insurance evidencing the required liability coverage and giving the certificate
holder thirty (30) days notice of intent to cancel, non-renew or amend such
insurance.
22. Parking: Landlord shall make available to Tenant, fifty (50) parking
spaces at the location shown on the attached Exhibit "D". Parking charges are
included in Tenant's base rent rate. Provided, however, in the event the City of
Winston-Salem, Downtown Development Corporation or Landlord construct a
structured parking garage for use by Tenants of the Downtown Research Park, the
amount, if any, of monthly parking charge in such deck in excess of Twenty-Five
Dollars ($25.00) per month shall be paid by Tenant for those spaces required by
Tenant. Landlord shall have the right to move the Tenant parking spaces from the
surface lot to a parking deck constructed in the block bounded by Belews Street,
Patterson Avenue, First Street and Salem Avenue or the block bounded by First
Street, Chestnut Street, Third Street and Patterson Avenue as long as there is
no cost to Tenant.
23. Signs: Landlord shall review and approve the design of Tenant's signage.
24. Utilities: Tenant shall pay for water and sewer used within the
Premises. Tenant shall pay its separately metered charges for electricity and
gas used within the Premises.
25. Janitorial Services: Tenant shall provide janitorial services to the
interior of its Premises.
26. Extermination: The Landlord shall provide pest control service within
the Premises and Tenant shall pay the cost for this service. Pursuant to
Paragraph 4 Tenant is obligated to pay Landlord it's proportionate share of any
such costs.
27. Plate Glass Breakage: Landlord shall be responsible for repair and
replacement in the event of plate glass damage or breakage, except in the event
of negligence of Tenant. Pursuant to Paragraph 4 Tenant is obligated to pay
Landlord it's proportionate share of any such costs.
28. Garbage Removal: Landlord will be responsible for providing a dumpster
for garbage and arrange for its systematic pickup. Pursuant to Paragraph 4
Tenant is obligated to pay Landlord it's proportionate share of any such costs.
29. Fire Extinguishers: In the event a fire extinguisher is provided by
Landlord on the Premises, Landlord shall be responsible for the maintenance
thereof. Pursuant to Paragraph 4 Tenant is obligated to pay Landlord it's
proportionate share of any such costs.
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30. Storing of Flammable Materials: The Tenant agrees that it shall not
store nor shall it use any dangerous and/or flammable material(s) within or
around Premises in a manner which violates any law or which may cause the costs
incurred by Landlord with respect to taxes and insurance regarding the Premises
to increase in which case Tenant shall bear the cost of any such increase.
31. Replacement of Light Bulbs: The Landlord shall replace all light bulbs
within Premises. Tenant shall pay the cost of said replacement. Pursuant to
Paragraph 4 Tenant is obligated to pay Landlord it's proportionate share of any
such costs.
32. Removal of Tenant's Fixtures: The Tenant shall have the privilege at any
time, on or before vacating the Premises, of removing any or all of its personal
property, equipment and fixtures, and Tenant shall repair any damages caused by
the removal thereof and shall leave the Premises in good and clean condition and
repair.
33. Default by Tenant: In the event Tenant shall fail to pay monthly rental
by the tenth (10th) day of the month; or if Tenant is adjudicated a bankrupt; or
if Tenant files a petition on bankruptcy under any section or provision of the
bankruptcy law; or if an involuntary petition in bankruptcy is filed against
Tenant, and same is not withdrawn or dismissed within sixty (60) days from the
filing thereof; or if a receiver or trustee is appointed for Tenant's property
and the order appointing such receiver or trustee remains in force for thirty
(30) days after the entry of such order; or if, whether voluntarily or
involuntarily, Tenant takes advantage of any debtor relief proceedings under any
present or future law, whereby the rent or any part thereof is, or is proposed
to be, reduced or payment thereof deferred; or if Tenant makes an assignment for
the benefit of creditors; or if Tenant's effects should be levied upon or
attached under process against Tenant, not satisfied or dissolved within thirty
(30) days after written notice from Landlord to tenant to obtain satisfaction
thereof; or if Tenant shall vacate or abandon the Premises; or if Tenant shall
fail to perform or observe any other covenant, agreement, or condition to be
performed or kept by the Tenant under the terms and provisions of this Lease,
and such failure in any one such event shall continue for thirty (30) days after
written notice thereof has been given by Landlord to Tenant; then in any one of
such events, Landlord shall have the right, at the option of the Landlord, then
or at any time thereafter while such default or defaults shall continue, to
elect either: (1) to cure such defaults at the expense of Tenant and without
prejudice to any other remedies which Landlord might otherwise have, any payment
made or expenses incurred by Landlord incurring such default shall bear interest
thereon at eighteen percent (18%) per annum, or at such maximum legal rate as
permitted by North Carolina law, whichever shall be lower, to be and become
additional rent to be paid by Tenant with the next installment or rent falling
due thereafter; or (2) to re-enter the Premises and dispossess Tenant and anyone
claiming under Tenant, by summary proceedings pursuant to the laws of the State
of North Carolina, and remove their effects, and take complete possession of the
Premises and either (i) declare this Lease forfeited and the term ended, or (ii)
elect to continue this Lease in full force and effect, but with the right at any
time thereafter to declare this Lease forfeited and the term ended; or (iii)
exercise any other remedies or maintain any action permitted to Landlord
pursuant to the laws of the State of North Carolina, or any other applicable
laws. In such re-entry the Landlord may, under process of law, have all persons
and Tenant's personal property removed from the
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Premises. Tenant hereby covenants in such event of default for itself and all
others occupying the Premises under Tenant, to peacefully yield up and surrender
the Premises to the Landlord. Should Landlord justifiably declare this Lease
forfeited and the term ended subject to due process, the Landlord shall be
entitled to recover from Tenant the rental and all other sums due and owing by
Tenant to the date of termination, plus the costs of curing all of Tenant's
defaults existing at or prior to the date of termination, plus the deficiency,
if any, between Tenant's rental hereunder and the rental obtained by Landlord on
another Lease for the balance of the term remaining under this Lease should
Landlord, following default as aforesaid, elect to continue this Lease in full
force. Landlord shall use its best efforts to rent the Premises by private
negotiations, with or without advertising and on the best terms available for
the remainder of the term hereof, or for such longer or shorter period as
Landlord shall deem advisable. Tenant shall remain liable for all rentals and
other charges and costs imposed on Tenant herein, in the amounts, at the times
and upon the conditions as herein provided, but Landlord shall credit against
such liability of the Tenant all amounts received by Landlord from such
reletting after first reimbursing itself for all costs incurred in curing
Tenant's defaults and re-entering, preparing and refinishing the Premises for
reletting, and reletting the Premises, and for the payment of any procurement
fee or commission paid to obtain another Tenant, and for all attorney fees and
legal costs incurred by landlord.
34. Re-Entry by Landlord: No re-entry by Landlord or any action brought by
Landlord to oust Tenant from the Premises shall operate to terminate this Lease
unless Landlord shall give written notice of termination to Tenant, in which
event Tenant's liability shall be as above provided. No right or remedy granted
to Landlord herein is intended to be exclusive of any other right or remedy, and
cumulative and in addition to any other right or remedy hereunder or now or
hereafter existing in law or equity or by statute. In the event of termination
of this Lease, Tenant waives any and all rights to redeem the Premises either
given by any stature now in effect or hereafter enacted.
35. Waiver of Rights: No waiver by Landlord or Tenant of any provision
hereof shall be deemed to be a waiver of any other provision hereof or of any
subsequent breach by Tenant of the same or any other provision. Landlord's
consent to or approval of any act shall not be deemed to render unnecessary the
obtaining of Landlord's consent to or approval of any subsequent act by Tenant.
