<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------------------
PHYTOTECH, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW JERSEY 0343 22-323-9507
(State or other jurisdiction of (Primary Standard I.R.S. Employer
incorporation or organization) Industrial Code Number) Identification No.)
</TABLE>
1 DEER PARK DRIVE, SUITE 1, MONMOUTH JUNCTION, NEW JERSEY 08852
(732) 438-0900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
BURT D. ENSLEY
PRESIDENT
PHYTOTECH, INC.
1 DEER PARK DRIVE, SUITE I
MONMOUTH JUNCTION, NEW JERSEY 08852
(732) 438-0900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
JAMES H. FREIS, ESQ. JOHN J. HALLE, ESQ.
SHANLEY & FISHER, P.C. STOEL RIVES LLP
131 MADISON AVENUE 900 SW 5TH AVENUE
MORRISTOWN, NEW JERSEY 07962 PORTLAND, OREGON 97204
(201) 285-1000 (503) 224-3380
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
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. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
UNITS (3) CONSISTING OF:
Common Stock.......................................... 2,300,000 $6.00 $13,800,000 $4,071
Warrants.............................................. 2,300,000 -- -- --
UNITS (4) CONSISTING OF:
Common Stock.......................................... 200,000 $7.20 $1,440,000 $425
Warrants.............................................. 200,000 -- -- --
Common Stock (5)........................................ 2,500,000 $6.00 $15,000,000 $4,425
TOTAL............................................. $30,240,000 $8,921
</TABLE>
(1) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution provisions
of the Warrants.
(2) Estimated in accordance with Rule 457(a) solely for the purpose of
calculating the registration fee.
(3) Includes 300,000 shares of Common Stock and 300,000 Warrants which may be
issued upon exercise of an option granted to the Underwriters to cover
over-allotments, if any. See "Underwriting."
(4) Issuable on exercise of warrants issuable to the representative of the
underwriters. See "Underwriting."
(5) Issuable on exercise of Unit Warrants.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES, IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED APRIL 22, 1998
2,000,000 UNITS
[LOGO]
PHYTOTECH, INC.
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE COMMON STOCK PURCHASE WARRANT
Phytotech, Inc. ("Phytotech" or the "Company") is offering 2,000,000 units
("Units"), each Unit consisting of one share (the "Shares") of the Company's
voting common stock, no par value (the "Common Stock"), and one warrant to
purchase one share of Common Stock (the "Warrants"). The Units will separate,
and the Common Stock and Warrants that make up the Units will trade only as
separate securities, thirty days after the date of this prospectus (the
"Separation Date"). Each Warrant initially entitles the holder to purchase one
share of Common Stock at a price of $ per share (100% of the initial public
offering price of a Unit). The Warrants are exercisable at any time beginning on
the Separation Date unless previously redeemed, until the fifth anniversary of
this Prospectus, subject to certain conditions. The Company may redeem the
Warrants, in whole or in part, at any time upon at least thirty days prior
written notice to the registered holders thereof, at a price of $0.25 per
Warrant, provided that the closing bid price of the Common Stock has been at
least $ (200% of the initial public offering price of a Unit) for at least 20
consecutive trading days ending on a date within 30 days before the date of the
notice of redemption. It is anticipated that the initial public offering price
of a Unit will be between $5.00 and $6.00.
The Company has applied to have the Common Stock and Warrants approved for
listing on the Nasdaq SmallCap Market under the symbols " " and " ,"
respectively.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 7.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Unit...................................................
Total (3)..................................................
</TABLE>
(1) Excludes a non-accountable expense allowance to the Representative of the
Underwriters (the "Representative") and the value of five-year warrants (the
"Representative's Warrants") entitling the Representative to purchase up to
200,000 Units at a price of $ (120% of the initial public offering
price of the Units). The Company has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses payable by the Company of $ ,
including the Representative's non-accountable expense allowance.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
300,000 additional Units on the same terms as set forth above to cover
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ , and $ respectively. See
"Underwriting."
The Units are offered by the several Underwriters subject to receipt and
acceptance by them, to prior sale and to their right to reject orders in whole
or in part. It is expected that delivery of certificates for the Shares and
Warrants will be made against payment therefor on or about , 1998.
PAULSON INVESTMENT COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
INDIAN MUSTARD PLANTS TREATING A LEAD CONTAMINATED INDUSTRIAL SITE IN TRENTON,
NEW JERSEY. THE PLANTS ARE READY FOR HARVESTING.
The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company intends to furnish its shareholders with annual reports containing
financial statements audited by its independent certified public accountants and
quarterly reports containing unaudited financial information for each of the
first three quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, COMMON
STOCK OR WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
SMALLCAP MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDING THE FINANCIAL STATEMENTS, AND NOTES THERETO, APPEARING
ELSEWHERE IN THE PROSPECTUS.
THE COMPANY
Phytotech is a biotechnology company engaged in the development and
commercialization of products and services based on the control of biochemical
processes in selected plants. Phytotech currently offers waste cleanup
("bioremediation") services using plants grown under carefully controlled
conditions to absorb and dispose of unwanted metals, such as lead or uranium,
from toxic waste sites. The Company has also developed and is beginning to
market nutritionally important minerals absorbed into plants and is beginning to
develop technology for the production of high value proteins in plants.
Phytotech's goal is to develop a portfolio of proprietary and patentable
technologies based on its expertise in plant physiology, soil science, agronomy,
molecular biology and related areas and to commercialize these technologies
internally or through licensing or joint venture relationships with other
companies.
All plants can, under appropriate conditions, absorb metals and other
minerals found in the soil or water in which they are grown. By carefully
selecting certain plants and managing the conditions in which they are
cultivated, it is possible to cause these plants to extract and accumulate
substantial amounts of target metals in the plant tissues. Phytotech has filed
patent applications and developed proprietary technologies involving metal
accumulation in plants for two commercial applications, phytoremediation and
nutritional supplements.
Phytoremediation uses plants to accumulate large amounts of targeted heavy
metals and radionuclides (radioactive elements) in soil or water that has been
contaminated by industrial, military or other processes. The plants are grown
under carefully controlled conditions that optimize their absorption of these
metals. Sequential cropping and disposal or recycling of the plants can result
in the cost effective remediation of soil and water contaminated with heavy
metals such as lead or uranium. Phytotech has demonstrated the scientific and
economic feasibility of this application of its technology, has conducted
several field studies financed by grants, including a lead contaminated site in
Trenton, New Jersey, and is working on its initial commercial projects.
Additional commercial projects for the removal of lead and uranium are in
various stages of progress, from submitted proposals to completed agreements.
Phytotech is actively seeking additional commercial contracts and is expanding
its sales and customer support group in anticipation of business growth in this
area.
Phytotech is also developing its metal accumulation technology by growing
select edible plants under proprietary conditions that cause the accumulation of
nutritionally important minerals such as selenium, chromium, iron, zinc and
manganese. Under cultivation using Phytotech's proprietary technology, the
plants concentrate these minerals to such high levels that they can be dried,
ground, encapsulated and used directly as nutritional supplements. Phytotech
believes that these new products may afford it a competitive advantage over
existing products for two reasons. First, Phytotech believes that its
nutritional supplements are the only botanical source of complete mineral
supplements currently available. Second, research performed by the Company and
others suggests that the bioavailability (the amount of the mineral that the
body can actually absorb and use) of mineral supplements is substantially
greater when delivered in Phytotech's mineral-rich plants than is the case with
most traditional alternatives. Phytotech has established a marketing
relationship with a nutritional supplement distributor and has shipped initial
orders of chromium and selenium containing plants.
Phytotech has recently begun research into the production of high value
proteins and nutritional chemicals in transgenic (genetically engineered)
plants. This technology, if successfully developed, could permit the production
of commercial quantities of human and other high value proteins, such as
collagen, heparin, gelatin and insulin, using genetically engineered plants that
can be cultivated and harvested to produce the required protein. Phytotech
believes that proteins grown in genetically engineered plants may
3
<PAGE>
provide both biological and economic advantages in comparison with currently
available production methods. In cooperation with independent collaborators,
Phytotech intends to develop a series of carefully selected transgenic
plant-based protein products for the consumer market.
Phytotech's ultimate goal is to be a leader in the development and
commercialization of plant-related products and technologies. Phytotech expects
to continue to perform and commission applied research in areas where its
management believes that there is good potential for commercial products, to
develop and protect a diverse portfolio of proprietary technologies, to
demonstrate the commercial feasibility of its proprietary technologies and to
exploit those technologies either directly, where such exploitation does not
require skills or other assets outside of Phytotech's scope of business, or
through licensing, joint venture or other relationships with industry partners
having complementary services and technologies.
The Company was incorporated in New Jersey in 1993. Its executive offices
are located at 1 Deer Park Drive, Suite I, Monmouth Junction, New Jersey 08852,
and its telephone number is (732) 438-0900.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities offered........................... 2,000,000 Units, consisting of one share of
Common Stock and one Warrant to purchase one
share of Common Stock. The Common Stock and
Warrants that make up the Units will trade
only as separate securities, thirty days
after the date of this prospectus. See
"Description of Securities."
Common Stock to be outstanding after this
offering................................... 4,556,489 Shares(1)
Use of proceeds.............................. To fund research and development, nutritional
studies, marketing and commercialization, to
repay certain promissory notes and for
working capital and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq SmallCap Market symbols...... Common Stock--
Warrants--
Units--
</TABLE>
- ------------------------
(1) Assumes no exercise of Warrants, Representative's Warrants or outstanding
options or warrants to purchase Common Stock. At the date of this
Prospectus, there were issued or issuable options or warrants to purchase up
to 924,424 shares of Common Stock at prices ranging from approximately $3.60
to $9.00 per share (assuming an initial public offering price of $6.00 per
Unit). Unless otherwise indicated, all information in this Prospectus
assumes that the Underwriters' overallotment option is not exercised and
gives retroactive effect to (i) the conversion of all outstanding shares of
the Company's Series A Voting Preferred Stock and Nonvoting Common Stock of
the Company into an aggregate of 1,646,489 shares of Common Stock, effective
upon the effectiveness of this offering (the "Conversions") and (ii) a
1-for-4.5 reverse split of the Common Stock and Non-Voting Common Stock (the
"Reverse Split") effective as of , 1998. See "Description of
Securities."
5
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEAR ENDED DECEMBER 31,
------------------------ -----------------------------
1996 1997 1997 1998
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 393,469 $ 461,452 $ 125,931 $ 190,030
---------- ---------- ----------- -----------
Operating expenses:
Research and development................. 1,768,334 2,199,590 460,117 345,226
General and administrative............... 1,157,754 1,189,560 360,239 324,857
---------- ---------- ----------- -----------
Total operating expenses................... 2,926,088 3,389,150 820,356 670,083
---------- ---------- ----------- -----------
Other income (expense)..................... 66,892 (27,443) 5,469 (30,867)
---------- ---------- ----------- -----------
Net loss................................... $(2,465,727) $(2,955,141) $ (688,956) $ (510,920)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Pro forma basic and diluted net loss per
share (1)................................ $ (1.03) $ (1.16) $ (0.27) $ (0.20)
Shares used in computing pro forma basic
and diluted net loss per share (1)....... 2,404,218 2,545,113 2,527,400 2,555,399
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
AS
ACTUAL ADJUSTED(2)
---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 47,326 $7,562,326
Working capital (deficit).......................................... (1,737,763) 6,662,150
Total assets....................................................... 749,423 8,264,423
Notes payable...................................................... 2,415,800 229,000
Accumulated deficit................................................ (8,248,977) (8,422,314)
Total stockholders' equity (deficit)............................... (2,639,946) 7,126,717
</TABLE>
- ------------------------
(1) See "Pro Forma Net Loss Per Share" in Note 1 of Notes to Financial
Statements. Reflects the shares of Series A Voting Preferred Stock which
convert into shares of Common Stock effective upon consummation of this
offering, as if converted and outstanding from their original date of
issuance.
(2) As adjusted to give effect to the sale by the Company of 2,000,000 Units at
an assumed initial public offering price of $6.00 per Unit, after deducting
the underwriting discount and estimated offering expenses and the receipt of
net proceeds therefrom, and the repayment of principal and interest of
approximately $2,425,000 pursuant to the terms of certain promissory notes.
See "Capitalization."
6
<PAGE>
RISK FACTORS
EXCEPT FOR HISTORICAL INFORMATION, STATEMENTS CONTAINED HEREIN UNDER
"PROSPECTUS SUMMARY," "RISK FACTORS," "BUSINESS," AND "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," INCLUDING
STATEMENTS CONCERNING (I) THE COMPANY'S STRATEGY, (II) THE COMPANY'S EXPANSION
PLANS, (III) THE MARKET FOR THE COMPANY'S PRODUCTS, AND (IV) THE EFFECTS OF
GOVERNMENT REGULATION OF THE COMPANY'S PRODUCTS CONTAIN FORWARD-LOOKING
STATEMENTS CONCERNING THE COMPANY'S OPERATIONS, ECONOMIC PERFORMANCE AND
FINANCIAL CONDITION. BECAUSE SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES,
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS." IN ADDITION TO THE
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS, PROSPECTIVE INVESTORS IN THE
UNITS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, AMONG OTHERS, BEFORE
PURCHASING THE UNITS OFFERED HEREBY.
NEW TECHNOLOGIES
The use of plants for each of the purposes for which the Company proposes to
use them has yet to be shown to be commercially viable. Although the Company has
shown that its phytoremediation techniques can reduce unwanted metals in
contaminated soil, the effectiveness of this process over a broad spectrum of
conditions has not been established. The Company has shown that targeted
minerals can be absorbed in its plants in significant quantities but has not
completed testing with respect to the speciation and bioavailability of the
targeted minerals in that form. The Company has not yet produced proteins from
plants in commercial quantities. In addition to the remaining technological
uncertainties, the novelty of the Company's technologies creates significant
uncertainty as to market acceptance. Companies introducing novel alternatives to
existing technologies generally are required to overcome initial market
skepticism, in particular when the Company introducing the technology is not a
recognized supplier to such markets. There is no assurance that the Company will
be successful in offering a commercially viable product or service or that any
such product or service, if offered, will be accepted by a broad spectrum within
its target market.
CONTINUING LOSSES; NEED FOR ADDITIONAL FINANCING
The Company has incurred losses since its inception and expects to continue
to incur losses at least through the end of the current fiscal year. The timing
and remaining expense associated with bringing the Company's technologies into
full commercial operation are subject to considerable uncertainty. While the
Company believes that the proceeds of this offering will be sufficient to fund
its budgeted capital requirements for at least the next 12 months, unanticipated
events could cause such proceeds to be depleted earlier than anticipated. There
is no assurance that the Company will be able to bring any of its technologies
into full commercial production with the proceeds of this offering or that
additional capital resources will be available to the Company if needed.
Adequate funds to meet the Company's working capital requirements, whether
obtained through financial markets, corporate strategic alliances, additional
equity offerings or from other sources, may not be available to the Company when
required or may not be available on terms acceptable to the Company. Any such
additional financing may result in significant dilution to existing stockholders
or the issuance of securities with rights superior to those of the Common Stock.
In the event the Company is unable to raise or borrow additional funds, the
Company may be required to curtail significantly one or more of its research and
development programs or seek additional third-party funds by relinquishing the
marketing, distribution, development or other rights to the Company's products
and services under development.
UNCERTAINTY OF MARKET ACCEPTANCE OF PHYTOREMEDIATION SERVICES
While the Company's phytoremediation services have been shown to be
effective in field trials, numerous factors may affect the commercial viability
of the service over a broad range of growing conditions. Factors such as
climate, soil conditions, local regulations or timing considerations may make
7
<PAGE>
the Company's phytoremediation services unsuitable for a particular project.
Because of the limited testing of the service to date, there is no assurance
that it will be proven to be commercially viable over a wide range of
conditions. The market for bioremediation services generally is substantially
affected by the actions of the various regulatory organizations with
responsibility for environmental cleanup. Unless remediation is required by
regulatory authorities or as a condition of the sale or new use of a property,
the owner has little incentive to incur cleanup costs. Even where remediation is
required, bioremediation must compete with other technologies based on cost and
effectiveness. There is no assurance that the perceived need for bioremediation
will continue to support a vital market for such services.
UNCERTAINTY REGARDING CONSUMPTION OF NUTRITIONAL SUPPLEMENT PRODUCTS
Although the ingredients in the Company's nutritional supplement products
are minerals for which there is a long history of human consumption, the
Company's products contain innovative ingredients or combinations of
ingredients. Although the Company believes all of its products to be safe when
taken as directed by the Company, there is little long-term experience with
human consumption of these innovative product ingredients or combinations
thereof. Although the Company performs research and/or tests the formulation and
production of its products, it has only begun to sponsor limited nutritional
studies.
MANUFACTURING CAPABILITY
The Company has only limited investments in manufacturing resources and will
depend substantially on contract manufacturers. There is no assurance that the
Company will be able to develop adequate manufacturing resources. Significant
time, expense and management resources would be required to develop internal
manufacturing capacity should the Company elect that alternative.
COMPETITION
The Company's future success will depend in part on its ability to maintain
a competitive position with respect to evolving technologies. There is no
assurance that existing approaches or those under development or developed in
the future by others will not render the Company's current or future products or
services obsolete or noncompetitive. Moreover, traditional approaches to the
Company's chosen markets can be expected to have continuing market appeal and,
accordingly, present a serious competitive threat to the Company. The Company
competes against numerous companies, most of which have substantially greater
financial, research and development, testing, marketing and production resources
than does the Company, have established name recognition in their target markets
and are better equipped than is the Company to develop, market and manufacture
competitive products and services. Several such companies have programs, or have
initiated active product development programs, in remediation or nutritional
supplements. See "Business--Competition."
GOVERNMENT REGULATION
Certain of the Company's products and services may require regulatory
approval prior to or during commercialization. There is no assurance that the
Company or its collaborative partners will be able to obtain any necessary
approvals. The effect of government regulation may be to delay marketing of new
products for a considerable or indefinite period of time, to impose costly
procedures upon the Company's activities and to provide a marketplace advantage
to companies that compete with the Company. There is no assurance any regulatory
approval for products or services developed by the Company will be granted on a
timely basis, if at all. Any delay in obtaining, or failure to obtain, maintain
or review such approvals could materially and adversely affect the marketing of
the Company's products and the ability to generate product revenue and earnings.
See "Business--Government Regulation."
8
<PAGE>
PATENTS AND PROPRIETARY RIGHTS
The Company's success will, in part, depend on its ability to obtain patents
on its products, obtain licenses to use third party technologies, protect its
trade secrets and operate without infringing on the proprietary rights of
others. There is no assurance that the Company's pending patent applications
will issue as patents, that any issued or pending patent will provide the
Company with significant competitive advantages, or that challenges will not be
instituted against the validity or enforceability of any patent owned by the
Company or, if instituted, that such challenges will not be successful. The cost
of litigation to uphold the validity and prevent infringement of a patent is
substantial. There is no assurance that others will not independently develop
similar technologies or duplicate the Company's technology or design around the
patented aspects of the Company's technology or that the Company's proposed
technology will not infringe patents or proprietary rights owned by others,
licenses to which may not be available to the Company. Competitors of the
Company may possess or obtain patents claiming products or processes that are
necessary for or useful to the development, use or manufacture of the Company's
products. Such competitors could bring legal actions against the Company
claiming infringement by its products and processes and seeking damages and
injunctive relief. In that event the Company might be required to obtain
licenses from others to continue to develop, manufacture or market its products
or be required to cease those activities. For example, there is no assurance
that the Company will be able to obtain such licenses on commercially reasonable
terms or that the patents underlying the licenses will be valid and enforceable.
The Company also relies upon unpatented proprietary technology. There is no
assurance that the Company can adequately protect its rights in such unpatented
proprietary technology, or that others will not independently develop
substantially equivalent proprietary information or techniques, otherwise gain
access to the Company's proprietary technology, or disclose such technology. See
"Business--Patents."
POTENTIAL LIABILITY
Various federal, state and local laws and regulations have been enacted
covering the handling and management of toxic substances and creating liability
for environmental contamination caused by them. The Company is likely to be
subject to extensive compliance review by federal, state and local environmental
regulatory authorities. There is no assurance that the Company's operations or
activities will not result in civil or criminal enforcement actions or private
actions, resulting in mandatory cleanup requirements, revocation of required
permits or licenses, denial of applications for future permits, or significant
fines, penalties or damages, any of which could have a material adverse effect
on the Company, its operations and financial condition. The Company is subject
to laws which regulate its procedures for waste treatment, storage, recycling,
transportation and disposal activities. So-called "toxic tort" litigation has
increased markedly in recent years as those injured by contamination seek
recovery for personal injuries or property damage. While these developments may
enhance the market for the Company's services, they also present a liability
exposure or risk should the Company be deemed to be responsible for
contamination or pollution caused or increased by the Company's normal
operations, including disposal of plant residue, roots or foliage, or by
negligence or other misconduct on the part of the Company.
The Company may also be exposed to liability based on claims that its
nutritional supplements were harmful or ineffective. Although the Company does
not intend to manufacture drugs or other products with a high potential for
adverse effects, it may be exposed to a variety of claims, including claims
associated with product tampering by others. Such claims, even if lacking in
foundation, can cause material damage to the Company's reputation, can cause the
Company material expense, for example to fund a product recall, or can result in
material litigation expense. The Company expects to purchase liability insurance
when and to the extent such insurance is available on a cost effective basis.
However, there is no assurance that such insurance will be available to the
Company on a cost effective basis or at all.
9
<PAGE>
DEPENDENCE ON, ATTRACTION AND RETENTION OF KEY PERSONNEL
Because of the specialized nature of the Company's technology, the Company
is highly dependent upon existing management and its ability to attract and
retain qualified executive officers and scientific personnel for research and
development activities conducted or sponsored by the Company. Phytotech is
currently seeking to recruit additional qualified marketing, scientific and
technical personnel. There is intense competition for qualified personnel in the
areas of the Company's activities and there is no assurance that the Company
will be able to continue to attract and retain the qualified personnel necessary
for the development and commercialization of its products.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock and Warrants may fluctuate
significantly based on variations in the Company's results of operations or
other factors. The Company's results of operations could be adversely affected
by a number of factors, some of which are beyond the Company's control,
including economic downturns, variations in demand for remediation technology or
nutritional supplements, changes in the mix of products sold, price changes in
response to competition, increases in the cost of raw materials and possible
supply shortages. In particular, the market price of the Common Stock could be
materially adversely affected by reports by official or unofficial health and
medical authorities and the general media regarding the potential health
benefits or detriments of products sold by the Company or of similar products
distributed by other companies regardless of whether such reports are
scientifically supported and regardless of whether the Company's operating
results are likely to be affected by such reports, as well as by consumer
perceptions regarding the safety and efficacy of the Company's remediation
services or nutritional supplements and consumer preferences generally. In
addition, the stock market in general has experienced wide price and volume
fluctuations in recent periods, and these fluctuations are often unrelated to
the operating performance of the specific issuers whose stock is affected.
ABSENCE OF PUBLIC MARKET
Prior to this offering, there has been no public market for the Common
Stock. Although the Company has applied to list the Common Stock on the Nasdaq
SmallCap Market, there is no assurance that an active trading market for the
Common Stock will develop or be sustained. The initial public offering price of
the Units will be determined by negotiations among the Company and the
Underwriters and will bear no direct relationship to the Company's historical
performance, assets, net worth or book value, or any other generally accepted
valuation criteria.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have 4,556,489 shares
of Common Stock outstanding. The 2,000,000 shares of Common Stock sold in this
offering and any shares of Common Stock issuable or exercise of Warrants will be
freely tradeable without restriction or further registration under the
Securities Act of 1933 (the "Securities Act"), unless held by an "affiliate" of
the Company. The remaining 2,556,489 shares of Common Stock are "restricted
securities" as that term is defined in Rule 144 under the Securities Act, and
may not be sold unless such sale is registered under the Securities Act or is
made pursuant to an exemption from registration under the Securities Act,
including the exemption provided by Rule 144. Of such 2,556,489 shares,
1,028,889 are held by affiliates, with 2,554,267 shares held for longer than one
year. The remaining 1,527,600 shares are held by nonaffiliates, with 1,258,333
shares held longer than 2 years and 240,978 shares held longer than 1 year but
less than 2 years.
In general, under Rule 144 as currently in effect, a shareholder (or
shareholders whose shares are aggregated) who has beneficially owned any
restricted securities for at least one year (including a shareholder who may be
deemed to be an affiliate of the Company), will be entitled to sell, within any
three-month period, that number of shares that does not exceed the greater of
(i) 1% of the then
10
<PAGE>
outstanding shares of Common Stock (45,565 shares based on 4,556,489 shares of
Common Stock outstanding upon completion of this offering, assuming the
Underwriter's over-allotment option is not exercised) or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceeding the
date on which notice of such sale is given to the Commission, provided certain
public information, manner of sale and notice requirements are satisfied. A
shareholder who is deemed to be an affiliate of the Company, including members
of the Board of Directors and senior management of the Company, will still need
to comply with the restrictions and requirements of Rule 144, other than the
one-year holding period requirement, in order to sell shares of Common Stock
that are not restricted securities, unless such sale is registered under the
Securities Act. A shareholder (or shareholders whose shares are aggregated) who
is deemed not to have been an affiliate of the Company at any time during the 90
days preceding a sale by such shareholder, and who has beneficially owned
restricted shares for at least two years will be entitled to sell such shares
under Rule 144 without regard to the volume limitations described above.
As of the date of this Prospectus, options to purchase a total of 253,333
shares of Common Stock were outstanding at exercise prices ranging from $.45 to
$.68 per share, of which options to purchase 56,444 shares of Common Stock are
currently exercisable. As of the date of this Prospectus, warrants to purchase
671,091 shares of Common Stock were issued or issuable at exercise prices
ranging from approximately $3.60 to $9.00 per share (assuming an initial public
offering price of $6.00 per unit), all of which are currently exercisable.
Certain security holders of the Company have the right to require the Company to
register shares of Common Stock obtainable by them as a result of the
Conversions or on exercise of warrants. See "Description of
Securities--Registration Rights." Such shares if, registered, would be
immediately tradable.
The underwriters have requested that all persons holding more than 5% of the
Common Stock prior to this offering, agree not to sell, offer to sell, grant any
option for the sale of or otherwise dispose of any shares of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock,
without the prior written consent of the Representative, for a period of one
year after the date of this Prospectus. No prediction can be made as to the
effect, if any, that sales of shares of Common Stock or the availability of
shares of Common Stock for sale will have on the market price of the Common
Stock from time to time. The sale of a substantial number of shares, whether
pursuant to public offerings or otherwise, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could materially impair the Company's future ability to raise capital through an
offering of equity securities.
USE OF PROCEEDS
The net proceeds from the sale of the Units are estimated to be
approximately $9,940,000 (approximately $11,506,000 if the Underwriters'
overallotment option is exercised in full), assuming an initial public offering
price of $6.00 per Unit and after deducting underwriting discounts and estimated
offering expenses of approximately $ .
The Company intends to use approximately $600,000 of proceeds to fund
internal research and development activities and $900,000 to fund research by
outside collaborators. Of this amount, approximately $200,000 will be paid to
Rutgers, the State University of New Jersey ("Rutgers") over the next 24 months
under the Research Agreement. See "Business--Phytoremediation." The Company also
intends to use approximately $2.4 million to repay outstanding promissory notes.
The Company plans to use approximately $2.0 million of the net proceeds to fund
its sales and marketing efforts.
The remaining net proceeds of approximately $4.0 million will be used for
working capital and general corporate purposes. Pending application of the net
proceeds as set forth above, the Company intends to invest the net proceeds in
short term, investment grade interest-bearing securities. The Company may
reallocate the use of the net proceeds to meet unanticipated technological or
other changes in the Company's business. The Company currently believes that its
existing capital resources, together with the net proceeds of this offering and
interest earned thereon, will satisfy the Company's capital requirements at
least through the 12 months following this offering.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company intends to retain its future earnings, if any, to fund the
development and growth of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future.
11
<PAGE>
DILUTION
At March 31, 1998, the Company had a net deficit in tangible book value of
$(2,639,946) or $(1.03) per share of Common Stock. Net tangible book value
represents the amount of total tangible assets less total liabilities, divided
by the number of shares of Common Stock outstanding, after giving effect to the
Conversions and the repayment of principal and interest of approximately
$2,425,000 pursuant to the terms of certain promissory notes. After giving
effect to the sale of 2,000,000 Units in this offering at an assumed initial
public offering price of $6.00 per Unit (attributing no value to the Warrants),
and after deducting the underwriting discounts and estimated offering expenses,
the pro forma net tangible book value of the Company as of March 31, 1998 is
$7,126,717 or $1.56 per share of Common Stock. This represents an immediate
dilution of $4.44 per share to new investors. The following table illustrates
the per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share...................................... $ 6.00
Pro forma net deficit in tangible book value per share as of March 31, 1998........ $ (1.03)
Increase in net tangible book value per share attributable to this offering........ 2.59
---------
Pro forma net tangible book value per share after this offering...................... $ 1.56
---------
Dilution per share to new investors.................................................. $ 4.44
---------
---------
</TABLE>
The following table summarizes as of March 31, 1998, the number of shares of
Common Stock purchased from the Company, the total consideration paid therefor
and the average price per share paid by the existing stockholders (giving effect
to the Conversions) and by new investors in this offering, at an assumed initial
public offering price of $6.00 per Unit (attributing no value to and no exercise
of the Warrants), before deduction of the estimated underwriting discount and
estimated offering expenses payable by the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE PER
AMOUNT PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................ 2,556,489 56.1% $ 5,571,031 31.7% $ 2.18
New investors................................ 2,000,000 43.9% 12,000,000 68.3% $ 6.00
---------- ----- ------------- -----
Total.................................... 4,556,489 100.0% $ 17,571,031 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998 (giving effect to the Reverse Split and certain redesignations of
capital stock approved by the Board of Directors on April 21, 1998) (i) on an
actual basis, (ii) on a pro forma basis to reflect the Conversions, and (iii) on
a pro forma as adjusted basis to reflect the sale of 2,000,000 Units in this
offering at an assumed initial public offering price of $6.00, (attributing no
value to the Warrants) the receipt of the estimated net proceeds therefrom and
the repayment of the Company's outstanding promissory notes. See "Description of
Securities."
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- -------------
<S> <C> <C> <C>
Notes payable........................................................ $ 2,415,800 $ 2,415,800 $ 229,000
Stockholders' equity (deficit):
Series A Voting Preferred Stock:
Authorized 10,000,000 shares; issued and outstanding 6,364,500
shares on an actual basis; none issued and outstanding on a
pro forma and pro forma as adjusted basis.................... 5,205,654 -- --
Voting Common Stock:
Authorized 30,000,000 shares; issued and outstanding 910,000,
2,556,489 and 4,556,489 shares on an actual, pro forma and
pro forma as adjusted basis, respectively.................... 308,245 5,571,031 15,511,031
Non-Voting Common Stock:
Authorized 1,111,111 shares; issued and outstanding 232,156
shares; none issued and outstanding on a pro forma and pro
forma as adjusted basis........................................ 57,132 -- --
Additional paid-in capital........................................... 385,000 517,000 517,000
Deferred compensation................................................ (347,000) (479,000) (479,000)
Accumulated deficit.................................................. (8,248,977) (8,248,977) (8,422,314)
------------- ------------- -------------
Total stockholders' equity (deficit)................................. (2,639,946) (2,639,946) 7,126,717
------------- ------------- -------------
Total capitalization (deficit)....................................... $ (224,146) $ (224,146) $ 7,355,717
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
13
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of and for each of the years in the
two-year period ended December 31, 1997 have been derived from the financial
statements of the Company included elsewhere in this Prospectus, which have been
audited by KPMG Peat Marwick LLP, independent certified public accountants. The
selected financial data as of March 31, 1998 and for the three months ended
March 31, 1997 and 1998 have been derived from the Company's unaudited financial
statements included elsewhere in this Prospectus. In the opinion of management
of the Company, such unaudited financial statements have been prepared on a
basis consistent with the audited financial information and include all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the information set forth herein. Operating results for the three months
ended March 31, 1998 are not necessarily indicative of the results to be
expected for the year ending December 31, 1998. The selected financial data set
forth below are qualified in their entirety and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the other financial information included elsewhere in this
Prospectus. The selected financial data should also be read in conjunction with
the financial statements, the related notes and the independent auditors' report
appearing elsewhere in this Prospectus. The independent auditors' report
contains an explanatory paragraph which states that the Company's recurring
losses from operations and insufficient working capital raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements and the selected financial data do not include any adjustments that
might result from the outcome of that uncertainty.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -------------------------
1996 1997 1997 1998
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Grant revenue............................ $ 325,572 $ 270,936 $ 122,431 $ 116,942
Commercial revenue....................... 67,897 190,516 3,500 73,088
---------- ---------- ----------- -----------
Total revenue.............................. 393,469 461,452 125,931 190,030
---------- ---------- ----------- -----------
Operating expenses:
Research and development................. 1,768,334 2,199,590 460,117 345,226
General and administrative............... 1,157,754 1,189,560 360,239 324,857
---------- ---------- ----------- -----------
Total operating expenses................... 2,926,088 3,389,150 820,356 670,083
---------- ---------- ----------- -----------
Other income (expense)..................... 66,892 (27,443) 5,469 (30,867)
---------- ---------- ----------- -----------
Net loss................................... $(2,465,727) $(2,955,141) $ (688,956) $ (510,920)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Pro forma basic and diluted net loss per
share (1)................................. $ (1.03) $ (1.16) $ (0.27) $ (0.20)
Shares used in computing pro forma basic
and diluted net loss per share (1)........ 2,404,218 2,545,113 2,527,400 2,555,399
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------- MARCH 31, 1998
--------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................................... $ 5,326 $ 47,326
Working deficit............................................................... (1,372,292) (1,737,763)
Total assets.................................................................. 550,841 749,423
Notes payable................................................................. 1,762,360 2,415,800
Accumulated deficit........................................................... (7,738,057) (8,248,977)
Deficit in stockholders' equity............................................... (2,148,806) (2,639,946)
</TABLE>
- ------------------------
(1) See "Pro Forma Net Loss Per Share" in Note 1 to Notes to Financial
Statements.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S FINANCIAL STATEMENTS AND THE NOTES THERETO. THE DISCUSSION OF RESULTS,
CAUSES AND TRENDS SHOULD NOT BE CONSTRUED TO IMPLY ANY CONCLUSION THAT SUCH
RESULTS OR TRENDS WILL NECESSARILY CONTINUE IN THE FUTURE.
OVERVIEW
Since its inception in April 1993, the Company has devoted its resources to
research and development of plant-based biotechnology approaches to
environmental, nutritional and commercial protein markets, assembling a
management team, and raising capital. As an early stage company, the Company is
subject to all the risks inherent in establishing a new business, including the
risk that full-scale operations may not occur.
The Company had revenues of approximately $461,000 in 1997 and anticipates
increased revenues in 1998. The Company has been unprofitable since inception
and anticipates that it will continue to incur significant expenses as it
transitions to full-scale commercial operations. The Company has begun to shift
its emphasis from research and development of its phytoremediation products to
focus on the commercialization of this technology. With respect to its
nutritional supplements products, the Company intends to increase its research
and development expenditures over the next 12 months to include preparation and
completion of laboratory testing, commencement of certain toxicology studies and
nutritional trials and other research and development expenses. Historic
spending levels are not indicative of anticipated future spending levels because
the Company is entering a period in which it may increase spending to exploit
its technology, broaden the introduction of its products into the market, and
expand manufacturing capacity. For these reasons, the Company expects to
continue operating at a loss through at least 1998. There is no assurance that
the Company will ever achieve profitability or if achieved, that such
profitability can be sustained.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Grant revenue for the three months ended March 31, 1998 decreased by $5,489
or 4% to $116,942 from $122,431 for the three months ended March 31, 1997.
Commercial revenue for the three months ended March 31, 1998 increased by
$69,588 to $73,088 from $3,500 for the three months ended March 31, 1997 as the
Company transitioned to material commercial operations with an increase in
commercial sales efforts and growing industry acceptance of the Company's
technology. As a result of the foregoing factors, the Company's total revenue
for the three months ended March 31, 1998 increased by $64,099 or 51% to
$190,030 from $125,931 for the three months ended March 31, 1997.
Research and development expenses for the three months ended March 31, 1998
decreased $114,891 or 25%, to $345,226 from $460,117 for the three months ended
March 31, 1997. The decrease was primarily attributable to substantial
completion of development efforts for the Company's phytoremediation products.
The Company expects research and development expenses to increase in the future
and to be funded primarily from the proceeds of this offering.
General and administrative expenses for the three months ended March 31,
1998 decreased $35,382, or 10%, to $324,857 from $360,239 for the three months
ended March 31, 1997. The decrease was primarily attributable to cost controls
implemented by the Company in the period. General and administrative expenses
are expected to increase in future periods due to the hiring of additional sales
staff, expanded marketing efforts and increases in professional fees.
15
<PAGE>
As a result of the foregoing factors, including interest expenses of
$30,867, the Company's net loss for the three months ended March 31, 1998
decreased $178,036, or 26%, to $510,920 from $688,956 for the three months ended
March 31, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Grant revenue for the year ended December 31, 1997 decreased by $54,636 or
17% to $270,936 from $325,572 for the year ended December 31, 1996. Commercial
revenue for the year ended December 31, 1997 increased by $122,619 or 181% to
$190,516 from $67,897 for the year ended December 31, 1996 reflecting the
commencement of material commercial operations. As a result of the foregoing
factors, the Company's total revenue for the year ended December 31, 1997
increased by $67,983 or 17% to $461,452 from $393,469 for the year ended
December 31, 1996.
Research and development expenses for the year ended December 31, 1997
increased $431,256, or 24%, to $2,199,590 from $1,768,334 for the year ended
December 31, 1996. The increase was primarily attributable to increased
development efforts related to the Company's nutritional supplement products.
The Company's development efforts with respect to its nutritional supplement
products included preparation and completion of laboratory testing, preparation
for certain bioavailability studies and nutritional trials.
General and administrative expenses for the year ended December 31, 1997
increased $31,806, or 3%, to $1,189,560 from $1,157,754 for the year ended
December 31, 1996. The increase was primarily attributable to the hiring of
additional personnel.
As a result of the foregoing factors, including interest expense of $33,989,
the Company's net loss for the year ended December 31, 1997 increased $489,414,
or 20%, to $2,955,141 from $2,465,727 for the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the sale of equity
securities and the issuance of promissory notes. From inception (April 15, 1993)
through March 31, 1998, the Company raised net proceeds of approximately
$5,402,000 through private sales of equity securities and $1,867,000 from the
issuance of promissory notes. The Company had cash and cash equivalents of
$47,326 at March 31, 1998.
The Company has incurred net operating losses since its inception and
expects net operating losses for at least the rest of 1998 as it continues its
commercialization efforts. The Company will incur additional net operating
losses until it can generate sufficient revenue from product sales, licenses and
other fees to fund continuing operations.
While the Company has not had any operating profits, the Company believes
that its current capital resources and the proceeds of this offering will enable
it to maintain its current and planned operations for at least the next 12
months. However, there is no assurance that there will not be a change in the
Company's operations that would consume available resources more rapidly than
anticipated. The Company will need substantial funds to support its long term
product development programs. The Company has no established bank financing
arrangement and it is unlikely that the Company will establish a bank financing
arrangement in the foreseeable future. The Company's future capital requirements
will depend on many factors, including, without limitation, the progress of the
Company's commercialization efforts, research and development programs, the
progress and results of toxicology studies and nutritional trials, the timing
and costs involved in obtaining regulatory approvals and the costs of filing,
prosecuting, defending and enforcing patents.
16
<PAGE>
NET OPERATING LOSS AND RESEARCH AND DEVELOPMENT CREDIT CARRYFORWARDS
As of December 31, 1997 the Company had net operating loss ("NOL")
carryforwards of approximately $6,875,000 for federal and state income tax
reporting purposes. These loss carryforwards will expire beginning in 2000 for
state tax purposes and 2008 for federal tax purposes, if not utilized. The
Company also has research and development ("R&D") credit carryforwards of
approximately $119,000 as of December 31, 1997, which are available to reduce
federal income taxes, if any, through 2008. Changes in ownership, as defined in
Section 382 of the Internal Revenue Code of 1986, as amended, resulting from
prior sales of the Company's equity securities and the sale of the Units, could
limit the annual deductibility of a substantial portion of the NOL and R&D
credit carryforwards. See Note 10 of Notes to Financial Statements.
17
<PAGE>
BUSINESS
OVERVIEW
The Company's core technology has evolved out of research initially
performed at Rutgers on the ability of select plants, under certain conditions,
to absorb very high concentrations of various metals, either in the stems and
leaves ("Phytoextraction") or in the roots ("Rhizofiltration") of the plant. All
plants absorb minerals from the soil or water in which they are growing, but the
ability to absorb very high concentrations of particular heavy metals, such as
lead or uranium, presents the opportunity to use this process for commercial
purposes. The Company was formed to develop the commercial applications of this
technology.
The emerging market for Phytotech's plant-based products and services in
processing and manufacturing presents an immediate opportunity for rapid
technical and commercial growth. Phytotech is exploring the applications of
plant biotechnology to create a unique, proprietary portfolio of products and
services. Phytotech's commercialization strategy is to capitalize on its
technologies through both the licensing and sale of superior products and
services. Phytotech currently offers waste cleanup ("bioremediation") services
using plants grown under carefully controlled conditions to absorb and dispose
of unwanted metals, such as lead or uranium, from toxic waste sites. It has also
developed and is beginning to market nutritionally important minerals absorbed
in plants and is beginning to develop technology for the production of high
value proteins in plants.
Phytotech's ultimate goal is to develop a portfolio of proprietary
technologies based on its expertise in plant physiology, soil science, agronomy,
molecular biology and related areas and to commercialize these technologies
internally or through licensing or joint venture relationships with other
companies. Phytotech expects to continue to perform and commission applied
research in areas where its management believes that there is good potential to
develop commercial products. The Company intends to protect its diverse
portfolio of proprietary technologies, demonstrate their commercial feasibility
and market these technologies either directly, where such sales do not require
skills or other assets outside of Phytotech's scope of business, or through
licensing, joint venture or other relationships with industry partners having
complementary services and technologies.
PHYTOREMEDIATION
TECHNOLOGY. The term phytoremediation refers to the use of plants to treat
contaminated soil and water. The Company has demonstrated the feasibility of
phytoremediation in a number of field trials and several commercial projects
which have led to the development of two distinct approaches to cleanup:
PHYTOEXTRACTION: the use of metal-accumulating plants to transport and
concentrate metals from the soil into the leaves and stems;
RHIZOFILTRATION: the use of plant roots to absorb, concentrate and
precipitate toxic metals from polluted water.
By screening and selection procedures focused on known, well characterized
crop species, Phytotech has identified superior metal-accumulating plant lines
for phytoextraction. The Company has shown that such plants can accumulate lead,
uranium, cesium, strontium, chromium, zinc, selenium, manganese, calcium, iron
and magnesium from soils into the above-ground, harvestable shoots.
Phytotech has investigated several approaches to increasing the
phytoextraction capacity of plants. The Company screened numerous plants in
order to isolate high-performing cultivars and identified soil
18
<PAGE>
amendments and other processes that increase the efficiency of phytoextraction.
The phytoextraction process currently employed by the Company is shown below:
THE PHYTOEXTRACTION PROCESS IN THE FIELD
[CHART]
In the Company's Rhizofiltration process, hydroponically cultivated plants
remove heavy metals from water and concentrate them in the roots. Once the water
has been cleaned, the plants can be easily removed, replaced with fresh plants
at low cost, and the process continued. The plants containing heavy metals can
be disposed of or treated to recycle the metal. In addition to lead, plant roots
can effectively remove uranium, strontium, cesium and zinc to concentrations
within accepted state and federal water standards.
TECHNOLOGY DEVELOPMENT. The initial theoretical work on phytoremediation
was performed by scientists at Rutgers. Rutgers and the Company executed a
Research Agreement on November 19, 1993 (as amended, the "Research Agreement")
to perform certain studies and field trials for the phytotreatment of heavy
metals. The initial term of the Research Agreement was for a three year period.
As currently
19
<PAGE>
extended, the Research Agreement expires August 13, 2002 but may be extended,
renewed, or amended by the mutual written agreement of both parties. The Company
agreed to reimburse Rutgers for all direct and indirect costs during the initial
three-year term, and has agreed to reimburse Rutgers for certain additional cost
up to $500,000. The Research Agreement may also be terminated by either party
without further financial obligation by giving at least ninety (90) days written
notice.
Legal title to intellectual property conceived or discovered in the
performance of the Project is vested in Rutgers, subject to the terms and
conditions of the Research Agreement. Rutgers must promptly notify the Company
once it has identified any potentially valuable intellectual property conceived
and/or made during the term of the Research Agreement. If the Company directs
that a patent application or application for other intellectual property
protection be filed, Rutgers must promptly prepare, file and prosecute such U.S.
and foreign application(s) in Rutgers' name. The Company will bear all costs
incurred in connection with the preparation, filing, prosecution and maintenance
of U.S. and foreign application(s) directed to such intellectual property. If
the Company does not request Rutgers to file for protection of intellectual
property in any country, or decides to discontinue the financial support of any
patent prosecution, Rutgers may pursue whatever course it deems necessary to
protect its intellectual property, and Rutgers will have no further obligation
to the Company to option or to license with regard to that country. The Company
and Rutgers executed an Exclusive License Agreement in September 1997. Under the
Exclusive License Agreement, Phytotech is obligated to pay a royalty to Rutgers
equal to 2 1/2% of revenues from projects employing the licensed technology
(subject to increases to 3.5% and 5% at annual revenue rates of $250 million and
$500 million, respectively) and is entitled to the exclusive use of the licensed
technology subject to certain non commercial exceptions. The Exclusive License
Agreement covers the life of the patents comprising the technology, subject to
earlier termination for breach of the Exclusive License Agreement.
FIELD TRIALS. Phytotech has conducted field trials over the last three
years to demonstrate metal accumulation from soil and water on selected sites.
These trials have provided the Company with the opportunity to validate the
technology, educate the public and accrue on-site experience. Current field
trials are designed to improve the performance of phytoextraction with lead and
uranium.
In 1996 and 1997, Phytotech conducted a field trial on a lead-contaminated,
abandoned industrial site in Trenton, New Jersey. Six croppings of plants over
two growing seasons on this site have, to date, reduced the lead contamination
on 75% of the treated area to within New Jersey residential standards. This site
is the location of the Superfund Innovative Technology Evaluation Program the
Company is conducting in collaboration with the United States Environmental
Protection Agency ("EPA"). Phytoextraction results of lead from soil at the
Trenton test plot is shown below. The New Jersey residential standard for lead
in soil is 400 ppm or less.
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TOTAL SOIL LEAD AT TRENTON SITE
[CHART]
A 30' x 160' site in Trenton, NJ.
Grey scale at right of figure represents parts per million of lead.
MARKET OPPORTUNITY. The EPA and various state environmental agencies
determine the requirements for, and standards applicable to, the clean-up and
remediation of contaminated property in the United States. Published reports
estimate that there are more than 30,000 sites in the U.S. requiring hazardous
waste treatment services. The Company believes heavy metals comprise a
particularly problematic component of this market, because no permanent, low
cost solutions exist for remediation of metal contamination. Phytotech is
applying its phytoremediation technology to the cleanup of such metal
contaminated sites, a U.S. market estimated by the EPA to be $35 billion over
the next five years. Based on these assumptions, the Company believes that the
potential U.S. market for its technology in treating heavy metals as the sole
contaminant on a site is of an order of magnitude of approximately $100 million
per year. Expansion of this technology to the treatment of sites contaminated
with a mixture of heavy metals and hazardous organic compounds could increase
the market to approximately $600 million per year. As a practical matter,
Phytotech can expect to be a serious candidate for only a small fraction of
these markets. Phytotech's approach is to penetrate the existing market by
targeting sites that can currently only be
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<PAGE>
treated using very costly removal and burial technology and that offer
attractive pricing and liability management options.
The emerging radioactive contamination treatment market, estimated at $250
billion, represents a substantial domestic and international opportunity.
Radionuclides are elements whose nuclei are unstable and transform into other
elements through radioactive decay. This process releases ionizing radiation
that can damage or destroy living cells. A variety of health risks, particularly
various forms of cancer, are associated with exposure to radionuclides. The
Company believes that conventional technology (excavation and landfill) is
significantly more expensive than a plant-based treatment. The Company is
currently field testing and exploring the commercial application of licenses for
its technology to the remediation of these sites.
TARGET CUSTOMER GROUPS. The Company is targeting its marketing efforts
toward:
- Owners of contaminated sites in the private and public sectors identified
through lists published by the EPA, state and local environmental
regulatory agencies as well as through established relationships with
industry;
- Large companies with significant environmental liabilities, including many
Fortune 500 companies;
- Companies in industries known for toxic-metal pollution problems, such as
metal smelters; primary and secondary metal manufacturers; scrap metal
recyclers; paint manufacturers; battery recycling and production
facilities; chemical and petrochemical manufacturers; automobile
manufacturers; utility companies; transportation; the mining industry; and
landfill operators.
COMMERCIALIZATION STATUS. Phytotech's phytoremediation technology has been
available on a commercial scale since mid-1997. The Company has demonstrated the
effectiveness of its technology in the field in several demonstration and pilot
scale programs since 1995. Phytotech has entered into several commercial
contracts for the 1998 phytoremediation season and has initiated clean-ups under
state and federal regulated programs for private and public sector clients.
To date, the Company has been awarded nine contracts or subcontracts for
feasibility-scale studies, a full-scale remediation under the EPA Region I
voluntary corrective action program, and two full-scale treatment projects.
Additionally, a major electric utility is evaluating the technology for use as a
process application to prevent the build-up of metals in its wastewater
sprayfields. Revenues for commercial phytoextraction technology projects totaled
$190,000 in 1997. Current funding commitments for work to be performed in 1998
under grants and contracts exceeds $600,000.
The Company has entered into a Cooperative Research and Development
Agreement ("CRADA") with the EPA to evaluate the efficacy of the Company's lead
removal phytoremediation technology at a contaminated site as part of the EPA's
Superfund Innovative Technology Evaluation ("SITE") program. The EPA's review is
expected to be concluded in 1998 and a report on the outcome of the study issued
thereafter. The Company believes that approval by the EPA would enhance the use
of the technology in the Superfund program.
The Company is pursuing both domestic and international markets through
licensing arrangements with third parties. The Company believes that the
European market is equal to, and growing more rapidly than, the U.S. market.
Because phytoremediation is based on established agricultural practices and an
easily transferable applications technology, all of the necessary materials can
be manufactured at or near the treatment site. The Company is expanding its
market overseas through marketing arrangements with UI USA, Inc., a subsidiary
of Credit Agricole. UI USA, Inc. has arranged a technology evaluation agreement
for European applications of the Company's technology between Phytotech and ATE,
Inc., a subsidiary of Rhone Poulenc. Additionally, Phytotech has recently been
awarded a contract for a rhizofiltration treatability study of arsenic and
uranium contaminated groundwater from the Ammon-Zarga basin in Jordan.