The acceptance of rent hereunder by Landlord shall not be a waiver of any
preceding breach by Tenant of any provision hereof other than failure of Tenant
to pay the particular rent so accepted regardless of Landlord's knowledge of
said preceding breach at the time of acceptance of such rent.
36. Notices. All notices and demands of any kind which Landlord and Tenant
may be required to give or serve upon the other party may be given and shall be
deemed to have been given by depositing one copy of it in the United States
Mail, postage paid, certified mail, return receipt requested, addressed as
follows:
LANDLORD: Piedmont Institute for Research & Technology II, LLC
c/o JDL Castle Corporation
P.O. Box 1395
Winston-Salem, NC 27102
<PAGE>
TENANT: Frisby Technologies, Inc.
Attn.: Greg Frisby
111 North Chestnut Street Suite 100
Winston-Salem, NC 27101
Either party may in addition deliver written notice by hand delivery.
Further, the parties hereto may give or receive notice by or from their
respective attorneys and may, by like notice, designate a new address to which
subsequent notice shall be directed.
37. Compliance with Laws: Tenant shall promptly execute and comply with all
laws, ordinances, rules regulations and requirements of any or all federal,
state and municipal authorities having jurisdiction over the manner in which the
Tenant's business is conducted, but only insofar as these laws, ordinances,
rules and regulations and requirements are violated by the conduct of Tenant's
business.
38. Surrender: Upon the termination of this Lease or any extensions or
renewals hereof, the Tenant shall surrender the Premises in good and clean
condition and repair as when received, excepting only normal wear and tear and
damage by fire and other casualty damage covered by insurance and paid to
Landlord. Tenant shall not remain in the Premises without the benefit of a
written Lease or Renewal Agreement executed by the parties hereto prior to the
expiration of the then existing term. No other holding over of the Premises
shall be allowed on any basis whatsoever, except as otherwise herein provided.
39. Holdover: In the event Tenant remains in possession of the leased
Premises after the expiration of the term of this Lease, without having first
extended this Lease by written agreement with Landlord, and without either party
realizing the term of this Lease has expired, such holding over shall not be
construed as a renewal or extension of this Lease. Such holding over shall be
deemed to have created and be construed as tenancy from month to month,
terminable on 30 days notice in writing from either party to the other. The
monthly rental to be paid shall be One Hundred Twenty-Five percent (125%) of the
monthly rental payable during the last month of the term of the Lease. All other
terms and conditions of this Lease shall continue to be applicable for both
Landlord and Tenant.
If Tenant fails to surrender the Premises to Landlord on expiration of
the term as required by this paragraph, Tenant shall hold Landlord harmless from
all damages resulting from Tenant's failure to surrender the Premises, including
without limitation, claims made by the succeeding Tenant resulting from Tenant's
failure to surrender the Premises.
40. Liens: If Tenant shall cause any material to be furnished to the
Premises or labor to be performed thereon or therein, Landlord shall not under
any circumstances be liable for the payment of any expenses incurred or for the
value of any work done or material furnished. All such work shall be at Tenant's
expense and Tenant shall be solely and wholly responsible to all contractors,
laborers, and material men furnishing labor and material to the Premises.
Nothing herein shall authorize the Tenant or any person dealing through, with or
under Tenant to charge
<PAGE>
the Premises or any interest of the Landlord therein or this Lease with any
mechanic's liens or other lien or encumbrance whatever. On the contrary, (and
notices is hereby given) the right and power to charge any lien or encumbrance
of any kind against the Landlord or its estate is hereby expressly denied.
41. Benefits, Burdens and Entire Agreement: This Lease is binding on and
benefits the parties hereto and their respective heirs, legal representatives,
successors, nominees and assigns. Liabilities hereunder shall be joint and
several upon all who sign this agreement. Throughout this agreement the
masculine gender shall be deemed to include the feminine, the feminine the
masculine, the singular the plural and the plural the singular.
This Lease contains the entire agreement between the parties hereto with
respect to the Premises leased hereunder; further this Lease may not be
modified, altered or amended, except by an instrument in writing, executed by
the parties hereto or their respective heirs, legal representatives, successors,
nominees or assigns and which instrument shall be attached hereto as an
amendment to this Lease and shall thereby become a part hereof.
42. Attorney's Fees: If either the Landlord or Tenant files an action to
enforce any agreement contained in this Lease, or for breach of any covenant or
condition, the prevailing party in any such action, shall be reimbursed by the
other party for reasonable attorneys' fees in the action.
43. Governing Law: This Lease shall be governed by and construed under the
laws of the State of North Carolina.
44. Estoppel Certificates: Tenant may be required, from time to time, to
execute and deliver to Landlord a similar certificate for purpose of
refinancing, syndication, sale of property, etc. In such event, Tenant shall
have ten (10) days from its receipt thereof from Landlord to execute and deliver
such fully executed certificate to Landlord. Tenant's failure to execute said
certificate shall constitute a default hereunder.
45. Non Compete Clause: Landlord shall not leave any space in the Building
which houses Frisby Technologies, Inc. to any competitor engaged in the research
and/or manufacture of thermal management products.
46. The Landlord, in consideration of Tenant entering into this Lease and
without any payment by Tenant has transferred to Jeff Frisby & Greg Frisby
(Frisby) a ten percent (10%) Membership Interest in the Piedmont Institute for
Research and Technology II, LLC (PIRT II). Upon the occurrence of an event of
default by Tenant under this Lease Agreement Frisby shall thereby forfeit,
without payment or other consideration, all right title and interest including
(without limitation) all of its Membership Interest (as such term is defined) in
PIRT II, LLC as a member of the LLC. This forfeiture is in addition to any of
the remedies available to Landlord under this Lease.
In consideration of Tenant occupying the contiguous lower floor (the
Expansion Space) in accordance with the terms hereof Frisby shall receive an
additional Membership Interest of
<PAGE>
two and one-half percent (2.5%) upon the occupancy of the first phase of
Expansion Space (being not less than 50% of the Expansion Space) and an
additional two and one-half percent (2.5%) at occupancy of the second phase of
Expansion Space. The expansion shall occur on or before 24 months from the date
of possession of the Premises pursuant to Paragraph 3.
In the event that Tenant remains in possession and in compliance with
the terms and conditions of the Lease Agreement for the Premises and Expansion
Space for a period of twenty (20) years the Membership Interest shall not be
subject to termination.
47. Termination of Lease Agreement: Tenant shall have the right to terminate
this Lease at the end of the tenth (10th) year upon notice given to Landlord at
the end of the ninth (9th) Lease year. Tenant will remain in possession of this
space during the tenth (10th) Lease year following notice. If a replacement
Tenant acceptable to Landlord is not obtained by the end of the tenth (10th)
Lease year, Tenant will pay an additional six (6) months rent following the
termination of the Lease and vacating the Premises.
<PAGE>
IN TESTIMONY WHEREOF, this lease has been executed by the parties hereto, in
duplicate originals, as of the date first above written.
Frisby Technologies, Inc., TENANT
BY: /s/ Gregory S. Frisby
-----------------------------------
Greg Frisby (SEAL)
ATTEST: /s/ Douglas J. McCrosson
------------------------
Secretary
NEW YORK
COUNTY OF NASSAU
I, Ingrid Hesse, Notary Public for said County and State, certify that Douglas
J. McCrosson personally came before me this day and acknowledged that he/she is
the Secretary of Frisby Technologies, Inc., the foregoing instrument was signed
in its name by its Chairman sealed with its corporate seal, and attested by
Douglas J. McCrosson, as its Secretary.
Witness my hand and official seal, this the 2nd day of March, 1998.
(Official Seal) Notary Public /s/ Ingrid Hesse
My commission expires October 31, 1999
- --------------------------------------------------------------------------------
Piedmont Institute for Research & Technology II, LLC., LANDLORD
s/s W. David Shannon
- ------------------------------------------
W. David Shannon (SEAL)
Managing Member
STATE OF NORTH CAROLINA
COUNTY OF FORSYTH
I, Jennifer D. Thames, a Notary Public in and for the aforesaid County and
State do hereby certify that W. David Shannon personally appeared before me this
date and acknowledged the due execution of the foregoing instrument for the
purpose therein expressed.
<PAGE>
WITNESS my hand and Notarial Seal, this the 4th day of March 1998
My Commission Expires: 5/16/99 /s/ Jennifer D. Thames
<PAGE>
EXHIBIT "B"
WORK LETTER AGREEMENT AND SPECIFICATIONS
FRISBY TECHNOLOGIES, INC. LEASE PREMISES
FRISBY TECHNOLOGIES CENTER
BUILDING EXTERIOR
Structure
The building is heavy timber with brick masonry cladding. New roof will
be installed.
Glass
Windows areas will consist of an aluminum framing system pre-finished
with a color selected to compliment the building facade. Glass will
consist of double pane insulated units to enhance mechanical
performance and compliment the building exterior.
Windows adjacent to parking deck (northside of Premises) shall retain
glass block windows for security/visual aesthetics.
Executive patio areas and conference rooms on the east building facade
will be provided with operable windows and/or open window penetrations
finished with break metal trim.
GLASS BLOCK
Landscape/Hardscape/Courtyard
The site shall contain amenities including hardscaping of sidewalks and
appropriate landscape. Landscaping shall compliment the building and
its surroundings.
CEILINGS AND INTERIOR FINISHES
Ceilings must be at least nine feet (9') in offices clear from floor to the
lowest obstruction. With the exception of areas shown on finished schedule,
ceilings will receive acoustical treatment. Protrusions of fixtures into traffic
ways shall be avoided. Ceilings must be a flat plane in each room and suspended
with fluorescent recessed fixtures and finished as follows.
Restrooms: Acoustical tile or lay in panels with textured or patterned
surface.
Offices and Conference Rooms: Acoustical tile or lay in panels with
textured or patterned.
Breakroom Areas: Acoustical tile will be provided.
CORRIDORS/OPEN OFFICES
Existing wood timber and ceiling shall be sand blasted and sealed to provide
open finish in those areas marked on the finished schedule and attached plans.
Wall Coverings
Prior to occupancy, all wall space will be covered as provided for in
the attached finish schedule.
Doors: Exterior
Exterior doors must be heavy duty, full flush, hollow steel
construction, insulated tempered glass or existing monumental glass
doors. Exterior doors shall be
<PAGE>
weather-tight, equipped with automatic door closures and open outward.
Hinges, pivots, and pins shall be installed in a manner which prevents
removal when the door is closed and locked.
Doors: Interior
Doors will have heavy duty hardware with hardware stops. Building
standard doors shall be solid core wood with lever hardware. Passage
locks will be provided. Doors to private offices shall be master keyed.
Hardware for doors in the means of egress shall conform to NFPA
Standard No. 101.
Partitions
Partitions and dividers will be provided as shown on floor plans
attached.
Partitions: Permanent
Permanent partitions will be provided as necessary to surround
corridors, toilet rooms and janitor closets and will extend from the
structural slab to the structural ceilings above.
Partitions: Subdividing Office subdividing partitions will extend from
the finished floor to the finished ceiling.
FLOOR COVERING AND PERIMETERS
Floor covering may be either resilient flooring, carpet or wood as shown on
finished schedule.
Office Areas/Carpet: Prior to occupancy carpet will cover all office
areas as shown on the attached Finished Schedule.
Breakroom/Wet Lab/Lounge/QA: Resilient flooring will be used in these
areas.
Executive Restrooms: Three (3) executive restrooms will be
provided. Two (2) shall utilize resilient flooring. CEO Restroom shall
have unglazed ceramic tile.
Toilet Service Areas: Unglazed ceramic tile shall be used in all
toilet areas.
Carpet - Physical Requirements:
Carpet pile construction: Level loop, textured loop, level cut
pile, or level cut/uncut pile
Pile weight: Twenty-eight (28) ounces per square yard
Secondary Back: Synthetic fiber or jute for glue-down
installation.
Static Buildup: 3.5 KV maximum with built-in static
dissipation is recommended: "Static-Controlled" is acceptable.
Carpet - Installation: Carpet must be installed in accordance
with manufacturing instructions to lay smoothly and evenly.
DRINKING FOUNTAINS
The Lessor shall provide 2 or more drinking fountains.
RESTROOMS
Separate toilet facilities for men and women shall be provided on each floor.
Each toilet room shall have sufficient water closets enclosed with stall
partitions and doors, urinals (in Men's Room), and hot and cold water. A single
shower stall shall be provided in each restroom. Water closets and urinals shall
not be visible when the exterior door is open. Each main toilet room shall
contain:
Equipment:
A mirror above the lavatory.
<PAGE>
A toilet paper dispenser in each water closet stall.
A coat hook on inside face of door to each water closet stall.
At least one (1) paper towel dispenser, soap dispenser and waste
receptacle for every two (2) lavatories.
EXECUTIVE RESTROOMS
Landlord shall provide three (3) executive restrooms. CEO Restroom
shall have superior finishes including tile floor, vinyl covered wall
covering, incandescent can lights, commode, sink, vanity and restroom
fixtures. Two (2) Vice President and conference room restrooms shall
have resilient tile flooring, painted walls, fluorescent fixtures and
building standard accessories, equipment and plumbing fixtures.
HEATING AND AIR CONDITIONING
A new heating and air conditioning system shall be installed consisting of a
chilled water system sized to accommodate load required and ducted to provide
distribution in accordance with the floor plan attached.
Zone Control: air control will be provided for 8 zones. All areas will
be equipped override controls for extended hours of operation.
VENTILATION
Outside air shall be provided to all office space for a minimum of fifteen (15)
cubic feet per minute (CFM) for each person or 0.2 CFM per square foot,
whichever is greater. Economizer cycle free cooling, using outside air, may be
used for cooling.
ELECTRICAL: GENERAL
The Lessor shall be responsible for meeting the applicable requirements of the
National Electric Code, the National Electric Safety Code, Standards of the
National Electric Manufacturers' Association, Insulated Power Cable Engineers'
Association, the American Institute of Electrical Engineers, and local codes and
ordinances. Main service facilities will be enclosed. Distribution panels must
be circuit breaker type with ten percent (10%) spare power load and circuits.
ELECTRICAL: DISTRIBUTION
See Plan Notes/Specifications attached hereto.
LIGHTING: INTERIOR
See Plan Notes/Specifications attached hereto.
Low brightness, parabolic type 2' x 4' fluorescent fixtures using no more than
2.0 watts/square foot shall be provided as shown on attached Plan
Notes/Specifications.
One hundred eighteen incandescent (118) fixtures shall be provided in corridors
providing ingress and egress within the leased space.
Building entrances and parking areas will be lighted. Ballasts are to be
rapid-start, thermally protected, voltage regulating type, UL listed and ETL
approved.
<PAGE>
Storage, open lab and warehouse area shall be lit with surface mounted
fluorescent fixtures as shown on attached Plan Notes/Specifications.
PORTABLE FIRE EXTINGUISHERS
Portable type fire extinguishers meeting requirements of NFPA Standard No. 10
shall be provided. Inspection (quick check) and maintenance (thorough check) of
these extinguishers shall be done in accordance with NFPA Standard No. 10.
EXIT AND EMERGENCY LIGHTING
Emergency lighting must provide at least 0.5 foot candle of illumination
throughout the exit path, including exit access routes, or other routes such as
passageways to the outside of the building.