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COMPETITION. The diversity of technological approaches for hazardous waste
remediation has resulted in a fragmented industry. In 1996, the top 30
remediation companies reported combined treatment revenues of $4.5 billion from
U.S. projects, approximately half of the estimated $9 billion spent annually in
the U.S. for hazardous waste treatment. Standard options for the treatment of
soils contaminated with metals includes excavation and disposal in landfills,
stabilization or capping, which consists of covering the site with an
impermeable layer, such as asphalt or concrete. Each of these options does not
eliminate the liability, is costly and requires on-going operations and
maintenance. Phytotech's technology combines cost advantages with on-site
treatment or leaving cleaned soil in place. The high concentrations of metals in
Phytotech's plant residues may permit metal recycling, which could eliminate or
reduce the need for landfilling of hazardous wastes, and could eliminate the
client's liability, rather than simply moving it to another location. However,
Phytotech's technology may not be suitable in certain soil conditions, in areas
with relatively short growing seasons, where rapid remediation is required or
under other specific circumstances.
Several research institutions or government agencies, such as the United
States Department of Energy ("DOE"), the United States Department of Defense
("DOD"), and the United States Department of Agriculture ("USDA"), have
phytoremediation programs. The Company believes it has the largest and most
advanced soil phytoremediation business in the world.
The following table sets forth certain information relating to the principal
technologies used in soil remediation:
<TABLE>
<CAPTION>
TIME
ESTIMATED REQUIRED
TYPE OF TREATMENT COST/YD(3) (MONTHS)
<S> <C> <C>
Chemical Fixation $90-200 6-9
Landfilling $100-400 6-9
Soil Leaching $250-500 12
Phytoextraction $20-80 12-60
Source: Adapted from M.A. Levin and M.A. Gealt,
1993. Biotreatment of Industrial and Hazardous
Waste, McGraw-Hill, New York, p. 4.
</TABLE>
Many other factors affect the relative advantage of the various treatment
alternatives, including the particular characteristics of each site. The Company
believes that each of the above-listed treatment methods may be suitable for
certain sites and not for others.
Competitive methods of soil treatment are primarily practiced by engineering
and remediation services companies that offer excavation and off-site
landfilling of contaminated soil as hazardous waste. This approach denudes the
site of all contaminated topsoil and is cost prohibitive for large areas.
Landfills charge unloading (tipping) fees of $100-400 per ton. This work is
highly price competitive with low profit margins. The Company believes that many
heavy metals-contaminated sites are best remediated by a combination of
phytoextraction and conventional excavation and landfill. Accordingly,
Phytotech's strategy is to grant technology licenses and team with a number of
these contractors. The use of phytoremediation may provide the opportunity for
many sites to move forward that were previously thought to be cost prohibitive
and could allow municipalities to address more contaminated sites at reduced
cost.
NUTRITIONAL SUPPLEMENTS
TECHNOLOGY. Phytotech's original discoveries of the ability of selected
plants to take up high levels of target metals led the Company to evaluate
plants that would accumulate minerals that are essential trace nutrients. In
order for a plant to be a practical source of mineral supplements, it must be a
recognized, edible species and capable of accumulating large amounts of minerals
in its edible parts. Mineral and vitamin supplements have traditionally been
available as capsules or tablets. The Company has developed plants containing
targeted minerals in such concentrations that the minimum daily adult
requirements can be provided in a single tablet or capsule by reducing the plant
itself to powder form and encapsulating the powder. The plant is cultivated
under controlled conditions so that the metal uptake is specific and the plant
does not also accumulate undesirable minerals such as lead, arsenic or cadmium.
The Company and
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outside collaborators have identified edible plants and cultivation conditions
capable of producing the required concentrations of the minerals iron, zinc,
manganese, selenium and chromium in the edible parts of the plants.
The following table provides certain information with respect to the mineral
content of the Company's selected plants as compared to several "mineral rich"
vegetables:
<TABLE>
<CAPTION>
MINERAL CONTENT, MG/G DRY BIOMASS
PLANT FE ZN MN SE CR
<S> <C> <C> <C> <C> <C>
Spinach 0.9 0.07 0.05 -- < .01
Romaine Lettuce 0.9 0.07 0.1 -- < .01
Red Beet 0.1 0.07 0.01 -- < .01
Beet Greens 0.3 0.05 0.1 -- < .01
Green Beans 0.1 0.03 0.02 -- < .01
Broccoli 0.1 0.04 0.02 -- < .01
PHYTOTECH'S CRUCIFERS 30 20 2 1.5 5
Recommended Daily Allowance
("RDA") or therapeutic dose:
mg/day 15 15 2 0.2 0.2
</TABLE>
BIOAVAILABILITY. Mineral supplements are available to the consumer as
organic or inorganic salts of metals manufactured primarily by the chemical
industry. Minerals in these forms are difficult for the body to absorb and use.
Some minerals, such as selenium and chromium, are also offered as a complex with
yeast, which makes them easier for the body to absorb. The bioavailability, or
amount actually absorbed by the body, of minerals in supplements has been a
long-standing concern, and forms of the minerals that are shown through testing
to be more bioavailable are highly valued by consumers. The Company believes
that its plant-based minerals may have high bioavailability because the minerals
are in a form that is biologically available to the plants and therefore may be
similarly available to other organisms. Bioavailability is an important property
since the value of the mineral is wasted if it is not taken up and absorbed by
the body. The Company has arranged for bioavailability testing with outside
laboratories and also conducted its own testing. Preliminary testing of the
Company's plants in its laboratories has indicated that its plant-based sources
of iron, zinc, chromium and selenium are among the most bioavailable forms of
these minerals when compared with other commercially available supplements.
The Company has executed a Cooperative Research and Development Agreements
(CRADA) with the USDA laboratory at Cornell University, Ithaca, New York and is
negotiating a similar agreement with the USDA nutritional lab at The Presidio,
San Francisco focused on the measurement of mineral bioavailability in the
Company's plants. The Cornell lab has proposed to evaluate bioavailability IN
VITRO using a method based on transformed human intestinal monolayer cells. The
Presidio lab plans to conduct human nutritional studies with volunteers. The
Company expects these studies to be completed in 1998.
SPECIATION. The Company believes that in order to establish a solid
scientific basis for the nutritional value of its plant-based supplements, it is
important to identify the speciation, or chemical form of the minerals in the
plants. One of the Company's scientific collaborators has begun to characterize
the speciation of minerals in fresh and dried plants. The speciation of selenium
has been completed, and the results of this work are expected to be published in
1998. The speciation of chromium has been partially characterized, and the
Company anticipates its collaborators will characterize all of the minerals
taken up by its plants.
FUTURE DEVELOPMENT. Selenium accumulation by plants in the crucifer family,
of which broccoli and several of the Company's plants are members, combines the
antioxidant and anticarcinogenic aspects of selenium and organoselenium
compounds with natural organic antioxidants found in cruciferous plants.
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Cruciferous plants and plant extracts are currently sold as nutritional
supplements by others because these plants are said to contain particular
compounds that have been linked to improved immune functions. The Company
believes that organic antioxidants are also present in its plants and is
developing the capability to identify and measure these compounds. The Company
is planning to measure the antioxidative effect of organoselenium enriched
supplements. Phytotech has recently submitted a proposal in collaboration with
two academic research institutions to the National Cancer Institute to evaluate
the antioxidant and anticarcinogenic properties of its selenium accumulating
cruciferous plants.
MARKET OPPORTUNITY. Recent estimates by THE VITAMIN RETAILER place the
annual sales of nutritional supplements worldwide at $20 billion in 1996.
According to a 1996 industry survey, the U.S. market totaled $6.5 billion,
generated through sales at 38,000 retail outlets and with an annual growth rate
of 15%. Vitamin and mineral supplements accounted for 49% of retail sales, and
single mineral supplements comprised 10% of such sales.
The Company's approach to the development of its nutritional supplements
includes carefully controlled cultivation conditions, characterized
bioavailability and quantified chemical forms of the minerals in its plants at
consistent levels and quality standards. The Company will seek to establish the
following characteristics for its botanical mineral supplement products:
- Batch to batch consistency;
- Precise and carefully controlled quantities of active ingredients;
- Standardized quality;
- Solid scientific basis for the benefits of the supplements; and
- Patented production methods.
The Company has identified five nutritionally important minerals that can be
accumulated in its select plant cultivars at sufficient concentrations to supply
100% of the RDA or recommended daily intake of these supplements. Other mineral
and organic supplements are being evaluated by the Company as priorities allow.
The minerals under development include:
SELENIUM. Selenium is an essential trace mineral and is present in all the
tissues of the body as an activating component of the enzyme glutathione
peroxidase, which has been shown to protect cells from free radical damage.
Intake of 50-70 mg ("micrograms") per day is recommended for good health, but
even this small amount of selenium can be lacking in many diets. Recently,
selenium from a yeast source has been linked in a study by the Arizona Cancer
Center to a reduction in the incidence of and mortality from cancers of the
colon, prostate and lung. The administered dose of selenium in this study was
relatively high compared to multivitamins which typically contain 50 mg
selenium.
CHROMIUM. Chromium is primarily involved in the metabolism of glucose and
the synthesis of proteins. Because of its role in insulin production and glucose
regulation, chromium depletion has been implicated in hypercholesterolemia and
may play a role in the control of glucose levels. Chromium picolinate is
promoted by others as an important part of several weight-loss products, and
some studies support the use of dietary chromium as a weight loss aid.
IRON. Every cell in the body contains and requires iron. When its supply is
low, diverse symptoms and disorders may result. Iron is required in relatively
high doses to maintain proper nutrition. Of all the nutrient allowances, the
allowance for iron is the most difficult to obtain from dietary sources, which
is why iron is the most common single mineral deficiency in the world.
The bioavailability of iron in supplements has historically been a problem.
The most commonly prescribed iron supplements for women of child-bearing years
are poorly absorbed and can cause gastrointestinal upset. Phytotech has
preliminary data indicating that the iron in its hyperaccumulating
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<PAGE>
crucifers may be more bioavailable than other commercially available
supplements. The Company is planning a human nutritional trial in collaboration
with the USDA to document the benefits of PHYTOIRON-TM- as a "natural" iron
supplement.
ZINC. Zinc is an essential trace mineral that is required in relatively
high doses and it is among the best selling individual trace minerals in the
health food industry. Zinc is an essential component of enzymes for various
metabolic processes. Daily intake of zinc lozenges containing 13 mg of zinc has
also been reported to ameliorate the symptoms of the common cold. Despite the
essential nature of zinc, the human body does not store this mineral, so the
body is dependent upon a continual external supply.
MANGANESE. Manganese is best known as a component in various enzymes,
including those involved in the metabolism of protein, lipids and carbohydrates.
Manganese is poorly absorbed by the body and is scare in processed foods.
Manganese does not have an RDA, but is included in a number of mineral
supplement products. Manganese is promoted by nutritional supplement suppliers
as having a role as an antioxidant and in maintaining healthy bones.
COMMERCIALIZATION STATUS. The Company has completed pilot scale studies for
iron, zinc, selenium and chromium uptake by its plants. The Company commenced
commercial scale production of selenium and chromium containing plants in the
first quarter of 1998. The Company expects to proceed with the commercial
production of iron, zinc and manganese nutritional supplements as resources
permit. The Company is also evaluating several other nutritional minerals as
candidates for a plant-based source. Phytotech has entered into a marketing
agreement with Arterio, Inc., a distributor of nutritional supplements that
markets products under the brand names Ecological Formulas and Cardiovascular
Research, to market its selenium and chromium supplements and antioxidant skin
care cream. Phytotech contracts with an outside greenhouse contractor to produce
bulk product which is then shipped to a Food and Drug Administration ("FDA")
approved manufacturing facility for tableting, encapsulating, packaging and
labeling. Ecological Formulas provides marketing, distribution and sales
coordination of the plant material as nutritional supplements through its own
sales organization and also to other distributors and marketers of nutritional
supplements.
Phytotech may also choose to sell bulk tablets or capsules to companies
serving the nutritional supplement industry through the following established
distribution channels:
MAIL ORDER. These customers are reached through print and electronic
advertising, including through sites on the internet. Several companies
specialize in direct sales to consumers through mail order advertising.
MULTILEVEL/NETWORK MARKETING. These organizations, such as Amway, Shaklee,
Celltech and Herbalife sell products that generally cannot be obtained in retail
stores.
INDEPENDENT RETAILERS OF NUTRITIONAL SUPPLEMENTS. These retailers include
privately owned health food stores, of which approximately 7,000 existed in the
U.S. in 1996. In addition, nutritional supplements are sold widely in
pharmacies, wholesale outlets and clubs and supermarkets.
OTHER DISTRIBUTORS. These distributors could include private label
wholesalers such as General Nutrition, Nature's Sunshine Products, Weider
Nutrition, Twinlabs, Nature's Bounty, Rexall Sundown, and also fitness centers,
health practitioners and dispensing nutritionists.
COMPETITION. The nutritional supplement industry is fragmented and includes
several large manufacturers along with many smaller producers and distributors.
While a few of the distributors are vertically integrated, most distributors
contract with manufacturers for finished products.
A large number of manufacturers produce mineral supplements for all
marketing outlets. Many of these mineral supplements are inexpensive to
manufacture, but have limited mineral bioavailability, which can reduce their
effectiveness. To attempt to address this problem, advanced formulas containing
chelated
26
<PAGE>
or organically complexed mineral supplements have been introduced to the market
during the last few years. As far as the Company is aware, no other company
offers plant-based nutritional supplements as a source of dietary minerals,
because plants ordinarily do not contain sufficient quantities of minerals to be
effective supplements.
COMMERCIAL PROTEIN PRODUCTION
TECHNOLOGY. The Company has received funding from the USDA under a Small
Business Innovative Research grant to develop transgenic plants, which are
plants capable of making proteins based on genes that are not native to the
plant, and is expanding this effort into a core technology for the expression of
commercially useful proteins in crop plants. Phytotech and its outside
collaborators believe they can develop transgenic crop plants to produce
valuable proteins for selected niche markets at a significant cost savings over
current sources.
Recent developments in the application of plant molecular biology have made
it easier to develop transgenic plants that can inexpensively synthesize
desirable protein products. Applications of these and other methods to create
transgenic plants capable of producing valuable commercial proteins could offer
multiple, significant advantages over conventional fermentation and cell culture
techniques. These advantages could include lower production costs, easier
production scale-up and improved safety characteristics.
Historically, it has been difficult to obtain stable levels of foreign
proteins in plants. In addition, certain plant characteristics complicate
protein recovery and purification processes. Rapid, large scale clonal
propagation of many plant species is now feasible. Evidence of stable, high
level expression of a bacterial gene in the leaves, roots and tubers of
transgenic potato plants has been published by the Company's collaborators.
These results suggest that this core technology can be developed to produce
large amounts of selected proteins in targeted organs of crop plants. Further
work has also shown that foreign proteins can be stably produced and the protein
accumulated in plant seeds.
The Company believes production of proteins through transgenic plants offers
the potential for substantial cost savings, because novel genetic engineering
methods may allow the initial low cost advantage to be carried downstream
through purification, yield and recovery. Certain safety issues may also favor a
plant or plant cell culture based approach. A plant-based approach eliminates
the presence and risk of mammalian infectious agents. Proteins, such as heparin,
gelatin, collagen, insulin, as well as drug manufacturing proteins, such as
brain-heart infusion, bovine serum albumin, and fetal calf serum, all have
mammalian sources. There is a growing concern that proteins derived from
mammalian sources present the possibility of transmission of retroviruses and
other infectious agents. The tests for these infectious agents are complex and
their inactivation or removal is difficult. Phytotech and its collaborators are
presently engaged in developing plant-based proteins lacking these infectious
agents.
MARKET OPPORTUNITY. The potential market for commercial proteins from
transgenic plants is estimated by the Company to be at least $300 million
annually. Collagen is an example of a protein that may present a market
opportunity for plant-based manufacture. Collagen has both therapeutic and
cosmetic applications. Derivatized bovine collagen is the current source for
cosmetic use, plastic surgery, wound and bone healing, and wrinkle removal by
transdermal injection and had worldwide sales in 1997 in excess of $70 million.
Human collagen produced in a transgenic plant or plant organs might present
advantages over the bovine material. The stringent purification and analytical
procedures required for therapeutic use of bovine collagen could be reduced with
a plant-derived material. The absence of potential or perceived mammalian
pathogens in plant-derived collagen would simplify purification, testing and
validation procedures and could reduce manufacturing costs. Approximately 3% of
the human population is allergic to derivatized bovine collagen. A plant based
collagen source may eliminate this problem.
COMMERCIALIZATION STATUS. Phytotech has engaged in preliminary work toward
the development and commercialization of efficient, cost effective methods of
protein production using transgenic plants. The Company is seeking to augment
its internal efforts by licensing advanced technology. Contingent on the
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<PAGE>
closing of this offering, Phytotech has negotiated an exclusive, worldwide
license with an internationally recognized research organization to use certain
proprietary technology for the cost effective production and commercialization
of selected proteins in transgenic plants.
If the preliminary development work in which the Company is engaged is
successful, the Company intends to use these transgenic plants to manufacture a
series of commercial proteins at significantly reduced cost. The Company plans
to cultivate, harvest and analyze the transgenic plants. Recovery and
purification of the protein product will be performed by outside manufacturers.
Phytotech intends primarily to provide the purified proteins as a bulk product
for resale. For selected products, the Company may market directly to consumers.
Production of proteins using transgenic plants may offer manufacturing cost
advantages for products having moderate to high unit prices and markets in
quantities of tens to thousands of kilograms per year. These include proteins
that have dietary, catalytic or cosmetic applications with expired or dated
intellectual property protection. Some proteins are good potential targets
because both cost and perceived safety issues favor a plant-based approach.
CUSTOMER GROUPS. Phytotech plans to manufacture transgenic plants and
market plant-based proteins with moderate to high value that address niche
markets of $5 to $100 million in annual sales. Potential customer groups for the
Company's planned commercial protein products include:
- Cosmetics formulators for proteins such as collagen and elastin;
- Specialty food companies that use large quantities of proteins such as
rennet in cheese making, pectinases and amylases in food processing and
brewing and malting enzymes;
- Companies producing protein sweeteners;
- Grain processing companies that use enzymes for starch liquefaction and
saccharification; and
- Textile companies that use enzymes for desizing and fabric finishing.
COMPETITION. Large companies with extensive experience and research
programs in transgenic plants include Monsanto, DuPont, Novartis, DowElanco, and
Pioneer. The research programs at these companies are primarily focused on
applications associated with large markets, such as pesticide-containing and
herbicide-resistant transgenic crop plants grown for traditional uses. Mid-sized
firms such as DNA Plant Technology also focus on producing transgenic plants
that appeal to mass markets. Some small, privately held companies such as
BioSource and Prodigene have research programs involving the production of high
value proteins in transgenic plants, which may be directly competitive with
Phytotech's product development plans.
TECHNOLOGY DEVELOPMENT
Phytotech is developing new technologies using its own resources and
expertise and by entering into cooperative arrangements with other
organizations. Funding for new technology development has come both from sales
of the Company's equity securities and promissory notes and from grants received
by the Company.
RESEARCH GRANT FUNDING. Some of the Company's research and development
activity is partially or fully underwritten by outside competitive grant
funding. This support validates the quality and helps defray the costs of
research and development efforts. The Company will continue to pursue additional
grants and contracts and certain Company personnel are actively writing grant
proposals. The Company anticipates that federal and state grants will continue
to defray a portion of the development and commercialization costs. Since
inception, the Company has completed seven funded projects totaling $811,000,
has five ongoing projects with approximately $950,000 in total grant support and
has five proposals pending to various states and federal agencies.
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<PAGE>
CONTRACTS AND TEAMING AGREEMENTS. The Company has entered into and is
negotiating teaming and technology development agreements with public and
private organizations to further the commercial use of its products and
services. The Company has executed joint development and teaming agreements with
ATE, Inc. in France through its representative UI USA, Inc., and various
environmental consultants. The Company is negotiating similar agreements with
others to market its services.
PATENTS
Phytotech has established an aggressive patent program to protect its
technology and intellectual property. In all countries it deems appropriate, it
holds the exclusive rights to inventions covered by three issued United States
patents covering the metal accumulating technologies. Exclusive rights to these
patents have been assigned to the Company. The U.S. government retains certain
rights to some issued patents, including a royalty-free, non-exclusive license.
The Company does not expect the retention of these rights to impact materially
on its patent protection or exclusivity in commercialization.
The Company believes that the three issued patents will enable it to
establish an advantage position on the use of terrestrial plants for the
accumulation of metals. Phytotech continues to enhance these scientific
developments by supporting outside research and through work in the Company's
own laboratory. Three additional patent applications have been filed by Rutgers
covering improvements and new concepts arising from the supported research. A
Notification of Allowance has been issued for one of these patents. The Company
has rights to exclusive, worldwide licenses to the inventions covered by these
applications. Four patent applications arising from discoveries owned solely by
the Company have also been filed. A Notification of Allowance has been issued
for one of these patents. The Company expects that future improvements and
discoveries will be covered by additional patent applications.
GOVERNMENT REGULATION
The Company's products and services are subject to extensive regulation by
various governmental authorities. The Company's products may be regulated by
EPA, FDA and USDA and by various state or foreign regulatory bodies. The effect
of government regulation may be to delay marketing of new products for a
considerable or indefinite period of time, to impose costly procedures upon the
Company's activities and to provide an advantage to companies that compete with
the Company.
REGULATION OF PHYTOREMEDIATION
The Company does not anticipate that it will be subject to the Resource
Conservation and Recovery Act ("RCRA"), as amended, as a "Treatment, Storage or
Disposal Facility" (a "TSD" facility). However, certain treatment systems that
the Company may elect to operate may require it or its customers to obtain a TSD
facility permit from the EPA (or a state authorized to run its own RCRA program)
before placing treatment systems into operation. Obtaining a TSD facility permit
can be a time-consuming and expensive process, requiring considerable
documentation, including process information, waste specifications and
information regarding compliance assessments, security procedures, emergency
plans and insurance. The TSD facility permitting process also requires local
public hearings. Where there is local public opposition to the siting of a
facility, obtaining a TSD facility permit can take more than a year, and in some
cases up to two to four years, if the permit is granted at all. There has been
public concern regarding the use of genetically modified plants in the
environment and there could be public opposition to the use of genetically
modified plants for toxic metal remediation. Delays in obtaining a TSD facility
permit or any other required permits could affect the ability of the Company to
receive revenues from the use or sales of its products, once developed, and such
delays could materially adversely affect the financial condition of the Company
given its limited financial resources. The Company's products may also be
subject to other environmental regulations regarding their operation, including
mandatory removal levels and prohibitions on the release of certain levels of
hazardous wastes in the exit stream of the Company's systems.
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<PAGE>
Additionally, other permits may be required from the EPA and various state
and local agencies in connection with the use or operation of the Company's
products. The federal and state environmental laws, rules and regulations
regulating the Company's current or proposed business operation are complex,
subject to varying interpretations and are rapidly changing and evolving.
Compliance with these laws, rules and regulations by the Company is expected to
be time-consuming and expensive. Any failure by the Company to comply with the
requirements of these environmental laws regulating its activities, even if
unintentional, could give rise to liabilities, penalties or fines that could
materially adversely affect the financial condition of the Company and could
adversely affect its reputation in the industry.
REGULATION OF NUTRITIONAL SUPPLEMENTS
In the United States as well as in any foreign markets in which the Company
may sell its products, the Company will be subject to regulations regarding (i)
the formulation, manufacture, packaging, labeling, distribution, importation,
sale and storage of the Company's products, and (ii) product claims and
advertising.
The formulation, manufacture, packaging, storing, labeling, advertising,
distribution and sale of the Company's products are subject to regulation by
federal agencies, including the FDA, the Federal Trade Commission ("FTC"), the
Consumer Product Safety Commission ("CPSC"), the USDA, the EPA and the United
States Postal Service. The Company's activities are also regulated by various
agencies of the states, localities and foreign countries in which the Company's
products may be manufactured, distributed and sold. The FDA, in particular,
regulates the formulation, manufacture and labeling of weight management
products, dietary supplements, and cosmetics and skin care products, such as
those expected to be manufactured and sold by the Company. FDA regulations
require the Company and its suppliers to meet relevant regulatory good
manufacturing practices for the preparation, packaging and storage of these
products. Good manufacturing practices for dietary supplements have yet to be
promulgated but are expected to be proposed.
A portion of the Company's planned sales will come from products that are
classified as dietary supplements under the Food, Drug and Cosmetic Act
("FDCA"). The labeling requirements for dietary supplements have not been
clearly established. In December 1995, the FDA issued proposed regulations which
govern the labeling of dietary supplements, including how to declare nutritional
information, how to make permissible "statements of nutritional support" and
when additional, defined terminology may be used on dietary supplements. As a
manufacturer of products that are ingested by consumers, the Company is subject
to the risk that one or more of the ingredients in its products may become the
subject of adverse regulatory action.
In foreign markets, prior to commencing operations and prior to making or
permitting sales of its products, the Company may be required to obtain an
approval, license or certification from the country's ministry of health or
comparable agency. Prior to entering a new market in which a formal approval,
license or certificate is required, the Company will be required to work
extensively with local authorities to obtain the requisite approvals. The
approval process generally requires the Company to present each product and
product ingredient to appropriate regulators and, in some instances, arrange for
testing of products by local technicians for ingredient analysis. Such approvals
may be conditioned on reformulation of the Company's products or may be
unavailable with respect to certain products or ingredients.
The FTC and certain states regulate advertising, product claims, and other
consumer matters, including advertising of the Company's products. All
advertising, promotional and solicitation materials used by distributors must be
approved by the Company prior to use. The FTC has in the past several years
instituted enforcement actions against several dietary supplement companies for
false and misleading advertising of certain products. The Company also is
subject to the risk of claims by distributors and customers who may file actions
on their own behalf, as a class or otherwise, and may file complaints with the
FTC or state or local consumer affairs offices. Proceedings resulting from these
complaints may result
30
<PAGE>
in significant defense costs, settlement payments or judgments and could have a
material adverse effect on the Company.
REGULATION OF PLANT-BASED PROTEINS
TRANSGENIC PLANTS. The field scale cultivation of new plants constructed
with recombinant DNA techniques requires prior notification to the USDA.
Large-scale growth of transgenic plants requires prior approval by the USDA.
Unless there is some specific concern, approval is usually granted. Issues of
concern include genetic modifications that involve antibiotic resistance,
weediness or invasiveness, and the potential for genetic transfer to other
species.
The manufacture and sale of nutritional and cosmetic products from
transgenic plants are regulated as products derived from naturally occurring
plants. See "Regulation of Nutritional Supplements" in this section.
The use of products such as human collagen in an injectable form requires
approval from the FDA including Phase I, II and III clinical trials. This
approval process takes 7-12 years and for a new drug can cost in excess of $100
million. Because a form of collagen is already in pharmaceutical use, testing
and approval may be less time-consuming and costly than it would otherwise be.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
PERSONNEL
The Company currently has eighteen employees and several non-employee
consultants. Seven employees have advanced degrees. None of the Company's
employees is covered by collective bargaining agreements and management
considers relations with its employees to be good.
FACILITIES
The Company has a five-year lease expiring February 2000 on approximately
11,000 square feet of laboratory and office space located at 1 Deer Park Drive,
Monmouth Junction, New Jersey. This laboratory and office space is anticipated
to be sufficient to meet the Company's needs for at least the next two years.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table lists the executive officers, certain key employees and
directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- -----------------------------------------------------
<S> <C> <C>
Burt D. Ensley(1)......................... 49 President and CEO, Director
Cindy Orser............................... 41 Director of Scientific Affairs
Jack D. Frost............................. 41 Vice President of Business Development
Alexander Baltovski....................... 39 Chief Financial Officer
Philip J. Whitcome........................ 49 Chairman of the Board, Director
Laura Meagher............................. 45 Director
Ilya Raskin............................... 42 Director
Abraham H. Nechemie(1).................... 74 Director
Schneur Z. Genack(1)...................... 57 Director
Eric K. Johnson........................... 38 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
BURT ENSLEY, PH.D. has served as President and Chief Executive Officer and
Director of the Company since its inception in April 1993. From 1989 through
1992, Dr. Ensley served as Director of Advanced Technology at Envirogen, Inc., a
microbial based bioremediation company. From 1981 to 1989, Dr. Ensley was the
head of the Specialty Chemicals Group at Amgen, Inc. Dr. Ensley received a B.S.
and M.S. in Biology from the University of New Mexico in 1974 and 1976,
respectively, and a Ph.D. in Microbiology from the University of Georgia in
1979. Since 1996, Dr. Ensley has served on the National Science Foundation's
Advisory Board.
CINDY ORSER, PH.D. has served as a consultant in the capacity of the
Director of Scientific Affairs of the Company since September 1996. From 1993
through 1995, Dr. Orser was Group Leader at Xenometrix, Inc., an in vitro
molecular toxicology biotechnology company in Boulder, Colorado. She received
her Ph.D. from the University of California at Berkeley in 1985 in Plant
Pathology and Genetics. Dr. Orser received her B.S. in Botany and M.S. in Plant
Pathology from Montana State University in 1978 and 1980, respectively.
JACK D. FROST has been the Vice President of Business Development since
November 1997. Mr. Frost has a M.S. degree in Agronomy and 16 years of
scientific, business development and management experience. He served as the
Vice President of Industrial Business Development for Blasland, Bouck & Lee,
Inc. and Vice President of Business Development for ICF Kaiser Engineers. He
earned his B.S. and M.S. from West Virginia University.
ALEXANDER BALTOVSKI has served as the Chief Financial Officer of the Company
since November 1997. Mr. Baltovski has nine years accounting experience. From
1993 to 1997, Mr. Baltovski served as a Financial Operations Principal and Chief
Financial Officer of several NASD member securities firms, most recently Joseph,
Dillon and Company, Inc., where he was responsible for regulatory reporting,
operations, accounting, and various underwriting and market making activities.
Mr. Baltovski received a B.S. degree in Accounting from Wagner College in 1981.
PHILIP J. WHITCOME, PH.D. has served as Chairman of the Board of Directors
since May 1994 and as a Director of the Company since October 1993. Dr. Whitcome
devotes only a portion of his time to the business of the Company. Dr. Whitcome
has served on the Board of Directors of Avigen, Inc. since December 1992 and has
served as its Chairman since April 1995. From July 1988 to December 1993, he
served as President and Chief Executive Officer of Neurogen Corporation, a
biotechnology company involved in the field of neuroscience. Dr. Whitcome holds
a Ph.D. in Molecular Biology from the
32
<PAGE>
University of California at Los Angeles, an M.B.A. from the Wharton School of
the University of Pennsylvania and a B.S. degree in Physics from Providence
College. Dr. Whitcome also currently serves on the Board of Directors of Premier
Research Worldwide, a contract research organization.
LAURA R. MEAGHER, PH.D. has served as a Director of the Company since its
inception in April 1993. Dr. Meagher has experience in biotechnology policy and
regulation, technology transfer and economic development. Dr. Meagher is
currently Associate Dean, Cook College, Rutgers. Since 1987, Dr. Meagher has
been senior partner of Technology Development Group. After receiving her Ph.D.
in Ecology from Duke University in 1979, Dr. Meagher helped to plan and develop
the North Carolina Biotechnology Center.
ILYA RASKIN, PH.D. is the scientific founder of the Company and has served
as a Director of the Company since its inception in April 1993. Dr. Raskin has
been on the faculty of the AgBiotech Center at Rutgers since 1989. From 1984 to
1989, Dr. Raskin worked at Shell Agricultural Chemical Company which merged with
DuPont Co. in 1986. Dr. Raskin received his B.S. degree from Brandeis
University. He received his Ph.D. in 1984 from Michigan State University.
ABRAHAM H. NECHEMIE has served as a Director of the Company since November
1995. Mr. Nechemie has over 40 years of experience in the financial services and
management business. He also serves on the Board of Directors of
Electro-Catheter Corporation, a publicly held New Jersey company. Mr. Nechemie
received a B.S. degree in Accounting from Rutgers in 1951 and is a retired
Certified Public Accountant.
SCHNEUR Z. GENACK has served as Director of the Company since August 1996.
Mr. Genack also currently serves on the Board of Directors of EnviroGuard, Inc.,
Industrial Services Technology, Inc., and New Options on Waste and Ponderosa
Fibres of Pennsylvania. Since 1987 Mr. Genack has been a Member of the General
Partnership of the Environmental Venture Fund, L.P., and since 1992 has been a
Member of the General Partner of Environmental Private Equity Fund II, L.P. He
is also a partner in the law firm of Felsen, Genack Associates. Mr. Genack holds
a B.S. from Yeshiva University and a J.D. from New York University School of
Law.
ERIC K. JOHNSON has served as a Director of the Company since October 1997.
Mr. Johnson is Executive Vice President, Investment Banking, of Trautman Kramer
and Company, Inc. He served as a corporate finance officer at Bank of New York.
His initial entry into investment banking was at Ladenburg, Thalmann. He has a
B.A. and an M.B.A. from New York University and additionally, he received
graduate financial education from the Graduate School of Business at Columbia
University and the Darden School of Business at the University of Virginia.
SCIENTIFIC CONSULTANTS AND ADVISORS
The scope of the Company's research and development effort is enhanced
through its scientific consultants. They represent a valuable resource which
serves as an important link between the Company's efforts and those of leading
academic laboratories. The Company has agreements with all of its consultants
which contain provisions that protect confidential information, proprietary data
and intellectual property of the Company. All rights and title to intellectual
property conceived or discovered in the performance of any research conducted by
a consultant while performing his specific duties on behalf of the Company
belongs to the Company.
DR. YORAM KAPULNIK (Head, Rhizospheric Biology Group, The Volcani Center, Bet
Dagan, Israel). One of the inventors of rhizofiltration technology, Dr. Kapulnik
has broad expertise in rhizospheric microbiology, molecular biology and root
physiology.
DR. ALAN J. M. BAKER (Lecturer, The University of Sheffield, UK). Dr. Baker is a
specialist in the biology and ecology of metal-accumulating plants with
expertise in conducting field trials on metal remediation with plants.
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<PAGE>
DR. ILAN CHET (Vice President for Research and Development of the Hebrew
University of Jerusalem, Israel). Dr. Chet is an expert in rhizospheric biology
and a recipient of numerous international scientific awards and honors.
DR. ROBERT TUCKER (Director of the Ecopolicy Center, Cook College, Rutgers
University). Prior to joining Rutgers, he spent 18 years with the New Jersey
Department of Environmental Protection, including nine years as the Director of
the Division of Science and Research.
DR. GAD GALILI (Professor, Department of Plant Genetics, The Weizmann Institute
of Science, Rehovot, Israel). Dr. Galili is an expert in plant molecular biology
and expression systems in transgenic plants. He received the Bronfman Chair of
Plant Science in 1994.
COMPENSATION OF DIRECTORS
Except as described below, members of the Board of Directors who are not
employees of the Company have not, to date, received any compensation. Directors
are entitled to reimbursement of reasonable expenses incurred in attending such
meetings. In addition, non-employee directors are eligible to receive stock
options under the Company's Stock Option Plan.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid during the Company's fiscal year ended December 31, 1997 to the Chief
Executive Officer of the Company. No other executive officer received
compensation in 1997 in excess of $100,000. Messrs. Baltovski and Frost are
currently compensated at a base salary of $110,000 each.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
------------------------------------ UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS OPTIONS
- ----------------------------------------------------- ------------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Burt D. Ensley....................................... 1997 $ 120,000 -- 55,556
President and Chief Executive Officer 1996 $ 110,548 $ 15,000 10,000
1995 $ 90,000 -- --
</TABLE>
EMPLOYMENT AGREEMENTS
On May 17, 1996, Dr. Burt D. Ensley executed a three year employment
agreement (the "Agreement") to serve as President and CEO of the Company at a
base salary of $120,000 per year. In addition, Dr. Ensley was granted a
performance bonus of $15,000 in 1996. Under the Agreement, Dr. Ensley receives
stock options for 10,000 shares of Common Stock at an exercise price of $.45 per
share vesting over a three year period. An additional amount of stock options
and/or warrants may be granted to Dr. Ensley at the discretion of the Board of
Directors of the Company. The Agreement provides that during and after his term
of employment with the Company, Dr. Ensley must keep secret and retain in
strictest confidence, all confidential matters of the Company.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning stock options
granted to Dr. Ensley during the year ended December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED TO
UNDERLYING EMPLOYEES IN FISCAL EXERCISE PRICE
NAME OPTIONS GRANTED(1) 1997 PER SHARE EXPIRATION DATE
- ----------------------------------- ------------------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Burt D. Ensley..................... 55,556 65% $ .68 10/1/07
</TABLE>
- ------------------------
(1) Incentive stock options granted under the Company's Stock Option Plan on
October 1, 1997. The options vest in 20% increments over a five year period
beginning October 1, 1997 and each October 1 thereafter.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information with respect to Dr.
Ensley concerning option exercises and year end option values in the fiscal year
ended December 31, 1997.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
SHARES AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
- ----------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Burt D. Ensley......... -- -- 14,444/ 39,694/
51,112 139,274
</TABLE>
- ------------------------
(1) The price per share of Common Stock as of December 31, 1997 is deemed to be
$3.375, the deemed par value for financial statement purposes.
STOCK OPTION PLAN
The Company has adopted the Phytotech Stock Option Plan (the "Plan") which
provides for the award of stock options to those employees, directors and
outside consultants of the Company who make substantial contributions to the
Company by their loyalty, industry and invention. The terms and conditions of
each award will be described in a separate agreement between the Company and the
key executive or consultant, as the case may be. The Plan is administered by the
Board of Directors (the "Board") or by a committee to whom the Board delegates
such authority. The Board or, if applicable, the committee appointed by the
Board, has full and final authority in its discretion (i) to interpret the
provisions of the Plan, (ii) to decide all questions of fact arising in the
Plan's application, (iii) to determine the individuals to whom stock options
shall be awarded under the Plan, (iv) to determine the amount, size and terms of
each such award, (v) to determine the time when awards shall be granted, and
(vi) to make all other determinations necessary or advisable for the
administration of the Plan.
Currently only shares of Non-Voting Common Stock may be issued upon exercise
of options granted under the Plan. The total number of such shares reserved for
issuance subject to options under the Plan may not exceed in the aggregate
555,556 shares. Except as otherwise provided in the Plan, any shares subject to
an option which for any reason expires or is terminated unexercised shall again
be available under the Plan. All shares of Non-Voting Common Stock subject to
currently outstanding stock options will be automatically converted into shares
of Common Stock on a one-for-one basis upon effectiveness of this
35
<PAGE>
offering. Following this offering, the Company intends to amend the Plan to
provide for the issuance of Common Stock on exercise of future options granted
under the Plan.
In the event of any change in the outstanding stock of the Company, by
reason of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like, the Board
may, in its discretion, adjust the number of shares of Common Stock which may be
issued under the Plan. In such event the Board may make any changes it deems
equitable to outstanding stock options. As of March 31, 1998, there were
outstanding options to purchase an aggregate of 253,333 shares of Non-Voting
Common Stock of which options to purchase 56,444 such shares were exercisable.
CERTAIN TRANSACTIONS
The Company has issued certain promissory notes to certain of its directors,
payable on demand, in the aggregate amount of $229,000. Such notes were issued
on May 26, 1997: (i) a $100,000 promissory note issued to Burt Ensley; (ii) a
$100,000 promissory note issued to Philip Whitcome; and (iii) a $25,000
promissory note issued to Abraham Nechemie. ((i)-(iii), collectively, the
"Notes".) The Notes provide that the principal and interest on the unpaid
balance accruing from and after the date of issuance (the interest being the
minimum rate on the date of issuance necessary under the Code, to avoid an
imputed rate of interest under the Code) are payable on demand. An additional
note in the principal amount of $4,000 was issued to Burt Ensley on May 26,
1997. The note provides that the principal and the accrued interest in the
amount of 10% on the unpaid balance is payable on demand.
Philip Whitcome, Ilya Raskin, Laura Meagher and Abraham Nechemie, directors
of the Company, each have consulting agreements with the Company pursuant to
which such persons perform, from time to time, services to the Company unrelated
to their services as directors. The amount of compensation paid by the Company
under such consulting agreements in 1997 and 1996 was not material.
The Company has paid to Trautman, Kramer and Company, of which Eric Johnson
is an officer, warrants and cash compensation as consideration for its services
as placement agent for the Company in various private placements of the
Company's equity securities and promissory notes. Mr. Johnson received warrants
for services provided to the Company in connection with the Company's two most
recent private placements of promissory notes and warrants.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus, by (1) each
director, (2) all directors and officers as a group and (3) each person known to
the Company to be the beneficial owner of more than 5% of the shares of Common
Stock. Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
OFFERING OFFERING
--------------------- ---------------------
NAME AND ADDRESS NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------------------------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Burt D. Ensley.................................................. 212,222(1) 8.22% 212,222(1) 4.64%
Ilya Raskin..................................................... 206,666(2) 8.08% 206,666(2) 4.53%
Laura Meagher................................................... 151,111(2) 5.91% 151,111(2) 3.32%
Philip J. Whitcome.............................................. 68,889(3) 2.69% 68,889(3) 1.51%
Abraham H. Nechemie............................................. 1,111(4) * 1,111(4) *
Scheur Z. Genack................................................ -- -- -- --
Eric K. Johnson................................................. 203,269(5) 7.37% 203,269(5) 4.27%
Stanley R. Harris............................................... 138,889 5.43% 138,889 3.05%
Nikatech, Inc................................................... 138,889 5.43% 138,889 3.05%
Environmental Private Equity Fund II, L.P....................... 280,000(6) 10.38% 280,000(6) 5.96%
All directors and executive officers as a group (9 persons)..... 876,601(7) 31.05% 876,601(7) 18.18%
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes 17,778 shares of Common Stock acquirable upon exercise of presently
exercisable stock options.
(2) Includes 1,111 shares of Common Stock acquirable upon exercise of presently
exercisable stock options.
(3) Includes 8,889 shares of Common Stock acquirable upon exercise of presently
exercisable stock options.
(4) Includes 1,111 shares of Common Stock acquirable upon exercise of presently
exercisable stock options.
(5) Includes 203,269 shares of Common Stock acquirable upon exercise of
presently exercisable warrants.
(6) Includes 138,889 shares of Common Stock acquirable upon exercise of
presently exercisable warrants.
(7) Includes 266,602 shares of Common Stock acquirable upon exercise of
presently exercisable stock options and warrants.
DESCRIPTION OF SECURITIES
GENERAL
The following description of the Company's securities is a summary and is
subject in all respects to applicable New Jersey law, provisions of the
Company's Certificate of Incorporation and By-laws, the Warrant Agreement
between the Company and Registrar and Transfer Company, as warrant agent,
37
<PAGE>
pursuant to which the Warrants will be issued, the various agreements pursuant
to which other securities of the Company were issued and the Underwriting
Agreement between the Company and the Underwriter.
The Company is authorized to issue 41,111,111 shares of its capital stock,
without par value, of which 30,000,000 shares are currently designated as Voting
Common Stock, 1,111,111 are currently designated as Non-Voting Common Stock,
10,000,000 are currently designated as Series A Voting Preferred Stock. The
Board of Directors has the authority to divide authorized but unissued shares of
capital stock into classes and series or both and to determine or change the
designation and the number of shares of any class or series, and to determine
the number of shares, the relative rights, preferences and limitations of shares
of any class or series. Upon conversion of the outstanding shares of Non-Voting
Common Stock and Series A Voting Preferred Stock concurrently with this
offering, the Company intends to amend its Certificate of Incorporation to
cancel all shares of Non-Voting Common Stock and Series A Voting Preferred
Stock, whereupon the Company will have designated all 30,000,000 authorized
shares as Voting Common Stock.
UNITS
Each Unit consists of one share of Common Stock and one Warrant, each
Warrant entitling the holder thereof to purchase one share of Common Stock. The
Units will separate and the Common Stock and Warrants that make up the Warrants
will trade only as separate securities, thirty days after the date of this
Prospectus.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of the holders of Common Stock, including the election of
directors. There is no right to cumulate votes for the election of directors.
Subject to the rights of outstanding preferred stock, if any, the holders of
Common Stock are entitled to receive dividends when, as and if declared by the
Board of Directors out of funds legally available for such purpose. Subject to
the rights of outstanding preferred stock, if any, holders of Series A Voting
Preferred Stock, holders of Common Stock are entitled to receive, on a pro rata
basis, all assets of the Company available for distribution to the stockholders
in the event of the liquidation, dissolution or winding up of the Company.
Holders of Common Stock do not have any preemptive rights to become subscribers
or purchasers of additional shares of any class of the Company's capital stock.
NON-VOTING COMMON STOCK
Upon consummation of this offering, the outstanding shares of Non-Voting
Common Stock will be converted into 232,156 shares of Common Stock.
SERIES A VOTING PREFERRED STOCK
Upon the consummation of this offering, the outstanding shares of Series A
Voting Preferred Stock will be converted into 1,414,333 shares of Common Stock.
WARRANTS
REPRESENTATIVE'S WARRANT
In connection with this offering, the Company has authorized the issuance of
the Representative's Warrant and has reserved 400,000 shares of Common Stock for
issuance upon exercise of such warrant (including the warrants issuable upon
exercise of the Representative's Warrant). The Representative's Warrant will
entitle the holder to acquire up to 200,000 Units at an exercise price of
$ per Unit. The Representative's Warrant will be exercisable at any time
from the first anniversary of the date of this Prospectus until the fifth
anniversary of the date of this Prospectus.
38
<PAGE>
UNIT WARRANTS
Each Warrant will entitle the holder to purchase one share of Common Stock
at a price of $ per share. The Warrants will, subject to certain
conditions, be exercisable at any time after the Separation Date and until the
fifth anniversary of the date of this Prospectus, unless earlier redeemed. The
Warrants are redeemable by the Company, at $.25 per Warrant, upon thirty days
written notice, if the closing bid price (as defined in the warrant agreement
(the "Warrant Agreement") between the Company and Registrar and Transfer
Company, as Warrant Agent (the "Warrant Agent") described below) per share of
Common Stock for the twenty consecutive trading days immediately preceding the
date notice of redemption is given equals or exceeds $ . If the Company
gives notice of its intention to redeem, a holder would be forced either to
exercise his or her Warrant before the date specified in the redemption notice
or accept the redemption price.
The Warrants will be issued in registered form under the Warrant Agreement.
The shares of Common Stock underlying the Warrants, when issued upon exercise of
a Warrant will be fully paid and nonassessable, and the Company will pay any
transfer tax incurred as a result of the issuance of Common Stock to the holder
upon its exercise.
The Warrants and the Representative's Warrant contain provisions that
protect the holders against dilution by adjustment of the exercise price. Such
adjustments will occur in the event, among others, that the Company makes
certain distributions to holders of its Common Stock. The Company is not
required to issue fractional shares upon the exercise of a Warrant or the
Representative's Warrant. The holder of a Warrant or the Representative's
Warrant will not possess any rights as a shareholder of the Company until such
holder exercises the Warrant or the Representative's Warrant.
A Warrant may be exercised upon surrender of the Warrant certificate
("Warrant Certificate") on or before the expiration date of the Warrant at the
offices of the Warrant Agent, with the form of "Election To Purchase" on the
reverse side of the Warrant Certificate completed and executed as indicated,
accompanied by payment of the exercise price (by certified or bank check payable
to the order of the Company) for the number of shares with respect to which the
Warrant is being exercised.
For a holder to exercise the Warrants, there must be a current registration
statement in effect with the Commission and qualification in effect under
applicable state securities laws (or applicable exemptions from state
qualifications requirements) with respect to the issuance of shares or other
securities underlying the Warrants. The Company has agreed to use all
commercially reasonable efforts to cause a registration statement with respect
to such securities under the Securities Act to be filed and to become and remain
effective in anticipation of and prior to the exercise of the Warrants and to
take such other actions under the laws of various states may be required to
cause the sale of Common Stock (or other securities) upon exercise of Warrants
to be lawful. If a current registration statement is not in effect at the time a
Warrant is exercised, the Company may at its option redeem the Warrant by paying
to the holder cash equal to the difference between the market price of the
Common Stock on the exercise date and the exercise price of the Warrant. The
Company will not be required to honor the exercise of Warrants if, in the
opinion of the Company's Board of Directors upon advice of counsel, the sale of
securities upon exercise would be unlawful.
The foregoing discussion of certain terms and provisions of the Warrants and
the Representative's Warrant is qualified in its entirety by reference to the
detailed provisions of the Warrant Agreement and the Representative's Warrant
certificate (the "Representative's Warrant Certificate"), the form of each of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
For the life of the Warrants and the Representative's Warrant, the holders
thereof have the opportunity to profit from a rise in the market price of the
Common Stock without assuming the risk of ownership of the shares of Common
Stock issuable upon the exercise of the Warrants. The Warrant holders may be
expected to exercise their Warrants at a time when the Company would, in all
likelihood, be able to obtain any needed capital by an offering of Common Stock
on terms more favorable than those provided for by
39
<PAGE>
the Warrants. Further, the terms on which the Company could obtain additional
capital during the life of the Warrants may be adversely affected.
OTHER WARRANTS
Warrants to purchase a total of 671,091 shares of Common Stock with exercise
prices ranging from $3.60 to approximately $9.00 per share (assuming an offering
price of $6.00 per Unit) are issued or issuable. All of said warrants are
currently exercisable, with the latest expiration date being March 2003.
All of the warrants and the Common Stock issuable upon exercise thereof are
restricted securities under the Securities Act and as such are subject to
restrictions on transfer, except for shares of Common Stock issuable upon
exercise of warrants which are being registered concurrently with this offering.
The holders of the warrants have demand and piggyback registration rights,
subject to certain conditions, whereupon the exercise of said registration
rights the Company is obligated to register the shares of Common Stock
acquirable upon the exercise of the warrants.
The warrants have antidilution provisions which provide for appropriate
adjustment to the exercise price and the number of shares of Common Stock
acquirable upon exercise in the event of stock splits, reverse stock rights,
stock dividends, reclassifications of the Company's securities, mergers or
consolidations or other similar events. Certain of the warrants also contain
price adjustment provisions in the event the Company issues Common Stock for a
consideration per share less than the exercise price in effect immediately prior
to such issuance.
PROMISSORY NOTES
The Company has outstanding $1,225,000 principal amount of promissory notes
issued September 15, 1997 bearing simple interest at a rate of 10%. In addition,
the Company has outstanding $641,800 and $320,000 principal amount of promissory
notes issued February 27, 1998 and March 16, 1998, respectively, bearing simple
interest at a rate of 12%. In the absence of an initial public offering, the
promissory notes are repayable in 24 equal monthly installments beginning June
30, 1998 (subject to six months extension at the election of a majority in the
principal amount of all noteholders). The Company intends to repay all principal
and interest under the promissory notes with a portion of the net proceeds from
this offering. Repayment of the notes are partially secured by a security
interest in the assets of the Company.
REGISTRATION RIGHTS
Registration rights agreements have been entered into with holders of
warrants and Preferred Stock of the Company. Such agreements provide that in
connection with a public offering of the Company's securities, the parties to
the agreement will not sell their shares of the Company for and during the
period beginning on the date that the Company executes an underwriting agreement
with respect to such offering and continuing to and including 180 days after the
date of the prospectus included in the registration statement under the
Securities Act for such offering.
The existence and exercise of such registration rights may hinder efforts by
the Company to arrange future financing for the Company and may have an adverse
effect on the market price of the Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Registrar
and Transfer Company. Its address is 10 Commerce Drive, Cranford, New Jersey
07016-3572, and its telephone number is (800) 456-0596.
40
<PAGE>
UNDERWRITING
The Underwriters named below, acting through Paulson Investment Company,
Inc., the Representative, have agreed, severally and not jointly, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase the
2,000,000 Units offered hereby (the "Firm Units") in the amounts set forth
below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER UNITS
- --------------------------------------------------------------------------------- ----------
<S> <C>
Paulson Investment Company, Inc..................................................