SECURITY
Installation of security systems will be Tenant responsibility.
LAN/WAN/TELEPHONE/DATA
Installation of wiring shall be the responsibility of the Tenant.
<PAGE>
FRISBY TECHNOLOGIES, INC. LEASE PREMISES
PLAN NOTES/SPECIFICATIONS
Tenant Allowances for Signage: Lobby/Reception and Conference area:
Design elements of these allowances controlled by Frisby except building
Signage subject to provisions and regulations of the Conditions
Covenants and Restrictions applicable to the Downtown Research park;
Allowance amounts and method of providing are set forth in Letter
Agreement of even date;
Tenant selections for paint, carpet color, base color (carpet or rubber cove)
resilient tile and ceramic tile floor coverings will be made from sample
material provided by Landlord within 60 days following execution of Lease
Agreement;
Tenant installation of LAN/WAN/Telephone and Data lines at Tenant expense.
Landlord will coordinate with Tenant vendor and provide access during
construction;
Executive restrooms - 3 total - shall be provided. CEO bath superior quality
finishes. VP and Conference bath standard finishes as set forth in Finish
Schedule.
Electric:
Provision for connected load required for Tenant and 20% expansion
Quantities of electric fixtures by type. Additional fixtures/receptacles
are available at Tenant request and subject to Change Order Charge as
outlined in the Attached Unit Price for Change Orders:
Duplex Receptacles 140
GFIC Receptacles - Wet Areas 11
Surface Fluorescent Fixtures 109
Lay in fluorescent Fixtures 116
Surface Incandescent 118
Lay in Incandescent 1
HVAC: 8 Thermostat control zones with appropriate dampers, ducting, return air
and control.
Partitions: Partitions as shown on the floor plan marked to identify Floor to
Deck (Full Ht) and 9'0" partitions. Additional partitions will be provided at
Tenant request and subject to change Order Charge as outlined in the attached
Unit Price for Change Orders.
Flooring: Marked on attached floor plan and set forth in finish Schedule.
<PAGE>
FRISBY TECHNOLGIES INC. LEASE PREMISES
FINISH SCHEDULE
The Schedule below lists rooms as shown on the Frisby Technologies Inc. Lease
Plan dated February 27, 1998 shows interior finishes for each area. The Plan
Notes and Specifications quantities for interior installations and unit costs
for Tenant requested changes.
PLAN AREA FLOOR BASE WALLS CEILINGS LIGHTING
--------- ----- ---- ----- -------- --------
Lobby/Reception W W SRP W ICS
Display W W SRP AT ICS
Director Tech Dev C CAR SRP AT LF
Administration/Open C CAR SRP W SF
VP Marketing W W SRP W ICS
VP Tech W W SRP W ICS
Conference E W W SRP W ICS
CEO W W SRP W ICS
Multi Purpose C CAR SRP AT LF
Office-N C CAR SRP AT LF
Office-N C CAR SRP AT LF
Office-N C CAR SRP AT LF
Conference-N C CAR SRP AT LF
Breakroom C CAR SRP AT LF
Restroom/Shower RT RC SRP AT LF
Open Lab W W SRP W SF
Storage W W SRP W SF
Conference W C CAR SRP AT LF
Office-W C CAR SRP AT LF
Office-W C CAR SRP AT LF
Office-W C CAR SRP AT LF
Office-W C CAR SRP AT LF
Office-S C CAR SRP AT LF
App Eng/Marketing C CAR SRP W SF
Wet lab and Office RT RC SRP AT LF
QA and Office RT RC SRP AT LF
Warehouse W W SRP W SF
Climate Controlled W W SRP W SF
Halls - Circulation W NA SRP W ICS
CEO Restroom CT CT Wains SRP AT ICL
VP Restrooms RT RC SRP AT LF
ABBREVIATIONS AND SPECIFICATIONS NOTES
<TABLE>
<CAPTION>
Base: Flooring:
<S> <C> <C> <C>
RC Rubber Cove W refinished wood with two finish coats
CT Ceramic Tile Base C Building standard 28 oz. carpet
WB Wood Base RT Vinyl composition tile
CAR Carpet Base CT Ceramic Tile
NOTE: Wood base will be installed along perimeter brick walls
Ceilings: Lighting:
AT Acoustical tile Lay In LF Law in fluorescent 2 x 4 fixture
W Sandblasted/sealed wood SF Surface mounted fluorescent 2 fixture
ICS Surface mounted incandescent can light
ICL Lay in incandescent can light
Walls:
SRP Sheetrock Painted
CT Wains Ceramic Tile Wainscot
NOTE: All perimeter walls are sandblasted and sealed brick
</TABLE>
<PAGE>
EXHIBIT "B"
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT "A"
(Building Description)
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT "C"
(Floor Plan and Specification of Expansion Space)
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT "D"
(Parking Layout)
[GRAPHIC OMITTED]
<PAGE>
M E M O R A N D U M
TO: FRISBY AEROSPACE
FROM: GREG FRISBY
SUBJECT: 4520 HAMPTON ROAD LEASE DATE: 3/13/96
We hereby notify you that we are exercising the renewal option of the above
lease and wish to renew the lease for $2,520 per month an 18 month period ending
November 30, 1997 and then extend the lease on a month to month basis.
All other terms of the lease remain unchanged.
\s\ Greg Frisby
- -----------------------------------------
Greg Frisby, CEO
FRISBY TECHNOLOGIES, INC.
Accepted and Agreed
\s\ Thomas Powers
- -----------------------------------------
Thomas Powers, CFO
FRISBY AEROSPACE
<PAGE>
NORTH CAROLINA )
) LEASE AGREEMENT
FORSYTH COUNTY )
THIS LEASE, made and entered into effective 1st day of June of 1993, by
and between FRISBY AIRBORNE HYDRAULICS, INC., hereinafter called "Lessor" and
FRISBY TECHNOLOGIES, INC., hereinafter called "Lessee";
W I T N E S S E T H:
(1) PREMISES: That the Lessor, for and in consideration of the sum of
ONE HUNDRED DOLLARS ($100.00) and the covenants, conditions, agreements and
stipulations herein contained, does hereby lease unto the Lessee, and the Lessee
does hereby take and hire from the Lessor, subject to the conditions hereinafter
expressed that certain parcel of real property described on Exhibit A attached
hereto and incorporated herein by reference, together with all buildings and
improvements existing thereon (the "Premises").
(2) TERM: The initial term (the "Initial Term") of this Lease shall be
three (3) years beginning on June 1st, 1993.
(3) RENEWAL OPTION: Unless the Lessee is then in default under the
terms and conditions of this Lease, or this Lease has been terminated or the
Premises relet under the terms hereof or under applicable law, the Lessee shall
have the option to renew the term of this Lease for 1 renewal terms of three
years each (each such three year period being hereafter referred to as a
("Renewal Term") by giving Lessor written notice of such renewal no less than
ninety (90) days prior to the expiration of the Initial Term or the then-current
Renewal Term, whichever is applicable. All terms and conditions of this Lease
shall remain in effect during each such Renewal Term except that the rent shall
change as provided for in this lease.
(4) RENTAL: The Lessee agrees to pay Lessor a monthly rental during the
Initial Term of this Lease in the amount of Two Thousand, Five Hundred Twenty
DOLLARS ($2,520). Monthly Rental during a particular Renewal Term shall be paid
at a rate determined by multiplying the monthly rent payable during the prior
Renewal Term (or, in the case of the first Renewal Term, that paid during the
Initial Term) times 1.05. All rental shall be due and payable in advance on the
1st day of each month and shall be overdue unless received by Lessor on or
before the 5th day of each month during the term hereof. Rental shall be paid at
Lessor's address for notices as set forth in this Lease, without setoff,
deduction or claim whatsoever.