----------
Total........................................................................ 2,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the Firm Units if any Units are purchased. The Company has been
advised that the Underwriters propose to offer the Units to the public initially
at the offering price shown on the cover page of this Prospectus and to selected
dealers, including Underwriters, at that price less a concession to be
determined by the Representative. After the initial public offering of the
Units, the public offering price and other offering terms may be changed.
The Company has granted an over-allotment option, exercisable by the
Underwriters during the 45-day period after the date of this Prospectus, to
purchase up to 300,000 additional Units (the "Option Units") on the same terms
as are applicable to the Firm Units. The Underwriters may exercise this option
only to cover over-allotments in the sale of the Units.
The Underwriters will purchase the Units (including the Units subject to the
Underwriters' over-allotment option) at a discount equal to % of the initial
public offering price. The Representative will also receive a non-accountable
expense allowance equal to % of the aggregate initial public offering price
of the Units sold in this offering of which $35,000 has already been paid.
The Company has agreed to issue the Representative's Warrants to the
Representative. The Representative's Warrants will allow the Representative to
purchase up to 200,000 Units. The Representative's Warrants are exercisable for
a period of four years beginning one year from the date of this Prospectus, at a
price of $ per Unit (120% of the initial public offering price of the Units)
and are nontransferable for one year after the date of this Prospectus except
(i) to any of the Underwriters or to individuals who are either an officer or a
partner of an Underwriter or (ii) by will or the laws of descent and
distribution. The holders of the Representative's Warrants will have, in that
capacity, no voting, dividend or other shareholder rights. Any profits realized
on the sale of the securities issuable on exercise of the Representative's
Warrants may be deemed to be additional underwriting compensation.
The sale of the shares issuable upon exercise of the Representative's
Warrants could dilute the interests of the other holders of Common Stock, and
the existence of the Representative's Warrants may make the raising of
additional capital by the Company more difficult. At any time at which exercise
of the Representative's Warrants might be expected, it is likely that the
Company could raise additional capital on terms more favorable than the terms of
the Representative's Warrants.
The Underwriters have requested that all officers, directors and
shareholders of the Company, who own five percent or more of the outstanding
shares of Common Stock (on a fully diluted basis), agree not to sell any Common
Stock of the Company, pursuant to Rule 144 under the Securities Act or
otherwise,
41
<PAGE>
and the Company has agreed not to sell any Common Stock without the prior
written consent of the Representative, for a period of one year after the date
of this Prospectus.
In addition, the Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act, and to
contribute in certain events to any liabilities incurred by the Underwriters in
connection with the sale of the Units.
The Representative has advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of Common Stock on behalf
of the Underwriters to reduce a short position incurred by the Underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
Representative to reclaim the selling concession otherwise accruing to an
Underwriter or syndicate member in connection with the offering if the Common
Stock originally sold by such Underwriter or syndicate member is purchased by
the Representative in a syndicate covering transaction and has therefore not
been effectively placed by such Underwriter or syndicate member. The
Representative has advised the Company that such transactions may be effected on
the Nasdaq Small Cap Market or otherwise and, if commenced, may be discontinued
at any time.
Prior to the offering, there has been no public market for the Company's
securities. The initial public offering price for the Units will be determined
through negotiations between the Company and the Representative and will be
based on, among other things, the Company's financial condition, the prospects
of the Company and its industry in general, the management of the Company and
the market prices of securities of companies engaged in business similar to
those of the Company.
CERTAIN LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Shanley & Fisher, P.C., Morristown, New Jersey. Stoel Rives LLP,
Portland, Oregon has acted as counsel for the Underwriters with respect to
certain legal matters in connection with this offering.
EXPERTS
The financial statements of the Company as of December 31, 1997 and for each
of the years in the two-year period ended December 31, 1997 have been included
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1997
financial statements contains an explanatory paragraph that states that the
Company's recurring losses from operations and insufficient working capital
raise substantial doubt about the entity's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
SB-2 (the "Registration Statement") (which term shall encompass all amendments,
exhibits and schedules thereto) under the Securities Act with respect to the
Units offered hereby. This Prospectus, which constitutes part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, and to which reference is hereby
made. For further information with respect to the Company and the Common Stock,
reference is hereby made to the Registration Statement. Statements made in this
Prospectus as to
42
<PAGE>
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
Registration Statement can be inspected and copied at the Public Reference
Section of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices at Seven World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the Registration
Statement can be obtained from the Public Reference Section of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, the Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other documents filed electronically with the Commission, including the
Registration Statement.
43
<PAGE>
PHYTOTECH, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Balance Sheets as of December 31, 1997 and March 31, 1998 (unaudited)...................................... F-3
Statements of Operations for the years ended December 31, 1996 and 1997, and the three months ended March
31, 1997 and 1998 (unaudited)............................................................................ F-4
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1996 and 1997 and the three
months ended March 31, 1998 (unaudited).................................................................. F-5
Statements of Cash Flows for the years ended December 31, 1996 and 1997, and the three months ended March
31, 1997 and 1998 (unaudited)............................................................................ F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Phytotech, Inc.:
We have audited the accompanying balance sheet of Phytotech, Inc. as of
December 31, 1997, and the related statements of operations, stockholders'
equity (deficit), and cash flows for each of the years in the two-year 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 Phytotech, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for each
of the years in the two year period then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Phytotech, Inc. will continue as a going concern. As discussed in note 1 to the
financial statements, Phytotech, Inc. has suffered recurring losses from
operations and has insufficient working capital to fund its current operating
requirements. These factors raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in note 1. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
KPMG PEAT MARWICK LLP
Princeton, New Jersey
March 30, 1998, except as to the last two paragraphs of note 1,
which are as of April 21, 1998
F-2
<PAGE>
PHYTOTECH, INC.
BALANCE SHEETS
DECEMBER 31, 1997
AND MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 5)
Current assets:
Cash and cash equivalents............................................. $ 5,326 $ 47,326 $ 47,326
Grant and commercial receivables...................................... 172,009 237,530 237,530
------------ ----------- -----------
Total current assets.............................................. 177,335 284,856 284,856
Property and equipment, net (note 2).................................... 149,171 126,528 126,528
Deferred financing and offering costs, net (note 5)..................... 209,835 323,539 323,539
Other assets............................................................ 14,500 14,500 14,500
------------ ----------- -----------
$ 550,841 $ 749,423 $ 749,423
------------ ----------- -----------
------------ ----------- -----------
LIABILITIES AND DEFICIT IN STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 291,292 $ 326,069 $ 326,069
Accrued expenses (note 3)............................................. 645,995 647,500 647,500
Notes payable--related parties (note 4)............................... 229,000 229,000 229,000
Notes payable--current portion (note 5)............................... 306,250 459,375 459,375
Convertible notes payable--current portion (note 5)................... 77,090 360,675 360,675
------------ ----------- -----------
Total current liabilities......................................... 1,549,627 2,022,619 2,022,619
Notes payable, less current portion (note 5)............................ 918,750 765,625 765,625
Convertible notes payable, less current portion (note 5)................ 231,270 601,125 601,125
------------ ----------- -----------
Total liabilities................................................. 2,699,647 3,389,369 3,389,369
------------ ----------- -----------
Deficit in stockholders' equity (notes 1, 5, 6, 7, 8, 9, 11 and 12):
Series A convertible preferred stock, no par value, voting:
Authorized 10,000,000 shares; issued and outstanding 6,364,500
shares at December 31, 1997 and March 31, 1998 on an actual basis
and none on a pro forma basis (note 12) (aggregate liquidation
value $5,091,600 at December 31, 1997 and March 31, 1998 on an
actual basis and none on a pro forma basis)....................... 5,205,654 5,205,654 --
Voting common stock, no par value:
Authorized 30,000,000 shares in 1997; issued and outstanding 910,000
shares at December 31, 1997 and March 31, 1998 and 2,556,489 pro
forma shares at March 31, 1998.................................... 308,245 308,245 5,571,031
Non-voting common stock, no par value:
Authorized 1,111,111 shares; issued and outstanding 230,978 shares
and 232,156 shares at December 31, 1997 and March 31, 1998,
respectively and none on a pro forma basis........................ 56,352 57,132 --
Additional paid-in capital.............................................. 385,000 517,000 517,000
Deferred compensation (note 7).......................................... (366,000) (479,000) (479,000)
Accumulated deficit..................................................... (7,738,057) (8,248,977) (8,248,977)
------------ ----------- -----------
Total deficit in stockholders' equity............................. (2,148,806) (2,639,946) (2,639,946)
Commitments (notes 5, 8, 9 and 11)
------------ ----------- -----------
$ 550,841 $ 749,423 $ 749,423
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PHYTOTECH, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997, AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------ --------------------------
1996 1997 1997 1998
-------------- -------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Grant revenue....................................... $ 325,572 $ 270,936 $ 122,431 $ 116,942
Commercial revenue.................................. 67,897 190,516 3,500 73,088
-------------- -------------- ------------ ------------
393,469 461,452 125,931 190,030
-------------- -------------- ------------ ------------
Operating expenses:
Research and development (note 9)................... 1,768,334 2,199,590 460,117 345,226
General and administrative.......................... 1,157,754 1,189,560 360,239 324,857
-------------- -------------- ------------ ------------
2,926,088 3,389,150 820,356 670,083
-------------- -------------- ------------ ------------
Other income (expense):
Interest income..................................... 66,892 6,546 5,469 --
Interest expense.................................... -- (33,989) -- (30,867)
-------------- -------------- ------------ ------------
66,892 (27,443) 5,469 (30,867)
-------------- -------------- ------------ ------------
Net loss........................................ $ (2,465,727) $ (2,955,141) $ (688,956) $ (510,920)
-------------- -------------- ------------ ------------
-------------- -------------- ------------ ------------
Basic and diluted net loss per share (note 1)......... $ (2.18) $ (2.59) $ (.61) $ (.45)
-------------- -------------- ------------ ------------
-------------- -------------- ------------ ------------
Shares used in computing basic and diluted net loss
per share (note 1)................................... 1,132,733 1,140,478 1,135,289 1,141,066
-------------- -------------- ------------ ------------
-------------- -------------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PHYTOTECH, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND THE
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------
SERIES A CONVERTIBLE
PREFERRED STOCK VOTING NON-VOTING ADDITIONAL
-------------------- -------------------- ---------------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
--------- --------- --------- --------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........ 4,812,500 $3,426,113 1,010,000 $ 342,118 118,889 $ 15,039 $ -- $ --
Stock options exercised........... -- -- -- -- 3,733 1,680 -- --
Common stock awarded for services
(note 6)........................ -- -- -- -- 1,111 500 -- --
Issuance of Series A convertible
preferred stock, net of offering
costs (note 6).................. 1,452,000 1,654,541 -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- ----------- ----------- -------------
Balance at December 31, 1996........ 6,264,500 5,080,654 1,010,000 342,118 123,733 17,219 -- --
Stock options exercised........... -- -- -- -- 578 260 -- --
Common stock awarded for services
(note 6)........................ -- -- -- -- 6,667 5,000 -- --
Series A convertible preferred
stock issued for license (note
9).............................. 100,000 125,000 -- -- -- -- -- --
Conversion voting to non-voting
common stock.................... -- -- (100,000) (33,873) 100,000 33,873 -- --
Deferred compensation resulting
from the grant of options (note
7).............................. -- -- -- -- -- -- 385,000 (385,000)
Amortization of deferred
compensation (note 7)........... -- -- -- -- -- -- -- 19,000
Net loss.......................... -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- ----------- ----------- -------------
Balance at December 31, 1997........ 6,364,500 5,205,654 910,000 308,245 230,978 56,352 385,000 (366,000)
Stock options exercised
(unaudited)..................... -- -- -- -- 1,178 780 -- --
Deferred compensation resulting
from the grant of options
(unaudited) (note 7)............ -- -- -- -- -- -- 132,000 (132,000)
Amortization of deferred
compensation (unaudited) (note
7).............................. -- -- -- -- -- -- -- 19,000
Net loss (unaudited).............. -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- ----------- ----------- -------------
Balance at March 31, 1998
(unaudited)....................... 6,364,500 $5,205,654 910,000 $ 308,245 232,156 $ 57,132 $ 517,000 $(479,000)
--------- --------- --------- --------- --------- ----------- ----------- -------------
--------- --------- --------- --------- --------- ----------- ----------- -------------
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
------------ ----------
<S> <C> <C>
Balance at December 31, 1995........ $(2,317,189) $1,466,081
Stock options exercised........... -- 1,680
Common stock awarded for services
(note 6)........................ -- 500
Issuance of Series A convertible
preferred stock, net of offering
costs (note 6).................. -- 1,654,541
Net loss.......................... (2,465,727) (2,465,727)
------------ ----------
Balance at December 31, 1996........ (4,782,916) 657,075
Stock options exercised........... -- 260
Common stock awarded for services
(note 6)........................ -- 5,000
Series A convertible preferred
stock issued for license (note
9).............................. -- 125,000
Conversion voting to non-voting
common stock.................... -- --
Deferred compensation resulting
from the grant of options (note
7).............................. -- --
Amortization of deferred
compensation (note 7)........... -- 19,000
Net loss.......................... (2,955,141) (2,955,141)
------------ ----------
Balance at December 31, 1997........ (7,738,057) (2,148,806)
Stock options exercised
(unaudited)..................... -- 780
Deferred compensation resulting
from the grant of options
(unaudited) (note 7)............ -- --
Amortization of deferred
compensation (unaudited) (note
7).............................. -- 19,000
Net loss (unaudited).............. (510,920) (510,920)
------------ ----------
Balance at March 31, 1998
(unaudited)....................... $(8,248,977) $(2,639,946)
------------ ----------
------------ ----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PHYTOTECH, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997, AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------- ------------------------
1996 1997 1997 1998
------------- ------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $ (2,465,727) $ (2,955,141) $ (688,956) $ (510,920)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash compensation................................. 500 24,000 -- 19,000
Noncash license fee.................................. -- 125,000 -- --
Depreciation and amortization........................ 109,923 163,456 21,092 56,529
Changes in operating assets and liabilities:
(Increase) decrease in grant and commercial
receivables...................................... 26,788 (84,477) (1,089) (65,521)
(Increase) decrease in prepaid expenses............ 4,978 -- (12,842) --
(Increase) decrease in other assets................ (4,933) 5,573 5,573 --
Increase (decrease) in accounts payable and accrued
expenses......................................... (139,322) 709,217 157,303 36,282
------------- ------------- ----------- -----------
Net cash used in operating activities............ (2,467,793) (2,012,372) (518,919) (464,630)
------------- ------------- ----------- -----------
Cash flows from investing activities--purchase of
property and equipment.................................. (116,922) (15,664) (4,404) (5,386)
------------- ------------- ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable............................ -- 1,762,360 -- 653,440
Deferred financing and offering costs.................. -- (250,835) -- (142,204)
Proceeds from sale of Series A convertible preferred
stock and warrants, net.............................. 1,654,541 -- -- --
Proceeds from exercise of stock options................ 1,680 260 -- 780
------------- ------------- ----------- -----------
Net cash provided by financing activities........ 1,656,221 1,511,785 -- 512,016
------------- ------------- ----------- -----------
Net increase (decrease) in cash and cash equivalents..... (928,494) (516,251) (523,323) 42,000
Cash and cash equivalents at beginning of the period..... 1,450,071 521,577 521,577 5,326
------------- ------------- ----------- -----------
Cash and cash equivalents at end of the period........... $ 521,577 $ 5,326 $ (1,746) $ 47,326
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
Supplemental schedule of noncash financing activities:
Conversion of voting common stock to nonvoting common
stock................................................ $ -- $ 33,873 $ -- $ --
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
Series A convertible preferred stock exchanged for
technology license................................... $ -- $ 125,000 $ -- $ --
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
Deferred compensation.................................. $ -- $ 385,000 $ -- $ 132,000
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
PHYTOTECH, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(INFORMATION AS OF MARCH 31, 1998 AND WITH RESPECT TO THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Phytotech, Inc. (the "Company") was organized under the laws of the State of
New Jersey on April 15, 1993. Phytotech currently offers waste cleanup services
using plants grown under carefully controlled conditions to absorb and dispose
of unwanted metals, such as lead or uranium, from toxic waste sites. The Company
has also developed and is beginning to market nutritionally important minerals
absorbed into plants and is beginning to develop technology for the production
of high value proteins in plants.
Since inception, the Company has been engaged in organizational activities,
including raising capital and research and development activities, and in
completing certain studies utilizing its technology. There is no assurance that
the Company will be able to expand the market for its products in the future.
The Company has not yet achieved profitable operations, nor has it ever
generated positive cash flows from operations and there is no assurance that
profitable operations, if achieved, could be sustained on a continuing basis.
Further, the Company's future operations are dependent on the success of the
Company's efforts to raise additional capital, such as the initial public
offering of voting common stock and warrants contemplated herein (the
"Offering"), its research and commercialization efforts, and ultimately, the
market acceptance of the Company's products.
The accompanying financial statements have been prepared on a going-concern
basis which contemplates the continuation of operations, realization of assets
and liquidation of liabilities in the ordinary course of business. The Company
incurred net losses of $2,465,727 and $2,955,141 for the years ended December
31, 1996 and 1997, respectively, and $510,920 (unaudited) for the three months
ended March 31, 1998 and has an accumulated deficit of $8,248,977 (unaudited) at
March 31, 1998. The net losses incurred by the Company have consumed working
capital and weakened the Company's financial position. The Company's ability to
continue in business is dependent upon its success in generating sufficient cash
flow from operations or obtaining additional financing. The Company is currently
attempting to complete an equity financing to raise additional capital through
the Offering. The Company's ability to continue as a going concern is dependent
upon the financing efforts being successful. There can be no assurance that
these efforts will be successful. The financial statements do not include any
adjustments relating to the recoverability and classifications of reported asset
amounts or the amounts of liabilities that might result from the outcome of that
uncertainty.
USE OF ESTIMATES
Management of the Company has made certain estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes
in conformity with generally accepted accounting principles. Actual results
could differ from these estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash and are so near their maturity
(three months or less) that they present insignificant
F-7
<PAGE>
PHYTOTECH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
risk of changes in value because of changes in interest rates. Cash equivalents
are recorded at cost, which approximates market, and include certain
money-market funds.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment is computed using the straight-line method over the
estimated useful lives of the respective assets (ranging from three to ten
years), or the lease term, whichever is less. Maintenance and repairs are
charged to operations as incurred.
The Company reviews long-lived assets for impairment whenever events or
changes in business circumstances occur that indicate that the carrying amount
of the assets may not be recoverable. The Company assesses the recoverability of
long-lived assets held and to be used based on undiscounted cash flows, and
measures the impairment, if any, using discounted cash flows.
DEFERRED FINANCING AND OFFERING COSTS
Debt offering costs are deferred and amortized based on a straight-line
method over the life of the related notes payable. Cost associated with the
Offering of approximately $70,000 (unaudited) have been deferred at March 31,
1998 and have not been amortized. These costs will be reclassified to equity
upon the successful completion of the Offering or expensed if the Offering is
unsuccessful.
REVENUE RECOGNITION
Payments due under research grants and commercial revenue agreements are
recognized as revenue when the related research expenses are incurred and the
Company's specific performance obligations under the terms of the respective
contracts are satisfied. Revenue recognized in the accompanying financial
statements is not subject to repayment. Payments, if any, received in advance of
performance under the agreements are deferred and recognized as revenue when
earned. Future losses, if any, on contracts are recognized in the period when
identified by the Company.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are expensed as incurred.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
of accounting. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and the benefits
arising from operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates and laws that will be in
effect for the years in which those differences are expected to reverse. The
measurement of deferred tax assets is reduced, if necessary, by a valuation
allowance for any tax benefits which are not expected to be realized. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
the period that such tax rate changes are enacted.
F-8
<PAGE>
PHYTOTECH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for its stock option issuances in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. As such, deferred
compensation is recorded to the extent that the current market value of the
underlying stock exceeds the exercise price on the date both the number of
shares and the price per share are known (measurement date). Such deferred
compensation is amortized over the respective vesting periods of such option
grants. On January 1, 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which permits entities to continue to apply the
provisions of APB Opinion No. 25 for financial statement reporting purposes and
provide pro forma net loss and net loss per share disclosures for employee
(including director) stock option grants as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 for financial statement reporting
purposes and to provide the pro forma disclosures required by SFAS No. 123.
Transactions with non-employees, in which goods or services are the
consideration received for the issuance of equity instruments, are accounted for
under the fair-value based method defined in SFAS No. 123.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of its receivables. The Company's grant and
commercial receivables are due from the U.S. Department of Defense and various
academic and private institutions. As of December 31, 1997, the Company believes
it has no significant concentration of credit risk with its receivables.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's short-term financial instruments
approximates their carrying value due to the short maturity of those
instruments. The fair value of notes payable approximates their carrying value
due to the short period since their issuance.
EQUITY SECURITY TRANSACTIONS
Since inception, the Company's Board of Directors (the "Board") has
established the fair value of common stock, Series A convertible preferred
stock, stock options and warrants based upon facts and circumstances existing at
the dates such equity transactions occurred, including the price at which equity
instruments were sold to independent third parties.
NET LOSS PER SHARE
Net loss per share is computed in accordance with SFAS No. 128, "Earnings
Per Share." Weighted average common shares outstanding includes both the voting
and non-voting shares of common stock. Outstanding convertible preferred stock,
convertible notes payable, stock options and warrants (see notes 5, 6, 7 and 8)
have not been used in computing diluted net loss per share because to do so
would be anti-dilutive. As such the numerator (net loss) and the denominator
(weighted average shares outstanding), used in computing both basic and diluted
net loss per share are equal. During the periods presented herein, the Company
did not make any nominal issuances of equity securities as discussed in
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 98.
F-9
<PAGE>
PHYTOTECH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
The following pro forma basic and diluted loss per share and the pro forma
weighted average number of shares outstanding has been presented reflecting
conversion of the Series A convertible preferred stock into 1,414,333 shares of
voting common stock (see notes 6 and 12) using the if converted method from
their respective dates of issuance:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ -------------
<S> <C> <C>
Pro forma basic and diluted net loss per share.................. $ (1.16) $ (0.20)
------------ -------------
------------ -------------
Shares used in computing pro forma basic and diluted net loss
per share..................................................... 2,545,113 2,555,399
------------ -------------
------------ -------------
</TABLE>
PRO FORMA BALANCE SHEET (UNAUDITED)
Upon the effectiveness of the Offering, all of the outstanding shares of
non-voting common stock convert into 232,156 shares of voting common stock and
all outstanding shares of Series A convertible preferred stock convert into
1,414,333 shares of voting common stock (see notes 6 and 12). The unaudited pro
forma presentation of the March 31, 1998 balance sheet has been prepared
assuming the conversion of the Series A convertible preferred stock and the
non-voting common stock into voting common stock as of March 31, 1998, the most
recent balance sheet included in the accompanying financial statements.
UNAUDITED FINANCIAL STATEMENTS
The balance sheet at March 31, 1998, the statements of operations and cash
flows for the three months ended March 31, 1997 and 1998 and the statement of
stockholders' equity (deficit) for the three months ended March 31, 1998 are
unaudited. In the opinion of management of the Company, such unaudited financial
statements include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of financial results for these periods. The
results of operations for the three months ended March 31, 1998 are not
necessarily indicative of results to be expected for the entire fiscal year.
REVERSE STOCK SPLIT
On April 21, 1998, the Board authorized a 1:4.5 reverse stock split of its
voting and non-voting common stock. All voting and non-voting common shares and
per share amounts in the accompanying financial statements (except as to noted)
have been retroactively adjusted to reflect this reverse stock split.
AUTHORIZED SHARES
As a result of the reverse stock split and certain actions approved by the
Board on April 21, 1998, the Company's authorized capital stock consists of
30,000,000 shares of voting common stock, 10,000,000 shares of Series A
convertible preferred stock and 1,111,111 non-voting common stock. Given the
interrelated nature of these actions, these authorized shares have been
reflected on the balance sheet.
F-10
<PAGE>
PHYTOTECH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
1998
DECEMBER 31, ------------
1997
------------ (UNAUDITED)
<S> <C> <C>
Leasehold improvements........................................... $ 169,575 $ 169,575
Lab equipment.................................................... 176,482 179,450
Computers........................................................ 57,561 59,979
Furniture and fixtures........................................... 42,617 42,617
------------ ------------
446,235 451,621
Less accumulated depreciation and amortization................... 297,064 325,093
------------ ------------
$ 149,171 $ 126,528
------------ ------------
------------ ------------
</TABLE>
(3) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
1998
DECEMBER 31, ------------
1997
------------ (UNAUDITED)
<S> <C> <C>
Research expenditures (note 9)................................... $ 349,000 $ 330,500
Interest......................................................... 33,989 64,863
Professional fees................................................ 263,006 252,137
------------ ------------
$ 645,995 $ 647,500
------------ ------------
------------ ------------
</TABLE>
(4) RELATED PARTIES
During 1997, the Company executed promissory notes with certain directors
and an officer aggregating $229,000 payable on demand. Interest on these notes
is approximately 5%.
During 1997, in connection with both private note offerings (see note 5),
the Company paid fees of approximately $200,000 (approximately $260,000 in total
upon completion of the second private note offering on March 16, 1998) and is
obligated to issue warrants (see note 5) to the placement agent who employs one
of the Company's directors.
(5) NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
In 1997, the Company through a private offering and issued promissory notes
aggregating $1,225,000 and warrants to purchase 54,444 shares of voting common
stock. The Company received net proceeds after offering costs of $1,017,000. The
notes bear total interest of 10% regardless of the period the principal is
outstanding. The notes are secured by the assets of the Company and are
repayable starting at the earlier of (i) seven days after receipt of proceeds
from an initial public offering or (ii) June 30, 1998 in equal payments over a
24 month period (subject to extension for a period of six months at the option
of the majority in principal amount of all note holders). The warrants are
exercisable at $2.50 (pre-reverse-split) (to be subsequently adjusted upon the
effectiveness of the offering based upon a formula contained in the
F-11
<PAGE>
PHYTOTECH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE (CONTINUED)
warrant agreements) from the date of offering to five years after the offering
date. No value was ascribed to the warrants based on the fair value as
determined by a Black Scholes option pricing model calculation.
In December 1997, the Company began a private offering of convertible
promissory notes and warrants to purchase shares of voting common stock. As of
December 31, 1997, the private offering was ongoing. The Company received gross
proceeds of $308,360 and net proceeds after offering costs of $277,525 in 1997.
The Company completed the private offering on March 16, 1998 for $961,800 of
cumulative gross proceeds and net cumulative proceeds after offering costs of
approximately $850,000.
The notes bear total interest of 12% regardless of the period the principal
is outstanding. The notes are secured by the assets of the Company and are
repayable at the earlier of (i) seven days after receipt of proceeds from an
initial public offering or (ii) June 30, 1998 (subject to extension for a period
of six months at the option of the majority in principal amount of all note
holders) in equal payments over a 24 month period. The notes are convertible
into voting common stock at the holders' option upon stated written notice prior
to the dates above on which repayment is triggered. Upon conversion, the holder
will receive a defined number of shares of common stock based on a computation
described in the note agreements. For those note holders who elect conversion,
any beneficial conversion feature will be recorded as additional interest
expense at that time.
In addition, the Company is obligated to issue 20,578 warrants at December
31, 1997 (64,120 total warrants upon completion of the private offering, which
were issued during the three months ended March 31, 1998) to investors. The
warrants are exercisable at $2.50 (pre-reverse-split) (to be subsequently
adjusted upon the effectiveness of the Offering based upon a formula contained
in the warrant agreements) from the offering date to five years after the
offering date. No value was ascribed to the warrants based on the fair value as
determined by a Black Scholes option pricing model calculation.
The Company has agreed to issue 269,658 warrants to purchase voting common
stock to the placement agent as total warrant consideration in connection with
both private offering. The exercise price of the warrants will be 150% of the
price in an initial public offering of the Company's common stock and will have
a five year term.
(6) CAPITAL STOCK
In the event of any liquidation, dissolution, or winding up of the Company,
the holders of preferred stock are entitled to receive out of assets of the
Company available for distribution to stockholders, after satisfaction of
indebtedness but before any distribution of assets is made to holders of common
stock, liquidating distributions in the amount of $.80 per share, plus declared
and unpaid dividends, if any.
Subject to the dividend rights of holders of the preferred stock, holders of
common stock are entitled to any dividend declared by the Board out of funds
legally available for such purpose, and, after the payment of the $.80 per share
liquidation preference to holders of preferred stock ($5,091,600 in the
aggregate), holders of common stock are entitled to receive on a pro rata basis
all remaining assets of the
F-12
<PAGE>
PHYTOTECH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) CAPITAL STOCK (CONTINUED)
Company available for distribution to the stockholders in the event of the
liquidation, dissolution, or winding up of the Company. Holders of common stock
do not have any preemptive right to become subscribers or purchasers of
additional shares of any class of the Company's capital stock.
There is no optional conversion of preferred stock into common stock. On the
fifth anniversary of the closing date of the first private placement of
preferred stock which closed in November 1994 (the First Offering), shares of
preferred stock then outstanding will automatically be converted into shares of
common stock at a rate of one share of common stock for each share of preferred
stock (the Conversion Rate). Outstanding shares of preferred stock will also be
automatically converted into shares of common stock at the Conversion Rate (a)
upon the effectiveness of an underwritten public offering of common stock of the
Company pursuant to which common stock is offered to the public at a price of at
least $3.00 per share (pre-reverse-split), or (b) immediately prior to the
effectiveness of a consolidation or merger of the Company with or into another
corporation or any sale or transfer of all or substantially all of the assets of
the Company, pursuant to which holders of common stock (assuming the conversion
of all outstanding preferred stock into common stock at the Conversion Rate)
will receive cash, securities or property having a value (as determined by the
Company's Board) of at least $3.00 per share of common stock (pre-reverse-split)
(see note 12). The holder of any shares of preferred stock converted into common
stock in connection with such a public offering or other transaction will be
entitled to payment of all declared but unpaid dividends, if any, payable with
respect to such shares up to and including the date of the closing of such
public offering or other transaction.
Holders of preferred stock will not be entitled to receive dividends on the
preferred stock unless and until dividends are paid and declared on the common
stock. If dividends are paid on the common stock, holders of preferred stock
shall be entitled to receive dividends on the preferred stock at the same time
and at the rate per share of preferred stock based upon the shares of common
stock to which the holders of preferred stock would be entitled, if they had
converted the preferred stock and been holders of common stock on the record
date for such dividend on the common stock.
Each share of preferred stock will be entitled to one vote and will vote
together with the common stock.
The non-voting common stock is convertible into voting common stock at a 1:1
ratio in the event of a public offering of registered securities.
In 1996, the Company sold, in a confidential private offering, 1,452,000
shares of the Company's Series A convertible preferred stock for an aggregate
price of $1,815,000. Expenses relating to the private offering amounted to
$160,459 in agent fees and legal, accounting and printing costs.
In 1996 and 1997, employees exercised stock options for 3,733 and 578
shares, respectively, of non-voting common stock at exercise prices of $.45 per
share. For the three months ended March 31, 1998, employees exercised stock
options for 1,178 shares of non-voting common stock at an average exercise price
of $.66 per share (unaudited).
In 1996, a shareholder was awarded 1,111 shares of non-voting common stock
for services performed. Compensation expense of $500 was recorded which
represented the deemed fair value of the stock as determined by the Board. In
1997, an employee and consultant were awarded 6,667 shares of non-voting common
stock for services performed. Compensation expense totaling $5,000 was recorded
which represented the deemed fair value of the stock as determined by the Board.
F-13
<PAGE>
PHYTOTECH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) STOCK OPTIONS
On July 15, 1994, the Board adopted the Phytotech, Inc. Stock Option Plan
(the "Plan") which provides for the award of stock options to certain employees,
directors and outside consultants of the Company. The terms and conditions of
each award will be described in a separate agreement between the Company and the
individual recipient. The Plan is to be administered by the Board or by a
committee to whom they delegate such authority.
The shares of non-voting common stock that may be issued under the Plan
shall not exceed in the aggregate a maximum of 222,222 shares (on March 3, 1998,
the Board approved, subject to shareholder approval (see note 12) an increase in
the maximum number of shares to 555,556). Such shares shall be issued from
authorized and unissued shares or treasury stock. Except as otherwise provided
in the Plan, any shares subject to an option, which for any reason expires or is
terminated unexercised, shall again be available under the Plan. Unless
terminated earlier, the Plan shall terminate on July 15, 2004. No stock options
or rights under the Plan shall be granted thereafter. The Board, without
approval of the Company's stockholders, may at any time before that date
terminate the Plan.
The Company had outstanding 37,333 stock options at an exercise price of
$.45 as of December 31, 1995. In 1996, 26,067 options were granted at a $.45 per
share exercise price and 3,733 options were exercised at a $.45 per share
exercise price. In 1997, 174,333 options were granted at an exercise price of
$.68 per share, 578 options were exercised at $.45 per share and 13,578 options
were canceled. The outstanding options at December 31, 1997 were 219,844 with a
weighted average exercise price of $.63. Shares available for grant at December
31, 1997 were 2,378. The options vest at various times over the next five-year
period and expire 10 years from date of grant. At December 31, 1997, 31,422
options were exercisable with a $.68 exercise price and 22,356 options were
exercisable with a $.45 exercise price.
On October 1, 1997, the Company granted 142,222 options primarily to certain
officers and Board members. These options vest ratably on an annual basis over
five years and have an exercise price of $.68 per option. The difference between
the deemed fair value for financial statement purposes and the $.68 exercise
price at the grant date has been recorded as deferred compensation ($385,000)
and is being amortized over the aforementioned vesting period. For other option
grants in 1996 and 1997, the exercise price approximated the deemed fair value
of the common stock at the date of grant as determined by the Board. In
accordance with APB Opinion No. 25, no compensation cost has been recognized for
these employee stock options in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Net loss:
As reported......................................... $ (2,465,727) $ (2,955,141)
------------- -------------
------------- -------------
Pro forma........................................... $ (2,467,071) $ (2,968,141)
------------- -------------
------------- -------------
</TABLE>
The pro forma additional expense related to the 1996 and 1997 options is
being spread ratably over the five-year option vesting period.
The per-share, weighted-average fair value of stock options granted during
1996 and 1997 was approximately $.18 and $.32, respectively, on the date of
grant using the Black Scholes option-pricing
F-14
<PAGE>
PHYTOTECH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) STOCK OPTIONS (CONTINUED)
model with the following weighted-average assumptions: no expected dividend
yield, risk free interest rate of approximately 6.5%, expected life of ten years
and no volatility as the stock is not publicly traded.
On March 3, 1998, the Board granted, subject to shareholder approval to
increase the number of shares available under the Plan, 34,667 stock options to
certain employees. These options have an exercise price of $.68 per share and
vest over five years. The difference between the deemed fair value for financial
statement purposes and the $.68 exercise price at grant date has been recorded
as deferred compensation ($132,000) and is being amortized over the
aforementioned vesting period.
(8) WARRANTS
As of December 31, 1997, the Company has outstanding warrants to purchase
shares of voting common stock totaling 326,202 (all of which are exercisable) at
prices ranging from $.80 to $2.50 (pre-reverse split, some of which will
subsequently adjust upon effectiveness of the Offering based upon a formula
contained in the warrant agreements). These warrants were issued in connection
with the Series A convertible preferred stock sales (see note 6) and the
issuance of notes payable (see note 5). All warrants expire within the next five
years. As of March 31, 1998, outstanding warrants to purchase shares of voting
common stock totaled 401,433 (all of which are exercisable) with exercise prices
ranging from $.80 to $2.50 (unaudited) (subject to adjustments as above).
(9) RESEARCH AND LICENSE AGREEMENTS
During 1994, the Company entered into an initial three-year research
agreement with an academic institution (the "Institution") to perform certain
studies and field trials for the phytotreatment of heavy metals. Under the
research agreement the Company was to reimburse the Institution for all direct
and indirect costs, a total amount not to exceed approximately $1,100,000 over a
three-year period ending in 1997. In 1997, the agreement was extended for an
additional five years under which the Company has agreed to reimburse the
Institution for certain costs up to but not exceeding $500,000 in the aggregate.
The research agreement may be terminated by either party without any further
financial obligation by giving written notice to the other party of at least 90
days. Each of the studies has specific terms and conditions covering the
ownership of intellectual property conceived or discovered during the
performance of the work. Through December 31, 1997, $1,100,000 of research and
development expense under the initial agreement was incurred ($290,000 in 1996,
$250,000 in 1997 and $100,000 (unaudited) in the three months ended March 31,
1997). Under the 1997 extension, $49,000 of research and development expense was
incurred in 1997 and $21,000 (unaudited) was incurred for the three months ended
March 31, 1998. The Company is remitting payments to the Institution at certain
agreed-upon dates during the term of the agreement; $86,000 is scheduled to be
remitted in 1998.
In 1997, the Company entered into a license agreement with the same
Institution for certain technology previously discovered as well as newly
discovered technology under the extended research agreement. The license period
is through the individual patent expiration date. In exchange for the license,
the Company granted the Institution 100,000 shares of Series A convertible
preferred stock. The deemed fair value of this stock as determined by the Board
was $125,000 which has been expensed in the accompanying statement of
operations. The Company is also obligated to pay royalties on future net sales.
F-15
<PAGE>
PHYTOTECH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.............. $2,750,000
Research and development credit
carryforward................................ 119,000
Other......................................... 230,000
----------
Total deferred tax assets................. 3,099,000
Less valuation allowance...................... (3,099,000)
----------
Net deferred tax asset...................... $ --
----------
----------
</TABLE>
The valuation allowance previously noted offsets the deferred tax assets to
recognize the uncertainty of realizing such tax benefits. The net change in the
valuation allowance for the year ended December 31, 1997 was an increase of
$1,176,000, primarily related to additional net operating losses incurred by the
Company which are not currently deductible.
At December 31, 1997, the Company has available net operating loss
carryforwards (NOL) of approximately $6,875,000 for Federal and state income tax
reporting purposes which are available to offset future Federal and state
taxable income, if any. These carryforwards expire beginning in 2000 for state
tax purposes and 2008 for Federal tax purposes. The Company also has research
and development credit carryforwards of approximately $119,000 for Federal
income tax reporting purposes which are available to reduce Federal income
taxes, if any, through 2008. The Company made no payments of Federal or state
income taxes, other than minimum state tax payments, since inception.
The Tax Reform Act of 1986 (the Act) provides for a limitation on the annual
use of NOL and research and development tax credit carryforwards (following
certain ownership changes, as defined by the Act) which could significantly
limit the Company's ability to utilize these carryforwards. The Company has
experienced various ownership changes, as defined by the Act, as a result of
past financings and may experience others in connection with future financing.
Accordingly, the Company's ability to utilize the aforementioned carryforwards
may be limited. Additionally, because U.S. 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 income tax purposes.
(11) COMMITMENTS
In December 1997, the Company entered into an agreement with a consultant
whereby he was granted 11,111 warrants during the three months ended March 31,
1998, which were issued during the three months ended March 31, 1998, to
purchase voting common stock at $2.00 (pre-reverse split) (subsequently adjusted
upon the effectiveness of Offering based upon a formula in the warrant
agreement). The warrants have a five year term. No value was ascribed to the
warrants based on the fair value as determined by a Black Scholes option pricing
model calculation. An additional warrant to purchase 44,444 voting common shares
will be issued if certain performance criteria is met. The Company will also pay
$2,000 per month for 5 months in connection with this agreement.
On May 17, 1996, the Company's president and chief executive officer
executed a three year employment agreement at a base salary of $120,000 per
year. A performance bonus of $15,000 was paid to him in 1996 (none in 1997). In
addition, under the agreement he received stock options for 10,000 shares of
non-voting common stock at an exercise price of $.45 per share vesting over a
three year period.
F-16
<PAGE>
PHYTOTECH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(11) COMMITMENTS (CONTINUED)
The Company has entered into various other consulting agreements with
individuals to perform consulting services on behalf of the Company. Forms of
compensation vary between the payment of cash and granting of stock of the
Company, as approved by the Board. All consulting agreements contain provisions
that protect confidential information, proprietary data and intellectual
property of the Company. In the event that the consultant is deemed the sole
inventor of any intellectual property conceived during the terms of the
consulting agreement which is assigned to the Company, and the Company, at its
sole discretion and expense, obtains issued patents for the intellectual
property, the consultant shall receive a royalty from the Company during the
life of the patent equal to 5% of the portion of the gross revenues earned
attributable to the patented product, process or method invented by the
consultant, or a royalty of 2% in the event the consultant is deemed a
co-inventor of the patented technology (or a percentage mutually agreed upon by
the parties as a royalty if there are more than two co-inventors). Each
consultant has agreed that he will not be entitled to any additional
compensation by law or otherwise beyond that to which he is entitled under the
consulting agreement for any intellectual property.
In 1997, the Company entered into a cooperative research agreement whereby
the Company is obligated to perform certain services valued in the aggregate at
$150,000 in 1998 and 1999.
The Company rents certain equipment and leases, laboratory and office space
under various noncancelable operating lease agreements. Future minimum lease
payments under noncancelable leases as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................. $ 102,675
1999.............................................. 98,938
2000.............................................. 16,538
---------
$ 218,151
---------
---------
</TABLE>
Rental expense for all operating leases amounted to approximately $182,000
for the year ended December 31, 1997.
(12) SUBSEQUENT EVENTS (UNAUDITED)
INITIAL PUBLIC OFFERING
On April 21, 1998, the Board authorized the filing of a registration
statement for the Offering with the SEC for the sale of up to 2,300,000 units
(including 300,000 for the underwriter's overallotment option) consisting of one
share of common stock and a warrant to purchase one share of common stock. All
shares of Series A convertible preferred stock and the non-voting common stock,
assuming effectiveness of the Offering, outstanding as of the closing date of
the Offering will convert into shares of voting common stock on a 1:.22 basis
and 1:1 basis, respectively.
AUTOMATIC CONVERSION
In April 1998, the Board and stockholders approved the removal of a
provision of the Series A convertible preferred stock requiring that the
offering price be above $3.00 (pre-reverse split) (subject to adjustment for
stock splits, combinations and similar events) to automatically convert into
voting common stock in an underwritten public offering.
AUTHORIZED SHARES--STOCK OPTION PLAN
In April 1998, the Board and stockholders approved an increase in the number
of shares of stock reserved for issuance under the Plan to 555,556.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THIS DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 11
Dividend Policy................................ 11
Dilution....................................... 12
Capitalization................................. 13
Selected Financial Data........................ 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 15
Business....................................... 18
Management..................................... 32
Certain Transactions........................... 36
Principal Shareholders......................... 37
Description of Securities...................... 37
Underwriting................................... 41
Certain Legal Matters.......................... 42
Experts........................................ 42
Additional Information......................... 42
Financial Statements........................... F-1
</TABLE>
2,000,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE COMMON STOCK PURCHASE
WARRANT
[LOGO]
PHYTOTECH, INC.
---------------------
PROSPECTUS
---------------------
PAULSON INVESTMENT COMPANY, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Phytotech is organized under the laws of the State of New Jersey. The New
Jersey Business Corporation Act, as amended (the 'Act'), provides that a New
Jersey corporation has the power generally to indemnify its directors, officers,
employees and other agents against expenses and liabilities in connection with
any proceeding involving such person by reason of his being a corporate agent,
other than a proceeding by or in the right of the corporation, if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal proceeding, such person had no reasonably cause to believe his conduct
was unlawful. In the case of an action brought by or in the right of the
corporation, indemnification of directors, offers, employees and other agents
against expenses permitted if such person acted in good faith an in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, however, no indemnification is permitted in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation, unless and only to the extent that the New Jersey Superior
Court, or the court in which such proceeding was brought, shall determine upon
application that despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to such
indemnification. Expenses incurred by a director, officer, employee or other
agent in connection with a proceeding as authorized by the board of directors.
The power to indemnify and advance expenses under the Act does not exclude other
rights to which a director, officer, employee or other agent of the corporation
may be entitled to under the certificate of incorporation, by-laws, agreement,
vote of shareholders, or otherwise provided that no indemnification is permitted
to be made to or on behalf of such person if a judgment or other final
adjudication adverse to such person establishes that his acts or omissions were
in breach of his duty of loyalty to the corporation, were not in good faith or
involved in violation of the law, or resulted in the receipt by such person of
an improper personal benefit.
Under the Act, a New Jersey corporation has the power to purchase and
maintain insurance on behalf of any director, officer, employee or other agent
against any expenses incurred in any proceeding and any liabilities asserted
against him by reason of his being or having been a corporate agent, whether or
not the corporation has the power to indemnify him against such expenses and
liabilities under the Act. All powers granted to a New Jersey corporation
discussed above may be exercised by such corporation notwithstanding the absence
of any provision in its certificate of incorporation or by-laws authorizing the
exercise of such powers. However, a New Jersey corporation may, with certain
limitations, provide in its certificate of incorporation that a director or
officer shall not be personally liable, or shall be liable only to the extent
therein provided, to the corporation or its shareholders for damages for breach
of any duty owed to the corporation or its shareholders.
The Company's Amended and Restated Certificate of Incorporation of. (the
'Certificate of Incorporation') provides in Article SIXTH, a director or officer
of Phytotech shall not be personally liable to the Corporation or its
shareholders for damages for breach of duty as director or officer, except to
the extent and for the duration of any period of time such personal liability
may not be eliminated or limited under the Act as the same exists, or may
hereafter be amended.
The Certificate of Incorporation further provides in Article SEVENTH all
corporate officers, directors, employees and agents shall be indemnified to the
full extent permitted by law. Such indemnification may be funded through
insurance or otherwise as authorized by the Board of Directors.
Section Seven of the Company's Amended and Restated By-Laws. provides that
the corporation shall indemnify to the full extent permitted by law any person
made, or threatened to be made, a party to an action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that
II-1
<PAGE>
he, his testator or interstate is or was a director, officer, employee or as
such at the request of the corporation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration fee-Securities and Exchange Commission..................... $ 8,921
Representative's non-accountable expense allowance......................
National Association of Securities Dealers, Inc. fee.................... 3,524
Printing and engraving expenses.........................................
Accounting fees and expenses............................................
Legal fees and expenses.................................................
Blue Sky fees and expenses.............................................. 46,000
Transfer agent fees and expenses........................................
Miscellaneous expenses..................................................
---------
TOTAL............................................................... $
---------
---------
</TABLE>
All of the foregoing estimated expenses are being borne by Phytotech, Inc.
(the "Registrant").
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES.
(a) On December 14, 1995, the Company concluded a private offering of an
aggregate of 10 units to the accredited investors named below at an offering
price of $110,000 per unit, for an aggregate consideration of $1,100,000. Each
unit consists of 100,000 shares of Series A Voting Preferred Stock, no par value
(the "Preferred Stock"). A total of 1,000,000 shares of Preferred Stock were
issued.
<TABLE>
<CAPTION>
# OF UNITS
NAME ISSUED CONSIDERATION
- ----------------------------------------------------------------------------- ---------------- -------------
<S> <C> <C>
James W. Scott and Gwendolyn B. Scott........................................ 1.00 $ 110,000
Allen C. Weiss, M.D.......................................................... 1.25 $ 137,500
Anthony D. Finocchio and Wynette A. Finocchio................................ 1.00 $ 110,000
Calvin T. Simmons, II........................................................ .50 $ 55,000
John A. Joh, III............................................................. .50 $ 55,000
Ross Graham Walker, III...................................................... .50 $ 55,000
Jack L. LaBonte and Bernice L. LaBonte....................................... 1.00 $ 110,000
Harold E. Anderson, Trustee of the Harold E. Anderson Revocable Trust
Agreement dated 02/27/91................................................... .50 $ 55,000
Walter P. Cwynar, Sr. and Joanne Cwynar...................................... .75 $ 82,500
Dr. Bradley Neubert.......................................................... .50 $ 55,000
Michael A. Novio............................................................. .50 $ 55,000
Tom Richardson............................................................... .50 $ 55,000
Metropolitan Ear, Nose & Throat Associates Pension Plan FBO
Robert W. Clevenger, M.D................................................... .50 $ 55,000
Charles Waters............................................................... .50 $ 55,000
Edward W. LaCroix, Jr. (RPO)................................................. .50 $ 55,000
</TABLE>
(b) On June 20, 1996, the Company concluded a private offering of an
aggregate of 18.15 units to the accredited investors named below at an offering
price of $100,000 per unit, for an aggregate consideration
II-2
<PAGE>
of $1,815,000. Each unit consists of 80,000 shares of Preferred Stock. A total
of 1,452,000 shares of Preferred Stock were issued.
<TABLE>
<CAPTION>
# OF UNITS
NAME ISSUED CONSIDERATION
- ----------------------------------------------------------------------------- ---------------- -------------
<S> <C> <C>
Peter Ernest Walter Adam..................................................... .50 $ 50,000
Daniel T. Allen.............................................................. .50 $ 50,000
Mark Anderson................................................................ .25 $ 25,000
George W. Baker, Jr.......................................................... .25 $ 25,000
Ron Barshop.................................................................. .25 $ 25,000
Peter W. Bedford............................................................. .50 $ 50,000
Mark W. Corrigan............................................................. 1.00 $ 100,000
James B. Douglas............................................................. .50 $ 50,000
Armando Fernandez............................................................ .50 $ 50,000
IMS Global Investments X Ltd................................................. 2.00 $ 200,000
Roy H. Miyamoto.............................................................. 2.00 $ 200,000
Graham Noakes................................................................ .25 $ 25,000
John P. Owen................................................................. .125 $ 12,500
Jonathan Rothschild.......................................................... .50 $ 50,000
Robert H. Grossman........................................................... .50 $ 50,000
Venturtek, L.P............................................................... 1.00 $ 100,000
Randall M. Tuggle M.D.
LTD Money Purchase
Pension Plan FBO
R. Marcus Vennart Acct..................................................... .25 $ 25,000
Randall M. Tuggle M.D.
LTD Money Purchase
Pension Plan FBO
Randall M. Tuggle Acct..................................................... .25 $ 25,000
Robert H. Grossman DDS
LTD Profit Sharing Plan and Trust.......................................... .50 $ 50,000
Gary Spiegel BS Master
Def Cont M/P
Pension Plan
Oppenheimer & Co. Custodian................................................ 1.00 $ 100,000
DLJSC as Custodian FBO
David L. Spence Sep/IRA.................................................... .25 $ 25,000
VCM Venture Capital Management
and Beteiligungsgesellschaft m.b.H......................................... .65 $ 65,000
Aries Domestic Fund, L.P..................................................... .30 $ 30,000
The Aries Trust.............................................................. .70 $ 70,000
Baidek & Co.................................................................. 1.25 $ 125,000
Bank Gutmann A.G............................................................. .75 $ 75,000
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
# OF UNITS
NAME ISSUED CONSIDERATION
- ----------------------------------------------------------------------------- ---------------- -------------
<S> <C> <C>
Howard Bernstein............................................................. .75 $ 75,000
Graham C. Conklin............................................................ .125 $ 12,500
James A. and Frances B. Foley
JTWROS..................................................................... .125 $ 12,500
Paul M. Gavin................................................................ .25 $ 25,000
Steven Grau.................................................................. .25 $ 25,000
David P. Leonardi............................................................ .25 $ 25,000
William Maier................................................................ .125 $ 12,500
Alexander Sparkuhl........................................................... .25 $ 25,000
</TABLE>
(c) On September 15, 1997, the Company completed a private offering of an
aggregate 12.25 units to the accredited investors named below for an aggregate
consideration of $1,225,000, each unit consisting of (1) a non-negotiable
secured promissory note in the original amount of $100,000 bearing interest at
10% irrespective of the period of time principal is outstanding, due and payable
by the Company on June 30, 1998, (subject to extension at the option of the
majority in principal amount of all of the noteholders for a period of six (6)
months) and (2) warrants to purchase 20,000 shares of Common Stock of the
Company, which warrants are exercisable any time, in whole or in part, during
the period from and after September 15, 1997 through to and including September
15, 2002.