(5) ASSIGNMENT AND SUBLETTING: Lessee shall not have the right to
assign this Lease, or sublet the Premises or any part thereof except upon the
prior written consent of the Lessor which consent shall not be unreasonably
withheld or delayed. In considering any request for assignment or subletting the
Lessor shall be permitted to take into account, in addition to other relevant
factors, the financial strength of any proposed assignee or sublessee which
shall be at least equal to that of Lessee on the date hereof together with the
proposed use of the Premises by any proposed assignee or sublessee. Any such
consent shall not extend to any further assignment or subletting whether or not
such consent so provides. Notwithstanding the foregoing, Lessee may assign this
Lease to any entity controlled by, controlling or under common control with
Lessee, to any successor of Lessee by reason of reorganization, merger or
consolidation of Lessee or to the buyer of all or substantially all of the
assets or stock of Lessee; provided, however, that the financial strength any
such assignee, successor or buyer must be approved in writing in advance by
Lessor. Lessor shall be entitled to any rents above the rents reserved herein
generated by any assignment of this Lease or subletting of the Premises, or any
portion thereof.
<PAGE>
(6) FIRE AND CASUALTY INSURANCE: At its own expense the Lessee shall
keep the Building, improvements, and appurtenances situated on the Premises
insured against loss or damage with all-risk coverage without exceptions in
amounts equivalent to estimated replacement cost. In the event Lessor shall
determine at any time during the term of this Lease, or any extension thereof,
providing that the Premises are not insured in an amount equal to the
approximate replacement cost thereof (without deduction for depreciation), and
so notify Lessee, Lessee shall forthwith cause such insurance to be increased to
such amount. Such insurance shall be issued by financially responsible insurers
duly authorized to do business in the State where the Premises are located and
acceptable to Lessor, and all policies of insurance required to be maintained by
Lessee shall name the Lessee and Lessor as the insured, as their respective
interests may appear. The policies of insurance shall also name the holder of
any mortgage securing indebtedness of Lessor, as the interest of such holder may
appear, pursuant to a standard mortgage clause. The original of said policy or
policies, or at Lessor's election a certificate or memorandum of such insurance,
together with receipts evidencing payment in full of the premiums thereon, shall
be delivered to the Lessor at the inception of this Lease, upon any renewal,
addition or substitution of such insurance, and thereafter as said premiums are
due. Such policies shall contain a provision that the Lessor and the holder of
any mortgage shall be notified in writing by the insurance carrier at least
thirty (30) days prior to any cancellation, or material restriction, or
reduction, amendment, or modification of such policies.
(7) INDEMNIFICATION OF LESSOR: The Lessee agrees to indemnify and hold
Lessor harmless (except for loss or damage resulting from the willful or
negligent acts or omissions of Lessor, its agents or employees) from any and all
claims, actions, damages, liability, and expense, including attorney fees in
connection with loss of life, personal injury and/or damage to property arising
out of any occurrence in, upon or at the Premises from any causes whatsoever;
and Lessee will procure and keep in effect, during the term hereof, public
liability insurance for bodily injury and property damage insurance for the
benefit of the Lessor in the minimum sums of -0- Dollars ($_________) for
damages resulting to one person, and -0- ($ ) Dollars for damages resulting from
any one casualty, and -0- ($______) property damage resulting from any one
occurrence. Lessee further agrees, upon request of Lessor to use its best
efforts (including payment of any required additional premiums) to increase any
or all of the foregoing minimum limits of coverage to reflect changes in the
purchasing power of the dollar. Said policy or policies of insurance shall be
acceptable to Lessor and certificates evidencing such policies shall be
delivered to Lessor. Upon Lessee's failure to obtain such insurance or increased
limits required by this paragraph, the Lessor may, at its option, obtain such
insurance or increased limits, and the cost thereof shall be paid as additional
rent due and payable upon the next ensuing rent day; but, the failure on the
part of the Lessor to obtain such insurance shall not release the Lessee from
its obligations under this Paragraph.
2
<PAGE>
Lessor warrants and represents to Lessee that the Premises are in full
compliance with all ordinances, rules, regulations and laws relating to
protection of the environment. The Lessee covenants and agrees with Lessor that
during the entire term of the lease, the Lessee will defend, indemnify and save
harmless the Lessor from and against any and all claims, loss, debts, expenses,
judgments, demands and obligations which may be made against or incurred by the
Lessor or against the Lessor's title in the Premises, including all reasonable
costs and expenses incurred by Lessor in connection therewith, arising by reason
of, or in connection with any alleged act or omission of the Lessee or any
person claiming under, by, or through the Lessee (including any claims, loss,
debts, expenses, judgments, demands, obligations, costs and expenses, made
against or incurred by Lessor in connection with any ordinance, regulation, law,
rule, order, report, judgment, decree or ruling relating to protection of the
environment); and if it becomes necessary for the Lessor to defend any action
seeking to impose any such liability, the Lessee will provide such defense and
hire such attorneys as Lessor may reasonably approve and will pay all costs of
court and attorneys' fees incurred effecting such defense in addition to any
other sums which the Lessor may be called upon to pay by reason of the entry of
a judgment against the Lessor in the litigation or proceeding in which such
claim is asserted. If Lessor desires to obtain legal representation in addition
to that provided above, such additional representation shall be at Lessor's
expense.
(8) TAXES: The Lessee agrees to pay, before any fine, penalty,
interest, or cost may be added thereto, or become due or be imposed by operation
of law for the nonpayment thereof, all taxes, assessments, water and sewer
rents, rates and charges, charges for public utilities, excises, levies,
licenses and permit fees and other governmental charges, general and special,
ordinary and extraordinary, unforeseen and foreseen, of any kind and nature,
whatsoever, which at any time during the term of this lease may be assessed,
levied, confirmed, imposed upon, or grow or become due and payable out of or in
respect of, or become a lien on the Premises, or any improvements thereon. The
parties hereto agree that the taxes for the first and last years of the term
herein shall be prorated between the Lessor and the Lessee. Lessee shall pay all
of the foregoing charges and assessments imposed with respect to its personal
property and fixtures.
(9) RIGHT TO ALTER AND IMPROVE: Upon receipt of the prior written
consent of Lessor, which consent shall not be unreasonably withheld or delayed,
the Lessee may, at its own expense, make such alterations, improvements,
additions, and changes to the Premises as it may deem necessary or expedient in
the operation of the Premises, provided the Lessee, without the written consent
of the Lessor, shall not tear down or materially demolish any of the
improvements of the Premises, or make any material change or alteration in such
improvements which, when completed, would substantially diminish the value of
the leased property. If Lessor so requires, Lessee shall restore the Premises to
its condition prior to any alterations, improvements, additions and changes
which were not approved in writing in advance by Lessor no later than the end of
the term hereof.
3
<PAGE>
(10) WAIVER: The failure of the Lessor to insist upon a strict
performance of any term or condition of this lease shall not be deemed a waiver
of any right or remedy that the Lessor may have, and shall not be deemed a
waiver of any subsequent breach of such term or conditions.
(11) MAINTENANCE: The Lessee will make all repairs of every kind and
nature to the Premises, including, but not limited to, all repairs to the
heating, plumbing and electrical systems leased by the Lessee and will indemnify
and save harmless the Lessor from and against all mechanics liens or claims by
reason of such repairs. In the event any mechanic's lien or claim is filed
against the Premises or Lessee's property or interest therein, Lessee shall pay
any such claim or post a bond therefore as provided by applicable law within
thirty (30) days of the filing of the same.