<TABLE>
<CAPTION>
# OF UNITS
NAME ISSUED CONSIDERATION
- ----------------------------------------------------------------------------- ---------------- -------------
<S> <C> <C>
Harold E. Anderson........................................................... .50 $ 50,000
Charles Beals................................................................ .50 $ 50,000
H. Richard Butker and Judith M. Mutker, Joint Tenant......................... .25 $ 25,000
James B. Douglas............................................................. .25 $ 25,000
William C. Gates............................................................. .50 $ 50,000
Arthur and Claire Gaucher, Joint Tenant...................................... .50 $ 50,000
Arthur Lang.................................................................. .25 $ 25,000
William Lightbody............................................................ 1.00 $ 100,000
Jon R. Lind.................................................................. 1.00 $ 100,000
John K. Lingo, M.D........................................................... .50 $ 50,000
John R. Manis, M.D........................................................... 2.00 $ 200,000
Frank J. Martusciello........................................................ .50 $ 50,000
Dave Pollak.................................................................. .25 $ 25,000
Carl M. Smith................................................................ .25 $ 25,000
Michael G. and Gerard C. Smith, Joint Tenant................................. .50 $ 50,000
David L. Spence.............................................................. .25 $ 25,000
Ron and Joy Tepner, Joint Tenant............................................. 1.00 $ 100,000
Christina Tranberg........................................................... .25 $ 25,000
Seymour Wasserstrum.......................................................... .50 $ 50,000
Charles Waters............................................................... .25 $ 25,000
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
# OF UNITS
NAME ISSUED CONSIDERATION
- ----------------------------------------------------------------------------- ---------------- -------------
<S> <C> <C>
Watts Investments, Inc....................................................... .25 $ 25,000
Samuel P. Willits............................................................ 1.00 $ 100,000
</TABLE>
(d) The Company completed on February 27, 1998 (with an extension to March
16, 1998) a private offering of an aggregate 9.618 units to the accredited
investors named below for an aggregate consideration of $961,800, each unit
consisting of (1) a non-negotiable secured promissory note in the original
amount of $100,000 bearing interest at 12% irrespective of the period of time
principal is outstanding, due and payable by the Company on June 30, 1998,
(subject to extension at the option of the majority in principal amount of all
of the noteholders for a period of six (6) months), and (2) warrants to purchase
30,000 shares of Common Stock of the Company, which warrants are exercisable, in
whole or in part, at any time during the period from and after February 27, 1998
(with respect to certain warrants) and March 16, 1998 (with respect to certain
warrants) through to and including February 27, 2003 and March 16, 2003,
respectively.
<TABLE>
<CAPTION>
# OF UNITS
NAME ISSUED CONSIDERATION
- ----------------------------------------------------------------------------- ---------------- -------------
<S> <C> <C>
Milton C. Dunsey and Donna Dunsey............................................ .245 $ 24,500
Anthony D. Finocchio and Wynette A. Finocchio................................ .873 $ 87,300
Joseph Gery and Karen M. Gery, JWROS......................................... .50 $ 50,000
William Toshio Matsuyama..................................................... .50 $ 50,000
James W. Scott and Gwendolyn B. Scott........................................ 2.405 $ 240,500
(Ms.) Teruko Terry Miyamoto Trust............................................ 1.00 $ 100,000
Allen C. Weiss, M.D.......................................................... .895 $ 89,500
Allison Gushee Molkenthin and Steven Mark.................................... .20 $ 20,000
Union D'Etudes et D'Investissments........................................... 3.00 $ 300,000
</TABLE>
The issuance described in paragraphs (a), (b), (c) and (d) above are exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof as transactions not involving a public offering.
II-5
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
1.2 Form of Purchase Warrant Issued to Paulson Investment Company, Inc. by the
Registrant.
3.1 Amended and Restated Certificate of Incorporation, as amended of the Registrant.*
3.2 Amended and Restated By-Laws of the Registrant.*
4.1 Specimen of Common Stock Certificate of Registrant.**
4.2 Form of Warrant Agreement between Registrant and Registrar And Transfer Company,
as Warrant Agent.*
4.3 Specimen Warrant Certificate of Registrant.**
5.1 Opinion of Shanley & Fisher, P.C.**
10.1 Employment Agreement, Effective May 17, 1996, between Registrant and Dr. Burt D.
Ensley.*
10.2 Exclusive License Agreement, Effective May 15, 1997, between the Registrant and
Rutgers.*
10.3 First Amendment to the Exclusive License Agreement, Effective April 12, 1998,
between the Registrant and Rutgers.**
10.4 Research Agreement, Effective December 7, 1994, as modified September 9, 1997,
between the Registrant and Rutgers.**
10.5 Agreement for Services, Effective February 1, 1998, between the Registrant and
Florida State University.**
10.6 Contract, Dated August 15, 1997, as amended March 3, 1998, between the Registrant
and the Department of Defense, U.S. Army.**
10.7 Subcontract Agreement, Effective August 15, 1997, between the Registrant and
Parsons Engineering Science, Inc.**
10.8 Subcontract Agreement, Dated October 15, 1996, between Rutgers and the
Registrant.**
10.9 Lease Agreement.**
10.10 Stock Option Plan.*
10.11 Promissory Note of $100,000, Dated May 26, 1997, from the Registrant to Dr. Burt
D. Ensley.*
10.12 Promissory Note of $4,000, Dated May 26, 1997, from the Registrant to Dr. Burt D.
Ensley.*
10.13 Promissory Note of $100,000, Dated May 26, 1997, from the Registrant to Dr.
Philip J. Whitcome.*
10.14 Promissory Note of $25,000, Dated May 26, 1997, from the Registrant to Abraham
Nechemie.*
23.1 Consent of KPMG Peat Marwick LLP*
23.2 Consent of Shanley & Fisher, P.C. (included in Exhibit 5.1)**
24.1 Powers of Attorney*
27 Financial Data Schedule for period ended March 31, 1998.*
27.1 Financial Data Schedule for period ended December 31, 1997.*
99.1 Form of Confidentiality Agreement*
99.2 Form of Non-Statutory Stock Option Agreement*
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S>
99.3 Form of Incentive Stock Option Agreement*
</TABLE>
- ------------------------
* Filed herewith
** To be filed by Amendment
ITEM 28. UNDERTAKINGS.
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act.
(ii) To reflect in the prospectus any fact or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate ,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriters to permit prompt delivery to each
purchaser.
(3) For determining liability under the Securities Act, to treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(4) To remove from the registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons of the
registrant, pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(6) For determining any liability under the Securities Act,, to treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 403A and contained in a form of
prospectus filed by the issuer under Rule 424(b)(1) or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(7) For determining any liability under the Securities Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Monmouth Junction,
State of New Jersey, on April 22, 1998.
<TABLE>
<S> <C> <C>
PHYTOTECH, INC.
By: /s/ BURT D. ENSLEY
------------------------------------------
Burt D. Ensley, PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE
- ------------------------------ --------------------------
/s/ BURT D. ENSLEY President and Chief
- ------------------------------ Executive Officer and
Burt D. Ensley Director
(Principal Executive
Officer)
/s/ ALEXANDER BALTOVSKI Chief Financial Officer
- ------------------------------ (Principal Accounting
Alexander Baltovski Officer)
* Director
- ------------------------------
Philip J. Whitcome
* Director
- ------------------------------
Laura R. Meagher
* Director
- ------------------------------
Ilya Raskin
* Director
- ------------------------------
Abraham H. Nechemie
* Director
- ------------------------------
Schneur Z. Genack
Director
- ------------------------------
Eric K. Johnson
* Burt D. Ensley hereby signs this Registration Statement on Form SB-2 on
behalf of each of the indicated persons for whom he is attorney-in-fact on April
22, 1998 pursuant to a power of attorney filed herewith.
By: /s/ BURT D. ENSLEY
-------------------------
Burt D. Ensley
ATTORNEY-IN-FACT
II-8
<PAGE>
EXHIBIT 1.1
2,000,000 Units
PHYTOTECH, INC.
UNDERWRITING AGREEMENT
____________, 1998
Paulson Investment Company, Inc.
As Representative of the
Several Underwriters
c/o Paulson Investment Company, Inc.
811 SW Front Avenue
Portland, Oregon 97204
Gentlemen:
Phytotech, Inc., a New Jersey corporation (the "Company"), proposes
to sell to the several underwriters (the "Underwriters") named in Schedule I
hereto for whom you are acting as Representative (the "Representative") an
aggregate of 2,000,000 Units (the "Firm Units"). Each Unit will consist of
one share of the Company's voting Common Stock ("Common Stock") and one
Common Stock Purchase Warrant substantially in the form filed as an exhibit
to the Registration Statement (hereinafter defined) ("Warrants"). The
respective number of the Firm Units to be so purchased by the several
Underwriters are set forth opposite their names in Schedule I hereto. The
Company also proposes to grant to the Representative an option to purchase in
aggregate up to 300,000 additional Units, identical to the Firm Units, (the
"Option Units") as set forth below.
As the Representative, you have advised the Company (a) that you are
authorized to enter into this Agreement for yourself as Representative and on
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm Units
set forth opposite their respective names in Schedule I. The Firm Units and the
Option Units (to the extent the aforementioned option is exercised) are herein
collectively called the "Units."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
-1-
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters as follows:
(a) A registration statement on Form SB-2 (File No. 333-_____) with
respect to the Units has been carefully prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462 (b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means (a) the form of prospectus first
filed with the Commission pursuant to Rule 424(b) or (b) the last preliminary
prospectus included in the Registration Statement filed prior to the time it
becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Units, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary
prospectus included in the Registration Statement prior to the time it becomes
effective is herein referred to as a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of New Jersey, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company does not own
and never has owned a controlling interest in any other corporation or other
business entity that has or ever has had any material assets, liabilities or
operations. The Company is duly qualified to transact business in all
jurisdictions in which the conduct of its business requires such qualification.
(c) The outstanding shares of each class or series of capital stock
of the Company have been duly authorized and validly issued and are fully paid
and non-assessable and have been issued and sold by the Company in compliance in
all material respects with applicable securities laws; upon the consummation of
the sale of the Units contemplated hereby, each class or series of capital stock
of the Company, other than Common Stock, will be converted into and will become
Common Stock in the manner set forth in the Registration Statement, and all
securities or other rights convertible into or exercisable for any class or
series of capital stock of the Company, other than Common Stock, shall
thereafter be convertible into or exercisable for, as the case may be, Common
Stock; the issuance and sale of the Units have
-2-
<PAGE>
been duly authorized by all necessary corporate action and, when issued and
paid for as contemplated herein, the Units will be validly issued, fully paid
and non-assessable; and no preemptive rights of stockholders exist with
respect to any security of the Company or the issue and sale thereof.
Neither the filing of the Registration Statement nor the offering or sale of
the Units as contemplated by this Agreement gives rise to any rights, other
than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock or other securities of the Company.
(d) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. The Common Stock conforms and the Warrants
and the Representative's Warrant will conform to the description thereof
contained in the Registration Statement. The forms of certificates for the
securities comprising the Units conform to the requirements of the corporate law
of New Jersey.
(e) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Units nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform, to the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will
not omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus and
any amendments and supplements thereto do not contain, and will not contain,
any untrue statement of material fact; and do not omit, and will not 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; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from
the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through the
Representative, specifically for use in the preparation thereof.
(f) The financial statements of the Company, together with related
notes and schedules as set forth in the Registration Statement, present fairly
the financial position and the results of operations and cash flows of the
Company at the indicated dates and for the indicated periods. Such financial
statements and related schedules have been prepared in accordance with generally
accepted principles of accounting, consistently applied throughout the periods
involved, except as disclosed herein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data of the Company included in the Registration Statement
presents fairly the information shown therein and such data has been compiled
on a basis consistent with the financial statements presented therein and the
books and records of the Company.
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(g) KPMG Peat Marwick LLP, who have certified certain of the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company before any court or
administrative agency or otherwise which if determined adversely to the Company
might result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.
(i) The Company has good and marketable title to all properties and
assets, tangible and intangible, reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except those reflected
in such financial statements (or as described in the Registration Statement) or
which are not material. The Company's ownership rights in its patents, patent
licenses and other material technology is consistent with (i) the description
thereof in the Registration Statement, and (ii) the business needs of the
Company. All of the leases and subleases under which the Company holds
properties are in full force and effect (with only such exceptions as are
commonly accepted by prudent companies engaged in the Company's business) and
the Company has not received notice of any material claim of any sort that has
been asserted by anyone materially adverse to the rights of the Company under
any of such leases or subleases, or affecting or questioning the rights of the
Company to the continued possession of the leased or subleased premises or
property under any such lease or sublease.
(j) The Company has filed all federal, state, local and foreign income
tax returns which have been required to be filed and have paid all taxes
indicated by said returns and all assessments received by it to the extent that
such taxes have become due and are not being contested in good faith. All tax
liabilities have been adequately provided for in the financial statements of the
Company.
(k) Since the respective dates as of which information is given in
the Registration Statement, as it may have been amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company, whether or not occurring in the
ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company, other than transactions in the ordinary course of business and
changes and transactions described in the Registration Statement, as it may be
amended or supplemented. The Company has no material
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contingent obligations which are not disclosed in the Company's financial
statements or elsewhere in the Prospectus which are included in the
Registration Statement.
(l) The Company is not, nor, with the giving of notice or lapse of
time or both, will it be, in violation of or in default under its Certificate of
Incorporation or By-Laws or under any agreement, lease, contract, indenture or
other instrument or obligation to which it is a party or by which it, or any of
its properties, is bound and which default is of material significance in
respect of the condition, financial or otherwise of the Company or the business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company. The execution and delivery of this
Agreement and the consummation of the transactions herein contemplated and the
fulfillment of the terms hereof will not conflict with or result in a breach of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which any member of
the Company is a party, or of the Certificate of Incorporation or by-laws of the
Company or any order, rule or regulation applicable to the Company of any court
or of any regulatory body or administrative agency or other governmental body
having jurisdiction.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Units for public offering by
the Underwriters under state securities or Blue Sky laws) has been obtained or
made and is in full force and effect.
(n) The Company holds all material patents, patent rights
trademarks, trade names, copyrights, trade secrets and licenses of any of the
foregoing (collectively, "Intellectual Property Rights") that are necessary
to the conduct of its businesses; there is no claim pending or, to the best
knowledge of the Company, threatened against any member of the Company
alleging any infringement of Intellectual Property Rights, or any violation
of the terms of any licence relating to Intellectual Property Rights, nor
does the Company know of any basis for any such claim. The Company knows of
no material infringement by others of Intellectual Property Rights owned by
or licensed to any member of the Company. The Company has obtained, is in
compliance in all material respect with and maintains in full force and
effect all material licenses, certificates, permits, orders or other, similar
authorizations granted or issued by any governmental agency (collectively
"Government Permits") required to conduct its business as it is presently
conducted. No proceeding to revoke, limit or otherwise materially change any
Government Permit has been commenced or, to the Company's best knowledge, is
threatened against the Company, and the Company has no reason to anticipate
that any such proceeding will be commenced against the Company. Except as
disclosed or contemplated in the Prospectus, the Company has no reason to
believe that any pending application for a
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Government Permit will be denied or limited in a manner inconsistent with the
Company's business plan as described in the Prospectus.
(o) The Company is in all material respects in compliance with all
applicable Environmental Laws. The Company has no knowledge of any past,
present or, as anticipated by the Company, future events, conditions,
activities, investigation, studies, plans or proposals that (i) would
interfere with or prevent compliance with any Environmental Law by the
Company or (ii) could reasonably be expected to give rise to any common law
or other liability, or otherwise form the basis of a claim, action, suit,
proceeding, hearing or investigation, involving the Company and related in
any way to Hazardous Substances or Environmental Laws. Except for the prudent
and safe use and management of Hazardous Substances in the ordinary course of
the Company's business, (i) no Hazardous Substance is or has been used,
treated, stored, generated, manufactured or otherwise handled on or at any
Facility and (ii) to the Company's best knowledge, no Hazardous Substance
has otherwise come to be located in, on or under any Facility. No Hazardous
Substances are stored at any Facility except in quantities necessary to
satisfy the reasonably anticipated use or consumption by the Company. No
litigation, claim, proceeding or governmental investigation is pending
regarding any environmental matter for which the Company has been served or
otherwise notified or, to the knowledge of the Company threatened or asserted
against the Company, or the officers or directors of any such member in their
capacities as such, or any Facility or the Company's business. There are no
orders, judgments or decrees of any court or of any governmental agency or
instrumentality under any Environmental Law which specifically apply to the
Company, any Facility or any of the Company's operations. The Company has not
received from a governmental authority or other person (i) any notice that it
is a potentially responsible person for any Contaminated site or (ii) any
request for information about a site alleged to be Contaminated or regarding
the disposal of Hazardous Substances. There is no litigation or proceeding
against any other person by the Company regarding any environmental matter.
The Company has disclosed in the Prospectus or made available to the
Underwriters and their counsel true, complete and correct copies of any
reports, studies, investigations, audits, analysis, tests or monitoring in
the possession of or initiated by the Company pertaining to any environmental
matter relating to the Company, its past or present operations or any
Facility.
For the purposes of the foregoing paragraph, "Environmental Laws" means
any applicable federal, state or local statute, regulation, code, rule,
ordinance, order, judgment, decree, injunction or common law pertaining in
any way to the protection of human health or the environment, including
without limitation, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Toxic Substances Control Act, the Clean Air Act, the Federal Water Pollution
Control Act and any similar or comparable state or local law; "Hazardous
Substance" means any hazardous, toxic, radioactive or infectious substance,
material or waste as defined, listed or regulated under any Environmental
Law; "Contaminated" means the actual existence on or under any real property
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of Hazardous Substances, if the existence of such Hazardous Substances
triggers a requirement to perform any investigatory, remedial, removal or
other response action under any Environmental Laws or if such response action
legally could be required by any governmental authority; "Facility" means
any property currently owned, leased or occupied by the Company.
(p) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or intends to take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Units.
(q) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940 and the rules and regulations
of the Commission thereunder.
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(s) The Company carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct of their respective
businesses and the value of their respective properties and as is customary for
companies engaged in similar industries.
(t) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA)
for which the Company would have any liability; the Company has not incurred
and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
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(u) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changes in
any material way, the Company will provide the Department notice of such
business or change, as appropriate, in a form acceptable to the Department.
(v) The Company is in material compliance with all laws, rules,
regulations, orders of any court or administrative agency, operating licenses or
other requirements imposed by any governmental body applicable to it, including,
without limitation, all applicable laws, rules, regulations, licenses or other
governmental standards applicable to the its business; and the conduct of the
business of the Company, as described in the Prospectus, will not cause the
Company to be in violation of any such requirements.
(w) Each of the Warrants and the Representative's Warrants (as
defined in Paragraph (d) of Section 2 hereof) have been authorized for issuance
to the purchasers thereof or to the Representative or its designees, as the case
may be, and will, when issued, possess rights, privileges, and characteristics
as represented in the most recent form of Warrants or Representative's Warrants,
as the case may be, filed as an exhibit to the Registration Statement; the
securities to be issued upon exercise of the Warrants and the Representative's
Warrants, when issued and delivered against payment therefor in accordance with
the terms thereof, will be duly and validly issued, fully paid, nonassessable
and free of preemptive rights, and all corporate action required to be taken for
the authorization and issuance of the Warrants and the Representative's
Warrants, and the securities to be issued upon their exercise, have been validly
and sufficiently taken.
(x) Except as disclosed in the Prospectus, neither the Company nor any
of its officers, directors or affiliates have caused any person, other than the
Underwriters, to be entitled to reimbursement of any kind, including, without
limitation, any compensation that would be includable as underwriter
compensation under the NASD's Corporate Financing Rule with respect to the
offering of the Units, as a result of the consummation of such offering based on
any activity of such person as a finder, agent, broker, investment adviser or
other financial service provider.
2. PURCHASE, SALE AND DELIVERY OF THE UNITS.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters
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<PAGE>
and each Underwriter agrees, severally and not jointly, to purchase, at a
price of $______ per Unit, the number of Firm Units set forth opposite the
name of each Underwriter in Schedule I hereof, subject to adjustments in
accordance with Section 9 hereof.
(b) Payment for the Firm Units to be sold hereunder is to be made in
New York Clearing House funds and, at the option of the Representative, by
certified or bank cashier's checks drawn to the order of the Company or bank
wire to an account specified by the Company against either uncertificated
delivery of Firm Units or of certificates therefor (which delivery, if
certificated, shall take place in such location in New York, New York as may be
specified by the Representative) to the Representative for the several accounts
of the Underwriters. Such payment is to be made at the offices of the
Representative at the address set forth on the first page of this agreement, at
7:00 a.m., Pacific time, on the third business day after the date of this
Agreement or at such other time and date not later than five business days
thereafter as you and the Company shall agree upon, such time and date being
herein referred to as the "Closing Date." (As used herein, "business day" means
a day on which the New York Stock Exchange is open for trading and on which
banks in New York are open for business and not permitted by law or executive
order to be closed.) Except to the extent uncertificated Firm Units are
delivered at closing, the certificates for the Firm Units will be delivered in
such denominations and in such registrations as the Representative requests in
writing not later than the second full business day prior to the Closing Date,
and will be made available for inspection by the Representative at least one
business day prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Representative to purchase the Option
Units at the price per Unit as set forth in the first paragraph of this Section
2. The option granted hereby may be exercised in whole or in part by giving
written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 45 days after the date of this Agreement, by the
Representative to the Company setting forth the number of Option Units as to
which the Representative is exercising the option, the names and denominations
in which the Option Units are to be registered and the time and date at which
certificate representing such Units are to be delivered. The time and date at
which certificates for Option Units are to be delivered shall be determined by
the Representative but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The option with respect to the Option Units granted hereunder may
be exercised only to cover over-allotments in the sale of the Firm Units by the
Underwriters. The Representative may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Company. To the
extent, if any, that the option is exercised, payment for the Option Units shall
be made on the Option Closing Date in New York Clearing House
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<PAGE>
funds and, at the option of the Representative, by certified or bank
cashier's check drawn to the order of the Company for the Option Units to be
sold by the Company or bank wire to an account specified by the Company
against delivery of certificates therefor at the offices of Paulson
Investment Company, Inc. set forth on the first page of this Agreement.
(d) In addition to the sums payable to the Representative as provided
elsewhere herein, the Representative shall be entitled to receive at the
Closing, for themselves alone and not as Representative of the Underwriters, as
additional compensation for their services, purchase warrants (the
"Representative's Warrants") for the purchase of up to 200,000 Units at a price
of $_____ per Unit, upon the terms and subject to adjustment and conversion as
described in the form of Representative's Warrants filed as an exhibit to the
Registration Statement.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Units as soon as the Representative deems it advisable to
do so. The Firm Units are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representative may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Units are purchased pursuant
to Section 2 hereof, the Representative will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representative for
the Underwriters in the offering and sale of the Units in accordance with an
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representative containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representative shall not
previously have been advised and furnished with a copy or to which the
Representative shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(b) The Company will advise the Representative promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective,
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(B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representative in endeavoring
to qualify the Units for sale under the securities laws of such jurisdictions as
the Representative may reasonably have designated in writing and will make such
applications, file such documents, and furnish such information as may be
reasonably required for that purpose, provided the Company shall not be required
to qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to file
such a consent. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to continue
such qualifications in effect for so long a period as the Representative may
reasonably request for distribution of the Units.
(d) The Company will deliver to, or upon the order of, the
Representative, from time to time, as many copies of any Preliminary Prospectus
as the Representative may reasonably request. The Company will deliver to, or
upon the order of, the Representative during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representative may
reasonably request. The Company will deliver to the Representative at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representative such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representative
may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Exchange Act, and the rules and regulations of the
Commission thereunder, so as to permit the completion of the distribution of the
Units as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus so that
the
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Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
(g) The Company will, for a period of five years from the Closing
Date, deliver to the Representative copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Securities
Exchange Act of 1934, as amended. The Company will deliver to the
Representative similar reports with respect to significant subsidiaries, as that
term is defined in the Rules and Regulations, which are not consolidated in the
Company's financial statements.
(h) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of one year after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of the Representative, which consent
will not be unreasonably withheld.
(i) The Company will use its best efforts to list, subject to notice
of issuance, the Units on The Nasdaq SmallCap Market.
(j) The Company has caused each officer and director and each person
who owns, beneficially or of record, 5% or more of the Common Stock outstanding
immediately prior to this offering to furnish to you, on or prior to the date of
this agreement, a letter or letters, in form and substance satisfactory to the
Underwriters ("Lockup Agreements"), pursuant to which each such person shall
agree (A) not to offer, sell, sell short or otherwise dispose of any shares of
Common Stock of the Company or other capital stock of the Company, or any other
securities convertible, exchangeable or exercisable for Common Stock or
derivatives of Common Stock owned by such person or request the registration for
the offer or sale of any of the foregoing (or as to which such person has the
right to direct the disposition of) for a period of one year after the date of
this Agreement, directly or indirectly, except with the prior written consent of
the Representative;
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and (B) to give prior written notice to the Representative for a period of
one year from the effective date of the Registration Statement, with respect
to any sales of Common Stock of the Company pursuant to Rule 144 under the
Securities Act or any similar rule.
(k) The Company shall apply the net proceeds of its sale of the Units
as set forth in the Prospectus and shall file such reports with the Commission
with respect to the sale of the Units and the application of the proceeds
therefrom as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Units in such a manner as would
require the Company or any of the Subsidiaries to register as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
(m) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
5. COSTS AND EXPENSES.
(a) The Representative shall be entitled to reimbursement from the
Company, for itself alone and not as Representative of the Underwriters, to a
non-accountable expense allowance equal to __% of the aggregate initial public
offering price of the Firm Units and any Option Units purchased by the
Underwriters. The Representative shall be entitled to withhold this allowance
on the Closing Date related to the purchase of the Firm Units or the Option
Units, as the case may be.
(b) In addition to the payment described in Paragraph (a) of this
Section 5, the Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the Company; the
cost of printing and delivering to, or as requested by, the Underwriters copies
of the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation
Letter, the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses (including legal fees and disbursements) incident to securing any
required review by the NASD) of the terms of the sale of the Units; the Listing
Fee of The Nasdaq Stock Market; and the expenses, including the
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fees and disbursements of counsel for the Underwriters, incurred in
connection with the qualification of the Units under State securities or Blue
Sky laws. Any transfer taxes imposed on the sale of the Units to the several
Underwriters will be paid by the Company. The Company agrees to pay all
costs and expenses of the Underwriters, including the fees and disbursements
of counsel for the Underwriters, incident to the offer and sale of directed
Units by the Underwriters to employees and persons having business
relationships with the Company. The Company shall not, however, be required
to pay for any of the Underwriters' expenses (other than those related to
qualification under NASD regulation and State securities or Blue Sky laws)
except that, if this Agreement shall not be consummated, then the Company
shall reimburse the several Underwriters for accountable out-of-pocket
expenses, including fees and disbursements of counsel, reasonably incurred in
connection with investigating, marketing and proposing to market the Units or
in contemplation of performing their obligations hereunder; but the Company
shall not in any event be liable to any of the several Underwriters for
damages on account of loss of anticipated profits from the sale by them of
the Units.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Units
on the Closing Date and the Option Units, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company contained
herein, and to the performance by the Company of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representative and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Units.
(b) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Shanley & Fisher,
counsel for the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that:
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(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of New Jersey,
with corporate power and authority to own or lease its properties and conduct
its business as described in the Registration Statement; the Company is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification, or in which the failure to qualify would
have a materially adverse effect upon the business of the Company.
(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus; the authorized
shares of the Company's Common Stock have been duly authorized; the outstanding
shares of the Company's Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable; all of the securities of the
Company conform to the description thereof contained in the Prospectus; each
class or series of capital stock of the Company, other than Common Stock,
outstanding prior to the effective date of the Registration Statement has been
converted into and has become Common Stock in the manner set forth in the
Registration Statement, and all securities or other rights formerly convertible
into or exercisable for any class or series of capital stock of the Company,
other than Common Stock, are now convertible into or exercisable for, as the
case may be, Common Stock; the certificates for the Common Stock and Warrants
are in due and proper form; the shares of Common Stock to be sold by the Company
pursuant to this Agreement, including shares of Common Stock to be sold as a
part of the Option Units, have been duly authorized and, upon issuance and
delivery thereof as contemplated in this Agreement and the Registration
Statement, will be validly issued, fully paid and non-assessable; no preemptive
rights of stockholders exist with respect to any of the Common Stock of the
Company or the issuance or sale thereof pursuant to any applicable statute or
the provisions of the Company's Certificate of Incorporation or By-laws or, to
such counsel's best knowledge, pursuant to any contractual obligation. The
Warrants and the Representative's Warrants have been authorized for issuance to
the purchasers of Units or the Representative, as the case may be, and will,
when issued, possess rights, privileges, and characteristics as represented in
the most recent form of Warrants or Representative's Warrants, as the case may
be, filed as an exhibit to the Registration Statement; the securities to be
issued upon exercise of the Representative's Warrants, when issued and delivered
against payment therefor in accordance with the terms of the Representative's
Warrants, will be duly and validly issued, fully paid, nonassessable and free of
preemptive rights, and all corporate action required to be taken for the
authorization and issuance of the Warrants, the Representative's Warrants, and
the securities to be issued upon their exercise, has been validly and
sufficiently taken.
(iii) Except as described in or contemplated by the Prospectus,
to the knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities
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convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of
the Company or any other person has the right, contractual or otherwise,
which has not been satisfied or effectively waived, to cause the Company to
sell or otherwise issue to them, or to permit them to underwrite the sale of,
any of the Units or the right to have any Common Stock or other securities of
the Company included in the Registration Statement or the right, as a result
of the filing of the Registration Statement, to require registration under
the Act of any shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and related schedules therein).
(vi) The statements under the captions "Risk Factors -- Shares
Eligible for Future Sale" and "Description of Securities" in the Prospectus and
in Item __ of the Registration Statement, insofar as such statements constitute
a summary of documents referred to therein or matters of law, fairly summarize
in all material respects the information called for with respect to such
documents and matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or the Prospectus which are not so filed or described
as required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all material
respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Certificate of Incorporation or By-laws of the
Company, or any agreement or instrument known to such counsel to which the
Company is a party or by which the Company may be bound.
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(x) Each of this Agreement and the Warrant Agreement by and
among the Company, the Warrantholders (defined therein) and Registrar and
Transfer Company, as trustee, has been duly authorized, executed and delivered
by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by State securities
and Blue Sky laws as to which such counsel need express no opinion) except such
as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
In rendering such opinion, such counsel may rely as to matters
governed by the laws of states other than New Jersey or Federal laws on local
counsel in such jurisdictions, provided that in each case such counsel shall
state that they believe that they and the Underwriters are justified in relying
on such other counsel. In addition to the matters set forth above, the opinion
of Shanley & Fisher shall also include a statement to the effect that nothing
has come to the attention of such counsel that has caused him to believe that
(i) the Registration Statement, at the time it became effective under the Act
(but after giving effect to any modifications incorporated therein pursuant to
Rule 430A under the Act) and as of the Closing Date or the Option Closing Date,
as the case may be, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not, and (ii) the Prospectus, or any supplement thereto, on
the date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein).
(c) The Representative shall have received from Stoel Rives LLP,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, substantially to the effect specified in
subparagraphs (i), (iv) and (v) of Paragraph (b) of this Section 6. In
rendering such opinion Stoel Rives LLP may rely as to all matters governed other
than by the laws of the State of Oregon or Federal laws on the opinion of
counsel referred to in Paragraph (b) of this Section 6. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel that has caused
them to believe that (i) the Registration Statement, or any amendment thereto,
as of the time it became effective under the Act (but after giving effect to
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any modifications incorporated therein pursuant to Rule 430A under the Act)
as of the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and
as of the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact, necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Stoel
Rives LLP may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(d) The Representative shall have received at or prior to the Closing
Date from Stoel Rives LLP a memorandum or summary, in form and substance
satisfactory to the Representative, with respect to the qualification for
offering and sale by the Underwriters of the Units under the State securities or
Blue Sky laws of such jurisdictions as the Representative may reasonably have
designated to the Company.
(e) The Representative, on behalf of the several Underwriters, shall
have received, on each of the dates hereof, the Closing Date and the Option
Closing Date, as the case may be, a letter dated the date hereof, the Closing
Date or the Option Closing Date, as the case may be, in form and substance
satisfactory to the Representative, of KPMG Peat Marwick LLP confirming that
they are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(f) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for such purpose have been taken or are, to
his knowledge, contemplated by the Commission;
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(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He or she has carefully examined the Registration Statement
and the Prospectus and, in his or her opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration Statement
were true and correct, and such Registration Statement and Prospectus did not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company, whether or not
arising in the ordinary course of business.
(g) The Company shall have furnished to the Representative such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representative may reasonably have requested.
(h) The Firm Units and Option Units, if any, have been approved for
designation upon notice of issuance on the Nasdaq SmallCap Market.
(i) The Lockup Agreements described in Section 4(j) are in full force
and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representative and to Stoel Rives LLP,
counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representative by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.
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In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Units required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to which
such Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse each Underwriter and
each such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Units, whether or not such Underwriter or
controlling person is a party to any action or proceeding; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representative
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained
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in the Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse any legal or
other expenses reasonably incurred by the Company or any such director,
officer or controlling person in connection with investigating or defending
any such loss, claim, damage, liability, action or proceeding; provided,
however, that each Underwriter will be liable in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission has been made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representative specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party and
shall pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing,
the indemnifying party shall pay as incurred (or within 30 days of presentation)
the fees and expenses of the counsel retained by the indemnified party in the
event (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them or (iii) the indemnifying party shall have failed to assume the defense and
employ counsel acceptable to the indemnified party within a reasonable period of
time after notice of commencement of the action. It is understood that the
indemnifying party shall 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 for all such indemnified parties. Such
firm shall
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be designated in writing by you in the case of parties indemnified pursuant
to Section 8(a) and by the Company in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent
of the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party
is an actual or potential party to such claim, action or proceeding) unless
such settlement, compromise or consent includes an unconditional release of
each indemnified party from all liability arising out of such claim, action
or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Units. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bears to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall 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 the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) 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 above in this Section 8(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
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damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 8(d) shall be deemed to include 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 subsection (d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Units purchased by such Underwriter, and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Units and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Units
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representative of the Underwriters, shall use your reasonable efforts to procure
within 36 hours thereafter one or more of the other Underwriters, or any others,
to purchase from the Company such amounts as may be agreed upon and upon the
terms set forth herein, the Firm Units or Option Units, as the case may be,
which the defaulting Underwriter or Underwriters failed to purchase. If during
such 36 hours
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you, as such Representative, shall not have procured such other Underwriters,
or any others, to purchase the Firm Units or Option Units, as the case may
be, agreed to be purchased by the defaulting Underwriter or Underwriters,
then (a) if the aggregate number of Units with respect to which such default
shall occur does not exceed 10% of the Firm Units or Option Units, as the
case may be, covered hereby, the other Underwriters shall be obligated,
severally, in proportion to the respective numbers of Firm Units or Option
Units, as the case may be, which they are obligated to purchase hereunder, to
purchase the Firm Units or Option Units, as the case may be, which such
defaulting Underwriter or Underwriters failed to purchase, or (b) if the
aggregate number of Firm Units or Option Units, as the case may be, with
respect to which such default shall occur exceeds 10% of the Firm Units or
Option Units, as the case may be, covered hereby, the Company or you as the
Representative of the Underwriters will have the right, by written notice
given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you,
as Representative, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Paulson Investment
Company, Inc., 811 SW Front Avenue, Portland, Oregon 97204, Attention: Chester
L.F. Paulson; with a copy to Stoel Rives LLP, 900 SW 5th Avenue, Portland,
Oregon 97204, Attention: John J. Halle; if to the Company, to Phytotech, Inc.,
1 Deer Park Drive, Suite 1, Monmouth Junction, New Jersey 08852 Attention: Burt
Ensley; with a copy to Shanley & Fisher, 131 Madison Avenue, Morristown, New
Jersey 07962, Attention: James H. Fries.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Units are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
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(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable to market the Units or to enforce contracts for the sale of the
Units, (iii) the Dow Jones Industrial Average shall have fallen by 15 percent or
more from its closing price on the day immediately preceding the date that the
Registration Statement is declared effective by the Commission, (iv) suspension
of trading in securities generally on the New York Stock Exchange or the
American Stock Exchange or limitation on prices (other than limitations on hours
or numbers of days of trading) for securities on either such Exchange, (v) the
enactment, publication, decree or other promulgation of any statute, regulation,
rule or order of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely affect the
business or operations of the Company, (vi) declaration of a banking moratorium
by United States or New York State authorities, (vii) any downgrading in the
rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g) under
the Exchange Act); (viii) the suspension of trading of the Company's common
stock by the Commission on the Nasdaq Stock Market or (ix) the taking of any
action by any governmental body or agency in respect of its monetary or fiscal
affairs which in your reasonable opinion has a material adverse effect on the
securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Units from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in
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any Prospectus or the Registration Statement consists of the information set
forth in the last paragraph on the front cover page (insofar as such
information relates to the Underwriters), legends required by Item 502(d) of
Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Units under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Oregon. All disputes relating to this Underwriting
Agreement shall be adjudicated before a court located in Multnomah county,
Oregon to the exclusion of all other courts that might have jurisdiction.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
PHYTOTECH, INC.
By:_______________________________
Burt Ensley, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
PAULSON INVESTMENT COMPANY, INC.
As Representative of the several
Underwriters listed on Schedule I
-26-
<PAGE>
By: ___________________________________
Authorized Officer
-27-
<PAGE>
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of Firm Units
Underwriter to be Purchased
----------- --------------------
<S> <C>
Paulson Investment Company, Inc.
---------
Total 2,000,000
</TABLE>
-28-
<PAGE>
EXHIBIT 1.2
THIS WARRANT HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
AND IS NOT TRANSFERABLE
EXCEPT AS PROVIDED HEREIN
PHYTOTECH, INC.
PURCHASE WARRANT
Issued to:
PAULSON INVESTMENT COMPANY, INC.
Exercisable to Purchase
200,000 Units
of
PHYTOTECH, INC.
<PAGE>
Void after ____________, 2002
2
<PAGE>
This is to certify that, for value received and subject to the terms and
conditions set forth below, the Warrantholder (hereinafter defined) is entitled
to purchase, and the Company promises and agrees to sell and issue to the
Warrantholder, at any time on or after __________, 1998 and on or before
__________, 2002, up to 200,000 Units (hereinafter defined) at the Exercise
Price (hereinafter defined).
This Warrant Certificate is issued subject to the following terms and
conditions:
1. DEFINITIONS OF CERTAIN TERMS. Except as may be otherwise clearly
required by the context, the following terms have the following meanings:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Cashless Exercise" means an exercise of Warrants in which, in lieu of
payment of the Exercise Price, the Holder elects to receive a lesser number of
Securities such that the value of the Securities that such Holder would
otherwise have been entitled to receive but has agreed not to receive, as
determined by the closing price of such Securities on the date of exercise or,
if such date is not a trading day, on the next prior trading day, is equal to
the Exercise Price with respect to such exercise. A Holder may only elect a
Cashless Exercise if the Securities issuable by the Company on such exercise are
publicly traded securities.
(c) "Closing Date" means the date on which the Offering is closed.
(d) "Commission" means the Securities and Exchange Commission.
(e) "Common Stock" means the common stock, no par value, of the Company.
(f) "Company" means Phytotech, Inc, a New Jersey corporation.
(g) "Company's Expenses" means any and all expenses payable by the Company
or the Warrantholder in connection with an offering described in Section 6
hereof, except Warrantholder's Expenses.
(h) "Effective Date" means the date on which the Registration Statement is
declared effective by the Commission.
(i) "Exercise Price" means the price at which the Warrantholder may
purchase one Unit upon exercise of Warrants as determined from time to time
pursuant to the provisions hereof. The initial Exercise Price is $____ per
Unit.
(j) "Offering" means the public offering of Units made pursuant to the
Registration Statement.
3
<PAGE>
(k) "Participating Underwriter" means any underwriter participating in the
sale of the Securities pursuant to a registration under Section 6 of this
Warrant Certificate.
(l) "Registration Statement" means the Company's registration statement
(File No. 333 -_____) as amended on the Closing Date.
(m) "Rules and Regulations" means the rules and regulations of the
Commission adopted under the Act.
(n) "Securities" means the securities obtained or obtainable upon exercise
of the Warrant or securities obtained or obtainable upon exercise, exchange, or
conversion of such securities.
(o) "Stock Derivative Securities" means the Common Stock included in the
Units issuable on exercise of Warrants or any Securities issuable in lieu of
such Common Stock pursuant to the provisions of Section 3.
(p) "Unit" means one share of Common Stock and one Unit Warrant.
(q) "Unit Warrant" means a warrant to purchase one share of Common Stock
issued pursuant to the Warrant Agreement.
(r) "Warrant Agreement" means that certain Warrant Agreement, dated as of
________, 1998, by and between the Company and Registrar and Transfer Company.
(s) "Warrant Certificate" means a certificate evidencing the Warrant.
(t) "Warrantholder" means a record holder of the Warrant or Securities.
The initial Warrantholder is Paulson Investment Company, Inc.
(u) "Warrantholder's Expenses" means the sum of (i) the aggregate amount
of cash payments made to an underwriter, underwriting syndicate, or agent in
connection with an offering described in Section 6 hereof multiplied by a
fraction the numerator of which is the aggregate sales price of the Securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
the denominator of which is the aggregate sales price of all of the securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
(ii) all out-of-pocket expenses of the Warrantholder, except for the fees and
disbursements of one firm retained as legal counsel for the Warrantholder that
will be paid by the Company.
(v) "Warrant" means the warrant evidenced by this certificate, any similar
certificate issued in connection with the Offering, or any certificate obtained
upon transfer or partial exercise of the Warrant evidenced by any such
certificate.
4
<PAGE>
2. EXERCISE OF WARRANTS. All or any part of the Warrant may be exercised
commencing on the first anniversary of the Effective Date and ending at 5 p.m.
Pacific Time on the fifth anniversary of the Effective Date by surrendering this
Warrant Certificate, together with appropriate instructions, duly executed by
the Warrantholder or by its duly authorized attorney, at the office of the
Company, 1 Deer Park Drive, Suite 1, Monmouth Junction, New Jersey 08852, or at
such other office or agency as the Company may designate. The date on which
such instructions are received by the Company shall be the date of exercise. If
the Holder has elected a Cashless Exercise, such instructions shall so state.
Upon receipt of notice of exercise, the Company shall immediately instruct its
transfer agent to prepare certificates for the Securities to be received by the
Warrantholder upon completion of the Warrant exercise. When such certificates
are prepared, the Company shall notify the Warrantholder and deliver such
certificates to the Warrantholder or as per the Warrantholder's instructions
immediately upon payment in full by the Warrantholder, in lawful money of the
United States, of the Exercise Price payable with respect to the Securities
being purchased, if any. If the Warrantholder shall represent and warrant that
all applicable registration and prospectus delivery requirements for their sale
have been complied with upon sale of the Securities received upon exercise of
the Warrant, such certificates shall not bear a legend with respect to the
Securities Act of 1933.
If fewer than all the Securities purchasable under the Warrant are
purchased, the Company will, upon such partial exercise, execute and deliver to
the Warrantholder a new Warrant Certificate (dated the date hereof), in form and
tenor similar to this Warrant Certificate, evidencing that portion of the
Warrant not exercised. The Securities to be obtained on exercise of the Warrant
will be deemed to have been issued, and any person exercising the Warrants will
be deemed to have become a holder of record of those Securities, as of the date
of the payment of the Exercise Price.
3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class, and price of the
Stock Derivative Securities are subject to adjustment from time to time upon the
happening of certain events as follows:
(a) If the outstanding shares of the Company's Common Stock are divided
into a greater number of shares or a dividend in stock is paid on the Common
Stock, the number of shares of Common Stock for which the Warrant is then
partially exercisable will be proportionately increased and the Exercise Price
will be proportionately reduced; and, conversely, if the outstanding shares of
Common Stock are combined into a smaller number of shares of Common Stock, the
number of shares of Common Stock for which the Warrant is then exercisable will
be proportionately reduced and the Exercise Price will be proportionately
increased. The increases and reductions provided for in this subsection 3(a)
will be made with the intent and, as nearly as practicable, the effect that
neither the percentage of the total equity of the Company obtainable on exercise
of the Warrants nor the price payable for such percentage upon such exercise
will be affected by any event described in this subsection 3(a).
5
<PAGE>
(b) In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of the Company, or other
change in the capital structure of the Company, then, as a condition of such
change, lawful and adequate provision will be made so that the holder of this
Warrant Certificate will have the right thereafter to receive upon the exercise
of the Warrant the kind and amount of shares of stock or other securities or
property to which he would have been entitled if, immediately prior to such
event, he had held the number of shares of Common Stock obtainable upon the
exercise of the Warrant. In any such case, appropriate adjustment will be made
in the application of the provisions set forth herein with respect to the rights
and interest thereafter of the Warrantholder, to the end that the provisions set
forth herein will thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the exercise of the Warrant. The Company will not permit any change in its
capital structure to occur unless the issuer of the shares of stock or other
securities to be received by the holder of this Warrant Certificate, if not the
Company, agrees to be bound by and comply with the provisions of this Warrant
Certificate.
(c) When any adjustment is required to be made in the number of shares of
Common Stock, other securities, or the property purchasable upon exercise of the
Warrant, the Company will promptly determine the new number of such shares or
other securities or property purchasable upon exercise of the Warrant and (i)
prepare and retain on file a statement describing in reasonable detail the
method used in arriving at the new number of such shares or other securities or
property purchasable upon exercise of the Warrant and (ii) cause a copy of such
statement to be mailed to the Warrantholder within thirty (30) days after the
date of the event giving rise to the adjustment.
(d) No fractional shares of Common Stock or other securities will be
issued in connection with the exercise of the Warrant, but the Company will pay,
in lieu of fractional shares, a cash payment therefor on the basis of the mean
between the bid and asked prices of the Common Stock in the over-the-counter
market or the closing price on a national securities exchange on the day
immediately prior to exercise.
(e) If securities of the Company or securities of any subsidiary of the
Company are distributed pro rata to holders of Common Stock, such number of
securities will be distributed to the Warrantholder or his assignee upon
exercise of his rights hereunder as such Warrantholder or assignee would have
been entitled to if this Warrant Certificate had been exercised prior to the
record date for such distribution. The provisions with respect to adjustment of
the Common Stock provided in this Section 3 will also apply to the securities to
which the Warrantholder or his assignee is entitled under this subsection 3(e).
(f) Notwithstanding anything herein to the contrary, there will be no
adjustment made hereunder on account of the sale of the Common Stock or other
Securities purchasable upon exercise of the Warrant.
6
<PAGE>
4. RESERVATION OF SECURITIES. The Company agrees that the number of shares
of Common Stock or other Securities sufficient to provide for the exercise of
the Warrant upon the basis set forth above will at all times during the term of
the Warrant be reserved for exercise.
5. VALIDITY OF SECURITIES. All Securities delivered upon the exercise of
the Warrant will be duly and validly issued in accordance with their terms, and
the Company will pay all documentary and transfer taxes, if any, in respect of
the original issuance thereof upon exercise of the Warrant.
6. REGISTRATION OF SECURITIES ISSUABLE ON EXERCISE OF WARRANT CERTIFICATE.
(a) The Company will register the Securities with the Commission pursuant
to the Act so as to allow the unrestricted sale of the Securities to the public
from time to time commencing on the first anniversary of the Effective Date and
ending at 5:00 p.m. Pacific Time on the fifth anniversary of the Effective Date
(the "Registration Period"). The Company will also file such applications and
other documents necessary to permit the sale of the Securities to the public
during the Registration Period in those states in which the Units were qualified
for sale in the Offering or such other states as the Company and the
Warrantholder agree to. In order to comply with the provisions of this Section
6(a), the Company is not required to file more than one registration statement.
No registration right of any kind, "piggyback" or otherwise, will last longer
than five years from the Effective Date.
(b) The Company will pay all of the Company's Expenses and each
Warrantholder will pay its pro rata share of the Warrantholder's Expenses
relating to the registration, offer, and sale of the Securities.
(c) Except as specifically provided herein, the manner and conduct of the
registration, including the contents of the registration, will be entirely in
the control and at the discretion of the Company. The Company will file such
post-effective amendments and supplements as may be necessary to maintain the
currency of the registration statement during the period of its use. In
addition, if the Warrantholder participating in the registration is advised by
counsel that the registration statement, in their opinion, is deficient in any
material respect, the Company will use its best efforts to cause the
registration statement to be amended to eliminate the concerns raised.
(d) The Company will furnish to the Warrantholder the number of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as it may reasonably request
in order to facilitate the disposition of Securities owned by it.
(e) The Company will, at the request of Warrantholders holding at least 50
percent of the then outstanding Warrants, (i) furnish an opinion of the counsel
representing the Company for the purposes of the registration pursuant to this
Section 6, addressed to the Warrantholders and any Participating Underwriter,
(ii) furnish an appropriate letter from the independent public
7
<PAGE>
accountants of the Company, addressed to the Warrantholders and any
Participating Underwriter, and (iii) make representations and warranties to
the Warrantholders and any Participating Underwriter. A request pursuant to
this subsection (e) may be made on three occasions. The documents required
to be delivered pursuant to this subsection (e) will be dated within ten days
of the request and will be, in form and substance, equivalent to similar
documents furnished to the underwriters in connection with the Offering, with
such changes as may be appropriate in light of changed circumstances.
7. INDEMNIFICATION IN CONNECTION WITH REGISTRATION.
(a) If any of the Securities are registered, the Company will indemnify
and hold harmless each selling Warrantholder, any person who controls any
selling Warrantholder within the meaning of the Act, and any Participating
Underwriter against any losses, claims, damages, or liabilities, joint or
several, to which any Warrantholder, controlling person, or Participating
Underwriter may be subject under the Act or otherwise; and it will reimburse
each Warrantholder, each controlling person, and each Participating Underwriter
for any legal or other expenses reasonably incurred by the Warrantholder,
controlling person, or Participating Underwriter in connection with
investigating or defending any such loss, claim, damage, liability, or action,
insofar as such losses, claims, damages, or liabilities, joint or several (or
actions in respect thereof), arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained, on the effective
date thereof, in any such registration statement or any preliminary prospectus
or final prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; PROVIDED, HOWEVER, that the Company will not be liable in any case
to the extent that any loss, claim, damage, or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in any registration statement, preliminary prospectus,
final prospectus, or any amendment or supplement thereto, in reliance upon and
in conformity with written information furnished by a Warrantholder for use in
the preparation thereof. The indemnity agreement contained in this subparagraph
(a) will not apply to amounts paid to any claimant in settlement of any suit or
claim unless such payment is first approved by the Company, such approval not to
be unreasonably withheld.
(b) Each selling Warrantholder, as a condition of the Company's
registration obligation, will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed any registration statement
or other filing or any amendment or supplement thereto, and any person who
controls the Company within the meaning of the Act, against any losses, claims,
damages, or liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise, and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, or controlling person in connection with investigating
or defending any such loss, claim, damage, liability, or action, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue or alleged untrue statement of any material
fact contained in said
8
<PAGE>
registration statement, any preliminary or final prospectus, or other filing,
or any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only to the extent that such untrue statement or alleged untrue statement
or omission or alleged omission was made in said registration statement,
preliminary or final prospectus, or other filing, or amendment or supplement,
in reliance upon and in conformity with written information furnished by such
Warrantholder for use in the preparation thereof; PROVIDED, HOWEVER, that the
indemnity agreement contained in this subparagraph (b) will not apply to
amounts paid to any claimant in settlement of any suit or claim unless such
payment is first approved by the Warrantholder, such approval not to be
unreasonably withheld.
(c) Promptly after receipt by an indemnified party under subparagraphs (a)
or (b) above of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party,
notify the indemnifying party of the commencement thereof; but the omission to
notify the indemnifying party will not relieve it from any liability that it may
have to any indemnified party otherwise than under subparagraphs (a) and (b).
(d) If any such action is brought against any indemnified party and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party; and after
notice from the indemnifying party to such indemnified party of its election to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. RESTRICTIONS ON TRANSFER. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned or hypothecated for a one-year period after
the Effective Date except to underwriters of the Offering or to individuals who
are either a partner or an officer of such an underwriter or by will or by
operation of law. The Warrant may be divided or combined, upon request to the
Company by the Warrantholder, into a certificate or certificates evidencing the
same aggregate number of Warrants.
9. NO RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein, the
Warrantholder will not, by virtue of ownership of the Warrant, be entitled to
any rights of a shareholder of the Company but will, upon written request to the
Company, be entitled to receive such quarterly or annual reports as the Company
distributes to its shareholders.
10. NOTICE. Any notices required or permitted to be given hereunder will
be in writing and may be served personally or by mail; and if served will be
addressed as follows:
If to the Company:
9
<PAGE>
Phytotech, Inc.
1 Deer Park Drive
Suite 1
Monmouth Junction, New Jersey 08852
Attn: Treasurer
If to the Warrantholder:
at the address furnished
by the Warrantholder to the
Company for the purpose of
notice.
Any notice so given by mail will be deemed effectively given 48 hours after
mailing when deposited in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed as specified above. Any
party may by written notice to the other specify a different address for notice
purposes.
11. APPLICABLE LAW. This Warrant Certificate will be governed by and
construed in accordance with the laws of the State of Oregon, without reference
to conflict of laws principles thereunder. All disputes relating to this
Warrant Certificate shall be tried before the courts of Oregon located in
Multnomah County, Oregon to the exclusion of all other courts that might have
jurisdiction.
10
<PAGE>
Dated as of __________, 1998
PHYTOTECH, INC.
By:__________________________________________
______________________
President
Agreed and Accepted as of __________, 1998
PAULSON INVESTMENT COMPANY, INC.
By:__________________________________________
Lorraine Maxfield
Senior Vice President -- Research
11
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PHYTOTECH, INC.
TO: Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:9-5, Corporations, General, of
the New Jersey Statutes, the undersigned corporation, PHYTOTECH, INC. (the
"Corporation"), organized under the laws of the State of New Jersey, does hereby
execute the following Amended and Restated Certificate of Incorporation:
FIRST: The name of the Corporation is PHYTOTECH, INC.
SECOND: The purpose of the Corporation is to engage in any activity
within the purposes for which corporations may be organized under the provisions
of Title 14A, Corporations, General, of the New Jersey Statutes.
THIRD: The Corporation is authorized to issue twenty million
(20,000,000) shares of common stock, without par value (the "Common Stock"), of
which fifteen million (15,000,000) shares shall be voting common stock (the
"Voting Common Stock") and five million (5,000,000) shares shall be non-voting
common stock (the "Non-Voting Common Stock"), and ten million (10,000,000)
shares of Series A Non-Voting Preferred Stock, without par value (the "Preferred
Stock").
(a) The holder of the Voting Common Stock shall be entitled to one
vote in person or by proxy for each share of stock held. Except as
herein specifically provided, the holders of the Non-Voting Common
Stock and the Preferred Stock shall possess no voting power and shall
not have the right to participate in any meeting of the shareholders
or to have notice thereof.
(b) The shares of Non-Voting Common Stock are convertible to shares
of Voting Common Stock in the event of a public offering registered
with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended, or a successor statute (the "Act")
by the Corporation of its Common Stock.
(c) The holders of the Preferred Stock shall be entitled to receive
dividends on the Preferred Stock, but only when and until dividends
are paid and declared
<PAGE>
by the Corporation's Board of Directors on the Common Stock. At such
time as dividends are paid on the Common Stock, the holders of Preferred
Stock shall be entitled to receive dividends on the Preferred Stock at the
same time, and at the rate per share of Preferred Stock based upon the
shares of Common Stock to which the holders of Preferred Stock would be
entitled, if they had converted the Preferred Stock and been holders of
Common Stock on the record date of such dividends on the Common Stock.
(d) Upon the dissolution, liquidation or winding up of the
Corporation, the holders of Preferred Stock shall be entitled to
receive, out of assets of the Corporation available for distribution
to stockholders after satisfaction of the indebtedness of the
Corporation, but before any distribution of assets shall be made to
holders of Common Stock, liquidating distributions in the amount of
$.80 per share plus all accumulated and unpaid dividends, if any. If,
upon any liquidation or dissolution or winding up of the Corporation,
the assets available for distribution to the Corporation's
stockholders are insufficient to permit the payment in full to the
holders of the Preferred Stock, then the entire assets of the
Corporation available for such distribution will be distributed
ratably among the holders of the Preferred Stock.
(e) The merger or consolidation of the Corporation into or with
another Corporation, the merger or consolidation of any other
Corporation into or with the Corporation, or the sale, conveyance,
mortgage, pledge or lease of all or substantially all the assets of
the Corporation shall not be deemed to be a liquidation, dissolution
or winding up of the Corporation for purposes of the liquidation
rights.
(f) After the payment of a $.80 per share liquidation preference to
holders of Preferred Stock, holders of Common Stock shall receive, on
a pro rata basis, all remaining assets of the Corporation available
for distribution to the stockholders in the event of the liquidation,
dissolution or winding up of the Corporation.
(g) The holders of Common Stock and Preferred Stock do not have any
preemptive rights to become subscribers or purchasers of additional
shares of any class of the Corporation's capital stock.
2
<PAGE>
(h) There shall be no redemption or sinking fund obligation with
respect to the Preferred Stock.
(i) On the fifth anniversary of the closing of the initial private
placement effected pursuant to Regulation D under the Act, each share
of Preferred Stock then outstanding will automatically be converted
into one share of Common Stock (the "Conversion Rate"). All
outstanding shares of Preferred Stock shall also be automatically
converted into shares of Common Stock at the Conversion Rate (a) upon
the consummation of an underwritten public offering registered with
the SEC under the Act by the Corporation of its Common Stock, pursuant
to which Common Stock is offered to the public at a price of at least
$3.00 per share (subject to adjustment for stock splits, combinations
and other similar events) or (b) immediately prior to the consummation
of a consolidation or merger of the Corporation with or into another
corporation, or any sale or transfer of all or substantially all of
the assets of the Corporation, pursuant to which the holders of Common
Stock (assuming the conversion of all outstanding Preferred Stock into
Common Stock at the Conversion Rate) will receive cash or securities
or property having a value (as determined by the Corporation's Board
of Directors) of at least $3.00 per share of Common Stock (subject to
adjustment for stock splits, combinations and other similar events).
The holder of any shares of Preferred Stock converted into Common
Stock in connection with such a public offering or other transaction
shall be entitled to payment of all declared but unpaid dividends, if
any, payable with respect to such shares up to and including the date
of the closing of such public offering or other transaction.
(j) The Conversion Rate is subject to adjustment upon the occurrence
of certain events, including a stock split, stock dividend,
subdivision, or similar distribution with respect to the Common Stock,
or a combination of the Common Stock.
(k) Upon any capital reorganization of the Corporation or any
reclassification of outstanding shares of Common Stock, or in case of
any consolidation or merger of the Corporation with or into another
corporation in which the Corporation is not the surviving corporation,
or in case of any sale or transfer of all or substantially all of the
assets of the Corporation, each share of
3
<PAGE>
Preferred Stock then outstanding would, without the consent of any
holders of the Preferred Stock, become convertible only into the current
amount of securities or property or cash receivable upon the capital
reorganization, reclassification, consolidation, merger, sale, or
transfer by a holder of the number of shares of Common Stock into which
such share of Preferred Stock could have been converted immediately prior
thereto.
FOURTH: The address of the Corporation's current registered office is 131
Madison Avenue, Morristown, New Jersey 07962, and the name of the Corporation's
current registered agent at such address is Kevin M. Kilcullen.
FIFTH: The number of directors constituting the current Board of
Directors is four (4) and the names and addresses of the said directors are as
follows:
Dr. Burt D. Ensley
7 Colts Neck Drive
Newtown, Pennsylvania 18940
Dr. Laura Meagher
1370 Cricket Lane
Martinsville, New Jersey 08836
Dr. Ilya Raskin
48 Alexandria Drive
Manalapan, New Jersey 07726
Dr. Philip J. Whitcome
99 Field Brook Road
Madison, Connecticut 06443
SIXTH: A director or officer of the Corporation shall not be personally
liable to the Corporation or its shareholders for damages for breach of duty as
a director or officer, except to the extent and for the duration of any period
of time such personal liability may not be eliminated or limited under the New
Jersey Business Corporation Act as the same exists, or may hereafter be amended.
SEVENTH: All corporate officers, directors, employees and agents shall be
indemnified to the full extent permitted by law. Such indemnification may be
funded through insurance or otherwise as authorized by the Board of Directors.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned has signed this Amended and Restated
Certificate of Incorporation on the day of May, 1994.
PHYTOTECH, INC.
By:___________________________
Burt D. Ensley, President
5
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PHYTOTECH, INC.
To: Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:9-2(4) and Section
14A:9-4(3), Corporations, General, of the New Jersey Statutes, the
undersigned corporation, PHYTOTECH, INC. (the "Corporation"), organized under
the laws of the State of New Jersey, does hereby execute the following
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation for the purpose of amending its Amended and Restated
Certificate of Incorporation:
FIRST: The name of the Corporation is PHYTOTECH, INC.
SECOND: Article THIRD of the Amended and Restated Certificate of
Incorporation is amended to read as follows:
"THIRD: The Corporation is authorized to issue twenty million
(20,000,000) shares of common stock, without par value (the "Common
Stock"), of which fifteen million (15,000,000) shares shall be voting
common stock (the "Voting Common Stock") and five million (5,000,000)
shares shall be non-voting common stock (the "Non-Voting Common
Stock"), and ten million (10,000,000) shares of Series A Voting
Preferred Stock, without par value (the "Preferred Stock").
(a) The holders of the Voting Common Stock and the
Preferred Stock shall be entitled to one vote in person or
by proxy for each share of stock held. The holders of the
Non-Voting Common Stock shall possess no voting power and
shall not have the right to participate in any meeting of
the shareholders or to have notice thereof.
(b) The shares of Non-Voting Common Stock are convertible
to shares of Voting Common Stock in the event of a public
offering registered with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as
amended, or a successor statute (the "Act") by the
Corporation of its Common Stock.
(c) The holders of the Preferred Stock shall be entitled to
receive dividends on the
<PAGE>
Preferred Stock, but only when and if dividends are paid
and declared by the Corporation's Board of Directors on the
Common Stock. At such time as dividends are paid on the
Common Stock, the holders of Preferred Stock shall be
entitled to receive dividends on the Preferred Stock at the
same time, and at the rate per share of Preferred Stock
based upon the shares of Common Stock to which the holders
of Preferred Stock would be entitled, if they had converted
the Preferred Stock and been holders of Common Stock on the
record date of such dividends on the Common Stock.
(d) Upon the dissolution, liquidation or winding up of the
Corporation, the holders of Preferred Stock shall be
entitled to receive, out of assets of the Corporation
available for distribution to stockholders after
satisfaction of the indebtedness of the Corporation, but
before any distribution of assets shall be made to holders
of Common Stock, liquidating distributions in the amount of
$.80 per share plus all accumulated and unpaid dividends, if
any. If, upon any liquidation or dissolution or winding up
of the Corporation, the assets available for distribution to
the Corporation's stockholders are insufficient to permit
the payment in full to the holders of the Preferred Stock,
then the entire assets of the Corporation available for such
distribution will be distributed ratably among the holders
of the Preferred Stock.
(e) The merger or consolidation of the Corporation into or
with another corporation, the merger or consolidation of any
other corporation into or with the Corporation, or the sale,
conveyance, mortgage, pledge or lease of all or
substantially all the assets of the Corporation shall not be
deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of the liquidation rights.
(f) After the payment of a $.80 per share liquidation
preference to holders of Preferred Stock, holders of Common
Stock shall receive, on a pro rata basis, all
2
<PAGE>
remaining assets of the Corporation available for distribution
to the stockholders in the event of the liquidation, dissolution
or winding up of the Corporation.
(g) The holders of Common Stock and Preferred Stock do not
have any preemptive rights to become subscribers or
purchasers of additional shares of any class of the
Corporation's capital stock.
(h) There shall be no redemption or sinking fund obligation
with respect to the Preferred Stock.
(i) On the fifth anniversary of the closing of the initial
private placement effected pursuant to Regulation D under
the Act, each share of Preferred Stock then outstanding will
automatically be converted into one share of Common Stock
(the "Conversion Rate"). All outstanding shares of
Preferred Stock shall also be automatically converted into
shares of Common Stock at the Conversion Rate (a) upon the
consummation of an underwritten public offering registered
with the SEC under the Act by the Corporation of its Common
Stock, pursuant to which Common Stock is offered to the
public at a price of at least $3.00 per share (subject to
adjustment for stock splits, combinations and other similar
events) or (b) immediately prior to the consummation of a
consolidation or merger of the Corporation with or into
another corporation, or any sale or transfer of all or
substantially all of the assets of the Corporation, pursuant
to which the holders of Common Stock (assuming the
conversion of all outstanding Preferred Stock into Common
Stock at the Conversion Rate) will receive cash or
securities or property having a value (as determined by the
Corporation's Board of Directors) of at least $3.00 per
share of Common Stock (subject to adjustment for stock
splits, combinations and other similar events). The holder
of any shares of Preferred Stock converted into Common Stock
in connection with such a public offering or other
transaction shall be entitled to payment of all declared but
unpaid dividends, if any, payable with
3
<PAGE>
respect to such shares up to and including the date of the
closing of such public offering or other transaction.
(j) The Conversion Rate is subject to adjustment upon the
occurrence of certain events, including a stock split, stock
dividend, subdivision, or similar distribution with respect
to the Common Stock, or a combination of the Common Stock.
(k) Upon any capital reorganization of the Corporation or
any reclassification of outstanding shares of Common Stock,
or in case of any consolidation or merger of the Corporation
with or into another corporation in which the Corporation is
not the surviving corporation, or in case of any sale or
transfer of all or substantially all of the assets of the
Corporation, each share of Preferred Stock then outstanding
would, without the consent of any holders of the Preferred
Stock, become convertible only into the current amount of
securities or property or cash receivable upon the capital
reorganization, reclassification, consolidation, merger,
sale, or transfer by a holder of the number of shares of
Common Stock into which such share of Preferred Stock could
have been converted immediately prior thereto."
THIRD: The Amended and Restated Certificate of Incorporation is further
amended by adding the following Article EIGHTH:
"EIGHTH: Pursuant to Section 14A:6-6(1), Corporations, General,
of the New Jersey Statutes, a director of the Corporation may be
removed from office without cause. Removal with our without cause may
be effected only by a majority of the votes cast by the shareholders
at an annual or special meeting, the notice of which shall specify the
proposed action, or by written consent in lieu of a meeting as
provided under Section 13A:5-6 of the New Jersey Statutes."
FOURTH: The adoption of the above amendments to the Amended and Restated
Certificate of Incorporation was approved by the
4
<PAGE>
unanimous written consent of all of the shareholders and all of the directors
of the Corporation without a meeting pursuant to N.J.S.A. 14A:5-6(1) and
N.J.S.A. 14A:6-7(5) on May ____, 1994.
FIFTH: The number of shares outstanding and the number of shares entitled
to vote on the aforesaid amendments to the Amended and Restated Certificate of
Incorporation and the adoption of this Certificate of Amendment to the Amended
and Restated Certificate of Incorporation is 3,128 shares.
SIXTH: The number of shares voted in favor of the adoption of this
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation was 3,128 shares and no shares were voted against the adoption of
said Amendment.
IN WITNESS WHEREOF, the President of the Corporation has executed this
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation this day of May, 1994.
PHYTOTECH, INC.
______________________________
BURT D. ENSLEY, PRESIDENT
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PHYTOTECH, INC.
To: Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:9-2(4) and Section
14A:9-4(3), Corporations, General, of the New Jersey Statutes, the
undersigned corporation, PHYTOTECH, INC. (the "Corporation"), organized under
the laws of the State of New Jersey, does hereby execute the following
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation for the purpose of amending its Amended and Restated
Certificate of Incorporation:
FIRST: The name of the Corporation is PHYTOTECH, INC.
SECOND: Article THIRD of the Amended and Restated Certificate of
Incorporation is amended to read as follows:
"THIRD: The Corporation is authorized to issue 50,000,000
shares of capital stock without par value (the "Common Stock"), of
which fifteen million (15,000,000) shares shall be voting common stock
(the "Voting Common Stock") and five million (5,000,000) shares shall
be non-voting common stock (the "Non-Voting Common Stock"), and ten
million (10,000,000) shares shall be Series A Voting Preferred Stock,
without par value (the "Preferred Stock") and twenty million
(20,000,000) shares of which the Board of Directors has the authority
to divide into classes and series or both, and to determine or change
the designation and the number of shares of any class or series, and
to determine the number of shares, the relative rights, preferences,
and limitations of shares of any class or series."
THIRD: The adoption of the above amendments to the Amended and Restated
Certificate of Incorporation was approved by the shareholders and directors of
the Corporation at the duly convened Annual Meeting of Shareholders and Board of
Directors meeting on August 5, 1996.
FOURTH: The number of shares outstanding and entitled to vote on the
aforesaid amendments to the Amended and Restated Certificate of Incorporation on
the record date of July 8, 1996 was 10,698,860.
<PAGE>
FIFTH: The number of shares voting in favor of the adoption of the
amendment to Article Third of the Amended and Restated Certificate of
Incorporation was at least 5,591,110 shares and 1,062,500 shares voted against
the adoption of said Amendment.
IN WITNESS WHEREOF, the President of the Corporation has executed this
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation this day of January, 1997.
PHYTOTECH, INC.
______________________________
BURT D. ENSLEY, PRESIDENT
<PAGE>
THIRD CERTIFICATE OF AMENDMENT TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PHYTOTECH, INC.
To: Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:9-2(2), Section 14A:9-4(2)
and Section 14A:7-2, Corporations, General, of the New Jersey Statutes, the
undersigned corporation, PHYTOTECH, INC. (the "Corporation"), organized under
the laws of the State of New Jersey, does hereby execute the following Third
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation for the purpose of amending its Amended and Restated Certificate
of Incorporation:
FIRST: The name of the Corporation is PHYTOTECH, INC.
SECOND: Article THIRD of the Amended and Restated Certificate of
Incorporation is amended to read as follows:
"THIRD: The Corporation is authorized to issue 50,000,000 shares of
capital stock without par value (the "Common Stock"), of which thirty-five
million (35,000,000) shares shall be voting common stock (the "Voting Common
Stock") and five million (5,000,000) shares shall be non-voting common stock
(the "Non-Voting Common Stock") and ten million (10,000,000) shares shall be
Series A Voting Preferred Stock, without par value (the "Preferred Stock")."
(a) The holders of the Voting Common Stock and the
Preferred Stock shall be entitled to one vote in person or
by proxy for each share of stock held. The holders of the
Non-Voting Common Stock shall possess no voting power and
shall not have the right to participate in any meeting of
the shareholders or to have notice thereof.
(b) The shares of Non-Voting Common Stock are convertible
to shares of Voting Common Stock in the event of a public
offering registered with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as
amended, or a successor statute (the "Act") by the
Corporation of its Common Stock.
(c) The holders of the Preferred Stock shall be entitled to
receive dividends on the Preferred Stock, but only when and
if dividends are paid and declared by the Corporation's
Board of Directors on the Common Stock. At such time as
<PAGE>
dividends are paid on the Common Stock, the holders of
Preferred Stock shall be entitled to receive dividends on
the Preferred Stock at the same time, and at the rate per
share of Preferred Stock based upon the shares of Common
Stock to which the holders of Preferred Stock would be
entitled, if they had converted the Preferred Stock and been
holders of Common Stock on the record date of such dividends
on the Common Stock.
(d) Upon the dissolution, liquidation or winding up of the
Corporation, the holders of Preferred Stock shall be
entitled to receive, out of assets of the Corporation
available for distribution to stockholders after
satisfaction of the indebtedness of the Corporation, but
before any distribution of assets shall be made to holders
of Common Stock, liquidating distributions in the amount of
$.80 per share plus all accumulated and unpaid dividends, if
any. If, upon any liquidation or dissolution or winding up
of the Corporation, the assets available for distribution to
the Corporation's stockholders are insufficient to permit
the payment in full to the holders of the Preferred Stock,
then the entire assets of the Corporation available for such
distribution will be distributed ratably among the holders
of the Preferred Stock.
(e) The merger or consolidation of the Corporation into or
with another corporation, the merger or consolidation of any
other corporation into or with the Corporation, or the sale,
conveyance, mortgage, pledge or lease of all or
substantially all the assets of the Corporation shall not be
deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of the liquidation rights.
(f) After the payment of a $.80 per share liquidation
preference to holders of Preferred Stock, holders of Common
Stock shall receive, on a pro rata basis, all remaining
assets of the Corporation available for distribution to the
stockholders in the event of the liquidation, dissolution or
winding up of the Corporation.
(g) The holders of Common Stock and Preferred Stock do not
have any preemptive rights to become subscribers or
purchasers of additional shares of any class of the
Corporation's capital stock.
<PAGE>
(h) There shall be no redemption or sinking fund obligation
with respect to the Preferred Stock.
(i) On the fifth anniversary of the closing of the initial
private placement effected pursuant to Regulation D under
the Act, each share of Preferred Stock then outstanding will
automatically be converted into one share of Common Stock
(the "Conversion Rate"). All outstanding shares of
Preferred Stock shall also be automatically converted into
shares of Common Stock at the Conversion Rate (a) upon the
consummation of an underwritten public offering registered
with the SEC under the Act by the Corporation of its Common
Stock, pursuant to which Common Stock is offered to the
public at a price of at least $3.00 per share (subject to
adjustment for stock splits, combinations and other similar
events) or (b) immediately prior to the consummation of a
consolidation or merger of the Corporation with or into
another corporation, or any sale or transfer of all or
substantially all of the assets of the Corporation, pursuant
to which the holders of Common Stock (assuming the
conversion of all outstanding Preferred Stock into Common
Stock at the Conversion Rate) will receive cash or
securities or property having a value (as determined by the
Corporation's Board of Directors) of at least $3.00 per
share of Common Stock (subject to adjustment for stock
splits, combinations and other similar events). The holder
of any shares of Preferred Stock converted into Common Stock
in connection with such a public offering or other
transaction shall be entitled to payment of all declared but
unpaid dividends, if any, payable with respect to such
shares up to and including the date of the closing of such
public offering or other transaction.
(j) The Conversion Rate is subject to adjustment upon the
occurrence of certain events, including a stock split, stock
dividend, subdivision, or similar distribution with respect
to the Common Stock, or a combination of the Common Stock.
(k) Upon any capital reorganization of the Corporation or
any reclassification of outstanding shares of Common Stock,
or in case of any consolidation or merger of the Corporation
with or into another corporation in which the
<PAGE>
Corporation is not the surviving corporation, or in case of
any sale or transfer of all or substantially all of the assets
of the Corporation, each share of Preferred Stock then outstanding
would, without the consent of any holders of the Preferred
Stock, become convertible only into the current amount of
securities or property or cash receivable upon the capital
reorganization, reclassification, consolidation, merger,
sale, or transfer by a holder of the number of shares of
Common Stock into which such share of Preferred Stock could
have been converted immediately prior thereto."
THIRD: The adoption of the above amendment to the Amended and Restated
Certificate of Incorporation was approved by a resolution adopted by the Board
of Directors of the Corporation on May 22, 1997 (the "Resolution").
FOURTH: The Amended and Restated Certificate of Incorporation is amended
so that the designation and number of shares of each class and series acted upon
in the Resolution, and the relative rights, preferences and limitations of each
such class and series are as stated in the Resolution.
IN WITNESS WHEREOF, the President of the Corporation has executed this
Third Certificate of Amendment to the Amended and Restated Certificate of
Incorporation this day of June, 1997.
PHYTOTECH, INC.
_________________________
BURT D. ENSLEY, PRESIDENT
<PAGE>
FOURTH CERTIFICATE OF AMENDMENT TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PHYTOTECH, INC.
To: Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:9-2(4) and Section 14A:9-4(3),
Corporations, General, of the New Jersey Statutes, the undersigned corporation,
PHYTOTECH, INC. (the "Corporation"), organized under the laws of the State of
New Jersey, does hereby execute the following Certificate of Amendment to the
Amended and Restated Certificate of Incorporation for the purpose of amending
its Amended and Restated Certificate of Incorporation:
FIRST: The name of the Corporation is PHYTOTECH, INC.
SECOND: The first paragraph of Article THIRD of the Amended and Restated
Certificate of Incorporation is amended to read as follows:
"THIRD: The Corporation is authorized to issue 100,000,000
shares of capital stock without par value (the "Common Stock"), of
which thirty-five million (35,000,000) shares shall be voting common
stock (the "Voting Common Stock") and five million (5,000,000) shares
shall be non-voting common stock (the "Non-Voting Common Stock"), and
ten million (10,000,000) shares shall be Series A Voting Preferred
Stock, without par value (the "Preferred Stock") and fifty million
(50,000,000) shares of which the Board of Directors has the authority
to divide into classes and series or both, and to determine or change
the designation and the number of shares of any class or series, and
to determine the number of shares, the relative rights, preferences,
and limitations of shares of any class or series."
THIRD: The adoption of the above amendments to the Amended and Restated
Certificate of Incorporation was approved by the shareholders and directors of
the Corporation at the duly convened Annual Meeting of Shareholders and Board of
Directors meeting on October 1, 1997.
FOURTH: The number of shares outstanding and entitled to vote on the
aforesaid amendment to the Amended and Restated Certificate of Incorporation on
the record date of August 29, 1997 was 9,122,110.
<PAGE>
FIFTH: The number of shares voting in favor of the adoption of the
amendment to Article Third of the Amended and Restated Certificate of
Incorporation was at least 4,840,431 shares and 250,000 shares voted against the
adoption of said Amendment.
IN WITNESS WHEREOF, the President of the Corporation has executed this
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation this day of October, 1997.
PHYTOTECH, INC.
______________________________
BURT D. ENSLEY, PRESIDENT
<PAGE>
BY-LAW TOPIC INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1. Offices
1.1 Registered Office...................................... 1
1.2 Other Offices.......................................... 1
2. Meetings of Stockholders
2.1 Place of Meetings...................................... 1
2.2 Annual Meetings........................................ 1
2.3 Special Meetings....................................... 2
2.4 Notice of Meetings..................................... 2
2.5 Business at Special Meetings........................... 2
2.6 List of Stockholders................................... 2
2.7 Quorum at Meetings..................................... 3
2.8 Voting and Proxies..................................... 4
2.9 Required Vote.......................................... 4
2.10 Organization of Meetings............................... 5
2.11 Action Without a Meeting............................... 5
3. Directors
3.1 Powers................................................. 6
3.2 Number................................................. 6
3.3 Election and Term...................................... 6
3.4 Resignation and Removal................................ 7
3.5 Vacancies.............................................. 7
3.6 Place of Meetings...................................... 7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3.7 First Meeting of Each Board............................ 7
3.8 Regular Meetings....................................... 7
3.9 Special Meetings....................................... 8
3.10 Quorum and Votes....................................... 8
3.11 Adjourned Meetings..................................... 8
3.12 Telephone Meetings..................................... 8
3.13 Action Without Meeting................................. 9
3.14 Committees of Directors................................ 9
3.15 Effect of Interest of Directors in
Transactions........................................... 10
3.15.1 Common Directors............................... 10
3.15.2 Compensation of Directors...................... 11
3.16 Organization of Meetings............................... 11
4. Notices of Meetings
4.1 Notice Procedure....................................... 12
4.2 Waivers of Notice...................................... 12
5. Officers
5.1 Positions.............................................. 13
5.2 Election............................................... 13
5.3 Compensation........................................... 13
5.4 Term of Office......................................... 13
5.5 Fidelity Bonds......................................... 14
5.6 President.............................................. 14
5.7 Vice President......................................... 14
5.8 Chairman of the Board.................................. 15
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.9 Secretary.............................................. 15
5.10 Assistant Secretary.................................... 16
5.11 Treasurer.............................................. 16
5.11.1 Duties......................................... 16
5.11.2 Bond........................................... 16
5.12 Assistant Treasurer.................................... 17
6. Capital Stock
6.1 Determination of Amount of Stated
Capital.............................................. 17
6.2 Certificates of Stock.................................. 17
6.3 Lost Certificates...................................... 18
6.4 Transfers.............................................. 18
6.5 Closing of Transfer Books and
Fixing Record Date................................... 19
6.6 Registered Stockholders................................ 19
7. Indemnification.............................................. 20
8. General Provisions
8.1 Dividends.............................................. 20
8.2 Books and Records...................................... 20
8.3 Reserves............................................... 21
8.4 Execution of Instruments............................... 21
8.5 Fiscal Year............................................ 21
8.6 Seal................................................... 21
8.7 Contributions.......................................... 21
9. Amendments................................................... 22
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
PHYTOTECH, INC.
1. OFFICES.
1.1 REGISTERED OFFICE. The registered office of the corporation
shall be located at 131 Madison Avenue, Morristown, New Jersey.
1.2 OTHER OFFICES. The corporation may also have offices at such
other places, both within and without the State of New Jersey, as the board of
directors may from time to time determine or the business of the corporation may
require.
2. MEETINGS OF STOCKHOLDERS.
2.1 PLACE OF MEETINGS. Meetings of the stockholders for any purpose
shall be held at the corporation's Registered Office, or at such other place
either within or without the State of New Jersey as shall be designated from
time to time by the board of directors and stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
2.2 ANNUAL MEETINGS. Annual meetings of stockholders, shall be held
on the first Tuesday of April if not a legal holiday, and if a legal holiday,
then on the next secular day following, at 10:00 a.m., or at such other date and
time as shall be designated from time to time by the board of directors and
<PAGE>
stated in the notice of the meeting (or in a duly executed waiver of notice
thereof), at which they shall elect a board of directors and transact such other
business as may properly be brought before the meeting.
2.3 SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the president or the chairman of
the board of directors, and shall be called by the president or secretary (l) at
the request of a majority of the board of directors, or (2) at the request in
writing of stockholders owning one-third (l/3) or more of the entire capital
stock of the corporation issued and outstanding and entitled to vote. Such
request shall state the purpose or purposes of the proposed meeting.
2.4 NOTICE OF MEETINGS. Written notice of every meeting of
stockholders, stating the place, date, hour and purpose or purposes of the
meeting, shall be given to each stockholder of record entitled to vote at such
meeting not less than ten nor more than sixty days before the date of the
meeting.
2.5 BUSINESS AT SPECIAL MEETINGS. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
2.6 LIST OF STOCKHOLDERS. The officer or agent having charge of the
stock transfer books of the corporation shall make and certify a complete list
of the stockholders entitled to vote
2
<PAGE>
at the meeting or any adjournment thereof, arranged in alphabetical order, and
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. The list shall be produced or available for
display and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. This
stockholder list shall be PRIMA FACIE evidence as to who are the stockholders
entitled to examine the stock transfer books, the list required by this section
or the books of the corporation, or to vote in person or by proxy at any meeting
of stockholders.
2.7 QUORUM AT MEETINGS. The holders of a majority of the stock which
is issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the certificate of incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the original meeting. If, however, after the adjournment a new record date is
fixed for the adjourned meeting, a
3
<PAGE>
notice of the adjourned meeting shall also be given to each new stockholder of
record entitled to vote at the meeting.
2.8 VOTING AND PROXIES. Unless otherwise provided in the certificate
of incorporation and in Section 3.3 of Article 3 hereof, each stockholder shall
at every meeting of the stockholders be entitled to one vote in person or by
proxy for each share of the corporation's capital stock having voting power
which is held by such stockholder. Every proxy shall be executed in writing by
the stockholder or his agent. No proxy shall be valid after eleven months from
the date of its execution, unless the proxy expressly provides for a longer
period. A proxy shall not be revoked by the death or incapacity of the
stockholder, but the proxy shall continue in force until revoked by the personal
representative or guardian of the stockholder. The presence at any meeting of
any stockholder who has given a proxy does not revoke the proxy unless the
stockholder files written notice of the revocation with the secretary of the
meeting prior to the voting of the proxy or votes the shares subject to the
proxy by written ballot. A person named in a proxy as the attorney or agent of
the stockholder may, if the proxy so provides, substitute another person to act
in his place, including any other person named as an attorney or agent in the
same proxy. Such substitution shall not be effective until an instrument
effecting it is filed with the secretary of the corporation.
4
<PAGE>
2.9 REQUIRED VOTE. When a quorum is present at any meeting of
stockholders, any action, other than the election of directors (as provided in
Section 3.3 of Article 3 hereof), shall be authorized by a majority of the votes
cast by the holders of shares entitled to vote thereon, unless the proposed
action is one upon which, by express provision of the New Jersey Business
Corporation Act or of the certificate of incorporation, a greater plurality is
specified and required, in which case such express provision shall govern and
control the decision of such question.
2.10 ORGANIZATION OF MEETINGS. The president of the corporation (and
in his absence a chairman appointed by majority vote of the stockholders
present) shall call the meetings to order and act as chairman thereof. The
secretary of the company (and in his absence any person appointed by the
chairman) shall act as secretary at all meetings of the stockholders. The order
of business at all meetings of stockholders shall be as determined by the
chairman of the meeting.
5
<PAGE>
2.11 ACTION WITHOUT A MEETING. Subject to the provisions of the
certificate of incorporation and the New Jersey Business Corporation Law, any
action required or permitted to be taken at any annual or special meeting of
stockholders of the corporation may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing. The written consents of the stockholders so consenting
shall be filed with the minutes of proceedings of stockholders.
3. DIRECTORS.
3.1 POWERS. The business and affairs of the corporation shall be
managed by its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these by-laws directed or required to be
exercised or done by the stockholders. Directors need not be stockholders.
3.2 NUMBER. The number of directors which shall constitute the whole
board shall be not less than one nor more than
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fifteen. Within such limits, the number of directors shall be determined by
resolution of the board of directors.
3.3 ELECTION AND TERM. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 3.5 of this Article,
and each director elected shall hold office until the next succeeding annual
meeting and until his successor shall have been elected and qualified.
Elections of directors need not be by ballot unless a stockholder demands
election by ballot at the election and before the voting begins. At each
election of directors every stockholder entitled to vote at such election shall
have the right to vote the number of shares owned by him for as many persons as
there are directors to be elected and for whose election he has a right to vote,
but shall have no rights to cumulate such votes. Members of the board of
directors shall be elected by a plurality vote.
3.4 RESIGNATION AND REMOVAL. A director may resign by written notice
to the corporation. The resignation shall be effective upon receipt thereof by
the corporation or at such subsequent time as shall be specified in the notice
of resignation. Directors may be removed by the stockholders with cause. If
permitted by the provisions of the certificate of incorporation of the
corporation, directors may also be removed by the stockholders without cause.
3.5 VACANCIES. Any directorship not filled at the annual meeting of
stockholders, any vacancy (however caused), and
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any newly created directorship resulting from any increase in the authorized
number of directors may be filled by the affirmative vote of a majority of the
remaining directors, and each director so chosen shall hold office until the
next succeeding annual meeting of stockholders and until his successor is
elected and qualified, or until his earlier resignation or removal.
3.6 PLACE OF MEETINGS. The board of directors of the corporation may
hold meetings, both regular and special, either within or without the State of
New Jersey.
3.7 FIRST MEETING OF EACH BOARD. The first meeting of each newly
elected board of directors shall be held immediately after the Annual Meeting of
Shareholders, or as shall be specified in a written waiver signed by all of the
directors.
3.8 REGULAR MEETINGS. Regular meetings of the board of directors may
be held without notice at such time and at such place as shall from time to time
be determined by the board.
3.9 SPECIAL MEETINGS. Special meetings of the board may be called by
the president on two days' notice to each director, either personally or by
telephone, by mail or by telegram; special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of one-third (l/3) of the total number of directors.
3.10 QUORUM AND VOTES. At all meetings of the board of directors or
any committee thereof, a majority of the total number of members thereof shall
constitute a quorum for the
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transaction of business. The act of a majority present at any meeting at which
a quorum is present shall be the act of the board or committee, except as may be
otherwise specifically provided by statute, by the certificate of incorporation
or by these by-laws. If a quorum shall not be present at any meeting of the
board of directors, the directors present thereat may adjourn the meeting.
3.11 ADJOURNED MEETINGS. Notice of an adjourned meeting need not be
given if the time and place are fixed at the meeting adjourning and if the
period of adjournment does not exceed ten days in any one adjournment.
3.12 TELEPHONE MEETINGS. Where appropriate communication facilities
are reasonably available, any or all members of the board of directors or any
committee designated by the board shall have the right to participate in all or
any part of a meeting of such board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting are able to hear each other, and participation in a
meeting pursuant to this section shall constitute presence in person at such
meeting.
3.13 ACTION WITHOUT MEETING. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting if, prior or subsequent to such action, all
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members of the board or committee, as the case may be, consent thereto by
resolution in writing, and the writing or writings are filed with the minutes of
proceedings of the board of directors or committee.
3.14 COMMITTEES OF DIRECTORS. The board of directors, by resolution
adopted by the majority of the entire board, may appoint from among its members
an executive committee and one or more other committees, each of which shall
have one or more members. To the extent provided in such resolution, each such
committee shall have and may exercise all of the authority of the board, except
that no such committee shall
(a) make, alter or repeal any by-law of the corporation;
(b) elect or appoint any director, or remove any officer or director;
(c) submit to stockholders any action that requires stockholders'
approval; or
(d) amend or repeal any resolution theretofore adopted by the board
of directors which by its terms is amendable or repealable only
by the board of directors.
The board of directors, by resolution adopted by a majority of the entire board,
may
(a) fill any vacancy in any such committee;
(b) appoint one or more directors to serve as alternate members of
any such committee, to act in the absence or disability of
members of any such committee with all the powers of such absent
or disabled member[s];
(c) abolish any such committee at its pleasure; and
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(d) remove any director from membership on such committee at any
time, with or without cause.
Actions shall be taken by any such committee in accordance with Sections 3.10,
3.12 and 3.13 hereof, and such actions shall be reported to the board of
directors at its next meeting following such committee meeting. However, if a
meeting of the board is held within two days after the committee meeting, the
report shall, if not made at the first meeting, be made to the board at the
second meeting following such committee meeting.
3.15 EFFECT OF INTEREST OF DIRECTORS IN TRANSACTIONS.
3.15.1 Common Directors. No contract or other transaction
between the corporation and one or more of its directors, or between the
corporation and any domestic or foreign corporation, firm or association of any
type or kind in which one or more of its directors are directors or otherwise
interested, shall be void or voidable solely by reason of such common
directorship or interest, or solely because such director or directors are
present at the meeting of the board or a committee thereof which authorizes or
approves the contract or transaction, or solely because his or their votes are
counted for such purpose, if:
(a) the contract or other transaction is fair and reasonable as to
the corporation at the time it is authorized, approved or
ratified; or
(b) the fact of the common directorship or interest is disclosed or
known to the board or committee and the board or committee
authorizes, approves or ratifies the contract or transaction by
unanimous written consent, provided at least one director so
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consenting is disinterested, or by affirmative vote of a majority
of disinterested directors, even though the disinterested
directors be less than a quorum; or
(c) the fact of the common directorship or interest is disclosed or
known to the stockholders, and they authorize, approve or ratify
the contract or transaction.
Common or interested directors may be counted in determining the presence of a
quorum at a board or committee meeting at which a contract or transaction
described in this subsection is authorized, approved or ratified.
3.15.2 Compensation of Directors. The board of directors, by
the affirmative vote of a majority of directors in office and irrespective of
any personal interest of any of them, shall have authority to establish
reasonable compensation of directors for services to the corporation as
directors, officers, or otherwise.
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3.16 ORGANIZATION OF MEETINGS. At all meetings of the board of
directors, the president (and in his absence, a chairman chosen by the directors
present) shall preside. The presiding officer shall appoint any person to act
as secretary at all such meetings. The order of business shall be as determined
by the presiding officer.
4. NOTICES OF MEETINGS.
4.1 NOTICE OF PROCEDURE. Whenever, under the provisions of the
statutes or of the certificate of incorporation or of these by-laws, notice is
required to be given to any director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram or telephone.
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4.2 WAIVERS OF NOTICE. Whenever any notice is required to be given
under the provisions of the statutes or of the certificate of incorporation or
of these by-laws, such notice need not be given to any person entitled to said
notice who signs a waiver of such notice. Attendance of a person at a meeting,
in person or by proxy, shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the sole and express purpose of
objecting, prior to the conclusion of the meeting, to the transaction of any
business because of the lack of notice. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation,
by statute or by these by-laws.
5. OFFICERS.
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5.1 POSITIONS. The officers of the corporation shall be a president,
a secretary and a treasurer, and such other officers as the board of directors
may appoint, including a chairman of the board, and one or more vice presidents,
assistant secretaries and assistant treasurers, who shall exercise such
authority and perform such duties as shall be determined from time to time by
the board. Any number of offices may be held by the same person, unless the
certificate of incorporation or these by-laws otherwise provide, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity if
such instrument is required by law or these by-laws to be executed, acknowledged
or verified by two or more officers.
5.2 ELECTION. The officers of the corporation shall be chosen by the
board of directors at its first meeting after each annual meeting of
stockholders.
5.3 COMPENSATION. The compensation of the president and the chairman
of the board of the corporation shall be fixed by the board of directors. The
compensation of the other officers of the corporation shall be fixed by the
president of the corporation, unless the board of directors by resolution
determines that it shall fix the salaries of one or more specified officers.
5.4 TERM OF OFFICE. The officers of the corporation shall hold
office until their successors are chosen and qualify or until their earlier
resignation or removal. Any officer may
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resign at any time upon written notice to the corporation, and the resignation
shall be effective upon receipt or as specified in the notice of resignation.
Any officer elected by the board of directors may be removed at any time, with
or without cause, by the affirmative vote of a majority of the board of
directors. Any vacancy occurring in any office of the corporation shall be
filled by the board of directors.
5.5 FIDELITY BONDS. The corporation may secure the fidelity of any
or all of its officers or agents by bond or otherwise.
5.6 PRESIDENT. The president shall be the chief executive officer of
the corporation, shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the board of directors
are carried into effect, and, unless the directors have elected a chairman of
the board who is present, shall preside at all meetings of the stockholders and
the board of directors. The president shall execute bonds, mortgages and other
contracts requiring the seal, under the seal of the corporation, except where
the signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
5.7 VICE PRESIDENT. In the absence of the president or in the event
of his inability or refusal to act, the vice-president (or in the event there be
more than one vice-president, the vice-presidents in order designated, or in the
absence of any
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designation, then in the order of their election) shall perform the duties of
the president, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the president. The vice-presidents shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
5.8 CHAIRMAN OF THE BOARD. If the directors shall appoint a chairman
of the board, he shall, when present, preside at all meetings of the board of
directors and shall have such other duties and shall have such other powers as
may be vested in him by the board of directors.
5.9 SECRETARY. The secretary shall attend all meetings of the board
of directors and all meetings of the stockholders and record all the proceedings
of the meetings of the stockholders and of the board of directors in a book to
be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the board of directors, and
shall perform such other duties as may be prescribed by the board of directors
or president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it, and when so affixed
it may be attested by his signature or by the signature of such assistant
secretary. The
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board of directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
5.10 ASSISTANT SECRETARY. The assistant secretary, if there be one,
shall, in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the secretary and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
5.11 TREASURER.
5.11.1 Duties. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors. The treasurer shall disburse the funds of the corporation as ordered
by the board of directors, taking proper vouchers for such disbursements, and
shall render to the president and the board of directors, at its regular
meetings, or when the board of directors so requires, an account of all his
transactions as treasurer and of the financial condition of the corporation.
5.11.2 Bond. If required by the board of directors, the
treasurer shall give the corporation a bond which shall be renewed periodically
in such sum and with such surety or
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sureties as shall be satisfactory to the board of directors for the faithful
performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
5.12 ASSISTANT TREASURER. The assistant treasurer, if there be one,
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
6. CAPITAL STOCK.
6.1 DETERMINATION OF AMOUNT OF STATED CAPITAL. Unless otherwise
provided in the certificate of incorporation, all shares shall have no par value
and no stated capital shall be required to be maintained.
6.2 CERTIFICATES OF STOCK. The shares of the corporation shall be
represented by certificates or, in accordance with subsection 14A:7-11(6) of the
New Jersey Business Corporations Act, shall be uncertificated shares.
Certificates shall be signed by, or in the name of the corporation by, the
chairman or vice-chairman of the board of directors, or the president or a
vice-president, and may be countersigned by the treasurer or an assistant
treasurer, or the secretary or an assistant secretary
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of the corporation, and may be sealed with the seal of the corporation or a
facsimile thereof. All certificates shall be consecutively numbered, and bear
the names of the owners, the number of shares and the date of issue. The
company shall maintain such information in its books. Each certificate shall
state upon the face thereof
(a) That the corporation is organized under the laws of the State of
New Jersey;
(b) the name of the person to whom the certificate is issued; and
(c) the number of shares, which such certificate represents.
6.3 LOST CERTIFICATES. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
on account of the certificate alleged to
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have been lost, stolen or destroyed or the issuance of such new certificate.
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6.4 TRANSFERS. The transfer of stock and certificates representing
stock shall be effected in accordance with the laws of the State of New Jersey.
Any restriction on the transfer of a security imposed by the corporation shall
be noted conspicuously on the security or contained in the information statement
required for uncertificated shares. Except in the case of lost, stolen or
destroyed certificates, shares shall be transferred on the books of the
corporation and new certificates issued only upon the surrender and cancellation
of properly endorsed certificates for the same number of shares.
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6.5 CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, or to express consent
to corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the board of directors may fix,
in advance, a record date for any such determination of stockholders, which
shall not be more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
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6.6 REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, to receive notifications, to vote as such owner,
and to exercise all the rights and powers of an owner; the corporation shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the State
of New Jersey.
7. INDEMNIFICATION.
The corporation shall indemnify to the full extent permitted by law
any person made, or threatened to be made, a party to an action, suit or
proceeding (whether civil, criminal, administrative or investigative) by reason
of the fact that he, his testator or intestate is or was a director, officer,
employee or agent of the corporation or serves or served any other enterprise as
such at the request of the corporation.
8. GENERAL PROVISIONS.
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8.1 DIVIDENDS. Dividends or other distributions upon the capital
stock of the corporation, subject to the provisions of the certificate of
incorporation, if any, may be declared by the board of directors at any regular
or special meeting, pursuant to law. Such dividends shall be paid out of
surplus, subject to the provisions of the New Jersey Business Corporation Act.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock, subject to the provisions of the New Jersey Business Corporation
Act and of the certificate of incorporation.
8.2 BOOKS AND RECORDS. The corporation shall keep books and records
of account, and minutes of the proceedings of its stockholders and board of
directors at an office which may be located within or without the State of New
Jersey. The corporation shall keep at its registered office designated in
Section 1.1 of Article 1 hereof, or at the office of a transfer agent located in
the State of New Jersey, a record or records containing the names and addresses
of all stockholders, the number of shares held by each, and the dates when they
respectively became the owners.
8.3 RESERVES. The directors of the corporation may set apart out of
the funds of the corporation available for dividends a reserve or reserves for
any proper purpose and may abolish any such reserve.
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8.4 EXECUTION OF INSTRUMENTS. All checks or demands for money and
notes of the corporation shall be signed by such officer or officers or such
other person or persons as the board of directors may from time to time
designate.
8.5 FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
8.6 SEAL. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Corporate Seal,
New Jersey". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
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8.7 CONTRIBUTIONS. The board of directors is authorized,
irrespective of corporate benefit, to aid, singly or in cooperation with other
corporations and with natural persons, in the creation or maintenance of
institutions or organizations engaged in community fund, hospital, charitable,
philanthropic, educational, scientific or benevolent activities or patriotic or
civic activities conducive to the betterment of social and economic conditions,
and to appropriate, spend or contribute for such purposes such reasonable sums
as they may determine; provided, that such a contribution shall not be
authorized if at the time of the contribution or immediately thereafter the
donee institution shall own more than ten percent of the voting stock of the
corporation or one of its subsidiaries.
9. AMENDMENTS.
These by-laws may be altered, amended or repealed or new by-laws may
be adopted by a majority of the entire board of directors at any regular or
special meeting, subject to the provisions of the Certificate of Incorporation,
but by-laws made by the board of directors may be altered, amended or repealed
or new by-laws made by the stockholders. The stockholders may prescribe that
any by-law made by them shall not be altered or repealed by the board of
directors.
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EXHIBIT 4.2
WARRANT AGREEMENT
between
PHYTOTECH, INC..
and
___________________________________
Dated as of ________, 1998
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This Agreement, dated as of ________, 1998, is between Phytotech,
Inc., a New Jersey corporation (the "Company") and Registrar and Transfer
Company, a ___________ _________, (the "Warrant Agent").
The Company, at or about the time that it is entering into this
Agreement, proposes to issue and sell to public investors up to 2,300,000 Units
("Units"). Each Unit consists of one share of common stock of the Company
("Common Stock") and one Warrant (collectively, the "Warrants"), each Warrant
exercisable to purchase one share of Common Stock for $____, upon the terms and
conditions and subject to adjustment in certain circumstances, all as set forth
in this Agreement.
The Company proposes to issue to the Representative of the
Underwriters in the public offering of Units referred to above warrants to
purchase up to 200,000 additional Units.
The Company wishes to retain the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, transfer, exchange and replacement of the certificates evidencing the
Warrants to be issued under this Agreement (the "Warrant Certificates") and the
exercise of the Warrants;
The Company and the Warrant Agent wish to enter into this Agreement to
set forth the terms and conditions of the Warrants and the rights of the holders
thereof ("Warrantholders") and to set forth the respective rights and
obligations of the Company and the Warrant Agent. Each Warrantholder is an
intended beneficiary of this Agreement with respect to the rights of
Warrantholders herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
Section 1. APPOINTMENT OF WARRANT AGENT
The Company appoints the Warrant Agent to act as agent for the Company
in accordance with the instructions in this Agreement and the Warrant Agent
accepts such appointment.