(12) DEFAULT: In the event of the failure of Lessee to pay any rental
due hereunder within five (5) days of notice from Lessor that such payment is
over due, or the failure by Lessee to perform any other of the terms,
conditions, or covenants of this Lease to be observed or performed by Lessee
within thirty (30) days of notice from Lessor of such failure to observe or
perform such condition or covenant (provided, however, if such performance would
require more than thirty (30) days, the Lessee shall not be in default hereunder
as long as it commences such performance within such thirty (30) day period and
acts diligently to complete such performance), or if Lessee shall become
bankrupt or insolvent, or file any debtor proceedings, or take or have taken
against Lessee in any court pursuant to any statute, either of the United States
or any state, a petition in bankruptcy or insolvency or for reorganization, or
for the appointment of a receiver or trustee of all or a portion of Lessee's
property, or if Lessee makes an assignment for the benefit of creditors, or
petitions for or enters into an arrangement, (provided any such action or
proceeding is not withdrawn or dismissed within sixty (60) days of its
commencement) or if Lessee shall abandon the Premises, or suffer this Lease to
be taken under any writ of execution, then Lessor, its attorneys, successors and
assigns, in addition to any other rights or remedies it may have hereunder and
under applicable law, shall have the right, if it so elects, to declare this
Lease terminated and the term ended, and shall have, whether or not it
terminates this Lease, the immediate right of re-entry and may remove all
persons and property from the Premises, and such property may be removed and
stored in a public warehouse or elsewhere at the cost of, and for the account of
Lessee, all without service of notice or resort to legal process and without
being deemed guilty or trespassing or becoming liable for any loss or damage
which may be occasioned thereby; provided, however, that Lessor shall be liable
for any damage it may cause to Lessee's property by reason of failure by Lessor
to take due care thereof.
4
<PAGE>
Should Lessor elect to re-enter, as herein provided, or should it take
possession pursuant to legal proceedings or pursuant to any notice provided by
law, it may either terminate this Lease or it may from time to time without
terminating this Lease, make such alterations and repairs as Lessor, in its sole
discretion, determines is necessary in order to relet the Premises, or any part
thereof, for such term or terms (which may be for a term extending beyond the
term of this Lease), and at such rental or rentals, and upon such other terms
and conditions as Lessor in its sole discretion may deem advisable. Upon each
such reletting, all rentals received by Lessor from such reletting shall be
applied first to payment of any indebtedness other than rent due hereunder from
Lessee to Lessor; second, to the payment of reasonable costs and expenses of
such reletting, including brokerage and attorney fees, and the cost of any such
alterations and repairs; third, to the payment of rent due and unpaid hereunder.
The residue, if any, shall be held by Lessor and applied in payment of future
rent as the same may become due and payable hereunder. If such rentals received
from such reletting during any month be less than that to be paid during that
month by Lessee hereunder, Lessee shall pay any such deficiency to Lessor. Such
deficiency shall be calculated and paid monthly. Lessor shall be entitled to all
rents and proceeds from any such reletting. No such re-entry or taking
possession of the Premises, or any part thereof, by Lessor shall be construed as
an election on its part to terminate this Lease unless a written notice of such
intention is given to Lessee, or unless the termination thereof be decreed by a
court of competent jurisdiction. Notwithstanding any such reletting without
termination, Lessor may at any time thereafter elect to terminate this Lease. In
addition to any other remedies Lessor may have, it may recover from Lessee all
damages it may incur by reason of such breach, including the cost of recovering
the Premises, reasonable attorney fees incidental thereto, all expenses and
commissions which may be paid in and about the reletting of the same, and any
and all other damages incurred by Lessor as a result thereof. In exercising the
rights given it under this paragraph, Lessor shall use reasonable good faith
efforts to mitigate its damages.
It is agreed that each and every of the rights, remedies, and benefits
provided by this Lease shall be cumulative, and shall not be exclusive of any
other rights, remedies, and benefits, or of any other rights, remedies, and
benefits allowed by law.
(13) USE AND OCCUPANCY: The Lessee agrees to make no unlawful use of
the Premises, to pay all rents as and when the same shall become due and to
operate the Premises and conduct its activities thereon in compliance with all
applicable laws, rules, regulations, orders, decrees and judgements, including,
but not limited to, the foregoing as the same may relate to protection of the
environment. Lessee shall use the Premises only for purposes that do not violate
this Lease.
(14) COVENANTS: The Lessor does hereby covenant and agree with the
Lessee that, subject to the terms and conditions hereinabove set forth, the
Lessee shall have and enjoy said Premises during the term herein provided for,
free from the adverse claims of any and all persons whomsoever. Lessor warrants
that it has good and marketable fee simple title to the Premises.
(15) UTILITIES: The Lessee shall be solely responsible for, and shall
promptly pay as the same shall become due, all charges made against the Premises
for gas, water, heat, sewer, electricity, and any other utilities used upon or
furnished to the Premises during the term of this Lease.
5
<PAGE>
(16) NET LEASE: It is the intention of the parties by their execution
of this Lease that the Lessor shall receive the rents reserved herein and all
other sums which shall or may become payable hereunder by Lessee under any
contingency free from all taxes, charges, expenses, damages and deductions of
every kind or sort whatsoever, and that the Lessee shall and will and hereby
expressly agrees to pay all such other sums which, except for the execution and
delivery of this Lease, would have been chargeable against the Premises and
payable by the Lessor except as otherwise provided in this Lease. The Lessee,
however, shall not be under any obligation to pay any interest or principal on
any mortgage or mortgages which may be a lien against the fee simple title of
the Premises or the Lessor's estate or interest therein, or any franchise, or
income tax which is or may become payable by the Lessor, or any gift,
inheritance, transfer, estate or succession tax by reason of any existing law or
any law which hereafter may be enacted.
(17) CONDITION OF PREMISES AT THE TIME OF LEASE: By and upon taking
possession of the Premises, Lessee will be deemed to have acknowledged that it
has examined the Premises prior to the taking of possession, and knows the
condition thereof. Upon such taking of possession by Lessee it will be deemed
that no representations as to the condition or state of repairs of the Premises
have been made by the Lessor, or its agents, and that the Lessee thereby accepts
the Premises in their condition at the date of the taking of possession.
(18) LESSOR'S RIGHT TO MORTGAGE: (a) This lease is subject to any
existing mortgage on the Premises and to all renewals, replacements,
modifications and extensions thereof as long as the holder of such mortgage
agrees not to disturb Lessee in its possession of the Premises as long as Lessee
is not in default under this Lease. The Lessor reserves the right to subject
this Lease at all times to the lien of any mortgage hereafter placed upon the
Lessor's interest in the Leased Premises, and to any and all advances to be made
thereunder, and to any interest thereon, and all renewals, replacements,
modifications and extensions thereof as long as the holder of such mortgage
agrees not to disturb Lessee in its possession of the Premises as long as Lessee
is not in default under this Lease. Lessee also agrees that the mortgagee named
in such mortgage may elect to have this Lease become a prior lien to its
mortgage whether this Lease is dated prior or subsequent thereto. Lessee agrees
to enter any modification of this Lease that any present or future mortgagee may
require as long as it does not materially adversely affect Lessee's rights
hereunder. Lessee further covenants and agrees to execute and deliver, within
ten (10) days of notice that the same is required, such further instrument or
instruments as shall be required by the Lessor or any such mortgagees to carry
out the intent of this paragraph as long as the mortgagee agrees not to disturb
Lessee in its possession of the Premises as long as Lessee is not in default
under this Lease and as long as any such instrument neither materially decreases
Lessee's rights hereunder or materially increases Lessee's obligations
hereunder. The cure periods given in this Lease shall not apply to Lessee's
obligations under the previous sentence. Nothing herein shall be deemed to alter
the terms of this Lease, it being understood and agreed that any mortgagee shall
have only such rights as Lessor has hereunder. (As used in this Section, the
term "mortgage" shall include mortgages, deeds of trusts and security interests
of all types and the term "mortgagee" shall include all parties secured by any
of the foregoing).