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Section 2. DATE, DENOMINATION AND EXECUTION OF WARRANT CERTIFICATES
The Warrant Certificates (and the Form of Election to Purchase and the
Form of Assignment to be printed on the reverse thereof) shall be in registered
form only and shall be substantially of the tenor and purport recited in Exhibit
A hereto, and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law, or with any rule or regulation made pursuant thereto, or with any rule or
regulation of any stock exchange on which the Common Stock or the Warrants may
be listed or any automated quotation system, or to conform to usage. Each
Warrant Certificate shall entitle the registered holder thereof, subject to the
provisions of this Agreement and of the Warrant Certificate, to purchase, on or
after _________, 1998 and at or before the close of business on ________, 2003
(the "Expiration Date"), one fully paid and non-assessable share of Common Stock
for each Warrant evidenced by such Warrant Certificate, subject to adjustments
as provided in Sections 6 hereof, for $____ (the "Exercise Price"). Each
Warrant Certificate issued as a part of a Unit offered to the public as
described in the recitals, above, shall be dated ________, 1998; each other
Warrant Certificate shall be dated the date on which the Warrant Agent receives
valid issuance instructions from the Company or a transferring holder of a
Warrant Certificate or, if such instructions specify another date, such other
date.
For purposes of this Agreement, the term "close of business" on any
given date shall mean 5:20 p.m., Eastern time, on such date; provided, however,
that if such date is not a business day, it shall mean 5:20 p.m., Eastern time,
on the next succeeding business day. For purposes of this Agreement, the term
"business day" shall mean any day other than a Saturday, Sunday, or a day on
which banking institutions in New York, New York are authorized or obligated by
law to be closed.
Each Warrant Certificate shall be executed on behalf of the Company by
the Chairman of the Board or its President or a Vice President, either manually
or by facsimile signature printed thereon, and have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. Each Warrant Certificate shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any Warrant Certificate
shall cease to be such officer of the Company before countersignature by the
Warrant Agent and issue and delivery thereof by the Company, such Warrant
Certificate, nevertheless, may be countersigned by the Warrant Agent, issued and
delivered with the same force and effect as though the person who signed such
Warrant Certificate had not ceased to be such officer of the Company.
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Section 3. SUBSEQUENT ISSUE OF WARRANT CERTIFICATES
Subsequent to their original issuance, no Warrant Certificates shall
be reissued except (i) Warrant Certificates issued upon transfer thereof in
accordance with Section 4 hereof, (ii) Warrant Certificates issued upon any
combination, split-up or exchange of Warrant Certificates pursuant to Section 4
hereof, (iii) Warrant Certificates issued in replacement of mutilated,
destroyed, lost or stolen Warrant Certificates pursuant to Section 5 hereof,
(iv) Warrant Certificates issued upon the partial exercise of Warrant
Certificates pursuant to Section 7 hereof, and (v) Warrant Certificates issued
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares purchasable thereunder pursuant to Section 22 hereof. The Warrant
Agent is hereby irrevocably authorized to countersign and deliver, in accordance
with the provisions of said Sections 4, 5, 7 and 22, the new Warrant
Certificates required for purposes thereof, and the Company, whenever required
by the Warrant Agent, will supply the Warrant Agent with Warrant Certificates
duly executed on behalf of the Company for such purposes.
Section 4. TRANSFERS AND EXCHANGES OF WARRANT CERTIFICATES
The Warrant Agent will keep or cause to be kept books for registration
of ownership and transfer of the Warrant Certificates issued hereunder. Such
registers shall show the names and addresses of the respective holders of the
Warrant Certificates and the number of Warrants evidenced by each such Warrant
Certificate.
The Warrant Agent shall, from time to time, register the transfer of
any outstanding Warrants upon the books to be maintained by the Warrant Agent
for that purpose, upon surrender of the Warrant Certificate evidencing such
Warrants, with the Form of Assignment duly filled in and executed with such
signature guaranteed by a banking institution or NASD member and such supporting
documentation as the Warrant Agent or the Company may reasonably require, to the
Warrant Agent at its stock transfer office in _____________, __________ at any
time at or before the close of business on the Expiration Date, and upon payment
to the Warrant Agent for the account of the Company of an amount equal to any
applicable transfer tax. Payment of the amount of such tax may be made in cash,
or by certified or official bank check, payable in lawful money of the United
States of America to the order of the Company.
Upon receipt of a Warrant Certificate, with the Form of Assignment
duly filled in and executed, accompanied by payment of an amount equal to any
applicable transfer tax, the Warrant Agent shall promptly cancel the surrendered
Warrant Certificate and countersign and deliver to the transferee a new Warrant
Certificate for the number of full Warrants transferred to such transferee;
PROVIDED, HOWEVER, that in case the registered holder of any Warrant Certificate
shall elect to transfer fewer than all of the Warrants evidenced by such Warrant
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Certificate, the Warrant Agent in addition shall promptly countersign and
deliver to such registered holder a new Warrant Certificate or Certificates for
the number of full Warrants not so transferred.
Any Warrant Certificate or Certificates may be exchanged at the option
of the holder thereof for another Warrant Certificate or Certificates of
different denominations, of like tenor and representing in the aggregate the
same number of Warrants, upon surrender of such Warrant Certificate or
Certificates, with the Form of Assignment duly filled in and executed, to the
Warrant Agent, at any time or from time to time after the close of business on
and prior to the close of business on the Expiration Date. The Warrant Agent
shall promptly cancel the surrendered Warrant Certificate and deliver the new
Warrant Certificate pursuant to the provisions of this Section.
Section 5. MUTILATED, DESTROYED, LOST OR STOLEN WARRANT CERTIFICATES
Upon receipt by the Company and the Warrant Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
any Warrant Certificate, and in the case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and reimbursement to them
of all reasonable expenses incidental thereto, and, in the case of mutilation,
upon surrender and cancellation of the Warrant Certificate, the Warrant Agent
shall countersign and deliver a new Warrant Certificate of like tenor for the
same number of Warrants.
Section 6. ADJUSTMENTS OF NUMBER AND KIND OF SHARES PURCHASABLE AND EXERCISE
PRICE
The number and kind of securities or other property purchasable upon
exercise of a Warrant shall be subject to adjustment from time to time upon the
occurrence, after the date hereof, of any of the following events:
A. In case the Company shall (1) pay a dividend in, or make a
distribution of, shares of capital stock on its outstanding Common Stock, (2)
subdivide its outstanding shares of Common Stock into a greater number of such
shares or (3) combine its outstanding shares of Common Stock into a smaller
number of such shares, the total number of shares of Common Stock purchasable
upon the exercise of each Warrant outstanding immediately prior thereto shall be
adjusted so that the holder of any Warrant Certificate thereafter surrendered
for exercise shall be entitled to receive at the same aggregate Exercise Price
the number of shares of capital stock (of one or more classes) which such holder
would have owned or have been entitled to receive immediately following the
happening of any of the events described above had such Warrant been exercised
in full immediately prior to the record date with respect to such event. Any
adjustment made pursuant to this Subsection shall, in the case of a stock
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dividend or distribution, become effective as of the record date therefor and,
in the case of a subdivision or combination, be made as of the effective date
thereof. If, as a result of an adjustment made pursuant to this Subsection, the
holder of any Warrant Certificate thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
conclusive and shall be evidenced by a Board resolution filed with the Warrant
Agent) shall determine the allocation of the adjusted Exercise Price between or
among shares of such classes of capital stock.
B. In the event of a capital reorganization or a reclassification of the
Common Stock (except as provided in Subsection A. above or Subsection E. below),
any Warrantholder, upon exercise of Warrants, shall be entitled to receive, in
substitution for the Common Stock to which he would have become entitled upon
exercise immediately prior to such reorganization or reclassification, the
shares (of any class or classes) or other securities or property of the Company
(or cash) that he would have been entitled to receive at the same aggregate
Exercise Price upon such reorganization or reclassification if such Warrants had
been exercised immediately prior to the record date with respect to such event;
and in any such case, appropriate provision (as determined by the Board of
Directors of the Company, whose determination shall be conclusive and shall be
evidenced by a certified Board resolution filed with the Warrant Agent) shall be
made for the application of this Section 6 with respect to the rights and
interests thereafter of the Warrantholders (including but not limited to the
allocation of the Exercise Price between or among shares of classes of capital
stock), to the end that this Section 6 (including the adjustments of the number
of shares of Common Stock or other securities purchasable and the Exercise Price
thereof) shall thereafter be reflected, as nearly as reasonably practicable, in
all subsequent exercises of the Warrants for any shares or securities or other
property (or cash) thereafter deliverable upon the exercise of the Warrants.
C. Whenever the number of shares of Common Stock or other securities
purchasable upon exercise of a Warrant is adjusted as provided in this Section
6, the Company will promptly file with the Warrant Agent a certificate signed by
a Chairman or co-Chairman of the Board or the President or a Vice President of
the Company and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary of the Company setting forth the number and kind of
securities or other property purchasable upon exercise of a Warrant, as so
adjusted, stating that such adjustments in the number or kind of shares or other
securities or property conform to the requirements of this Section 6, and
setting forth a brief statement of the facts accounting for such adjustments.
Promptly after receipt of such certificate, the Company, or the Warrant Agent at
the Company's request, will deliver, by first-class, postage prepaid mail, a
brief summary thereof (to be supplied by the Company) to the registered holders
of the outstanding Warrant Certificates; PROVIDED, HOWEVER, that failure to file
or to give any notice required under this Subsection, or any defect therein,
shall not affect the legality or validity of any such adjustments under this
Section 6; and PROVIDED, FURTHER, that, where appropriate, such notice
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may be given in advance and included as part of the notice required to be
given pursuant to Section 12 hereof.
D. In case of any consolidation of the Company with, or merger of the
Company into, another corporation (other than a consolidation or merger which
does not result in any reclassification or change of the outstanding Common
Stock), or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, the
corporation formed by such consolidation or merger or the corporation which
shall have acquired such assets, as the case may be, shall execute and deliver
to the Warrant Agent a supplemental warrant agreement providing that the holder
of each Warrant then outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, solely
the kind and amount of shares of stock and other securities and property (or
cash) receivable upon such consolidation, merger, sale or transfer by a holder
of the number of shares of Common Stock of the Company for which such Warrant
might have been exercised immediately prior to such consolidation, merger, sale
or transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided in this Section. The above provision of this Subsection shall
similarly apply to successive consolidations, mergers, sales or transfers.
The Warrant Agent shall not be under any responsibility to determine
the correctness of any provision contained in any such supplemental warrant
agreement relating to either the kind or amount of shares of stock or securities
or property (or cash) purchasable by holders of Warrant Certificates upon the
exercise of their Warrants after any such consolidation, merger, sale or
transfer or of any adjustment to be made with respect thereto, but subject to
the provisions of Section 20 hereof, may accept as conclusive evidence of the
correctness of any such provisions, and shall be protected in relying upon, a
certificate of a firm of independent certified public accountants (who may be
the accountants regularly employed by the Company) with respect thereto.
E. Irrespective of any adjustments in the number or kind of shares
issuable upon exercise of Warrants, Warrant Certificates theretofore or
thereafter issued may continue to express the same price and number and kind of
shares as are stated in the similar Warrant Certificates initially issuable
pursuant to this Warrant Agreement.
F. The Company may retain a firm of independent public accountants of
recognized standing, which may be the firm regularly retained by the Company,
selected by the Board of Directors of the Company or the Executive Committee of
said Board, and not disapproved by the Warrant Agent, to make any computation
required under this Section, and a certificate signed by such firm shall, in the
absence of fraud or gross negligence, be conclusive evidence of the correctness
of any computation made under this Section.
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G. For the purpose of this Section, the term "Common Stock" shall mean
(i) the class of stock designated as Common Stock in the Certificate of
Incorporation of the Company, as amended, at the date of this Agreement, or (ii)
any other class of stock resulting from successive changes or reclassifications
of such Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In the event that at
any time as a result of an adjustment made pursuant to this Section, the holder
of any Warrant thereafter surrendered for exercise shall become entitled to
receive any shares of capital stock of the Company other than shares of Common
Stock, thereafter the number of such other shares so receivable upon exercise of
any Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in this Section, and all other provisions of this
Agreement, with respect to the Common Stock, shall apply on like terms to any
such other shares.
H. The Company may, from time to time and to the extent permitted by law,
reduce the exercise price of the Warrants by any amount for a period of not less
than 20 days. If the Company so reduces the exercise price of the Warrants, it
will give not less than 15 days' notice of such decrease, which notice may be in
the form of a press release, and shall take such other steps as may be required
under applicable law in connection with any offers or sales of securities at the
reduced price.
Section 7. EXERCISE AND REDEMPTION OF WARRANTS
Unless the Warrants have been redeemed as provided in this Section 7,
the registered holder of any Warrant Certificate may exercise the Warrants
evidenced thereby, in whole at any time or in part from time to time on or after
___________, 1998 and at or before to the close of business, on the Expiration
Date, subject to the provisions of Section 9, at which time the Warrant
Certificates shall be and become wholly void and of no value. Warrants may be
exercised by their holders or redeemed by the Company as follows:
A. Exercise of Warrants shall be accomplished upon surrender of the
Warrant Certificate evidencing such Warrants, with the Form of Election to
Purchase on the reverse side thereof duly filled in and executed, to the Warrant
Agent at its stock transfer office in __________, _____________, together with
payment to the Company of the Exercise Price (as of the date of such surrender)
of the Warrants then being exercised and an amount equal to any applicable
transfer tax and, if requested by the Company, any other taxes or governmental
charges which the Company may be required by law to collect in respect of such
exercise. Payment of the Exercise Price and other amounts may be made by wire
transfer of good funds, or by certified or bank cashier's check, payable in
lawful money of the United States of America to the order of the Company. No
adjustment shall be made for any cash dividends, whether paid or declared, on
any securities issuable upon exercise of a Warrant.
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B. Upon receipt of a Warrant Certificate, with the Form of Election to
Purchase duly filled in and executed, accompanied by payment of the Exercise
Price of the Warrants being exercised (and of an amount equal to any applicable
taxes or government charges as aforesaid), the Warrant Agent shall promptly
request from the Transfer Agent with respect to the securities to be issued and
deliver to or upon the order of the registered holder of such Warrant
Certificate, in such name or names as such registered holder may designate, a
certificate or certificates for the number of full shares of the securities to
be purchased, together with cash made available by the Company pursuant to
Section 8 hereof in respect of any fraction of a share of such securities
otherwise issuable upon such exercise. If the Warrant is then exercisable to
purchase property other than securities, the Warrant Agent shall take
appropriate steps to cause such property to be delivered to or upon the order of
the registered holder of such Warrant Certificate. In addition, if it is
required by law and upon instruction by the Company, the Warrant Agent will
deliver to each Warrantholder a prospectus which complies with the provisions of
Section 9 of the Securities Act of 1933 and the Company agrees to supply Warrant
Agent with sufficient number of prospectuses to effectuate that purpose.
C. In case the registered holder of any Warrant Certificate shall
exercise fewer than all of the Warrants evidenced by such Warrant Certificate,
the Warrant Agent shall promptly countersign and deliver to the registered
holder of such Warrant Certificate, or to his duly authorized assigns, a new
Warrant Certificate or Certificates evidencing the number of Warrants that were
not so exercised.
D. Each person in whose name any certificate for securities is issued
upon the exercise of Warrants shall for all purposes be deemed to have become
the holder of record of the securities represented thereby as of, and such
certificate shall be dated, the date upon which the Warrant Certificate was duly
surrendered in proper form and payment of the Exercise Price (and of any
applicable taxes or other governmental charges) was made; PROVIDED, HOWEVER,
that if the date of such surrender and payment is a date on which the stock
transfer books of the Company are closed, such person shall be deemed to have
become the record holder of such shares as of, and the certificate for such
shares shall be dated, the next succeeding business day on which the stock
transfer books of the Company are open (whether before, on or after the
Expiration Date) and the Warrant Agent shall be under no duty to deliver the
certificate for such shares until such date. The Company covenants and agrees
that it shall not cause its stock transfer books to be closed for a period of
more than 20 consecutive business days except upon consolidation, merger, sale
of all or substantially all of its assets, dissolution or liquidation or as
otherwise provided by law.
E. The Warrants outstanding at the time of a redemption may be redeemed
at the option of the Company, in whole or in part on a pro-rata basis, at any
time if, at the time notice of such redemption is given by the Company as
provided in Paragraph F, below, the Daily Price has exceeded $_____ for the
twenty consecutive trading days immediately preceding the date of
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such notice, at a price equal to $0.25 per Warrant (the "Redemption Price").
For the purpose of the foregoing sentence, the term "Daily Price" shall mean,
for any relevant day, the closing bid price on that day as reported by the
principal exchange or quotation system on which prices for the Common Stock
are reported. On the redemption date the holders of record of redeemed
Warrants shall be entitled to payment of the Redemption Price upon surrender
of such redeemed Warrants to the Company at the principal office of the
Warrant Agent in __________, _____________.
F. Notice of redemption of Warrants shall be given at least 30 days prior
to the redemption date by mailing, by registered or certified mail, return
receipt requested, a copy of such notice to the Warrant Agent and to all of the
holders of record of Warrants at their respective addresses appearing on the
books or transfer records of the Company or such other address designated in
writing by the holder of record to the Warrant Agent not less than 40 days prior
to the redemption date.
G. From and after the redemption date, all rights of the Warrantholders
(except the right to receive the Redemption Price) shall terminate, but only if
(a) no later than one day prior to the redemption date the Company shall have
irrevocably deposited with the Warrant Agent as paying agent a sufficient amount
to pay on the redemption date the Redemption Price for all Warrants called for
redemption and (b) the notice of redemption shall have stated the name and
address of the Warrant Agent and the intention of the Company to deposit such
amount with the Warrant Agent no later than one day prior to the redemption
date.
H. The Warrant Agent shall pay to the holders of record of redeemed
Warrants all monies received by the Warrant Agent for the redemption of Warrants
to which the holders of record of such redeemed Warrants who shall have
surrendered their Warrants are entitled.
I. Any amounts deposited with the Warrant Agent that are not required for
redemption of Warrants may be withdrawn by the Company. Any amounts deposited
with the Warrant Agent that shall be unclaimed after six months after the
redemption date may be withdrawn by the Company, and thereafter the holders of
the Warrants called for redemption for which such funds were deposited shall
look solely to the Company for payment. The Company shall be entitled to the
interest, if any, on funds deposited with the Warrant Agent and the holders of
redeemed Warrants shall have no right to any such interest.
J. If the Company fails to make a sufficient deposit with the Warrant
Agent as provided above, the holder of any Warrants called for redemption may at
the option of the holder (a) by notice to the Company declare the notice of
redemption a nullity as to such holder, or (b) maintain an action against the
Company for the Redemption Price. If the holder brings such an action, the
Company will pay reasonable attorneys' fees of the holder. If the holder fails
to bring an action against the Company for the Redemption Price within 60 days
after the redemption date, the holder shall be deemed to have elected to declare
the notice of
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redemption to be a nullity as to such holder and such notice shall be without
any force or effect as to such holder. Except as otherwise specifically
provided in this Paragraph J, a notice of redemption, once mailed by the
Company as provided in Paragraph F shall be irrevocable.
Section 8. FRACTIONAL INTERESTS
The Company shall not be required to issue any Warrant Certificate
evidencing a fraction of a Warrant or to issue fractions of shares of securities
on the exercise of the Warrants. If any fraction (calculated to the nearest
one-hundredth) of a Warrant or a share of securities would, except for the
provisions of this Section, be issuable on the exercise of any Warrant, the
Company shall, at its option, either purchase such fraction for an amount in
cash equal to the current value of such fraction computed on the basis of the
closing market price (as quoted on NASDAQ) on the trading day immediately
preceding the day upon which such Warrant Certificate was surrendered for
exercise in accordance with Section 7 hereof or issue the required fractional
Warrant or share. By accepting a Warrant Certificate, the holder thereof
expressly waives any right to receive a Warrant Certificate evidencing any
fraction of a Warrant or to receive any fractional share of securities upon
exercise of a Warrant, except as expressly provided in this Section 8.
Section 9. RESERVATION OF EQUITY SECURITIES
The Company covenants that it will at all times reserve and keep
available, free from any pre-emptive rights, out of its authorized and unissued
equity securities, solely for the purpose of issue upon exercise of the
Warrants, such number of shares of equity securities of the Company as shall
then be issuable upon the exercise of all outstanding Warrants ("Equity
Securities"). The Company covenants that all Equity Securities which shall be
so issuable shall, upon such issue, be duly authorized, validly issued, fully
paid and non-assessable.
The Company covenants that if any equity securities, required to be
reserved for the purpose of issue upon exercise of the Warrants hereunder,
require registration with or approval of any governmental authority under any
federal or state law before such shares may be issued upon exercise of Warrants,
the Company will use all commercially reasonable efforts to cause such
securities to be duly registered, or approved, as the case may be, and, to the
extent practicable, take all such action in anticipation of and prior to the
exercise of the Warrants, including, without limitation, filing any and all
post-effective amendments to the Company's Registration Statement on Form SB-2
(Registration No. 333-______) necessary to permit a public offering of the
securities underlying the Warrants at any and all times during the term of this
Agreement, PROVIDED, HOWEVER, that in no event shall such securities be issued,
and the Company is authorized to refuse to honor the exercise of any Warrant, if
such exercise would result in the opinion of the Company's Board of Directors,
upon advice of
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counsel, in the violation of any law; and PROVIDED FURTHER that, in the case
of a Warrant exercisable solely for securities listed on a securities
exchange or for which there are at least two independent market makers, in
lieu of obtaining such registration or approval, the Company may elect to
redeem Warrants submitted to the Warrant Agent for exercise for a price equal
to the difference between the aggregate low asked price, or closing price, as
the case may be, of the securities for which such Warrant is exercisable on
the date of such submission and the Exercise Price of such Warrants; in the
event of such redemption, the Company will pay to the holder of such Warrants
the above-described redemption price in cash within 10 business days after
receipt of notice from the Warrant Agent that such Warrants have been
submitted for exercise.
Section 10. REDUCTION OF CONVERSION PRICE BELOW PAR VALUE
Before taking any action that would cause an adjustment pursuant to
Section 6 hereof reducing the portion of the Exercise Price required to purchase
one share of capital stock below the then par value (if any) of a share of such
capital stock, the Company will use its best efforts to take any corporate
action which, in the opinion of its counsel, may be necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
such capital stock.
Section 11. PAYMENT OF TAXES
The Company covenants and agrees that it will pay when due and payable
any and all federal and state documentary stamp and other original issue taxes
which may be payable in respect of the original issuance of the Warrant
Certificates, or any shares of Common Stock or other securities upon the
exercise of Warrants. The Company shall not, however, be required (i) to pay
any tax which may be payable in respect of any transfer involved in the transfer
and delivery of Warrant Certificates or the issuance or delivery of certificates
for Common Stock or other securities in a name other than that of the registered
holder of the Warrant Certificate surrendered for purchase or (ii) to issue or
deliver any certificate for shares of Common Stock or other securities upon the
exercise of any Warrant Certificate until any such tax shall have been paid, all
such tax being payable by the holder of such Warrant Certificate at the time of
surrender.
Section 12. NOTICE OF CERTAIN CORPORATE ACTION
In case the Company after the date hereof shall propose (i) to offer
to the holders of Common Stock, generally, rights to subscribe to or purchase
any additional shares of any class of its capital stock, any evidences of its
indebtedness or assets, or any other rights or options or (ii) to effect any
reclassification of Common Stock (other than a reclassification involving
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merely the subdivision or combination of outstanding shares of Common Stock)
or any capital reorganization, or any consolidation or merger to which the
Company is a party and for which approval of any stockholders of the Company
is required, or any sale, transfer or other disposition of its property and
assets substantially as an entirety, or the liquidation, voluntary or
involuntary dissolution or winding-up of the Company, then, in each such
case, the Company shall file with the Warrant Agent and the Company, or the
Warrant Agent on its behalf, shall mail (by first-class, postage prepaid
mail) to all registered holders of the Warrant Certificates notice of such
proposed action, which notice shall specify the date on which the books of
the Company shall close or a record be taken for such offer of rights or
options, or the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition, liquidation,
voluntary or involuntary dissolution or winding-up shall take place or
commence, as the case may be, and which shall also specify any record date
for determination of holders of Common Stock entitled to vote thereon or
participate therein and shall set forth such facts with respect thereto as
shall be reasonably necessary to indicate any adjustments in the Exercise
Price and the number or kind of shares or other securities purchasable upon
exercise of Warrants which will be required as a result of such action. Such
notice shall be filed and mailed in the case of any action covered by clause
(i) above, at least ten days prior to the record date for determining holders
of the Common Stock for purposes of such action or, if a record is not to be
taken, the date as of which the holders of shares of Common Stock of record
are to be entitled to such offering; and, in the case of any action covered
by clause (ii) above, at least 20 days prior to the earlier of the date on
which such reclassification, reorganization, consolidation, merger, sale,
transfer, other disposition, liquidation, voluntary or involuntary
dissolution or winding-up is expected to become effective and the date on
which it is expected that holders of shares of Common Stock of record on such
date shall be entitled to exchange their shares for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition, liquidation,
voluntary or involuntary dissolution or winding-up.
Failure to give any such notice or any defect therein shall not affect
the legality or validity of any transaction listed in this Section 12.
Section 13. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANT CERTIFICATES, ETC.
The Warrant Agent shall account promptly to the Company with respect
to Warrants exercised and concurrently pay to the Company all moneys received by
the Warrant Agent for the purchase of securities or other property through the
exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement available for
inspection by Warrantholders during normal business hours at its stock transfer
office. Copies of this Agreement may be obtained upon written request addressed
to the Warrant Agent at its stock transfer office in __________, _____________.
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Section 14. WARRANTHOLDER NOT DEEMED A STOCKHOLDER
No Warrantholder, as such, shall be entitled to vote, receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Warrants
represented thereby for any purpose whatever, nor shall anything contained
herein or in any Warrant Certificate be construed to confer upon any
Warrantholder, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance or otherwise), or to receive notice of
meetings or other actions affecting stockholders (except as provided in Section
12 hereof), or to receive dividend or subscription rights, or otherwise, until
such Warrant Certificate shall have been exercised in accordance with the
provisions hereof and the receipt of the Exercise Price and any other amounts
payable upon such exercise by the Warrant Agent.
Section 15. RIGHT OF ACTION
All rights of action in respect to this Agreement are vested in the
respective registered holders of the Warrant Certificates; and any registered
holder of any Warrant Certificate, without the consent of the Warrant Agent or
of any other holder of a Warrant Certificate, may, in his own behalf for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company suitable to enforce, or otherwise in respect of, his right
to exercise the Warrants evidenced by such Warrant Certificate, for the purchase
of shares of the Common Stock in the manner provided in the Warrant Certificate
and in this Agreement.
Section 16. AGREEMENT OF HOLDERS OF WARRANT CERTIFICATES
Every holder of a Warrant Certificate by accepting the same consents
and agrees with the Company, the Warrant Agent and with every other holder of a
Warrant Certificate that:
A. the Warrant Certificates are transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in this Agreement;
and
B. the Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the absolute owner of the
Warrant (notwithstanding any notation of ownership or other writing thereon made
by anyone other than the Company or the
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Warrant Agent) for all purposes whatever and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
Section 17. CANCELLATION OF WARRANT CERTIFICATES
In the event that the Company shall purchase or otherwise acquire any
Warrant Certificate or Certificates after the issuance thereof, such Warrant
Certificate or Certificates shall thereupon be delivered to the Warrant Agent
and be canceled by it and retired. The Warrant Agent shall also cancel any
Warrant Certificate delivered to it for exercise, in whole or in part, or
delivered to it for transfer, split-up, combination or exchange. Warrant
Certificates so canceled shall be delivered by the Warrant Agent to the Company
from time to time, or disposed of in accordance with the instructions of the
Company.
Section 18. CONCERNING THE WARRANT AGENT
The Company agrees to pay to the Warrant Agent from time to time, on
demand of the Warrant Agent, reasonable compensation for all services rendered
by it hereunder and also its reasonable expenses, including counsel fees, and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Warrant Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Warrant Agent, arising out of or in
connection with the acceptance and administration of this Agreement.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT
Any corporation into which the Warrant Agent may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided that
such corporation would be eligible for appointment as a successor warrant agent
under the provisions of Section 21 hereof. In case at the time such successor
to the Warrant Agent shall succeed to the agency created by this Agreement, any
of the Warrant Certificates shall have been countersigned but not delivered, any
such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrant Certificates so countersigned;
and in case at that time any of the Warrant Certificates shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrant
Certificates either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant
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Agent; and in all such cases such Warrant Certificates shall have the full
force provided in the Warrant Certificates and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignature under its prior
name and deliver Warrant Certificates so countersigned; and in case at that time
any of the Warrant Certificates shall not have been countersigned, the Warrant
Agent may countersign such Warrant Certificates either in its prior name or in
its changed name; and in all such cases such Warrant Certificates shall have the
full force provided in the Warrant Certificates and in this Agreement.
Section 20. DUTIES OF WARRANT AGENT
The Warrant Agent undertakes the duties and obligations imposed by
this Agreement upon the following terms and conditions, by all of which the
Company and the holders of Warrant Certificates, by their acceptance thereof,
shall be bound:
A. The Warrant Agent may consult with counsel satisfactory to it (who may
be counsel for the Company or the Warrant Agent's in-house counsel), and the
opinion of such counsel shall be full and complete authorization and protection
to the Warrant Agent as to any action taken, suffered or omitted by it in good
faith and in accordance with such opinion; PROVIDED, HOWEVER, that the Warrant
Agent shall have exercised reasonable care in the selection of such counsel.
Fees and expenses of such counsel, to the extent reasonable, shall be paid by
the Company.
B. Whenever in the performance of its duties under this Agreement, the
Warrant Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by a Chairman or co-Chairman of the Board or
the President or a Vice President or the Secretary of the Company and delivered
to the Warrant Agent; and such certificate shall be full authorization to the
Warrant Agent for any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
C. The Warrant Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
D. The Warrant Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Warrant
Certificates (except its countersignature on the Warrant Certificates and such
statements or recitals as describe the
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<PAGE>
Warrant Agent or action taken or to be taken by it) or be required to verify
the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
E. The Warrant Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Warrant Agent) or in respect of the validity or
execution of any Warrant Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Warrant Certificate; nor shall
it be responsible for the making of any change in the number of shares of Common
Stock for which a Warrant is exercisable required under the provisions of
Section 6 or responsible for the manner, method or amount of any such change or
the ascertaining of the existence of facts that would require any such
adjustment or change (except with respect to the exercise of Warrant
Certificates after actual notice of any adjustment of the Exercise Price); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any shares of Common Stock to be
issued pursuant to this Agreement or any Warrant Certificate or as to whether
any shares of Common Stock will, when issued, be validly issued, fully paid and
non-assessable.
F. The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or take any other action likely to involve
expense unless the Company or one or more registered holders of Warrant
Certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred. All rights of
action under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the registered holders of the Warrant Certificates, as their respective
rights or interests may appear.
G. The Warrant Agent and any stockholder, director, officer or employee
of the Warrant Agent may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to or
otherwise act as fully and freely as though it were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
H. The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from a
Chairman or co-Chairman of the Board or President or a Vice President or the
Secretary or the Controller of the Company, and to apply to such officers for
advice or instructions in connection with the Warrant Agent's duties, and it
shall not be liable for any action taken or suffered or omitted by it in good
faith in accordance with instructions of any such officer.
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<PAGE>
I. The Warrant Agent will not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company.
J. The Warrant Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys, agents or employees and the Warrant Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys, agents or employees or for any loss to the Company resulting from
such neglect or misconduct; PROVIDED, HOWEVER, that reasonable care shall have
been exercised in the selection and continued employment of such attorneys,
agents and employees.
K. The Warrant Agent will not incur any liability or responsibility to
the Company or to any holder of any Warrant Certificate for any action taken, or
any failure to take action, in reliance on any notice, resolution, waiver,
consent, order, certificate, or other paper, document or instrument reasonably
believed by the Warrant Agent to be genuine and to have been signed, sent or
presented by the proper party or parties.
L. The Warrant Agent will act hereunder solely as agent of the Company in
a ministerial capacity, and its duties will be determined solely by the
provisions hereof. The Warrant Agent will not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence, bad faith or willful conduct.
Section 21. CHANGE OF WARRANT AGENT
The Warrant Agent may resign and be discharged from its duties
under this Agreement upon 30 days' prior notice in writing mailed, by
registered or certified mail, to the Company. The Company may remove the
Warrant Agent or any successor warrant agent upon 30 days' prior notice in
writing, mailed to the Warrant Agent or successor warrant agent, as the case
may be, by registered or certified mail. If the Warrant Agent shall resign or
be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Warrant Agent and shall, within 15 days following
such appointment, give notice thereof in writing to each registered holder of
the Warrant Certificates. If the Company shall fail to make such appointment
within a period of 15 days after giving notice of such removal or after it
has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent, then the Company agrees to perform
the duties of the Warrant Agent hereunder until a successor Warrant Agent is
appointed. After appointment and execution of a copy of this Agreement in
effect at that time, the successor Warrant Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Warrant Agent without further act or deed; but the former Warrant
Agent shall deliver and transfer to the successor Warrant Agent, within a
reasonable time, any property at
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<PAGE>
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Failure to give any
notice provided for in this Section, however, or any defect therein shall not
affect the legality or validity of the resignation or removal of the Warrant
Agent or the appointment of the successor warrant agent, as the case may be.
Section 22. ISSUANCE OF NEW WARRANT CERTIFICATES
Notwithstanding any of the provisions of this Agreement or the several
Warrant Certificates to the contrary, the Company may, at its option, issue new
Warrant Certificates in such form as may be approved by its Board of Directors
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares purchasable under the several Warrant Certificates made in accordance
with the provisions of this Agreement.
Section 23. NOTICES
Notice or demand pursuant to this Agreement to be given or made on the
Company by the Warrant Agent or by the registered holder of any Warrant
Certificate shall be sufficiently given or made if sent by first-class or
registered mail, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent) as follows:
Phytotech, Inc.
1 Deer Park Drive, Suite 1
Monmouth Junction, New Jersey 08852
Subject to the provisions of Section 21, any notice pursuant to this
Agreement to be given or made by the Company or by the holder of any Warrant
Certificate to or on the Warrant Agent shall be sufficiently given or made if
sent by first-class or registered mail, postage prepaid, addressed (until
another address is filed in
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<PAGE>
writing by the Warrant Agent with the Company) as follows:
___________________________
________________________________
__________, _____________ _____
Attention: Corporate Trust Department
Any notice or demand authorized to be given or made to the registered
holder of any Warrant Certificate under this Agreement shall be sufficiently
given or made if sent by first-class or registered mail, postage prepaid, to the
last address of such holder as it shall appear on the registers maintained by
the Warrant Agent.
Section 24. MODIFICATION OF AGREEMENT
The Warrant Agent may, without the consent or concurrence of the
Warrantholders, by supplemental agreement or otherwise, concur with the Company
in making any changes or corrections in this Agreement that the Warrant Agent
shall have been advised by counsel (who may be counsel for the Company) are
necessary or desirable to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error herein
contained, or to make any other provisions in regard to matters or questions
arising hereunder and which shall not be inconsistent with the provisions of the
Warrant Certificates and which shall not adversely affect the interests of the
Warrantholders. As of the date hereof, this Agreement contains the entire and
only agreement, understanding, representation, condition, warranty or covenant
between the parties hereto with respect to the matters herein, supersedes any
and all other agreements between the parties hereto relating to such matters,
and may be modified or amended only by a written agreement signed by both
parties hereto pursuant to the authority granted by the first sentence of this
Section.
Section 25. SUCCESSORS
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Warrant Agent shall bind and inure to the benefit
of their respective successors and assigns hereunder.
Section 26. NEW JERSEY CONTRACT
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of New Jersey and for
all purposes shall be construed in accordance with the laws of said State.
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<PAGE>
Section 27. TERMINATION
This Agreement shall terminate as of the close of business on the
Expiration Date, or such earlier date upon which all Warrants shall have been
exercised or redeemed, except that the Warrant Agent shall account to the
Company as to all Warrants outstanding and all cash held by it as of the close
of business on the Expiration Date.
Section 28. BENEFITS OF THIS AGREEMENT
Nothing in this Agreement or in the Warrant Certificates shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent, and their respective successors and assigns hereunder and the
registered holders of the Warrant Certificates any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Company, the Warrant Agent, their respective
successors and assigns hereunder and the registered holders of the Warrant
Certificates.
Section 29. DESCRIPTIVE HEADINGS
The descriptive headings of the several Sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
Section 30. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
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<PAGE>
be duly executed, all as of the day and year first above written.
PHYTOTECH, INC.
By:______________________________
Title:
REGISTRAR AND TRANSFER COMPANY
By:______________________________
Title:
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<PAGE>
EXHIBIT A
VOID AFTER 5 P.M. EASTERN TIME ON _______, 2003
WARRANTS TO PURCHASE COMMON STOCK
W_____ _________ Warrants
PHYTOTECH, INC.
CUSIP ___________
THIS CERTIFIES THAT
or registered assigns, is the registered holder of the number of Warrants
("Warrants") set forth above. Each Warrant entitles the holder thereof to
purchase from Phytotech, Inc., a corporation incorporated under the laws of the
State of New Jersey ("Company"), subject to the terms and conditions set forth
hereinafter and in the Warrant Agreement hereinafter more fully described (the
"Warrant Agreement") referred to, one fully paid and non-assessable share of
Common Stock, no par value, of the Company ("Common Stock") upon presentation
and surrender of this Warrant Certificate with the instructions for the
registration and delivery of Common Stock filled in, at any time on or after
__________, 1998 and at or before the close of business on __________, 2003 or,
if such Warrant is redeemed as provided in the Warrant Agreement, at any time
prior to the effective time of such redemption, at the stock transfer office in
__________, _____________, of ___________________________________, Warrant Agent
of the Company ("Warrant Agent") or of its successor warrant agent or, if there
be no successor warrant agent, at the corporate offices of the Company, and upon
payment of the Exercise Price (as defined in the Warrant Agreement) and any
applicable taxes paid either in cash, or by certified or official bank check,
payable in lawful money of the United States of America to the order of the
Company. Each Warrant initially entitles the holder to purchase one share of
Common Stock for $_____. The number and kind of securities or other property
for which the Warrants are exercisable are subject to further adjustment in
certain events, such as mergers, splits, stock dividends, recapitalizations and
the like, to prevent dilution. The Company may redeem any or all outstanding
and unexercised Warrants at any time if the Daily Price has exceeded $_____ for
twenty consecutive trading days immediately preceeding the date of notice of
such redemption, upon 30 days notice, at a price equal to $0.25 per Warrant.
For the purpose of the foregoing sentence, the term "Daily
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<PAGE>
Price" shall mean, for any relevant day, the closing bid price on that day as
reported by the principal exchange or quotation system on which prices for
the Common Stock are reported. All Warrants not theretofore exercised or
redeemed will expire on ________, 2003.
This Warrant Certificate is subject to all of the terms, provisions
and conditions of the Warrant Agreement, dated as of ________, 1998 ("Warrant
Agreement"), between the Company and the Warrant Agent, to all of which terms,
provisions and conditions the registered holder of this Warrant Certificate
consents by acceptance hereof. The Warrant Agreement is incorporated herein by
reference and made a part hereof and reference is made to the Warrant Agreement
for a full description of the rights, limitations of rights, obligations, duties
and immunities of the Warrant Agent, the Company and the holders of the Warrant
Certificates. Copies of the Warrant Agreement are available for inspection at
the stock transfer office of the Warrant Agent or may be obtained upon written
request addressed to the Company at 1 Deer Park Drive, Suite 1, Monmouth
Junction, New Jersey 08852, Attention: Controller.
The Company shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but shall make adjustment therefor in cash on the
basis of the current market value of any fractional interest as provided in the
Warrant Agreement.
In certain cases, the sale of securities by the Company upon exercise
of Warrants would violate the securities laws of the United States, certain
states thereof or other jurisdictions. The Company has agreed to use its best
efforts to cause a registration statement to continue to be effective during the
term of the Warrants with respect to such sales under the Securities Act of
1933, and to take such action under the laws of various states as may be
required to cause the sale of securities upon exercise to be lawful. However,
the Company will not be required to honor the exercise of Warrants if, in the
opinion of the Board of Directors, upon advice of counsel, the sale of
securities upon such exercise would be unlawful. In certain cases, the Company
may, but is not required to, purchase Warrants submitted for exercise for a cash
price equal to the difference between the market price of the securities
obtainable upon such exercise and the exercise price of such Warrants.
This Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the absence
of any successor warrant agent, at the corporate offices of the Company, may be
exchanged for another Warrant Certificate or Certificates evidencing in the
aggregate the same number of Warrants as the Warrant Certificate or Certificates
so surrendered. If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
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<PAGE>
No holder of this Warrant Certificate, as such, shall be entitled to
vote, receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose whatever, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof or give or withhold consent to any corporate
action (whether upon any matter submitted to stockholders at any meeting
thereof, or give or withhold consent to any merger, recapitalization, issuance
of stock, reclassification of stock, change of par value or change of stock to
no par value, consolidation, conveyance or otherwise) or to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Warrant Agreement) or to receive dividends or subscription rights or otherwise
until the Warrants evidenced by this Warrant Certificate shall have been
exercised and the Common Stock purchasable upon the exercise thereof shall have
become deliverable as provided in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Company's Common Stock or
other class of stock purchasable upon the exercise of the Warrants evidenced by
this Warrant Certificate are closed for any purpose, the Company shall not be
required to make delivery of certificates for shares purchasable upon such
transfer until the date of the reopening of said transfer books.
Every holder of this Warrant Certificate by accepting the same
consents and agrees with the Company, the Warrant Agent, and with every other
holder of a Warrant Certificate that:
(a) this Warrant Certificate is transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in the Warrant
Agreement, and
(b) the Company and the Warrant Agent may deem and treat the person in
whose name this Warrant Certificate is registered as the absolute owner hereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
The Company shall not be required to issue or deliver any certificate
for shares of Common Stock or other securities upon the exercise of Warrants
evidenced by this Warrant Certificate until any tax which may be payable in
respect thereof by the holder of this Warrant Certificate pursuant to the
Warrant Agreement shall have been paid, such tax being payable by the holder of
this Warrant Certificate at the time of surrender.
This Warrant Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Warrant Agent.
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<PAGE>
WITNESS the facsimile signatures of the proper officers of the Company
and its corporate seal.
Dated:
PHYTOTECH, INC.
By:_____________________________
Chief Executive Officer
Attest:_________________________
Secretary
Countersigned
________________________________________
By:_________________________
Authorized Officer
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<PAGE>
EMPLOYMENT AGREEMENT
by and between
PHYTOTECH, INC.
and
DR. BURT D. ENSLEY
Dated:
May 17, 1996
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT made effective as of this 17th day of May, 1996 by and
between PHYTOTECH, INC. (the "Employer"), a New Jersey corporation, having an
office at 1 Deer Park Drive, Suite 1, Monmouth Junction, New Jersey 08852, and
BURT D. ENSLEY, residing at 7 Colts Neck Drive, Newtown, Pennsylvania (the
"Executive").
WHEREAS, Employer wishes to assure itself of the services of Executive
as President of the Employer for the period provided in this Agreement, and
Executive is willing to serve in the employ of Employer as President on a
full-time basis for said period, and upon those terms and conditions hereinafter
provided; and
WHEREAS, this Employment Agreement was authorized by the Board of
Directors of the Company.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. EMPLOYMENT.
1.1 Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, for the period stated in Section 4 hereof and upon
those terms and conditions herein provided.
1.2 Employer's Board of Directors may terminate the Executive's
employment at any time by notifying Executive in the manner set forth at Section
3.1 hereof, but any termination by Employer shall not prejudice the Executive's
right to compensation or other benefits under this Agreement.
1.3 Executive's principal place of employment shall be at the
Employer's office at 1 Deer Park Drive, Monmouth Junction, New Jersey or at such
other location determined by the
<PAGE>
Board of Directors, subject to reasonable travel as the rendering of the
services hereunder may require.
2. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as President of Employer.
3. TERM AND DUTIES.
3.1 TERM OF EMPLOYMENT. The period of Executive's employment
under this Agreement shall commence no later than the date of this Agreement
(the "Commencement Date") and shall continue for a period of three (3) years
(the "Term") unless sooner terminated by reason of any of the events enumerated
in Section 6 hereunder.
3.2 DUTIES DURING TERM. During the period of his employment
hereunder and except for illness, any reasonable vacation period (as hereinafter
defined in paragraph 4.6 hereof), and reasonable leaves of absence, Executive
shall devote all of his business time, attention, skill, and efforts to the
faithful performance of his duties hereunder including activities and services
related to the organization and management of Employer; provided, however, that
with the prior approval of the Board of Directors of Employer as evidenced by a
resolution of the Board of Directors, from time to time, Executive may serve, or
continue to serve, on the boards of directors of, and hold any other offices or
positions in, companies or organizations, which, in such Board's judgment, will
not present any conflict of interest with Employer, or materially affect the
performance of Executive's duties pursuant to this Agreement.
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<PAGE>
4. COMPENSATION AND REIMBURSEMENT.
4.1 COMPENSATION - BASE SALARY/BONUS. The compensation
specified under this Agreement shall constitute the salary and benefits paid to
Executive for the duties described in Sections 2 and 3.2. Employer shall pay
Executive a base salary of ONE HUNDRED AND TWENTY THOUSAND ($120,000) DOLLARS
(the "Base Salary") (on a semi-monthly basis) which shall increase after the
Term if agreed upon by the Board of Directors. During the period of this
Agreement, Executive's Base Salary may be reviewed in the discretion of the
Board of Directors. Such reviews shall be conducted by a Committee designated
by the Board of Directors, and such Committee may increase said Base Salary. In
addition, Executive shall be entitled to a performance bonus of FIFTEEN THOUSAND
($15,000) DOLLARS upon the closing of at least $1 million of the current private
placement which closing date was April 30, 1996.
4.2 STOCK OPTION PLAN. Executive shall be entitled to receive
incentive stock options for FORTY-FIVE THOUSAND (45,000) shares of Phytotech,
Inc. common stock vesting over a three year period. In addition, if agreed upon
by the Board of Directors, Executive may be entitled to additional stock options
and/or warrants payable in accordance with and determined under the terms of
PHYTOTECH, INC. STOCK OPTION PLAN.
4.3 REIMBURSEMENT OF EXPENSES. Employer shall pay or reimburse
Executive for all reasonable travel and other reasonable out-of-pocket expenses
incurred by Executive in performing his obligations under this Agreement. Such
reimbursements will be
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<PAGE>
made promptly, within thirty (30) days of Executive's submission to Employer of
an itemized list of such expenses, together with receipts therefor indicating
the date upon and the purpose for which such expenses were incurred and such
other information as may be reasonably required from time to time by Employer to
substantiate such expenditures for federal income tax purposes.
4.4 HEALTH BENEFITS. In addition to the payments to the
Executive hereunder, the Executive is entitled to full health insurance benefits
for himself and his family, including but not limited to reasonable medical
coverage, dental coverage and disability insurance, as agreed upon by the
Employer.
4.5 STATUS AS EMPLOYEE. At all times during the term of this
Agreement, Executive shall be deemed to be an employee of Employer and its
affiliates for purposes of determining Executive's coverage under and
eligibility to participate in, any employee benefit plans or programs which
Employer now has or may hereafter initiate.
4.6 REASONABLE VACATION PERIOD. The Executive shall be entitled
to four (4) weeks annual vacation, unless otherwise mutually agreed upon by the
Executive and the Employer.
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Term, all rights of the Executive or his estate (other than for indemnification
under Section 11 hereof) under this Agreement shall cease as of the effective
date of such termination, except that the Executive (i) shall be entitled to
receive Base Salary for the month during which death occurs, and (ii) shall be
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<PAGE>
entitled to receive the payments and benefits of which he is then entitled under
the employee benefit plans of the Employer or any affiliate thereof as of the
date of the termination.
5.2 TERMINATION UPON DISABILITY. If during the Term, the
Executive becomes physically or mentally disabled, whether totally or partially,
so that the Executive is unable substantially to perform his services hereunder
for a period of one-hundred and twenty (120) days in any twelve (12) month
period, Employer may at any time after the last day of such period of
disability, by written notice to the Executive, terminate the Term of the
Executive's employment hereunder. Nothing in this Section 5.2 shall be deemed
to extend the Term. Upon such termination, all rights of the Executive under
this Agreement (other than for indemnification under Section 11 hereof) shall
cease as of the effective date of such termination, except that the Executive
(i) shall be entitled to receive Base Salary for the month in which such
termination occurs; (ii) shall be entitled to receive a PRO RATA portion of any
incentive compensation otherwise payable for the year during which the
termination occurs (if applicable) and (iii) shall be entitled to receive the
payments and benefits to which he is then entitled under any employee benefit
plans of the Employer or any affiliate thereof as of the date of this
termination.
5.3 TERMINATION FOR CAUSE. If the Executive (i) willfully
neglects his duties hereunder and such willful neglect shall not be discontinued
within fifteen (15) days after written notice thereof, (ii) is convicted of a
felony, (iii) is convicted
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<PAGE>
of any crime punishable by a period of imprisonment in excess of one (1) year,
(iv) willfully refuses to comply with the lawful written policies of the
Employer and such refusal shall not be discontinued within fifteen (15) days
after written notice thereof, or (v) materially breaches the terms hereunder and
such breach shall not be remedied within fifteen (15) days after written notice
thereof (items (i) through (v) hereinafter collectively referred to as
"Terminated for Cause"), Employer may at any time by thirty (30) days written
notice to the Executive terminate the Term of the Executive's employment
hereunder.
Notwithstanding the foregoing, the Executive's Employment
shall not be deemed to have been Terminated for Cause if such termination took
place as a result of: (i) questionable judgment on the part of the Executive;
(ii) any act or omission believed by the Executive in good faith, to have been
in or not opposed to the best interests of the Employer, or (iii) any act or
omission in respect of which a determination could properly be made that the
Executive met the applicable standard of conduct prescribed for indemnification
or reimbursement or payment of expenses under the Employer's By-Laws or the laws
of the State of New Jersey, or the directors and officers' liability insurance
of the Employer, in each case as in effect at the time of such act or omission.
If the Executive's Employment is Terminated for Cause, all
rights of the Executive under this Agreement shall cease as of the effective
date of such termination, except that the Executive (i) shall be entitled to
receive his accrued Base Salary
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<PAGE>
through the date of such termination and (ii) shall be entitled to receive the
payments and benefits to which he is then entitled under the employee benefits
plans of the Employer or any affiliate thereof as of the date of this
termination.
5.4 TERMINATION BY EMPLOYER WITHOUT CAUSE. If the Executive's
employment hereunder shall be terminated by Employer by any reason other than by
death, disability or cause (all as defined in this Section 5), the Employer
shall pay to the Executive, as liquidated damages and not as a penalty, (i) in a
lump sum immediately subsequent to the date of such termination, an amount equal
to one (1) month of the Base Salary of the Executive and one (1) month of health
benefits for every twelve (12) month period of employment. It is expressly
understood and agreed that the Executive shall not be obligated to mitigate the
damages caused by a termination of his employment for which he shall be entitled
to such liquidated damages.
5.5 VOLUNTARY TERMINATION. In the event Executive voluntarily
terminates his employment with Employer, during or after the Term, the Executive
shall have no right to receive any compensation or benefit from the Employer
hereunder, except for (i) accrued and unpaid Base Salary through the date of
such termination and (ii) payments and benefits to which he is then entitled
under the employee benefits plans of the Employer or any affiliate thereof as of
the date of this termination.
5.6 This Section 5 shall not apply to any stock options and/or
warrants received under Section 4.2 hereof, which
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shall be payable in accordance with the terms of the PHYTOTECH, INC. STOCK
OPTION PLAN.