(b) Lessee agrees, within ten (10) days after the written request
therefor by Lessor, to execute in recordable form and deliver to Lessor a
statement, in writing, certifying (i) that this Lease is in full force and
effect; (ii) the date of commencement of the term of this Lease; (iii) that rent
is paid currently without any offset or defense thereto; (iv) that there are no
uncured defaults by Lessor, or stating those claimed by Lessee; provided that,
in fact, such facts are accurate and ascertainable.
6
<PAGE>
(c) In the event any proceedings are brought for the foreclosure of, or
in the event of the conveyance by deed in lieu of foreclosure of, or in the
event of exercise of the power of sale under, any mortgage or deed of trust made
by Lessor covering the Premises, Lessee upon written request, shall attorn to,
and covenants and agrees to execute an instrument in writing reasonably
satisfactory to, the new owner whereby Lessee attorns to such successor in
interest and recognizes such successor as the Lessor under this Lease.
(19) DAMAGE OR DESTRUCTION OF BUILDING: If any building located on the
Premises be damaged or destroyed by fire or other casualty during the term
hereof, the Lessee shall promptly notify Lessor of such occurrence and Lessee
shall cause the Premises and the building situated thereon to be repaired and
restored to good tenantable condition with reasonable dispatch, such condition
to be as good as that in which the Premises were at the time of the casualty.
Lessor agrees to permit use of all insurance proceeds for such purposes. In the
event the holder of the deed of trust or the Premises permits application of the
insurance proceeds to repair and restoration, Lessee and Lessor acknowledge that
such use shall be subject to the disbursement provisions of such deed of trust.
If any portion of the insurance proceeds shall remain after full payment of the
cost of such repair or restoration, the same shall be paid to and be the sole
property of Lessor, other than proceeds from insurance on trade fixtures and
equipment installed in or on the Premises at Lessee's sole cost and expense.
Proceeds arising from the loss to Lessee's trade fixtures and equipment shall be
the sole property of Lessee. There shall be no abatement of any tenant
obligation in the event that the Premises, or any, part thereof, be damaged or
destroyed in whole or in part by fire or other casualty during the term of this
Lease except that as long as Lessee has maintained and complied with the terms
of the insurance required to be maintained by it then rent shall abate equitably
in proportion to the ability of Lessee to use the Premises during any period
during which the Premises or a material portion thereof is rendered unusable by
Tenant due to any casualty. If at any time during the Initial Term or any
Renewal Term the Premises shall be so damaged by fire or otherwise so that (i)
less than two (2) years would remain in such term after restoration or (ii) the
time to restore the Building will exceed one hundred eighty (180) days, then, in
any of such events, Lessee, if it has maintained all insurance required to be
maintained under this Lease, or Lessor may, within thirty (30) days of such
casualty, give notice to the other party of its election to terminate this Lease
and thereupon this Lease shall cease and come to an end effective as of the date
of such casualty as if such date were the date fixed for the expiration of the
term and the rent shall be apportioned and paid to the time of such termination.
Notwithstanding anything contained in this Lease to the contrary, Lessee shall
be and remain liable to Lessor for any failure by Lessee to maintain and comply
with the terms of the insurance required to be carried by it under this Lease.
(20) HOLDING OVER: It is hereby agreed that in the event of the Lessee
herein holding over after the termination of this Lease, thereafter the tenancy
shall be from month to month in the absence of a written agreement to the
contrary; provided that Lessee shall pay rent for any month-to-month tenancy
during the first month of any holdover at a rate of 1.1 times the annual rate
charged for the last year of the term hereof and thereafter at 1.2 times the
annual rate charged for the last year of the term hereof. In no event shall any
holding over or any acceptance of rental by Lessor constitute a renewal of the
term hereof or a waiver of precise performance of any conditions of exercise of
any Renewal Term.
7
<PAGE>
(21) ACCESS TO PREMISES: Upon reasonable prior oral or written notice,
the Lessor, and Lessor's agents, shall have the right to enter upon the Premises
or any part thereof at all reasonable business hours for the purpose of
inspecting the same. If the Lessor deems any repairs necessary it may demand
that the Lessee make the same; and, if the Lessee refuses or neglects forthwith
to commence such repairs and complete the same with reasonable dispatch, the
Lessor may make or cause to be made such repairs and shall not be responsible to
the Lessee for any loss or damage that may accrue to its stock or business by
reason thereof. If the Lessor makes or causes to be made such repairs, the
Lessee agrees that it will forthwith, on demand, pay to the Lessor the cost
thereof; and, if Lessee shall default in such payment, the Lessor shall have the
remedies provided it upon defaults by Lessee hereunder.
(22) CONDEMNATION: (a) If the whole of the Premises shall be taken by
any public authority under any power of eminent domain, then the term of this
Lease shall cease as of the date possession shall be taken by such public
authority, and the rent shall be paid up to that day with a proportionate refund
by Lessor of such rent as may have been paid in advance.
(b) If part of the Building situated on the Premises is taken under the
power of eminent domain and such part is in excess of ten percent of the usable
area of the existing building; and such taking would materially and adversely
affect the business operations of Lessee from the Premises, Lessee shall have
the right to terminate this lease. Lessee shall have the right to terminate this
Lease by giving written notice to the Lessor within thirty (30) days after being
notified of such taking for public use; and, in such event, such termination
shall be effective upon the date possession of the portion of the Building shall
be required for public use. In the event of a taking, Lessee waives all rights
to any portion of the award received for the taking except for any award for
Lessee's personal property, equipment and trade fixtures. In the event Lessee
shall elect not to terminate this Lease, Lessor shall, at its own cost and
expense, make all necessary repairs and alterations to the Building in order to
constitute the remaining Building a complete architectural unit. In the event
Lessee elects, pursuant to the terms of this paragraph, to remain in possession
of the Premises, all the terms herein provided shall continue in effect except
that rent shall equitably abate to the extent such taking materially interferes
with the use of the Premises being made by Lessee at the effective date of such
taking.
(c) Unless provided above, no taking or exercise of the power of
condemnation or eminent domain, or any deed or conveyance in lieu thereof, shall
affect this Lease and the Lease shall remain in full force and effect and rent
shall in no part abate.
(d) All damages awarded for any such taking shall belong to and be the
property of the Lessor, whether such damages shall be awarded as compensation
for diminution in the value of the leasehold or to the fee of the Premises;
provided, however, that the Lessor shall not be entitled to any portion of the
award made to the Lessee for moving expenses, or for the value of the
merchandise, trade fixtures and equipment installed in the Premises by Lessee.
8
<PAGE>
(23) NOTICES: Unless another form of notice is specifically provided for herein,
any notice provided for herein shall be given by certified mail, return receipt
requested, postage prepaid, addressed, if to Lessor, to:
--------------------------
--------------------------
--------------------------
and if to Lessee then to:
--------------------------
--------------------------
--------------------------
All notices shall be effective when received.
(24) WASTE: Lessee shall not commit or suffer to be committed any waste
upon the Premises or allow any act to occur at the Premises which would
constitute a nuisance.
(25) NOTICE TO LESSOR: Lessee shall give prompt notice to Lessor by
telephone or telefax and by the manner provided above in the event of
casualties, accidents, or injuries in the Premises, or of defects therein, or in
any fixtures or equipment.
(26) LESSOR'S LIABILITY: Notwithstanding anything in this lease to the
contrary, Lessee shall look solely to the estate and property of Lessor in the
land and buildings comprising the Premises for the for the collection of any
judgment (or other judicial process) requiring the payment of money by Lessor to
Lessee; no other asset of Lessor shall be subject to levy, execution or other
judicial process for the satisfaction of Lessee's claim.