6. OTHER BENEFITS.
6.1 INSURANCE. Upon the occurrence of an event of termination
or a voluntary termination resulting in a severance of employment, Employer will
cause to be continued life, health and disability coverage substantially
identical to the coverage maintained by Employer for Executive prior to his
severance. In the case of an event of termination or a voluntary termination,
such coverage shall cease upon the Executive's employment by another employer
and Executive's coverage by the subsequent employer's plan, or on the date which
consists of one (1) month for every twelve (12) month period of the Executive's
employment, whichever is earlier. Executive shall contribute such amounts
towards such benefits as are required of all employees so long as he receives
such benefits. The provisions of this Section shall not affect the Executive's
right to eighteen (18) months of health insurance coverage by law so long as he
pays the full amount of such coverage without any payment by the Employer.
7. SOURCE OF FUNDS.
All payments and benefits provided in Sections 4, 5, and 6 shall
be paid to Executive or paid for on behalf of Executive in cash from the general
funds of Employer, and no special or separate fund shall be established and no
other segregation of assets shall be made to assure payment. Executive shall
have no right, title, or interest whatever in or to any investments which
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Employer may make to aid Employer in meeting its obligations hereunder.
8. CERTAIN COVENANTS OF EXECUTIVE.
8.1 CONFIDENTIAL INFORMATION. During and after the term of
Executive's employment with Employer, Executive shall keep secret and retain in
strictest confidence, and shall not use for the benefit of himself or others
except in connection with the business and affairs of Employer, all confidential
matters of Employer, its affiliates, including, without limitation, trade
"know-how," secrets, customer lists, details of contracts, loan applicant lists
or applications, pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans, business acquisition plans,
new personnel acquisition plans and other business affairs of Employer, or its
affiliates, heretofore or hereafter, and shall not disclose them to anyone
outside of Employer, or its affiliates, either during or after employment by
Employer, or any of its affiliates, except as required in the course of
performing duties hereunder or with Employer's express written consent;
PROVIDED, HOWEVER, that this section shall not apply to matters that are part of
the public knowledge or literature or to matters that have been disclosed by
Employer, or its affiliates to third parties.
8.2 PROPERTY OF EMPLOYER. All memoranda, notes, lists, records
and other documents (and all copies thereof) made or compiled by Executive or
made available to Executive concerning the business of Employer, or any of its
affiliates shall be Employer's property and shall be delivered to Employer
promptly upon the
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termination of Executive's employment with Employer, or any of its affiliates or
at any other time on request.
8.3 RIGHTS AND REMEDIES UPON BREACH. The Executive expressly
acknowledges that damages alone will be an inadequate remedy for any breach or
violation of any of the provisions of this Agreement, and that the Employer, in
addition to all other remedies hereunder, shall be entitled, as a matter of
right, to injunctive relief, including specific performance, with respect to any
such breach or violation in any court of competent jurisdiction. The Executive
acknowledges that the business and products of the Employer have worldwide
applications and that the restrictions in this Agreement are therefore properly
without any geographic limitations. If any of the provisions of this Agreement
are held to be in any respect an unreasonable restriction upon the Employer,
then the provisions shall be deemed to extend only over the maximum period of
time, geographic area, or range of activities as to which such provisions may be
enforceable.
9. NO CONFLICTING AGREEMENTS.
Executive represents and warrants that as of the effective date
of this Agreement, he will not be a party to any Agreement, contract or
understanding which would in any way restrict or prohibit him from undertaking
or performing his employment in accordance with the terms and conditions of this
Agreement.
10. FEDERAL INCOME TAX WITHHOLDING.
Employer may withhold from any benefits payable under this
Agreement all federal, state, city or other taxes as
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shall be required pursuant to any law or governmental regulation or ruling.
11. INDEMNIFICATION.
11.1 The Executive shall be indemnified by Employer against
liabilities and reasonable costs, expenses and counsel fees paid or incurred
(exclusive of any amounts paid by Executive to Employer in settlement of
Employer's claims against Executive) in connection with any action, suit or
proceeding to which Executive or his legal representatives may be made a party
by reason of his being or having been a director or officer of Employer or any
affiliate, provided that (l) said action, suit or proceeding shall be prosecuted
against Executive, or against his legal representatives, to final determination
and no final adjudication shall have been made in said action, suit or
proceeding that he was derelict in the performance of his duties as such
director or officer, or (2) said action, suit or proceeding shall be settled or
otherwise terminated as against Executive, or his legal representatives, without
a final determination of the merits, and it shall be determined by the Board of
Directors, or by a committee specifically authorized by the Board of Directors
to make such determination, that Executive was not derelict in any substantial
way in the performance of his duties as charged in such action, suit or
proceeding.
11.2 The right of indemnification described in Section 11.1 shall
be in addition to, and not in restriction of or limitation of, any other
obligation which Employer may have with
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respect to the indemnification or reimbursement of members of Employer's Board
of Directors, officers, agents or employees.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the
parties hereto and supersedes any prior employment agreement between Employer or
any predecessor of Employer and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
13. GENERAL PROVISIONS.
13.1 NONASSIGNABILITY. Neither this Agreement nor any right or
interest hereunder shall be assignable by Executive, his beneficiaries, or legal
representatives without Employer's prior written consent; provided, however that
nothing in this Section 13.1 shall preclude (a) Executive from designating a
beneficiary to receive any benefit payable hereunder upon his death, or (b) the
executors, administrators, or other legal representatives of Executive or his
estate from assigning any rights hereunder to the person or persons entitled
thereto.
13.2 NO ATTACHMENT. Except as required by law, no right to
receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attach-
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ment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
13.3 BINDING AGREEMENT. This Agreement shall be binding upon,
and inure to the benefit of, Executive and Employer and their respective
permitted successors and assigns.
14. MODIFICATION AND WAIVER.
14.1 AMENDMENT OF AGREEMENT. This Agreement may not be modified
or amended except by an instrument in writing signed by the parties hereto.
14.2 WAIVER. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement is held
invalid, such invalidity shall not affect any other provision of this Agreement
not held so invalid, and each such other provision shall to the full extent
consistent with law continue in full force and effect. If any provision of this
Agreement shall be held invalid in part, such invalidity shall in no way affect
the
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rest of such provision not held so invalid, and the rest of such provision,
together with all other provisions of this Agreement, shall to the full extent
consistent with law continue in full force and effect.
16. HEADINGS.
The headings of sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement has been executed and delivered in the State of
New Jersey and its validity, interpretation, performance, and enforcement shall
be governed by the laws of said State.
IN WITNESS WHEREOF, Employer has caused this Agreement to be executed
and its seal to be affixed hereunto by its officers thereunto duly authorized,
and Executive has signed this Agreement as of the day and year first above
written.
ATTEST: EMPLOYER
/s/ Ilya Raskin By: /s/ Burt D. Ensley
- ----------------------------------- -----------------------------------
ILYA RASKIN, Secretary BURT D. ENSLEY, President
WITNESS: EXECUTIVE
/s/ [ILLEGIBLE] /s/ Burt D. Ensley (L.S.)
- ----------------------------------- ----------------------------------------
BURT D. ENSLEY, Executive
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EXCLUSIVE LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is made and is effective as of the
15th day of May, 1997, by and between RUTGERS, THE STATE UNIVERSITY OF NEW
JERSEY, having its statewide office of Corporate Liaison and Technology Transfer
at P.O. Box 1179, ASB Annex II, Bevier Road, Piscataway, New Jersey 08855-1179,
(hereinafter referred to as "Rutgers"), and Phytotech, Inc., a New Jersey
corporation having a principal place of business at One Deer Park Drive, Suite
1, Monmouth Junction, NJ 08852 (hereinafter referred to as "Licensee").
RECITALS
WHEREAS, certain inventions relating to the development of phytoremediation
technology were made in the course of research sponsored by Licensee at Rutgers,
The State University of New Jersey, by Dr. Ilya Raskin, Dr. Michael Blaylock,
Dr. Ilan Chet, Dr. Slavik Dushenkov, and Dr. David Salt (hereinafter
"Inventors"); and
WHEREAS, Licensee entered into a research agreement relating to the
development of phytoremediation technology with Rutgers effective November 19,
1993 and amended by Modification No. 1 effective January 13, 1994 and
Modification No. 2 effective December 7, 1994 ("Research Agreement I") which
granted certain license option rights in the aforementioned inventions; and
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WHEREAS, Licensee is a "small business firm" as defined in 15 U.S.C. 632;
and
WHEREAS, Licensee wishes to obtain certain rights from Rutgers for the
commercial development, manufacture, use, and sale of certain inventions
relating to phytoremediation, and Rutgers is willing to grant such rights on the
terms and conditions set forth in this Agreement; and
WHEREAS, Both parties recognize and agree that royalties due hereunder will
be paid on both pending patent applications and issued patents; and
WHEREAS, Rutgers is desirous that the licensed property be developed and
utilized to the fullest extent so that the benefits can be enjoyed by the
general public.
NOW, THEREFORE, for good and valuable consideration, the receipt, adequacy
and sufficiency of which is hereby acknowledged, and for and in consideration of
the mutual covenants and agreements herein contained, the parties agree as
follows:
1. DEFINITIONS
1.1 "Affiliate" means any corporation or business entity that directly
or indirectly controls, is controlled by, or is under
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common control with Licensee to the extent of at least fifty percent (50%) of
the outstanding stock or other voting rights entitled to elect directors.
1.2 "Data" means all information owned and/or controlled by Rutgers
which is acquired by Licensee, its Affiliates or its sublicensees directly or
indirectly from or through Rutgers, its units, its employees, the Inventors, or
its consultants relating to the Licensed Field, Rutgers Patent Rights, Licensed
Products, or this Agreement, including but not limited to all patent
prosecution documents and all information received from Inventors.
1.3 "Licensed Field" means the use for commercial phytoremediation.
1.4 "Licensed Method" means any process, method, or use that is covered
by Rutgers Patent Rights or whose use or practice would constitute, but for the
license granted to Licensee pursuant to this Agreement, an infringement of any
issued or pending claim within Rutgers Patent Rights.
1.5 "Licensed Product(s)" means any material or product or kit, or any
service, process, or procedure that (1) either is covered by Rutgers Patent
Rights or whose manufacture, use, or sale would constitute, but for the license
granted to Licensee pursuant to this Agreement, an infringement of any claim
within Rutgers
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Patent Rights or (2) is developed, made, sold, registered, or practiced using
Licensed Method or which may be used to practice the Licensed Method, in whole
or in part.
1.6 "Net Sales" means the total of the gross consideration received for
Licensed Products made, used, leased, transferred, sold or otherwise disposed of
by Licensee, its Affiliates, and its sublicensees at arm-length prices, less the
sum of the following actual and customary deductions (net of rebates or
allowances of such deductions received by Licensee, its Affiliates and
sublicensees) included on the invoice and actually paid: trade discounts; sales,
excise or use taxes imposed upon particular sales; import/export, customs or
duties or similar levies paid by Licensee; insurance; costs of packaging
materials, boxes, cartons and crates required for shipping; returns; and
shipping, transportation and delivery charges.
A Licensed Product shall be deemed made, used, leased, transferred, sold,
or otherwise disposed of at the time Licensee receives payment for such Licensed
Product.
1.7 "Proprietary and Confidential Information" means all confidential
information or trade secrets owned and/or controlled by License (other than by
license hereunder) relating to the development of phytoremediation technology or
the Licensed Products, including, but not limited to, all information of
Licensee in written, oral, graphic or tangible form relating to the
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design, manufacture, programming, operation, or service of the Licensed
Products, including, but not limited to, any inventions, intellectual property,
know-how, or trade secrets relating thereto, as such information exists as of
the date hereof or is developed by Licensee during the term of this Agreement.
1.8 "Research Agreement II" means Research Agreement I as further
amended as of the effective Data.
1.9 "Rutgers Patent Rights" means U.S. Patent Application Numbers
94-0809-1, 95-0315-1 and 95-0413-1, U.S. Patents resulting therefrom and foreign
patents and patent applications corresponding thereto owned by Rutgers,
including any reissues, extensions, substitutions, continuations (not including
continuations-in-part) and divisions thereof an well as any additional patents
and patent applications covered by Research Agreements I and II which are added
by operation of the terms of Article 4 of this Agreement.
1.10 "Territory" means all countries of the world in which Rutgers has
Rutgers Patent Rights, subject to any exclusions provided in this Agreement.
2. GRANT
2.1 Subject to the limitations set forth in this Agreement, Rutgers
hereby grants to Licensee an exclusive license (terminable
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<PAGE>
only pursuant to the express terms of this Agreement) under Rutgers Patent
Rights in the Licensed Field to make, have made, use, and sell Licensed Products
and to practice Licensed Method in the Territory during the term of this
Agreement. It is mutually agreed that the preceding license includes the right
to use and/or sell Licensed Product outside of the Territory which is developed
and/or manufactured within the Territory. Licensee shall have the right to
extend such license to its Affiliates, provided Licensee is the primary
guarantor of all payment and other obligations hereunder of its Affiliates. The
license for which a royalty has been paid under this Agreement includes the
right of Licensee, its Affiliates or sublicensees to grant to the Purchaser
thereof the right to use and/or resell such Licensed Product without payment of
any other royalty hereunder.
2.2 If the licensed invention(s) were funded by the U.S. Government,
the license granted hereunder shall be subject to the overriding obligations to
the U.S. Government set forth in 35 U.S.C. 200-212 and applicable governmental
implementing regulations.
2.3 Rutgers is Permitted to use Rutgers Patent Rights, Licensed
Products, Licensed Methods, and associated information and technology (i) in the
Licensed Field for educational and research purposes and to publish the results
thereof (ii) and outside the Licensed Field for any purpose.
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3. SUBLICENSES
3.1 Rutgers grants to Licensee the right to grant sublicenses to third
parties under the license granted in Article 2. To the extent applicable, such
sublicenses shall include all of the rights of and obligations due to Rutgers
(and, if applicable, to the United States Government) that are contained in this
Agreement.
3.2 Within thirty (30) days after execution thereof, Licensee shall
provide Rutgers with a copy of each sublicense issued hereunder, and shall
thereafter collect and, upon receipt of payment from any such sublicensee(s),
guarantee payment of royalties due Rutgers from such sublicensees and summarize
and deliver all reports due Rutgers from sublicensees.
3.3 Upon termination of this Agreement for any reason, Rutgers, at its
sole discretion, shall determine whether any or all sublicenses shall be
canceled or assigned to Rutgers. Upon determination by Rutgers that a
sublicense shall be canceled, at the request of sublicensee and absent material
reasons not to continue the sublicense during a transition period, Rutgers will
provide the sublicensee the option to continue the sublicense under the terms of
this Agreement for a phase out period not to exceed one (1) year.
4. INCORPORATION OF FUTURE RESEARCH AGREEMENT DISCOVERIES
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INTO THIS AGREEMENT AND FIRST NEGOTIATION RIGHTS
4.1 If Licensee exercises its Research Agreement option rights to
patent and license any intellectual property rights discovered after the
effective date of this Agreement under Research Agreement I or Research
Agreement II, the subject patent rights shall automatically be added to the
definition of Rutgers Patent Rights hereunder and shall be thereafter deemed to
be part of this Agreement.
4.2 (a) Rutgers shall make a bonafide effort to give Licensee a
reasonable opportunity for a period not to exceed six (6) months to thereafter
negotiate for a royalty bearing license to new licensable inventions in the
Licensed Field owned by Rutgers which have been disclosed to Rutgers' Office of
Corporate Liaison and Technology Transfer after the Effective Date of this
Agreement, which have not been sponsored by Licensee or another commercial
entity, and which are otherwise available for licensing to Licensee. Licensee
must notify Rutgers of its desire to negotiate for license rights within three
(3) months of an applicable invention disclosure to Licensee hereunder in order
to retain negotiating rights to such invention.
(b) This paragraph is intended to include Licensee's right of
review relating to all inventions under Rutgers Patent Rights resulting from
non-Licensee research that is not sponsored by a
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commercial entity.
5. EQUITIES AND ROYALTIES
5.1 Within 30 days after the Effective Date, Licensee will issue to
Rutgers, at no cost to Rutgers, One Hundred Thousand (100,000) shares of its
Series A Convertible Preferred Stock. Licensee warrants and represents that when
the stock is delivered to Rutgers (i) it shall be free from any claims, security
interests or liens and (ii) that Licensee shall have full right and authority to
issue and deliver the stock to Rutgers. Rutgers shall have no less rights in
the stock than any other holders of Series A Convertible Preferred Stock.
5.2 Except as otherwise required by law, Licensee shall pay to Rutgers
a running royalty on sales by it, its Affiliates and its sublicensees of 2% of
annual Net Sales of Licensed Products up to $250,000,000, 3.5% of annual Net
Sales of Licensed Products greater than $250,000,000 and up to $500,000,000 and
5% of annual Net Sales of Licensed Products greater than $500,000,000 during the
term of this Agreement. Sales among Licensee, its Affiliates and its
sublicensees for ultimate third party use shall be disregarded for purposes of
computing royalties. Royalties shall be payable only upon receipts from sales
or transfers between unrelated third parties and shall be based on arms length
consideration.
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5.3 Royalties Payable to Rutgers shall be paid to Rutgers quarterly on
or before 35 days following the end of each calendar quarter. Each such payment
will be for royalty payments received within Licensee's most recently completed
calendar quarter.
5.4 All amounts due Rutgers shall be payable in United States Dollars
in New Brunswick, New Jersey. When Licensed Products are sold for monies other
than United States Dollars, the earned royalties will first be determined in the
foreign currency of the country in which such Licensed Products were sold and
then converted into equivalent United States Dollars. The exchange rate will be
the United States Dollar buying rate quoted in the Wall Street Journal on the
last day of the reporting period.
5.5 Licensee shall be responsible for any and all taxes, fees, or other
charges, where such taxes, fees or other charges are imposed by the government
of any country outside the United States on the remittance of royalty income for
sales occurring in any such country. Licensee shall also be responsible for all
bank transfer charges.
5.6 If at any time legal restrictions prevent the acquisition or prompt
remittance of United States Dollars by Licensee with respect to any country
where a Licensed Product is sold and payment is received, Licensee shall pay
royalties due to Rutgers from
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Licensee's other sources of United States Dollars.
5.7 In the event that any patent or any claim thereof included within
the Rutgers Patent Rights shall be held invalid in a final decision by a court
of competent jurisdiction and last resort in any country and from which no
appeal has or can be taken, all obligation to pay royalties based on such patent
or claim or any claim patentably indistinct therefrom shall cease as of the date
of such final decision with respect to such country. Licensee shall not,
however, be relieved from paying any royalties that accrued and were paid before
such decision or that are based on another patent or claim not involved in such
decision.
5.8 Royalties will be paid one time only even if a Licensed Product is
covered by more than one issued patent included in the Rutgers Patent Rights.
5.9 Rutgers shall not be entitled to share in any equity investment in
Licensee by a third party as part of a strategic alliance, nor is Rutgers
entitled to any share in revenues received as part of a sponsored research and
development agreement between Licensee and a third party.
6. DILIGENCE
6.1 Licensee, upon execution of this Agreement, shall use its
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reasonable and diligent efforts to develop, test, obtain regulatory approval,
manufacture, market and sell Licensed Products in all countries of the Territory
and shall earnestly and diligently endeavor to market the same within a
reasonable time after execution of this Agreement and in quantities sufficient
to meet the market demands therefor.
6.2 Licensee shall be entitled to exercise prudent and reasonable
business judgment in meeting its diligence obligations hereunder.
6.3 Licensee shall use all reasonable efforts to obtain all necessary
governmental approvals for the manufacture, use and sale of Licensed Products.
7. PROGRESS AND ROYALTY REPORTS
7.1 Beginning September 1, 1997, and annually thereafter, Licensee
shall submit to Rutgers a progress report covering Licensee's activities related
to the development and testing of all Licensed Products and the obtaining of the
governmental approvals necessary for marketing. These progress reports shall be
made for each Licensed Product in each country of the Territory.
7.2 The progress reports submitted under section 7.1, which may be
presented as a two (2) page report prior to commercial
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introduction of Licensed Product, shall include sufficient information (taking
into due consideration that a two (2) page report will contain significantly
less detail) to enable Rutgers to reasonably determine Licensee's progress in
fulfilling its obligations under Article 6, including, but not limited to, the
following topics:
- summary of work completed
- summary of work in progress, including product development and
testing and progress in obtaining government approvals
- current schedule of anticipated events or milestones
- summary of market plans for introduction of Licensed Products
in countries of the Territory in which Licensed Products have
not yet been introduced
- summary of resources (dollar value) spent in the reporting
period for research, development, and marketing of Licensed
Products
- summary of activities in obtaining sublicensees and activities
of sublicensees
- the most recent certified financial statements
7.3 Licensee shall have a continuing responsibility to keep Rutgers
informed of the large/small entity status (as defined by the United States
Patent and Trademark Office) of itself and its sublicensees.
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7.4 Licensee shall notify Rutgers of the date of first commercial sale
of each Licensed Product in each country in the first report due after such
commercial introduction.
7.5 After the first commercial sale of a Licensed Product anywhere in
the world, Licensee will make quarterly royalty reports to Rutgers on or before
the date 30 days after each calendar quarter.
7.6 Each such royalty report will show (a) the units and gross sales
and Net Sales of each type of Licensed Product sold by Licensee on which
royalties have not been paid, including a clear indication of how Net Sales were
calculated; (b) the royalties, in U.S. dollars, payable hereunder with respect
to such sales on which payment has been received; (c) the method used to
calculate the royalty; and (d) the exchange rates used, if any; and (e) any
other information reasonably requested by Rutgers.
7.7 If no sales of Licensed Products have been made during any
reporting period, a statement to this effect shall be made by Licensee.
8. BOOKS AND RECORDS
8.1 Licensee shall keep books and records in accordance with generally
accepted accounting principles accurately showing all
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transactions and information relating to this Agreement. Such books and records
shall be preserved for at least five (5) years from the date of the entry to
which they pertain and shall be open to inspection by representatives or agents
of Rutgers at reasonable times upon reasonable notice, but not more often than
once annually.
8.2 The fees and expenses of Rutgers' representatives performing such
an examination shall be borne by Rutgers. However, if an error in royalties of
more than seven and one-half (7 1/2%) percent of the total royalties due for any
year is discovered, or if as a result of the examination it is determined that
Licensee is in material breach of its other obligations under this Agreement,
then the fees and expenses of these representatives shall he borne by Licensee.
9. TERM OF THE AGREEMENT
9.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the provisions of this Agreement, this Agreement
shall be in force from its Effective Date and shall remain in effect in each
country of the Territory until the last day of the month of the expiration of
the last-to-expire Rutgers Patent Rights licensed under this Agreement in such
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country.
9.2 Any expiration or termination of this Agreement shall not affect
the rights and obligations set forth in the following Articles:
Article 8 Books and Records
Article 11 Disposition of Licensed Products on Hand Upon
Termination
Article 12 Use of Names, Trademarks and Confidential Data
Article 17 Indemnification
Article 22 Failure to Perform
Article 27 Confidentiality
10. TERMINATION
10.1 If either party should breach or fail to perform any provision of
this Agreement, then the other party may give written notice of such default
(Notice of Default) to the defaulting party. If the defaulting party should
fail to cure such default within sixty (60) days of the effective date of such
notice, the other party shall have the right to terminate this Agreement and the
licenses herein by a second written notice (Notice of Termination)
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to the defaulting party. If a Notice of Termination is sent to defaulting
party, this Agreement shall terminate on the date five (5) days following the
receipt of such notice (Effective Date of Termination). Termination shall not
relieve either party of its obligation to pay all amounts due hereunder as of
the Effective Date of Termination and shall not impair any accrued rights.
10.2 The Agreement shall terminate in accordance with the procedures
detailed in paragraph 10.1 hereof upon the filing by Licensee of a petition in
bankruptcy or insolvency, or upon any adjudication that the Licensee is bankrupt
or insolvent, or upon the filing by Licensee of any petition or answer seeking
judicial reorganization, readjustment or arrangement of the business of Licensee
under any law relating to bankruptcy or insolvency, or upon the appointment of a
receiver for all or substantially all the property of Licensee, or upon the
making of any assignment or attempted assignment for the benefit of the
creditors.
11. DISPOSITION OF LICENSED PRODUCTS AND INFORMATION
ON HAND UPON TERMINATION
11.1 Upon termination of this Agreement by either party (i) Licensee
shall have the privilege of disposing of all previously made or partially made
Licensed Products, but no more, within a period of one hundred and twenty (120)
days after the effective date of termination, provided, however, that the
disposition of
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such Licensed Products shall be subject to the terms of this Agreement
including, but not limited to, the payment of royalties at the rate and at the
time provided herein and the rendering of reports thereon; (ii) Licensee shall
promptly return, and shall cause its sublicensees to return, to Rutgers all
property belonging to Rutgers, if any, that has been provided to Licensee or its
Affiliates or sublicensees hereunder, and all copies and facsimiles thereof and
derivatives therefrom (except that Licensee may retain one copy of written
material for record purposes only, provided such material is not used by
Licensee for any other purpose and is not disclosed to others).
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12. USE OF NAMES AND TRADEMARKS
12.1 Nothing contained in this Agreement shall be construed as granting
any right to Licensee or its Affiliates to use in advertising, publicity, or
other promotional activities any name, trade name, trademark, or other
designation of Rutgers or any of its units (including contraction, abbreviation
or simulation of any of the foregoing). Unless required by law or used in
connection with a private or public offering of Licensee's stock or used in any
of Licensee's business agreements, the use of the name, "Rutgers, The State
University of New Jersey" or any campus or unit of Rutgers is expressly
prohibited, and no use of such names may be made in any manner without Rutgers
prior written consent.
13. LIMITED WARRANTY
13.1 Rutgers warrants to Licensee that it has the lawful right to grant
this license.
13.2 This license and the associated Rutgers Patent Rights are provided
WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY
OTHER WARRANTY, EXPRESS OR IMPLIED. RUTGERS MAKES NO REPRESENTATION OR WARRANTY
THAT THE LICENSED PRODUCTS OR LICENSED METHODS WILL NOT INFRINGE ANY THIRD PARTY
PATENT OR OTHER PROPRIETARY RIGHT.
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13.3 IN NO EVENT WILL RUTGERS BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR MANUFACTURE,
SALE, OR USE OF THE RUTGERS PATENT RIGHTS OR LICENSED PRODUCTS OR LICENSED
METHODS OR RUTGERS DATA.
13.4 Nothing in this Agreement shall be construed as:
(13.4a) a warranty or representation by Rutgers regarding the
Rutgers Patent Rights other than the ownership interest
of Rutgers therein; or
(13.4b) a warranty or representation that anything made, used,
sold or otherwise disposed of under any license granted
in this Agreement is or will be free from infringement
of patents or other intellectual property of third
parties; or
(13.4c) an obligation to bring or prosecute actions or suits
against third parties except as provided in Article 16;
or
(13.4d) conferring by implication, estoppel or otherwise any
license or rights under any patents or other
intellectual property of Rutgers, other than Rutgers
Patent Rights as defined herein, regardless of whether
such patents are dominant or subordinate to Rutgers
Patent Rights; or
(13.4e) an obligation to furnish any know-how or Data
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not provided in Rutgers Patent Rights.
14. PATENT PROSECUTION AND MAINTENANCE
14.1 Rutgers shall diligently prosecute and maintain the United States
patents comprising Rutgers Patent Rights using counsel of its choice, or at
Licensee's option, an attorney selected by Licensee subject to Rutgers approval,
which approval shall not be unreasonably withheld. Rutgers counsel shall take
instructions only from Rutgers, provided that Rutgers will consult with Licensee
prior to instructing counsel on any significant issues which have been raised by
Licensee. Rutgers shall promptly provide Licensee with copies of all relevant
documentation so that Licensee may be informed and apprised of the continuing
prosecution and so that Licensee may provide input on such prosecution to assure
that Licensee's interests are covered. Licensee agrees to keep this
documentation confidential.
14.2 Rutgers shall amend any patent application to include claims
reasonably requested by Licensee to protect the Licensed Products contemplated
to be sold under this Agreement and Rutgers shall not unreasonably withhold
consent to any such request from License to amend any such patent application.
14.3 All past, present, and future costs of preparing,
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filing, prosecuting, defending, and maintaining all United States patent
applications and/or patents, including interferences and oppositions, and all
corresponding foreign patent applications and patents covered by Rutgers Patent
Rights shall be borne by Licensee. Current and future costs shall be payable by
Licensee within sixty (60) days of the billing date.
14.4 Rutgers shall, at the request of Licensee, file, prosecute, and
maintain patent applications and patents covered by Rutgers Patent Rights in
foreign countries if available. Licensee consents to the filing of all PCT and
foreign patent applications that have already been filed as of the Effective
Date of this Agreement. Licensee shall notify Rutgers within a reasonable
period of time before a bar date occurs of its decision of where it wishes to
file for foreign patents so that Rutgers has a reasonable amount of time to
prepare and make such filings. This notice shall be in writing and shall
identify the countries desired.
14.5 Licensee's obligation to underwrite and to pay patent costs shall
continue for so long as this Agreement remains in effect, provided, however,
that Licensee may terminate its obligations with respect to any given patent
application or issued patent upon 3 months' written notice to Rutgers. Rutgers
shall use reasonable efforts to curtail patent costs when such a notice is
received from Licensee. Licensee shall promptly pay patent costs
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which cannot be so curtailed. Commencing on the effective date of such notice,
Rutgers may continue prosecution and/or maintenance of such application(s) or
patent(s) at its sole discretion and expense, and Licensee shall have no further
right or licenses thereunder.
14.6 Rutgers shall have the right to file patent applications at its own
expense in any country or countries in which Licensee has not elected to secure
patent rights or in which Licensee's patent license rights hereunder have
terminated, and such applications and resultant issued patents shall not be
subject to this Agreement and may be freely licensed by Rutgers to others.
14.7 With respect to any Rutgers Patent Rights, each patent application,
office action, response to office action, request for terminal disclaimer,
request for reissue or reexamination of any patent issuing from such application
shall be provided to Licensee by Rutgers, or at the direction of Rutgers by
Rutger's patent counsel, sufficiently prior to the filing of such application
response or request to allow for review and comments by Licensee.
15. PATENT MARKING
15.1 Licensee shall mark all Licensed Products made, used, sold or
otherwise disposed of under the terms of this Agreement, and/or their
containers, in accordance with the applicable patent marking laws.
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16. PATENT INFRINGEMENT
16.1 In the event that Licensee shall learn of the substantial
infringement of any patent licensed under this Agreement, Licensee shall call
Rutgers attention thereto in writing and shall provide Rutgers with reasonable
evidence of such infringement. Both parties to this Agreement agree that during
the period and in a jurisdiction where Licensee has exclusive rights under this
Agreement, neither will notify a third party of the infringement of any of
Rutgers Patent Rights without first obtaining consent of the other party, which
consent shall not be unreasonably withheld. Both parties shall use their best
efforts in cooperation with each other to terminate such infringement without
litigation.
16.2 Licensee may request that Rutgers take legal action against the
infringement of Rutgers Patent Rights. Such request shall be made in writing
and shall include reasonable evidence of such infringement and damages to
Licensee. if the infringing activity has not been abated within 90 days
following the effective date of such request, Rutgers shall have the right to
(16.2a) commence suit on its own account; or
(16.2b) refuse to commence such suit;
and Rutgers shall give notice of its election in writing to Licensee by the end
of the 100th day after receiving notice of such
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request from Licensee. If Rutgers commences suit on its own account, Licensee
may thereafter join such suit at its own expense. If Rutgers refuses to
commence suit, Licensee may thereafter bring suit for patent infringement if and
only if Rutgers elects not to commence suit and if the infringement occurred
during the period and in a jurisdiction where Licensee had exclusive rights
under this Agreement. However, if Licensee elects to bring suit in accordance
with this paragraph, Rutgers may thereafter join such suit at its own expense.
16.3 Such legal action as is decided upon shall be at the expense of the
party on account of whom suit is brought and all recoveries recovered thereby
shall belong to such party, provided, however, that recoveries from legal
actions brought jointly by Rutgers and Licensee shall be shared equally by them,
after paying the reasonable legal expenses of both parties.
16.4 Each Party agrees to cooperate with the other in litigation
proceedings instituted hereunder but at the expense of the party on account of
whom suit is brought. Such litigation shall be controlled by the party bringing
the suit. Each party may be represented by counsel of its choice.
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16.5 Rutgers will permit Licensee to bring suit in the name of Rutgers
where required by law.
17. INDEMNIFICATION AND INSURANCE
17.1 Licensee shall indemnify, hold harmless and defend Rutgers, its
governors, trustees, officers, employees, students, agents and the Inventors
against any and all claims, suits, losses, liabilities, damages, costs, fees and
expenses (including reasonable attorneys' fees) resulting from or arising out of
the exercise of this license or any sublicense. This indemnification shall
include, but is not limited to, any and all claims alleging products liability.
17.2 Licensee shall, throughout the term of this Agreement, at its sole
cost and expense, insure its activities in connection with this Agreement and
will maintain and keep in force the following types of insurance:
(a) Comprehensive or Commercial General Liability with minimum limits
as follows:
(i) $1,000,000 combined single limit as respects premises and
operations with an excess policy of $2,000,000 where
required;
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(ii) From and after the first commercial sale of a Licensed
Product, Licensee shall maintain appropriate levels of
comprehensive or commercial general liability coverage, as
agreed to by the parties, which shall include, but not be
limited to, products/completed operations liability. In the
determination of appropriate level of such insurance, the
parties shall take into consideration the nature of the
Licensed Product sold, the size of the market, the
availability of insurance at commercially reasonable rates
and the practices of comparable competitors of Licensee
using similar technology. Licensee will notify Rutgers at
least 120 days prior to first commercial sale of proposed
coverages and documentation on explaining its rationale.
The parties will thereafter discuss and agree upon final
coverages to be taken. Further, such appropriate levels of
insurance are subject to periodic review by the parties.
(b) Workers' Compensation and Employers Liability insurance, covering
each employee of the Licensee engaged in the performance of the
action required under the contract, with a limit of liability in
accordance with applicable law, in the case of workers'
compensation insurance, and
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with the following limits of liability in the case of employers'
liability:
Bodily injury by accident - $100,000 each accident;
Bodily injury by disease - $500,000 policy limit;
Bodily injury by disease - $100,000 each employee.
(c) It is expressly understood and agreed, however, that the insurance
coverage and limits stated in A and B above shall not in any way
limit the liability of Licensee and that the required insurance
shall be primary coverage. Any insurance Rutgers may purchase will
be excess and noncontributory. Licensee's liability insurance will
be endorsed to specifically name Rutgers as an additional insured.
(d) Licensee shall furnish Rutgers with a certificate of insurance
evidencing the coverage and limits required pursuant to A and B
above. The liability certificate shall:
(i) Provide for thirty (30) day advance written notice to
Rutgers of cancellation or material alteration of the
policy;
(ii) Indicate that Rutgers has been endorsed as an
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additional insured under the coverages referred to above;
(iii) Include a provision that the insurance will be primary and
any valid and collectible insurance or program of
self-insurance carried or maintained by Rutgers shall be
excess and noncontributory.
17.3 Rutgers shall promptly notify Licensee in writing of any claim or
suit brought against Rutgers in respect of which Rutgers intends to invoke the
provisions of Article 17. Licensee shall keep Rutgers informed on a current
basis of its defense of any claims pursuant to Article 17.
18. NOTICES
18.1 Any notice or payment required to be given to either party shall be
deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in person or (b) five (5) days after mailing if mailed by
first-class certified mail, postage paid and deposited in the United States
mail, to the respective addresses given below, or to such other address as it
shall designate by written notice given to the other party.
In the case of Licensee: Phytotech, Inc.
One Deer Park Drive, Suite 1
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Monmouth Junction, NJ 08852
Attn: President
In the case of Rutgers: Rutgers, The State University
of New Jersey
Office of Corporate Liaison &
Technology Transfer
P.O. Box 1179
ASB Annex II, Bevier Road
Busch Campus
Piscataway, NJ 08855-1179
Attn: Director
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19. ASSIGNABILITY
29.1 This Agreement is binding upon and shall inure to the benefit of
Rutgers and Licensee, and their successors and assigns. Any such successor or
assignee shall expressly assume in writing the terms and conditions and
obligations of this Agreement. This Agreement shall not be assignable by either
of the parties without the prior written consent of the other party (which
consent shall not be unreasonably withheld), except that Licensee, without the
consent of Rutgers, may assign this Agreement to an Affiliate, provided that
Licensee is the primary guarantor of all Agreement payment and other obligations
of the Affiliate related to an assignment of this Agreement to such Affiliate.
20. LATE PAYMENTS
20.1 In the event any amounts due Rutgers hereunder, including but not
limited to royalty payments, fees and patent costs reimbursements, are not
received when due, Licensee shall pay to Rutgers interest charges at a rate of
the greater of (i) 12 percent per annum or (ii) the highest rate permitted by
law, if less than the rate referred to in (i) above. Such interest shall be
calculated from the date payment was due until actually received by Rutgers.
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21. WAIVER
21.1 It is agreed that no waiver by either party hereto of any breach or
default of any of the covenants or agreements herein set forth shall be deemed a
waiver as to any subsequent and/or similar breach or default.
22. FAILURE TO PERFORM
22.1 In the event of a failure of performance due under the terms of
this Agreement and if it becomes necessary for either party to undertake legal
action against the other on account thereof, then the prevailing party shall be
entitled to reasonable attorney's fees in addition to costs and necessary
disbursements.
23. GOVERNING LAWS
23.1 THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW JERSEY, but the scope and validity of any
patent or patent application shall be governed by the applicable laws of the
country of such patent or patent application.
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24. PREFERENCE FOR UNITED STATES INDUSTRY
24.1 If the U.S. Government sponsored an invention included in the
Rutgers Patent rights in whole or in part, Licensee agrees that any Licensed
Products sold in the United States embodying this invention or produced through
the use thereof will be manufactured substantially in the United States.
25. FOREIGN GOVERMENT APPROVAL OR REGISTRATION
25.1 If this Agreement or any associated transaction is required by the
law of any nation to be either approved or registered with any governmental
agency, Licensee shall assume all legal obligations to do so and the costs in
connection therewith.
26. EXPORT CONTROL LAWS
26.1 Licensee shall observe all applicable United States and foreign laws
with respect to the transfer of Licensed Products and related technical data to
foreign countries, including, without limitation, the International Traffic in
Arms Regulations (ITAR) and the Export Administration Regulations.
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27. CONFIDENTIALITY
27.1 Licensee shall safeguard and keep confidential Data against
disclosure to others with the same degree of care as it exercises with its own
data of a similar nature, and shall not disclose or permit the disclosure of
Data to others (except to its employees, agents or consultants who are bound to
Licensee and Rutgers by a like obligation of confidentiality) without the
express written permission of Rutgers, except that Licensee shall not be
prevented from using or disclosing any Data:
(27.1a) which Licensee can demonstrate by written records was
previously known to it; or
(27.1b) which is now, or becomes in the future, information
generally available to the public in the form supplied,
other than through acts or omissions of Licensee; or
(27.1c) which is lawfully obtained by Licensee from sources
independent of Rutgers who were entitled to provide
such information to Licensee.
27.2 Rutgers shall safeguard and keep confidential Proprietary and/or
Confidential Information relating to Licensed Products which is owned or
controlled by Licensee and disclosed to Rutgers hereunder in writing or if oral,
if confirmed in writing
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within a reasonable time after disclosure. Rutgers shall use the same degree of
care in safeguarding the information as it exercises with its own information of
a similar nature, and shall not disclose or permit the disclosure of such
information to others (except to its employees, agents or consultants who are
bound to Licensee and Rutgers by a like obligation of confidentiality) without
the express written permission of Licensee, except that Rutgers shall not be
prevented from using or disclosing any such information:
(27.2a) which Rutgers can demonstrate by written records was
previously known to it; or
(27.2b) which is now, or becomes in the future, information
generally available to the public in the form supplied,
other than through acts or omissions of Rutgers; or
(27.2c) which is lawfully obtained by Rutgers from sources
independent of Licensee who were entitled to provide
such information to Rutgers.
The obligations of the parties under this Article 27 shall remain in effect
during the term of this Agreement and for 5 years from the date of termination
or expiration of this Agreement.
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28. MISCELLANEOUS
28.1 The headings of the several articles are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
28.2 This Agreement will not be binding upon the parties until it has
been signed below on behalf of each party, in which event, it shall be effective
as of the Effective Date.
28.3 No amendment or modification hereof shall be valid or binding upon
the parties unless made in writing and signed on behalf of each party.
28.4 This Agreement embodies the entire understanding of the parties and
shall supersede all previous communications, representations or understandings,
either oral or written, between the parties relating to the subject matter
thereof.
28.5 In the case any of the provisions contained in this Agreement shall
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, but
this Agreement shall be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
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IN WITNESS WHEREOF, both Rutgers and Licensee have executed this Agreement,
in duplicate originals, by their duly authorized representatives on the day and
year hereinafter written.
Phytotech Inc. Rutgers, The State University
of New Jersey
By /s/ Burt D. Ensley By /s/ William T. Adams
---------------------------- ------------------------------
(Signature) (Signature)
Name Burt D. Ensley Name William T. Adams
--------------------------
(Please Print)
Title CEO Director
-------------------------- Office of Corporate Liaison
and Technology Transfer
Date 9/9/97 Date 9/8/97
------------------------- ----------------------------
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PHYTOTECH, INC.
STOCK OPTION PLAN
SECTION 1. PURPOSE.
Phytotech, Inc. (the "Company") depends for the successful conduct of
its business, on the initiative, effort and judgment of the officers, managerial
employees, scientific staff, and outside consultants of the Company and its
subsidiaries. The purpose of this Incentive Stock Option Plan (the "Plan") is
to motivate such officers, managerial employees, and outside consultants to
remain in the service of the Company and its subsidiaries and to enable the
Company and its subsidiaries to attract and retain new officers, managerial
employees, scientific staff, and consultants.
SECTION 2. DEFINITIONS.
As used in this Incentive Stock Option Plan the following terms have
the meanings stated in this Section 2. The singular includes the plural, and
the masculine gender includes the feminine and neuter genders, and vice versa,
as the context requires. The word "person" includes any natural person and any
corporation, firm, partnership or other form of association.
"AWARD DATE" means the date on which a Stock Option is granted as
specified by the Board.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as it may be amended
from time to time.
"COMMITTEE" means a committee of three or more members of the Board,
to which the Board has delegated the authority to administer the Plan under
Section 3.
"COMMON STOCK" means no par common stock of the Company.
"COMPANY" means Phytotech, Inc.
"DIRECTOR" means a member of the Board.
"DISABILITY" means a permanent and total disability as defined in
Section 422 of the Code.
"DISINTERESTED PERSON" means a person who is not eligible to receive
Stock Options under the Plan nor any
<PAGE>
substantially similar incentives under any other plan of the Company or any
member of the Group and who has not been so eligible for at least one year
before that person exercises discretion in administering the Plan.
"EXERCISE DATE" means the date on which the Company receives a notice
of the exercise of a Stock Option, which notice meets the requirements of this
Plan.
"FAIR MARKET VALUE" for purposes of valuing Common Stock shall be
determined as follows:
(i) If the Common Stock is principally traded on an exchange or
market in which prices are reported on a bid and asked basis, the mean between
the bid and the asked price for the Common Stock at the close of trading on the
date of grant;
(ii) If the Common Stock is principally traded on a national
securities exchange, the closing price of the Common Stock on the date of grant;
and
(iii) If the Common Stock is neither traded on the over-the-counter
market nor listed on a national securities exchange, such value as the Board, in
good faith, shall determine.
"GROUP" means the Company, each parent corporation to the Company, and
each of the Company's subsidiaries, as these terms are defined in Section 424 of
the Code.
"IN TANDEM" means that two Stock Options are related to each other
such that, the number of shares subject to the first Stock Option is reduced by
the number of shares for which the second Stock Option is exercised, and the
number of shares subject to the second Stock Option is reduced by the number of
shares for which the first Stock Option is exercised. As provided in Section
5.02 hereof, no Stock Options hereunder shall be issued In Tandem.
"INCENTIVE STOCK OPTION" means a stock option intended to qualify as
an incentive stock option under Section 422 of the Code.
"NON-STATUTORY STOCK OPTION" means any Stock Option other than an
Incentive Stock Option.
"PARTICIPANT" means an individual to whom a Stock Option has been
awarded hereunder.
"PLAN" means this Stock Option Plan of the Company.
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"QUALIFIED PERSON" means a Participant's legal guardian or legal
representative or a deceased Participant's heir or legatee who has a legal right
to or in respect of a Stock Option of that Participant.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as it may be amended from time to time.
"SHARE" means a share of Common Stock.
"STOCK OPTION" means an Incentive Stock Option or a Non-Statutory
Stock Options.
"STOCK OPTION AGREEMENT" shall have the meaning set forth in Section
9.01.
SECTION 3. ADMINISTRATION.
3.01. ADMINISTRATIVE BODY. Subject to Section 3.02, the Plan
shall be administered by the Board or the Committee. The Board may in its sole
discretion, but subject to Section 3.02, delegate the authority to administer
the Plan to the Committee. If the Committee has been delegated the authority to
administer the Plan, all references to the Board in this Plan (except in this
Section 3.01, Section 3.02 and Section 10) shall mean and refer to the
Committee.
3.02. PUBLIC COMPANY. If any member of the Group has any stock
registered under Section 12 of the Securities Exchange Act, this Section 3.02
shall apply. Unless Directors constituting a majority of the Board are
Disinterested Persons, the Board shall delegate the authority to administer the
Plan to a Committee of three or more Directors each of whom is a Disinterested
Person. Directors who are not Disinterested Persons may vote on any matter
affecting the administration of the Plan or the granting of Stock Option;
provided, however, that no Stock Option may be granted to a Director except by
(a) the Committee, at a time when all of its members are Disinterested Persons,
or (b) the Board, at a time when Directors constituting the majority of the
Board, and the majority of the Directors voting on the grant, are Disinterested
Persons.
3.03. AUTHORITY. Subject to applicable law and the terms of the
Plan, the Board shall have plenary authority to (a) award Stock Options under
the Plan, (b) set the terms, conditions and restrictions of the Stock Options,
their exercise and all related rights, (c) accelerate the date on which a
previously granted Stock Option may be exercised, (d) prescribe the form of
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agreements awarding and governing the Stock Options as provided in Section 9.01,
(e) interpret the Plan, (f) establish any rules or regulations relating to the
Plan and (g) make all other determinations for the proper administration of the
Plan. Terms, conditions and restrictions of Stock Options may vary from
Participant to Participant and from award to award. The Board's decisions on
matters relating to the Plan shall be final and conclusive on the Group and the
Participants and their respective successors, assigns, transferees, heirs and
representatives.
SECTION 4. ELIGIBILITY.
4.01. DESIGNATION OF INDIVIDUALS ELIGIBLE TO PARTICIPATE. All
employees of any member of the Group (including officers and directors) are
eligible to receive Incentive Stock Options under the Plan. All employees of
any member of the Group and consultants who are not employees of a member of the
Group but who perform substantial services for a member of the Group are
eligible to receive Non-Statutory Stock Options under the Plan.
4.02. PARTICIPANTS. The Board may consider any factor in
selecting Participants and in determining the type and amount of their Stock
Options, including, but not limited to, (a) the current or anticipated financial
condition of the Group, (b) the contributions by the Participant to the Group
and (c) the other compensation provided to the Participant. The Board's award
of a Stock Option to a person in any year shall not require the Board to award
any Stock Option to that person in any other year.
SECTION 5. TYPES OF STOCK OPTIONS.
5.01. Except as otherwise provided in Section 5.02, Stock Options
may be granted in any one or any combination of the following forms:
(a) Non-Statutory Stock Options as described in Section 7 hereof.
(b) Incentive Stock Options as described in Section 8 hereof.
5.02. No Stock Option shall be issued In Tandem with any other
Stock Option.
SECTION 6. AGGREGATE LIMITATION ON STOCK OPTIONS.
6.01. The aggregate number of shares of Common Stock available for
grant under the Plan is one million, subject
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to adjustment pursuant to Section 6.02 and Section 10.05. Of such amount, the
aggregate number of shares of Common Stock available for grant as an Incentive
Stock Option under the Plan is one million.
6.02. EXPIRATION AND CANCELLATION. If a Stock Option granted
under the Plan expires, is terminated or is otherwise cancelled before exercise,
that Stock Option and the related Shares shall not apply toward the limits
provided in Section 6.01. If Shares issued or awarded under this Plan are
forfeited, cancelled, terminated or reacquired by the Company, those forfeited,
cancelled, terminated or reacquired Shares, shall not apply toward the limits
provided in Section 6.01 and shall be available immediately for the grant of
Stock Options.
6.03. MAINTENANCE OF STOCK. Shares issued under the Plan shall be
authorized and unissued shares of treasury stock. The Company shall always
maintain the number of such Shares at least equal to a number of Shares for
which Stock Options have been granted and remain outstanding and unexercised.
SECTION 7. NON-STATUTORY STOCK OPTIONS.
7.01. Non-Statutory Stock Options may be granted under the Plan
for the purchase of shares of Common Stock. Non-Statutory Stock Options shall
be in such form and upon such terms and conditions as the Board shall from time
to time determine, subject to the following conditions:
(a) EXERCISE. Non-Statutory Stock Options shall be subject to such
terms and conditions, shall be exercisable at such time or times, and shall be
evidenced by such form of written option agreement ("Non-Statutory Stock Option
Agreement") as provided in Section 9.01 between the Participant and the Company,
as the Board shall determine; provided, that such determinations are not
inconsistent with the other provisions of the Plan. Non-Statutory Stock Option
Agreements need not be identical.
(b) EXERCISE PRICE. The per share exercise price of each
Non-Statutory Stock Option shall be fixed by the Board in the Non-Statutory
Stock Option Agreement, but shall not be less than 85% of the fair market value
of the Common Stock subject to such Non-Statutory Stock Option on the date of
grant.
(c) TERM OF STOCK OPTIONS. Each Non-Statutory Stock Option shall
become exercisable at the time, and for the number of shares of Common Stock,
fixed by the Board in the Non-Statutory Stock Option Agreement. Each
Non-Statutory Stock Option shall expire and all rights to purchase Common Stock
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<PAGE>
thereunder shall cease on the date fixed by the Board in the Non-Statutory
Option Agreement, which shall not be later than the date ten (10) years from the
date such Stock Option is granted.
7.02. CONDITIONS OF GRANT. The Board in its discretion, may, as a
condition to the grant of a Non-Statutory Stock Option, require a Participant
who is the recipient of such Non-Statutory Stock Option to enter into one or
more agreements with the Company on or prior to the date of grant of such
Non-Statutory Stock Option which agreements may be included in one document as
part of the Non-Statutory Stock Option Agreement described in Sections 7.01(a)
and 9.01 hereof.
7.03. (a) EFFECT OF A CHANGE IN CONTROL. Upon the occurrence of
a Change in Control as defined in paragraph (b) of this Section 7.03 the Board
may, in its discretion, revise, alter, amend or modify any Non-Statutory Stock
Option Agreement with a Participant and any then outstanding and unexercised
Non-Statutory Stock Options granted to a Participant, in any manner that it
deems appropriate, including, but not limited to, either of the following
respects:
(1) The Non-Statutory Option may be deemed to pertain to and
apply to the securities to which a holder of the number of shares of Common
Stock subject to the unexercised portion of the Non-Statutory Option would be
entitled if he or she actually owned such shares immediately prior to the record
date or other time any such event became effective; and
(2) The dates upon which outstanding and unexercised
Non-Statutory Stock Options may be exercised may be advanced (without regard to
installment exercise limitations, if any).