(27) CAPTIONS AND PARAGRAPH NUMBERS: The captions and paragraph numbers
appearing in this Lease are inserted only as a matter of convenience, and in no
way define, limit, construe, or describe the scope or intent of such paragraph
of this Lease, nor in any way affect this Lease.
(28) AMENDMENT: The parties acknowledge that this Lease contains their
entire agreement with respect to the lease of the Premises and agree that they
will not amend this Lease except in writing and only upon receiving the prior
written consent of the holder of any first lien deed of trust on the Premises.
(29) BINDING NATURE: This Agreement is binding on the parties hereto,
their heirs, successors and assigns.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this lease to be
executed under seal.
LESSOR
FRISBY AIRBORNE HYDRAULICS, INC.
(CORPORATE SEAL)
By: \s\ Thomas Powers
----------------------------------------
Chief Financial Officer
LESSEE
FRISBY TECHNOLOGIES, INC.
(CORPORATE SEAL)
By: \s\ Greg Frisby
----------------------------------------
Chief Executive Officer
10
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT entered into this 1st day of January 1996, by and between
Charles Winburn, whose address is 3675 Whiskey Road, Aiken, SC 29803
("Landlord") and the Applied Technology Center Corporation, a South Carolina
501(C)3 Corporation, with an office at 3635 Whiskey Road, Aiken, South Carolina
29803 ("Tenant").
W I T N E S S E T H:
1. PROPERTY LEASED
(a) The Landlord, for and in consideration of the rents, covenants, and
agreements hereinafter specified to be paid, kept, and performed by the Tenant,
hereby leases to the Tenant and the Tenant hereby leases from the Landlord, the
free standing facility located at 3635 Whiskey Road, Aiken, South Carolina
29803, herein referred to as "the Leased Premises" or "the Premises".
(b) The Tenant shall have the exclusive right to possession of the Leased
Premises during the term hereof, subject to this Agreement.
2. TERM AND POSSESSION
(a) Subject to the terms and conditions hereof, the Lease Term shall commence
January 1, 1996. This initial Lease Term shall expire at midnight on December
31, 1996, but will continue on a month by month basis thereafter, unless
otherwise terminated upon sixty (60) days written notice.
(b) Possession of the Leased Premises shall be given on the date this Lease
Term commences.
(c) Upon the expiration or other termination of this Lease, the Tenant shall
quit and surrender the Leased Premises broom-swept clean, in the same condition
as at the commencement of the term, normal wear and tear only excepted.
3. USE OF PREMISES
(a) The Leased Premises shall be used and occupied only as office, assembly,
and laboratory space.
4. UTILITIES, OPERATING EXPENSES, and SERVICES The Tenant shall pay for all
utilities, including heat, electricity, and telephone service.
<PAGE>
5. RENT
(a) Rent shall be paid to Landlord at Landlord's address, unless Landlord
designates another place.
(b) During the full term of this Lease, the Tenant shall pay the Landlord the
fixed sum of $1,250. each month of the Lease Term payable on the first day of
each month, commencing with the first month of the Lease Term.
6. ALTERATIONS BY TENANT The Tenant shall make no alterations or additions to
the Leased Premises without the prior consent of the Landlord.
7. GOVERNMENTAL REQUIREMENTS Tenant agrees to comply with all requirements of
any legally constituted public authority including, but not limited to, all
health, safety, and fire codes and regulations of the State of South Carolina
and the County of Aiken. Tenant shall obtain all required licenses or permits
for the conduct of its business within the terms of this Lease, and the
Landlord, where necessary, will join with the Tenant in applying for all such
licenses or permits.
8. ENVIRONMENTAL LAW COMPLIANCE Tenant will not cause, or permit to be caused,
any act or practice, by negligence, omission, or otherwise, that would adversely
affect the environment, or do anything or permit anything to be done that would
violate any of said laws, regulations, or guidelines. Tenant shall be
responsible for obtaining proper permits for the transportation, use, and
disposal of any hazardous materials brought onto the premises by Tenant or
produced by any activity of Tenant.
9. DESTRUCTION OR DAMAGED PREMISES If the Leased Premises are totally destroyed
(or so substantially damaged as to be untenantable) by storm, flood, fire,
earthquake, or other casualty, this Lease shall terminate as of the date of such
destruction or damage, and rental shall be accounted for between Landlord and
Tenant as of that date. If the Leased Premises are damaged but not rendered
wholly untenantable by any such casualty or casualties, rental shall abate in
such proportion as the use of the Leased Premises has been destroyed until the
Landlord has restored the Leased Premises to substantially the same condition as
before damage, whereupon full rental shall recommence. Nothing contained herein
shall require Landlord to make such restoration, however, if not deemed
advisable in its judgment. Landlord shall make its intentions to restore or not
to restore said Leased Premises to original condition known to Tenant in writing
within sixty (60) days of such occurrence. If Landlord decides against such
reconstruction or fails to provide such notice, Tenant may, at its option,
cancel this Lease .
10. RENOVATION BY LANDLORD If Landlord and Tenant deem it necessary to effect
renovations or redecorations of the Building in which the Leased Premises are
located, or of the improvements of which the Building is a part, all standard
materials (i.e. sheetrock, flooring, lighting, etc.) shall be reimbursed to
Landlord by Tenant. However, reasonable labor and any
<PAGE>
extraordinary expenses (i.e. HVAC, wells, etc.) required to upgrade or maintain
the Premises shall be provided as at Landlord's expense under this Lease.
11. MAINTENANCE Tenant agrees to maintain the Leased Premises, as well as all of
Tenant's fixtures and Tenant improvements, in good condition and repair during
the Term of this Lease to the reasonable satisfaction of Landlord.
12. MISCELLANEOUS PROVISIONS
(a) Entire Agreement This Lease contains the entire agreement of the parties
and no representations, inducements, promises, or agreements, oral or otherwise,
between the parties not embodied herein shall be of any force or effect. No
failure of the Landlord to exercise any power given the Landlord hereunder, or
to insist upon strict compliance by the Tenant of any obligation hereunder, and
no custom or practice of the parties at variance with the terms hereof shall
constitute a waiver of the Landlord's right to demand exact compliance with the
terms hereof.
(b) Notice Whenever it is provided herein that notice, demand, request, or
other communication shall or may be given to any of the parties by any other
party, such notice, demand, request, or other communication shall be in writing.
(c) Binding Effect This Agreement shall be binding upon the successors and
assigns of the Landlord and Tenant.
IN WITNESS WHEREOF, the parties hereto have signed and sealed this Agreement as
of the day and year first above written.
CHARLES WINBURN APPLIED TECHNOLOGY CENTER
Corporation
_____________________ By: _____________________
"Landlord" "Tenant"
<PAGE>
EXHIBIT 11.1
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1996 1997
---- ----
<S> <C> <C>
Common Stock outstanding at beginning 2,839,286 2,839,286
of year
Issuance of 441,327 shares of Common
Stock on December 29, 1997 - 3,627
---------- ----------
Weighted average common shares
outstanding for year 2,839,286 2,842,913
========== ==========
Net loss for year $ (87,656) $ (919,978)
========== ==========
Net loss per common share - basic and
diluted $ (.03) $ ($.32)
========== ==========
</TABLE>
<PAGE>
Exhibit 24.1 - Consent of Independent Auditors
The Stockholders
Frisby Technologies, Inc.:
We consent to the reference to our firm under the headings "Experts"
and "Change in Independent Auditors" and to the use of our report dated February
27, 1998, in Amendment No. 1 to the Registration Statement (Form SB-2 No.
333-45121) and related Prospectus of Frisby Technologies, Inc. dated March 9,
1998.
/s/ ERNST & YOUNG LLP
Melville, New York
March 9, 1998