If the Board believes that any such Change in Control event is
reasonably likely to occur, the Board may so revise, alter, amend or modify any
Non-Statutory Stock Option Agreement as set forth above at any time before and
contingent upon the consummation of such an event.
(b) CHANGE IN CONTROL. (1) For the purposes of this Plan, a "change
in control of the Company" (a "Change in Control") shall mean the occurrence of
an event of a nature that should be required to be reported in response to Item
1(a) of the Current Report on Form 8-K, as in effect on the date hereof,
pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); PROVIDED, HOWEVER, that a Change in Control shall,
in any event, conclusively be deemed to have occurred upon the first to occur of
either of the following events:
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(A) the beneficial ownership at any time hereafter by any
person, as defined herein, of capital stock of the Company,
constitutes 50 percent or more of the general voting power of all of
the Company's outstanding capital stock; or
(B) individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Board" generally and as of the date
hereof the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a
Director subsequent to the date hereof whose election, or nomination
for election, by the Company's shareholders, was approved by a vote of
at least three-quarters of the Directors comprising the Incumbent
Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the Directors
of the Company, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) shall be, for purposes of this
Plan, considered as though such person were a member of the Incumbent
Board.
(2) Notwithstanding anything in the foregoing paragraph (b)(1) to the
contrary, no Change in Control shall be deemed to have occurred for the purposes
of this Plan by virtue of a sale to underwriters or private placement of its
capital stock by the Company, nor any acquisition by the Company, through
merger, purchase of assets or otherwise, effected in whole or in part by
issuance or reissuance of shares of its capital stock.
(3) For the purposes of this Section 7.03, the following definitions
shall apply:
(A) The term "person" shall mean any individual, group,
corporation or other entity;
(B) Any person shall be deemed to be the beneficial owner of any
shares of capital stock of the Company;
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(i) which that person owns directly, whether or not of record,
or
(ii) which that person has the right to acquire pursuant to any
agreement or understanding or upon exercise of conversion rights,
warrants, or options, or otherwise, or
(iii) which are beneficially owned, directly or indirectly
(including shares deemed owned through application of clause (ii)
above), by an "affiliate" or "associate" (as defined in the rules of
the Securities and Exchange Commission under the Securities Act of
1933, as amended) of that person, or
(iv) which are beneficially owned, directly or indirectly
(including shares deemed owned through application of clause (ii)
above), by any other person with which that person or his "affiliate"
or "associate" (defined as aforesaid) has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or
disposing of capital stock of the Company;
(v) The outstanding shares of capital stock of the Company
shall include shares deemed owned through application of clauses
(B)(ii), (iii) and (iv) above, but shall not include any other shares
which may be issuable pursuant to any agreement or upon exercise of
conversion rights, warrants or options, or otherwise, but which are
not actually outstanding.
SECTION 8. INCENTIVE STOCK OPTIONS.
8.01. COMPLIANCE WITH CODE SECTION 422. It is intended that
Incentive Stock Options granted under the Plan shall constitute Incentive Stock
Options within the meaning of Section 422 of the Code. Incentive Stock Options
may be granted under the Plan for the purchase of shares of Common Stock.
Incentive Stock Options shall be in such form and upon such conditions as the
Board shall from time to time determine, subject to the requirements of this
Section 8. Each Incentive Stock Option Agreement referred to in Section 9.01
shall contain or be deemed to contain all provisions required in order to
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qualify those Stock Options as Incentive Stock Options under Section 422 of the
Code, and the provisions of this Plan shall be interpreted and construed to
effect such treatment under that Section.
8.02. LIMITATIONS ON AMOUNTS. The aggregate Fair Market Value on
the Award Date of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by any Participant during any calendar year
(under all Stock Option Agreements with the Group) shall not exceed ONE HUNDRED
THOUSAND DOLLARS ($100,000).
8.03. TIME OF GRANT. All Incentive Stock Options must be
granted within ten (10) years from the date on which the Plan is adopted by the
Board.
8.04. TERMS OF OPTIONS. No Incentive Stock Option shall be
exercisable prior to the date one (1) year, or after the date ten (10) years,
from the date such Incentive Stock Option is granted.
8.05. (a) OPTION PRICE. Except as provided in paragraph (b) hereof,
the option price for each Incentive Stock Option shall be not less than 100% of
the Fair Market Value of the Shares subject to the option on the Award Date of
that Incentive Stock Option.
(b) SPECIAL RULE FOR TEN PERCENT SHAREHOLDERS. No Incentive
Stock Option shall be granted to any Participant who, at the time that option is
granted, owns (within the meaning of Section 422 of the Code) stock having more
than 10% of the total combined voting power of all classes of stock of the
Company or any member of the Group, unless the option price is equal to at least
110% of the Fair Market Value of the Shares subject to the option on the Award
Date and the option is not exercisable later than five years from the Award
Date.
SECTION 9. PROCEDURES APPLICABLE TO THE GRANT AND EXERCISE OF STOCK OPTIONS.
9.01. STOCK OPTION AGREEMENTS. The terms of each Stock Option
shall be stated in an agreement between the Company and the Participant in a
form approved by the Board. The Participant must execute and deliver the
agreement to the Company as a condition to the effectiveness of the Stock
Option. The Board may also determine to enter into agreements with holders of
options to reclassify or convert certain outstanding options, within the terms
of the Plan, as Incentive Stock Options or as Non-Statutory Stock Options. All
such agreements may contain all terms and conditions as the Board considers
advisable that are
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not inconsistent with the Plan, including, but not limited to, transfer
restrictions, rights of first refusal, forfeiture provisions, representations
and warranties of the Participant and provisions to ensure compliance with all
applicable laws, regulations and rules and compliance with the terms of this
Plan.
9.02. EFFECTS OF TERMINATION OF EMPLOYMENT OR DEATH.
(a) STOCK OPTION AGREEMENT PROVISIONS. Each Stock Option Agreement
shall include such provisions as the Board may determine for the exercise and
termination of the Stock Option, the rights thereunder, the forfeiture thereof
and the rights of the Company to repurchase or convert into non-voting or other
Shares the Shares acquired thereunder in each case, if the Participant ceases to
be an employee of the Company or any member of the Group for any reason. An
employee's employment shall be deemed to have terminated when the Company gives
the employee notice of termination or receives a notice of termination from the
employee, irrespective of the subsequent payment of salary, wages or severance
or other benefits. The Board's determination whether leave of absence (whether
or not by approval of the Company or by reason of military or governmental
service) constitutes termination of employment for purposes of the Plan shall be
binding and conclusive.
(b) TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN DEATH OR
DISABILITY. A Stock Option right shall expire on the first to occur of the
following:
(1) The tenth anniversary of the date of the grant thereof;
(2) The expiration date set forth in the applicable Stock Option
Agreement; or
(3) Within three months following the date that the employment
of the Participant with the Company terminates for any reason other than death
or disability.
(c) TERMINATION OF EMPLOYMENT BY REASON OF DEATH OR DISABILITY. If
the employment of a Participant with the Company terminates by reason of
Disability as determined by the Board or by reason of death, his or her Stock
Options shall expire on the first to occur of the following:
(1) The tenth anniversary of the date of the grant thereof;
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<PAGE>
(2) The expiration date set forth in the applicable Stock Option
Agreement; or
(3) the first anniversary of such termination of employment.
9.03. EXERCISE. A Stock Option may be exercised, in whole or in
part, by giving written notice to the Company (Attention: Chief Financial
Officer) at its principal office or to such transfer agent as the Company may
designate. The notice shall identify the Stock Option being exercised and shall
contain such other information and terms as the Board may require. The notice
shall be accompanied by full payment of the purchase price for the Shares (a) in
United States dollars in cash or by certified check, (b) at the discretion of
the Board, by delivery of previously acquired Shares having a Fair Market Value
equal on the date of exercise to the cash exercise price of the Stock Option, or
(c) at the discretion of the Board, by a combination of (a) and (b) above. As
soon as practicable after receipt of the written notice, the Company shall
deliver to the person exercising the Stock Option the one or more certificates
for the Shares, which certificates shall be placed in escrow as provided in
Section 9.04.
9.04. ESCROW. Each certificate of Common Stock issued in respect
of a Stock Option shall be registered in the name of the Participant and
deposited by him in escrow, together with a stock power endorsed in blank with
the Company. Unless and until forfeited as provided herein, the Participant
shall be entitled to vote all shares of Common Stock evidenced thereby and to
receive all cash dividends with respect thereto. All other distributions with
respect to such shares of Common Stock, including but not limited to, shares
received as a result of a stock dividend, stock split, combination of shares or
otherwise and any distribution of the property or assets of the Company shall be
retained by the Company in escrow, or, if delivered to the Participant, the
Participant will deposit such distribution with the Company in escrow, as
aforesaid.
9.05. CERTIFICATES. Each certificate of Common Stock issued
pursuant to a Stock Option shall bear the following (or similar) legend:
"The transferability of this certificate and the
shares of stock represented hereby are subject to
the terms and conditions (including forfeiture)
contained in the Stock Option Plan of Phytotech,
Inc. (the "Corporation") and an Agreement entered
into between the registered owner and the
Corporation. A
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copy of such Plan and Agreement is on file in the
office of the Secretary of the Corporation."
9.06. REDELIVERY. Shares of Common Stock subject to a Stock
Option which have vested and are no longer forfeitable pursuant to the Plan and
the applicable Stock Option Agreement between the Participant and the Company,
and which have been deposited in escrow with the Company pursuant to Section
9.04 of the Plan, shall be redelivered by the Company to the Participant (or his
Qualified Person) promptly after becoming vested and non-forfeitable; provided,
however, that the Company shall be under no obligation to redeliver such shares
to a Participant until the Participant has paid or caused to be paid all taxes
required to be withheld pursuant to applicable law with respect to the issuance
of the shares of Common Stock.
9.07. OTHER CONDITIONS. At its sole discretion, the Board may
impose additional or other conditions on Stock Options, provided that such
conditions are not inconsistent herewith. The grant of Stock Options and
issuance of shares of Common Stock pursuant to any Stock Option shall be subject
to the condition that if at any time the Board shall determine, in its
discretion, that the registration, qualification or listing of such Stock
Options or shares of Common Stock under any state or federal law or upon any
securities exchange, or the consent or approval of any government regulatory
authority or evidence of the investment intent of the Participant, is necessary
or desirable as a condition to the granting of such Stock Option or the issuance
of such shares, such Stock Option or issuance may not be made, in whole or in
part, unless and until such registration, qualification, listing, consent or
compliance, or evidence thereof, shall have been effected or obtained free of
any conditions not acceptable to the Board. Without limiting the foregoing, the
Board may impose such restrictions on the transferability of shares issued
pursuant to an Award as may be necessary to ensure compliance with all
applicable securities laws.
9.08. NOTICES. Every direction, revocation or notice authorized
or required by the Plan shall be deemed delivered to the Company (1) on the date
it is personally delivered to the Secretary of the Company at its principal
executive offices or (2) three business days after it is sent by registered or
certified mail, postage prepaid, addressed to the Secretary at such offices, and
shall be deemed delivered to an optionee (1) on the date it is personally
delivered to him or her or (2) three business days after it is sent by
registered or certified mail, postage prepaid, addressed to him or her at the
last address shown for him or her on the records of the Company.
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SECTION 10. GENERAL.
10.01. EFFECTIVE DATE. This Plan was adopted by the Board as of
July 15, 1994. The Plan is effective subject to (a) its approval by the
affirmative vote of the holders of a majority of the stock of the Company
represented and entitled to vote at a duly convened meeting of its stockholders
or (b) the unanimous written consent of the holders of the stock of the Company.
Unless so approved within one year of the Plan's adoption by the Board, the Plan
shall not be effective for any purpose and shall be null and void. Before that
approval by the shareholders, the Board may award Stock Options; provided,
however, that no Stock Option may be exercised before that approval. If that
approval is not received within one year, then those previously awarded Stock
Options shall be of no effect and shall be null and void.
10.02. DURATION. Unless the Plan is terminated earlier, the Plan
shall terminate 10 years from the date on which the Plan is adopted by the
Board. No Stock Option or other rights under the Plan shall be granted
thereafter. The Board, without further approval of the Company's stockholders,
may at any time before that date terminate the Plan. After termination of the
Plan, no further Stock Options may be granted under the Plan. Stock Options
granted before any termination shall continue to be exercisable in accordance
with the terms of the Stock Option.
10.03. NON-TRANSFERABILITY OF STOCK OPTIONS. No Stock Option may
be sold, transferred, pledged, assigned, encumbered or otherwise disposed of by
a Participant or any Qualified Person (except, in the event of that person's
death, as provided by will or the laws of descent and distribution to the
limited extent provided in the Plan or in the applicable Stock Option
Agreement). The Company shall not be required to recognize any attempted
disposition by any Participant or Qualified Person. During a Participant's
lifetime, a Stock Option may be exercised only by him or her or by his or her
Qualified Person. After a Participant's death, the Stock Option may be
exercised only by the Participant's Qualified Person.
10.04. COMPLIANCE WITH LAW. The Company may determine, in its
sole discretion, that it is necessary or desirable to list, register or qualify
(or to update any listing, registration or qualification of) any Stock Option or
the Shares issuable or issued under any Stock Option of this Plan on any
securities exchange or under any federal or state securities law, or to obtain
consent or approval of any governmental body as a condition of, or in connection
with, the award of any Stock Option, the issuance of Shares under any Stock
Option or this
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<PAGE>
Plan, or the removal of any restrictions imposed on such Shares. If the
Company makes such a determination, the Stock Option shall not be awarded or the
Shares shall not be issued or the restrictions shall not be removed, as
applicable, in whole or in part, unless and until the listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Company. The Company's obligation to sell
or issue Shares under a Stock Option is subject to compliance with all
applicable laws and regulations. The Board, in its sole discretion, shall
determine whether the sale and issuance of Shares hereunder is in compliance
with all applicable laws and regulations.
10.05. ADJUSTMENT. If the outstanding Shares of Common Stock are
increased or decreased or changed into or exchanged for a different number or
kind of securities of the Company or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split, combination of securities or dividend payable in corporate securities,
then an appropriate adjustment shall be made by the Board in the number, kind
and/or price of Shares for which Stock Options may be granted under the Plan.
In addition, the Board shall make appropriate adjustment in the number, kind
and/or price of Shares as to which outstanding Stock Options, or portions
thereof then unexercised, shall be exercisable. In the event of any such
adjustment, the exercise price of any Stock Option, the performance objectives,
restrictions or other terms and conditions of any Stock Option and the Shares
issuable under any Stock Option shall be adjusted as and to the extent
appropriate, in the sole and absolute discretion of the Board, to provide each
Participant with substantially the same relative rights before and after such
adjustment to the extent practical.
10.06. WITHHOLDING. Upon the exercise of any Stock Option, the
Company shall have the right to require the optionee to remit to the Company an
amount sufficient to satisfy all federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for shares
of Common Stock. Upon the disposition of any Common Stock acquired by the
exercise of a Stock Option, the Company shall have the right to require the
optionee to remit to the Company an amount sufficient to satisfy all federal,
state and local withholding tax requirements as a condition to the registration
of the transfer of such Common Stock on its books. Whenever under the Plan,
payments are to be made by the Company in cash or by check, such payments shall
be net of any amounts sufficient to satisfy all federal, state and local
withholding tax requirements.
10.07. NO RIGHT TO CONTINUED EMPLOYMENT. No Participant under the
Plan shall have any right to continue in
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<PAGE>
the employ of the Company or any member of the Group for any period of time
because of his or her participation in the Plan.
10.08. NO RIGHT AS STOCKHOLDER. No Participant or Qualified Person
shall have the rights of a stockholder with respect to the Shares covered by a
Stock Option unless a stock certificate is issued to that person for the Shares.
No adjustment shall be made for cash dividends or similar rights for which the
record date is before the date on which such stock certificate is issued.
10.09. AMENDMENT OF THE PLAN. The Board may amend the Plan from
time to time in such respects as the Board deems advisable. No such amendment,
however, shall (a) change or impair a Stock Option without the consent of the
Participant or Qualified Person holding that Stock Option, or (b) without the
prior approval of the Company stockholders (i) increase the limits provided in
Section 6.01 (except by adjustment under Section 10.05), (ii) change or expand
the types of Stock Options that may be granted under the Plan, (iii) change the
class of persons eligible to receive Stock Options under the Plan, (iv)
materially increase either the benefits accruing to Participants under the Plan
or the cost of the Plan to the Company, (v) effect a change relating to
Incentive Stock Options granted hereunder which is inconsistent with Section 422
of the Code or regulations issued thereunder, or (vi) make any other change that
requires approval of the Company stockholders under applicable law or to
preserve the treatment of the Incentive Stock Options as such under Section 422
of the Code.
10.10. CANCELLATION AND SUBSTITUTION OF OPTIONS. The Board may
agree with a Participant to the cancellation of Stock Options in order to make
such a Participant eligible for the grant of a replacement Stock Option at a
lower price than the option to be cancelled; provided, however, that if the
Stock Option is an Incentive Stock Option, the Company receives an opinion of
counsel that such Incentive Stock Option qualifies as such under Section 422 of
the Code. In the event of a merger or consolidation, or the acquisition by the
Company of property or stock of an acquired corporation or any reorganization or
other transaction qualifying under Section 424 of the Code, the Board may, in
accordance with the provisions of that section, substitute Stock Options under
this Plan for options under the plan of the acquired corporation, provided that
(a) the excess of the aggregate Fair Market Value of the Shares subject to the
option immediately after the substitution over the aggregate option price of
such Shares is not more than the similar excess immediately before such
substitution, and (b) the new option does not give the Participant or Qualified
Person holding that Stock Option additional benefits.
15
<PAGE>
10.11. FRACTIONAL AND MINIMUM SHARES. In no event shall a fraction
of a Share be purchased or issued under the Plan without Board approval. The
Board may specify a minimum number of Shares for which each Stock Option must be
exercised.
10.12. APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of Shares under the Plan shall be used for general corporate
purposes.
10.13. OTHER INCENTIVES AND PLANS. Nothing in this Plan shall
prohibit any member of the Group from establishing other employee incentives and
plans.
10.14. GOVERNING LAW. The validity and construction of the Plan
and of each Agreement shall be governed by the laws of the State of New Jersey,
excluding the conflict-of-laws principles thereof.
16
<PAGE>
EXHIBIT 10.11
PROMISSORY NOTE
PRINCIPAL AMOUNT: $100,000 DATE: May 26, 1997
FOR VALUE RECEIVED, PHYTOTECH, INC., a New Jersey corporation having
an office at One Deer Park Drive, Suite 1, Monmouth Junction, New Jersey 08852
("Maker"), hereby promises to pay to the order of BURT D. ENSLEY, residing at 7
Colts Neck Drive, Newtown, PA 18940 ("Holder") the principal sum of ONE
HUNDRED THOUSAND DOLLARS ($100,000.00), together with interest on the unpaid
balance accruing from and after the date hereof at such rate of interest that
shall be the minimum rate on the date hereof necessary under the Internal
Revenue Code of 1986, as may be amended from time to time, to avoid an imputed
rate of interest under the Code, payable on demand.
This Note may be prepaid in whole or in part at any time without
premium or penalty. Any such prepayment shall be credited against the
installment due.
Notwithstanding the foregoing to the contrary, the full amount of the
principal balance owing, and the accrued but unpaid interest thereon shall, at
the election of the Holder, become immediately due and payable upon the first
to occur of any of the following:
(a) The commencement of proceedings in bankruptcy, proceedings for
an arrangement, reorganization or re-adjustment of debts under any law, whether
State or Federal, for the relief of debtors, now or hereafter existing, whether
instituted by or against Maker, provided that if an involuntary petition in
bankruptcy is filed against Maker, such event shall only constitute a default
if the petition is not dismissed within sixty (60) days after being filed;
(b) Application for the appointment of a receiver of the property of
Maker;
(c) The making of an assignment for the benefit of creditors by
Maker; or
(d) The voluntary or involuntary complete liquidation or dissolution
of Maker.
All parties to this Promissory Note hereby waive presentment for
payment, protest, notice of protest, notice of dishonor and all other notices
and demands of any nature whatsoever in connection with the making, payment,
dishonor or default under this Promissory Note.
<PAGE>
The provisions of this Note are severable, and the invalidity or
unenforceability of any provision shall not alter or impair the remaining
provisions of this Note.
This Note shall be construed and governed by the laws of the State of
New Jersey.
Whenever used, "Maker" and "Holder" shall be deemed to include the
respective heirs, personal representatives, successors, and assigns of Maker
and Holder.
IN WITNESS WHEREOF, the Maker has set his hand and seal or caused
this Note to be properly executed by its proper corporate officers, and has
affixed its corporate seal as of the date and year first above written.
ATTEST: PHYTOTECH, INC.
Ilya Raskin By: Burt D. Ensley
- ---------------------------- ------------------------------------
Ilya Raskin, Secretary Burt D. Ensley, President
<PAGE>
EXHIBIT 10.12
PROMISSORY NOTE
$4,000 DATE: May 26, 1997
FOR VALUE RECEIVED, PHYTOTECH, INC., a New Jersey corporation, (the
"Maker"), hereby promises to pay to the order of Burt and Carolyn Ensley (the
"Holder"), residing at 7 Colts Neck Drive, Newtown, PA 18940, in lawful money
of the United States of America, the principal sum of Four Thousand Dollars
($4,000.00), with simple interest on the unpaid balance accruing from and after
the date hereof at the rate of ten percent (10%) for the period from the date
hereof to and including the date next preceding the date of payment.
Prepayment of all or any part of the principal of this Note may be
made at any time without premium or penalty.
This Note, at the option of the Holder, shall become immediately due
and payable without notice or demand upon the earlier to occur of (i) seven (7)
days next following receipt of the proceeds of an initial public offering of
the capital stock of the Maker or (ii) June 30, 1997.
The Maker hereby waivers presentment, demand for payment, notice of
dishonor, and any and all other notices or demands in connection with the
delivery, acceptance, performance, default or enforcement of the Note.
In the event the Holder shall institute an action for the enforcement
of collection of the moneys due on this Note, there shall be immediately due
from the Maker, in additon to the unpaid principal and itnerest, all costs and
expenses of such action, including reasonable attorneys' fees.
This Note shall be construed and governed by the laws of the State of
New Jersey.
Whenever used, "Maker" and "Holder" shall be deemed to include the
respective heirs, personal representatives, successors, and assigns of Maker
and Holder.
IN WITNESS WHEREOF, the Maker has caused this Note to be properly
executed by its proper corporate officers, and has affixed its corporate seal
as of the date and year first above written.
ATTEST: PHYTOTECH, INC.
Ilya Raskin By: Burt D. Ensley
- ----------------------------- -------------------------------
Secretary President and C.E.O.
<PAGE>
EXHIBIT 10.13
PROMISSORY NOTE
PRINCIPAL AMOUNT: $100,000 DATE: May 26, 1997
FOR VALUE RECEIVED, PHYTOTECH, INC., a New Jersey corporation having
an office at One Deer Park Drive, Suite 1, Monmouth Junction, New Jersey 08852
("Maker"), hereby promises to pay to the order of PHILIP J. WHITCOME, residing
at 99 Field Brook Road, Madison, CT 06443 ("Holder") the principal sum of ONE
HUNDRED THOUSAND DOLLARS ($100,000.00), together with interest on the unpaid
balance accruing from and after the date hereof at such rate of interest that
shall be the minimum rate on the date hereof necessary under the Internal
Revenue Code of 1986, as may be amended from time to time, to avoid an imputed
rate of interest under the Code, payable on demand.
This Note may be prepaid in whole or in part at any time without
premium or penalty. Any such prepayment shall be credited against the
installment due.
Notwithstanding the foregoing to the contrary, the full amount of the
principal balance owing, and the accrued but unpaid interest thereon shall, at
the election of the Holder, become immediately due and payable upon the first
to occur of any of the following:
(a) The commencement of proceedings in bankruptcy, proceedings for
an arrangement, reorganization or re-adjustment of debts under any law, whether
State or Federal, for the relief of debtors, now or hereafter existing, whether
instituted by or against Maker, provided that if an involuntary petition in
bankruptcy is filed against Maker, such event shall only constitute a default
if the petition is not dismissed within sixty (60) days after being filed;
(b) Application for the appointment of a receiver of the property of
Maker;
(c) The making of an assignment for the benefit of creditors by
Maker; or
(d) The voluntary or involuntary complete liquidation or dissolution
of Maker.
All parties to this Promissory Note hereby waive presentment for
payment, protest, notice of protest, notice of dishonor and all other notices
and demands of any nature whatsoever in connection with the making, payment,
dishonor or default under this Promissory Note.
<PAGE>
The provisions of this Note are severable, and the invalidity or
unenforceability of any provision shall not alter or impair the remaining
provisions of this Note.
This Note shall be construed and governed by the laws of the State of
New Jersey.
Whenever used, "Maker" and "Holder" shall be deemed to include the
respective heirs, personal representatives, successors, and assigns of Maker
and Holder.
IN WITNESS WHEREOF, the Maker has set his hand and seal or caused
this Note to be properly executed by its proper corporate officers, and has
affixed its corporate seal as of the date and year first above written.
ATTEST: PHYTOTECH, INC.
Ilya Raskin By: Burt D. Ensley
- -------------------------------- ----------------------------------
Ilya Raskin, Secretary Burt D. Ensley, President
<PAGE>
EXHIBIT 10.14
PROMISSORY NOTE
PRINCIPAL AMOUNT: $25,000 DATE: May 26, 1997
FOR VALUE RECEIVED, PHYTOTECH, INC., a New Jersey corporation having
an office at One Deer Park Drive, Suite 1, Monmouth Junction, New Jersey 08852
("Maker"), hereby promises to pay to the order of ABRAHAM H. NECHEMIE, residing
at c/o Wiss & Company, LLP, 354 Eisenhower Parkway, Livingston, NJ 07039
("Holder") the principal sum of TWENTY FIVE THOUSAND DOLLARS ($25,000.00),
together with interest on the unpaid balance accruing from and after the date
hereof at such rate of interest that shall be the minimum rate on the date
hereof necessary under the Internal Revenue Code of 1986, as may be amended
from time to time, to avoid an imputed rate of interest under the Code, payable
on demand.
This Note may be prepaid in whole or in part at any time without
premium or penalty. Any such prepayment shall be credited against the
installment due.
Notwithstanding the foregoing to the contrary, the full amount of the
principal balance owing, and the accrued but unpaid interest thereon shall, at
the election of the Holder, become immediately due and payable upon the first
to occur of any of the following:
(a) The commencement of proceedings in bankruptcy, proceedings for
an arrangement, reorganization or re-adjustment of debts under any law, whether
State or Federal, for the relief of debtors, now or hereafter existing, whether
instituted by or against Maker, provided that if an involuntary petition in
bankruptcy is filed against Maker, such event shall only constitute a default
if the petition is not dismissed within sixty (60) days after being filed;
(b) Application for the appointment of a receiver of the property of
Maker;
(c) The making of an assignment for the benefit of creditors by
Maker; or
(d) The voluntary or involuntary complete liquidation or dissolution
of Maker.
All parties to this Promissory Note hereby waive presentment for
payment, protest, notice of protest, notice of dishonor and all other notices
and demands of any nature whatsoever in connection with the making, payment,
dishonor or default under this Promissory Note.
<PAGE>
The provisions of this Note are severable, and the invalidity or
unenforceability of any provision shall not alter or impair the remaining
provisions of this Note.
This Note shall be construed and governed by the laws of the State of
New Jersey.
Whenever used, "Maker" and "Holder" shall be deemed to include the
respective heirs, personal representatives, successors, and assigns of Maker
and Holder.
IN WITNESS WHEREOF, the Maker has set his hand and seal or caused
this Note to be properly executed by its proper corporate officers, and has
affixed its corporate seal as of the date and year first above written.
ATTEST: PHYTOTECH, INC.
Ilya Raskin By: Burt D. Ensley
- -------------------------------- -----------------------------------
Ilya Raskin, Secretary Burt D. Ensley, President
<PAGE>
EXHIBIT 23.1
ACCOUNTANT'S CONSENT
The Board of Directors and Stockholders
Phytotech, Inc.:
We consent to the use of our report, included herein and to the reference
to our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
Our report dated March 30, 1998, except as to the last two paragraphs of
Note 1, which are as of April 21, 1998, contains an explanatory paragraph that
states that the Company has suffered recurring losses from operations and has
insufficient working capital to fund its current operating requirements,
which raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
KPMG Peat Marwick LLP
Princeton, New Jersey
April 21, 1998
<PAGE>
EXHIBIT NO. 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned hereby constitutes and
appoints Burt D. Ensley, as his true and lawful attorney-in-fact and agent, with
full power of substitution, for him and in his name, place and stead, in any and
all capacities, to do any and all acts and things and to execute any and all
instruments and documents which said attorney-in-fact and agent may deem
necessary or desirable to enable Phytotech, Inc. (the "Company") to comply with
the Securities Act of 1933, as amended (the "Act"), and any rules, regulations
and requirements of the Securities and Exchange Commission (the "Commission")
thereunder, in connection with the registration under the Act of shares of
common stock of the Company, no par value ("Common Stock") and warrants of the
Company to purchase shares of Common Stock ("Warrants"), to be offered and sold
by the Company and shares of Common Stock issuable upon exercise of certain of
the Company's warrants held by certain warrantholders, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign the name of the undersigned to a registration statement under the Act on an
appropriate form covering said shares of Common Stock and Warrants, and any
amendments to such registration statement, to be filed with the Commission, and
to any and all instruments or documents filed as part of or in connection with
such registration statement or any amendments thereto; and the undersigned
hereby ratifies and confirms all that said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 20th day of April, 1998.
/s/ Philip J. Whitcome
----------------------------------------
Name: Philip J. Whitcome
Title: Director
<PAGE>
EXHIBIT NO. 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned hereby constitutes and
appoints Burt D. Ensley, as his true and lawful attorney-in-fact and agent, with
full power of substitution, for him and in his name, place and stead, in any and
all capacities, to do any and all acts and things and to execute any and all
instruments and documents which said attorney-in-fact and agent may deem
necessary or desirable to enable Phytotech, Inc. (the "Company") to comply with
the Securities Act of 1933, as amended (the "Act"), and any rules, regulations
and requirements of the Securities and Exchange Commission (the "Commission")
thereunder, in connection with the registration under the Act of shares of
common stock of the Company, no par value ("Common Stock") and warrants of the
Company to purchase shares of Common Stock ("Warrants"), to be offered and sold
by the Company and shares of Common Stock issuable upon exercise of certain of
the Company's warrants held by certain warrantholders, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign the name of the undersigned to a registration statement under the Act on an
appropriate form covering said shares of Common Stock and Warrants, and any
amendments to such registration statement, to be filed with the Commission, and
to any and all instruments or documents filed as part of or in connection with
such registration statement or any amendments thereto; and the undersigned
hereby ratifies and confirms all that said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 20th day of April, 1998.
/s/ Laura Meagher
----------------------------------------
Name: Laura Meagher
Title: Director
<PAGE>
EXHIBIT NO. 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned hereby constitutes and
appoints Burt D. Ensley, as his true and lawful attorney-in-fact and agent, with
full power of substitution, for him and in his name, place and stead, in any and
all capacities, to do any and all acts and things and to execute any and all
instruments and documents which said attorney-in-fact and agent may deem
necessary or desirable to enable Phytotech, Inc. (the "Company") to comply with
the Securities Act of 1933, as amended (the "Act"), and any rules, regulations
and requirements of the Securities and Exchange Commission (the "Commission")
thereunder, in connection with the registration under the Act of shares of
common stock of the Company, no par value ("Common Stock") and warrants of the
Company to purchase shares of Common Stock ("Warrants"), to be offered and sold
by the Company and shares of Common Stock issuable upon exercise of certain of
the Company's warrants held by certain warrantholders, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign the name of the undersigned to a registration statement under the Act on an
appropriate form covering said shares of Common Stock and Warrants, and any
amendments to such registration statement, to be filed with the Commission, and
to any and all instruments or documents filed as part of or in connection with
such registration statement or any amendments thereto; and the undersigned
hereby ratifies and confirms all that said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 20th day of April, 1998.
/s/ Ilya Raskin
----------------------------------------
Name: Ilya Raskin
Title: Director
<PAGE>
EXHIBIT NO. 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned hereby constitutes and
appoints Burt D. Ensley, as his true and lawful attorney-in-fact and agent, with
full power of substitution, for him and in his name, place and stead, in any and
all capacities, to do any and all acts and things and to execute any and all
instruments and documents which said attorney-in-fact and agent may deem
necessary or desirable to enable Phytotech, Inc. (the "Company") to comply with
the Securities Act of 1933, as amended (the "Act"), and any rules, regulations
and requirements of the Securities and Exchange Commission (the "Commission")
thereunder, in connection with the registration under the Act of shares of
common stock of the Company, no par value ("Common Stock") and warrants of the
Company to purchase shares of Common Stock ("Warrants"), to be offered and sold
by the Company and shares of Common Stock issuable upon exercise of certain of
the Company's warrants held by certain warrantholders, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign the name of the undersigned to a registration statement under the Act on an
appropriate form covering said shares of Common Stock and Warrants, and any
amendments to such registration statement, to be filed with the Commission, and
to any and all instruments or documents filed as part of or in connection with
such registration statement or any amendments thereto; and the undersigned
hereby ratifies and confirms all that said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 20th day of April, 1998.
/s/ Abraham H. Nechemie
----------------------------------------
Name: Abraham H. Nechemie
Title: Director
<PAGE>
EXHIBIT NO. 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned hereby constitutes and
appoints Burt D. Ensley, as his true and lawful attorney-in-fact and agent, with
full power of substitution, for him and in his name, place and stead, in any and
all capacities, to do any and all acts and things and to execute any and all
instruments and documents which said attorney-in-fact and agent may deem
necessary or desirable to enable Phytotech, Inc. (the "Company") to comply with
the Securities Act of 1933, as amended (the "Act"), and any rules, regulations
and requirements of the Securities and Exchange Commission (the "Commission")
thereunder, in connection with the registration under the Act of shares of
common stock of the Company, no par value ("Common Stock") and warrants of the
Company to purchase shares of Common Stock ("Warrants"), to be offered and sold
by the Company and shares of Common Stock issuable upon exercise of certain of
the Company's warrants held by certain warrantholders, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign the name of the undersigned to a registration statement under the Act on an
appropriate form covering said shares of Common Stock and Warrants, and any
amendments to such registration statement, to be filed with the Commission, and
to any and all instruments or documents filed as part of or in connection with
such registration statement or any amendments thereto; and the undersigned
hereby ratifies and confirms all that said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 20th day of April, 1998.
/s/ Schneur Z. Genack
----------------------------------------
Name: Schneur Z. Genack
Title: Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PHYTOTECH,
INC. AND BALANCE SHEET AND STATEMENT OF OPERATIONS FOR THE PERIOD ENDED MARCH
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 47,326
<SECURITIES> 0
<RECEIVABLES> 237,530
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 284,856
<PP&E> 451,621
<DEPRECIATION> (325,093)
<TOTAL-ASSETS> 749,423
<CURRENT-LIABILITIES> 2,022,619
<BONDS> 1,366,750
0
5,205,654
<COMMON> 365,377
<OTHER-SE> (8,210,977)
<TOTAL-LIABILITY-AND-EQUITY> 749,423
<SALES> 190,030
<TOTAL-REVENUES> 190,030
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 670,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,867
<INCOME-PRETAX> (510,920)
<INCOME-TAX> 0
<INCOME-CONTINUING> (510,920)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (510,920)
<EPS-PRIMARY> (.45)<F1>
<EPS-DILUTED> (.45)
<FN>
<F1>The information reported above under "EPS-PRIMARY" represents basic earnings
per share for the period ended March 31, 1998.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PHYTOTECH, INC. BALANCE SHEET AND STATEMENT OF OPERATIONS FOR THE PERIOD ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,326
<SECURITIES> 0
<RECEIVABLES> 172,009
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 177,335
<PP&E> 446,235
<DEPRECIATION> (297,064)
<TOTAL-ASSETS> 550,841
<CURRENT-LIABILITIES> 1,549,627
<BONDS> 1,150,020
0
5,205,654
<COMMON> 364,597
<OTHER-SE> (7,719,057)
<TOTAL-LIABILITY-AND-EQUITY> 550,841
<SALES> 461,452
<TOTAL-REVENUES> 461,452
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,389,150
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,443
<INCOME-PRETAX> (2,955,141)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,955,141)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,955,141)
<EPS-PRIMARY> (2.59)<F1>
<EPS-DILUTED> (2.59)
<FN>
<F1>The information reported above under "EPS-PRIMARY" represents basic earnings
per share for the year ended December 31, 1997.
</FN>
</TABLE>
<PAGE>
CONFIDENTIALITY AGREEMENT
This CONFIDENTIALITY AGREEMENT, dated as of the 6th day of
November, 1995, between PHYTOTECH, INC., a New Jersey corporation
("Phytotech"), having a place of business at 1 Deer Park Drive, Suite 1,
Monmouth Junction, New Jersey 08852, and ABRAHAM H. NECHEMIE ("Recipient"),
having a place of business at c/o Wiss & Company, L.L.P., 354 Eisenhower
Parkway, Livingston, New Jersey 07039. For purposes of this Agreement, the
term "party" shall mean Phytotech or Recipient, as the case may be, and each
of their respective employees, agents, attorneys, assignees and successors.
WHEREAS, in connection with various discussions between the parties,
it will be necessary for each party to disclose certain of its proprietary and
confidential information to the other party, each such party to determine the
confidential information it is willing to disclose; and
WHEREAS, the Information (as defined below) to be disclosed by
Phytotech to Recipient may include, but not be limited to, biological and
chemical Information on current and future projects.
NOW, THEREFORE, each party is willing to disclose confidential
Information to the other party for purposes of each party's working relationship
with the other party provided that each party agrees to accept such confidential
Information which is disclosed to it in accordance with the following terms:
1. As used in this Agreement, the term "Information" shall
include all information relating to the business, plans, and/or technology of
Phytotech, including, without limitation, all information considered by
Phytotech to be proprietary or confidential, all information received from
third parties and held in confidence by Phytotech, documents, data, know-how,
discoveries, inventions, invention disclosure statements, patent
applications, trade secrets, grant requests, scientific and engineering
information, computer software, correspondence, memoranda, plans (including,
without limitation, a copy of the business plan of Phytotech), notes,
summaries, analyses, studies, models, extracts of documents, records and
tangible manifestations reflecting, based on, or derived from any of the
foregoing, as well as copies and other reproductions thereof, whether in
writing or presented, stored or maintained in or by electronic, magnetic or
other means, media or devices, and oral communications, including, but not
limited to, those communications memorialized in writing and transmitted to
Recipient within 30 days of disclosure. The term "Information" shall not
include information which (i) is already in the Recipient's possession,
provided that such information is not subject to another confidentiality
agreement with or other obligation of secrecy to Phytotech, (ii) is or
becomes generally available to the public other than as a result of a
disclosure
<PAGE>
contrary to the terms of this Agreement of the Recipient, or (iii) becomes
available to the Recipient on a non-confidential basis from a source other
than Phytotech, provided that such a source is not bound by a confidentiality
agreement with or other obligation of secrecy to Phytotech.
2. Each party agrees to protect the confidentiality of any and all
confidential Information which may be disclosed to it by the other party, to
take all reasonable precautions against the confidential Information being
acquired by any unauthorized party, to disclose the confidential Information
only to such of its employees and agents who require knowledge of the
confidential Information related to the purposes hereunder (the obligations and
duties contained herein binding such employees and agents), and not to disclose
such confidential Information, in whole or in part, to any third party not
expressly made a party to this Agreement nor use the confidential Information
for any purpose other than for each party's working relationship pursuant to
this Agreement or any other written agreements duly executed by the parties
hereto.
3. The Recipient agrees that he will not use the confidential
Information which it is required hereunder to keep confidential for any purpose
other than in connection with the working relationship of the parties herein,
without first entering into an agreement with Phytotech which is approved by
Phytotech covering the use thereof, and will promptly make full disclosure of
and assign to Phytotech all rights in and to any compounds, formulas,
processes, data, strategies, techniques, organisms, improvements, know-how,
trade secrets, inventions or other property or rights that occur as a result
of work by the Recipient party during the couse of, or subsequent to, and
derived from the Recipient's evaluation of the confidential Information.
4. In the event that the Recipient party is requested or required
(by oral questions, interrogatories, requests for information or documents,
subpoena, Civil Investigative Demand or other process) to disclose any
confidential Information, it is agreed that the Recipient party will provide
Phytotech with prompt notice of any such request or requirement so that
Phytotech may seek an appropriate protective order to waive the Recipient
party's compliance with the provisions of this Agreement. If, failing the
entry of a protective order or the receipt of a waiver hereunder, the
Recipient party is, in the opinion of the Recipient party's counsel,
compelled to disclose confidential Information, the Recipient party may
disclose that portion of the confidential Information which the Recipient
party's counsel advises it is compelled to disclose. In any event, the
Recipient party will not oppose action by Phytotech to obtain an appropriate
protective order or other reliable assurance that confidential treatment will
be accorded the confidential Information.
-2-
<PAGE>
5. This Agreement shall not be construed to create any obligation on
the part of either party to retain the other party's services, to compensate the
other party in any manner or to grant the other party any license, except as may
be set forth by a separate written agreement duly executed by Phytotech and
Recipient.
6. Notwithstanding the foregoing restrictions on confidentiality
and use, either party may disclose any confidential Information which is
disclosed to it hereunder to any of its Affiliates (as defined below) which
agree to be bound in writing by the terms hereof. Phytotech shall first
approve such disclosure and subsequently receive and accept such written
agreement. In the event of such disclosure, the terms "Recipient" and/or
"Phytotech", as applicable, shall include any such Affiliate to which such
party has disclosed the confidential Information. For purposes of this
Agreement, "Affiliate" means any corporation which controls, is controlled
by, or is under common control with, a party hereto. A corporation shall be
regarded as in control of another corporation if it owns or directly or
indirectly controls at least forty percent (40%) of the voting stock, if it
possesses, directly or indirectly, the power to direct or cause the direction
of the management and policies of the corporation.
7. Upon termination of the discussions referred to herein or upon
written demand by the disclosing party, each party shall promptly return to the
other party all documentation and Information provided to such party, and each
party will erase, destroy or otherwise dispose of any and all confidential
Information, data, drawings and documentation of the other party which have been
recorded or stored by electronic means by such party; provided, however, that
each party's legal department may retain one copy of such confidential
Information solely for the purpose of determining the scope of such party's
obligations hereunder.
8. Nothing in this Agreement shall be deemed to restrict in any way
the right of Phytotech to enter into similar agreements or pursue similar
arrangements with any other parties for the purpose of developing or marketing
the confidential Information provided by it hereunder before, after or during
the time the parties may be working with such confidential Information.
9. This Agreement may not be assigned without the prior written
consent of both parties hereto and shall be binding upon the parties hereto and
their successors and assigns.
10. Each party understands that if it breaches or threatens to breach
any of its duties under this Agreement, the party affected thereby may sustain
irreparable injuries and may not
-3-
<PAGE>
have adequate remedy through a lawsuit for monetary damages. Each party agrees
that in the event of such breach or threatened breach, the party affected
thereby may bring, without waiver or diminution of any other rights or remedies,
an action or actions for injunction and/or specific performance or other
equitable relief as necessary in any court of competent jurisdiction to restrain
such party from committing or continuing a breach of this Agreement.
11. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
hereof, and any such prohibition or enforceability in any jurisdiction shall not
invalidate or render unenforceable such provisions in any other jurisdiction.
12. This Agreement shall constitute the entire understanding of the
parties with respect to the Information to be disclosed. No modification,
amendment or waiver may be accomplished to the terms of this Agreement without
the written consent of both parties. This Agreement shall be construed and
enforced in accordance with the laws of the State of New Jersey.
13. Neither this Agreement nor the disclosure of Information to
Recipient by Phytotech hereunder shall be deemed by implication or otherwise
to vest in Recipient any rights in, to or under (a) any Information so
disclosed, or (b) any intellectual property rights of Phytotech
including those covering or related to such Information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their authorized representatives on the date first above
written.
/s/ Jane Hagedaen /s/ Abraham H. Nechemie
- --------------------------- ----------------------------------
ABRAHAM H. NECHEMIE
PHYTOTECH, INC.
/s/ [Illegible] By: /s/ Burt Ensley
- --------------------------- ----------------------------------
Burt Ensley, Ph.D.,
President & CEO
-4-
<PAGE>
NON-STATUTORY STOCK OPTION AGREEMENT
UNDER PHYTOTECH, INC. STOCK OPTION PLAN
THIS NON-STATUTORY STOCK OPTION AGREEMENT (the "Option Agreement") dated
as of January 11, 1995, by and between PHYTOTECH, INC. a New Jersey
corporation (the "Company"), and ALAN J. M. BAKER, with an address at School
of Biological Sciences, Department of Animal and Plant Sciences, University
of Scheffield, Scheffield, S10 2UG United Kingdom, an SAB Member of the
Company (the "Optionee").
WHEREAS, pursuant to the PHYTOTECH, INC. STOCK OPTION PLAN (the "Plan") the
committee duly appointed by the Board of Directors of the Company (the
"Committee") has determined that the Optionee is to be granted, under the terms
and conditions set forth herein, an option (the "Option") to purchase shares of
the no par Common Stock (the "Common Stock") of the Company and hereby grants
such Option;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1. NUMBER OF SHARES AND OPTION PRICE. The Option represents the right,
under the terms and conditions set forth herein, to purchase Fifteen
Thousand (15,000) shares of the Common Stock (the "Shares") at a price
(the "Option Price") of Ten Cents ($0.10) per share.
2. TERM OF OPTION AND CONDITIONS OF EXERCISE.
(a) Term of Option. Unless the Option is previously terminated
pursuant to this Option Agreement, the term of the Option and of
this Option Agreement shall commence on the date hereof (the
"Date of Grant") and terminate upon the expiration of (10) years
from the Date of Grant. Upon the termination of the Option, all
rights of the Optionee hereunder shall cease.
(b) Conditions of Exercise. The Option shall be exercisable pursuant
to the Vesting Schedule set forth below; provided, however, that
the Option may be exercised only to purchase whole shares of
Common Stock, and in no case may a fraction of a share of Common
Stock be purchased; and provided further, however, that payment
of the purchase price must be made in cash; and provided further,
however, that the Optionee was providing services for the Company
on the applicable Option Exercise Date below described. If the
Optionee has terminated providing services for the Company, then
the Vesting Schedule below shall cease as of and after the date
the Optionee's services for the
<PAGE>
Company were terminated (the "Termination Date"), and the only
Options which may be exercised are those Options vesting prior to
such Termination Date.
<TABLE>
<CAPTION>
Option Exercise Dates: Date Number of Shares
---- ----------------
<S> <C> <C>
January 11, 1996 3,000
January 11, 1997 3,000
January 11, 1998 3,000
January 11, 1999 3,000
January 11, 2000 3,000
</TABLE>
3. NOTICES. Any notice required or permitted under this Option Agreement
shall be deemed given when delivered personally, or when deposited in
a United States Post Office, postage prepaid, addressed, as
appropriate, to the Optionee either at the Optionee's address as
last known by the Company or such other address as last known by the
Company or such other address as the Optionee may designate in writing
to the Company.
4. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company to
enforce at any time any provision of this Option Agreement shall in no
way be construed to be a waiver of such provision or of any other
provision hereof.
5. INCORPORATION OF PLAN. The Plan is hereby incorporated herein by
reference and made a part hereof, and the Option and this Option
Agreement are subject to all terms and conditions of the Plan.
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
as of the date and year set forth first above.
ATTEST: PHYTOTECH, INC.
/s/ Ilya Raskin By: /s/ Burt D. Ensley
- ---------------------------- -----------------------------
ILYA RASKIN, Secretary BURT D. ENSLEY, President
The undersigned hereby accepts and
agrees to all the terms and provisions
of the foregoing Option Agreement and to
all of the terms and provisions of the
PHYTOTECH, INC. STOCK OPTION PLAN
incorporated herein by reference.
/s/ Alan J. M. Baker
-----------------------------
ALAN J. M. BAKER, Optionee
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
UNDER PHYTOTECH, INC. STOCK OPTION PLAN
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Option Agreement") dated as of
May 22, 1997 ("Date of Grant"), by and between PHYTOTECH, INC. a New Jersey
corporation (the "Company"), and DEV VASUDEV, with an address of c/o Phytotech,
Inc., 1 Deer Park Drive, Suite 1, Monmouth Junction, New Jersey 08852, Technical
Staff, (the "Optionee").
WHEREAS, pursuant to the PHYTOTECH, INC. STOCK OPTION PLAN (the "Plan") the
committee duly appointed by the Board of Directors of the Company (the
"Committee") has determined that the Optionee is to be granted, under the terms
and conditions set forth herein, an option (the "Option") to purchase shares of
the no par Common Stock (the "Common Stock") of the Company and hereby grants
such Option.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1. NUMBER OF SHARES AND OPTION PRICE. The Option represents the right,
under the terms and conditions set forth herein, to purchase Three
Thousand (3,000) shares of the Common Stock (the "Shares") at a price
(the "Option Price") of Fifteen Cents ($0.15) per share.
2. TERM OF OPTION AND CONDITIONS OF EXERCISE.
(a) Term of Option. Unless the Option is previously terminated
pursuant to this Option Agreement, the term of the Option and of
this Option Agreement shall commence on the date hereof (the
"Date of Grant") and terminate upon the expiration of (10) years
from the Date of Grant. Upon the termination of the Option, all
rights of the Optionee hereunder shall cease.
(b) Conditions of Exercise. The Option shall be exercisable pursuant
to the Vesting Schedule set forth below; provided, however, that
the Option may be exercised only to purchase whole shares of
Common Stock, and in no case may a fraction of a
<PAGE>
share of Common Stock be purchased; and provided further,
however, that payment of the purchase price must be made in
cash; and provided further, however, that the Optionee was
providing services for the Company on the applicable Option
Exercise Date below described. If the Optionee has terminated
providing services for the Company, then the Vesting Schedule
below shall cease as of and after the date the Optionee's
services for the Company were terminated (the "Termination
Date"), and the only Options which may be exercised are those
Options vesting prior to such Termination Date.
Option Exercise Date:
Date Number of Shares
---- ----------------
May 22, 1998 600
May 22, 1999 600
May 22, 2000 600
May 22, 2001 600
May 22, 2002 600
3. NOTICES. Any notice required or permitted under this Option Agreement
shall be deemed given when delivered personally, or when deposited in
a United States Post Office, postage prepaid, addressed, as
appropriate, to the Optionee either at the Optionee's address as last
known by the Company or such other address as last known by the
Company or such other address as the Optionee may designate in writing
to the Company.
4. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company to
enforce at any time any provision of this Option Agreement shall in no
way be construed to be a waiver of such provision or of any other
provision hereof.
5. INCORPORATION OF PLAN. The Plan is hereby incorporated herein by
reference and made a part hereof, and the Option and this Option
Agreement are subject to all terms and conditions of the Plan.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
as of the date and year set forth below.
ATTEST: PHYTOTECH, INC.
/s/ ILYA RASKIN By: /s/ BURT D. ENSLEY
- --------------------------- ------------------------------------
ILYA RASKIN, Secretary BURT D. ENSLEY, President
DATE: 10/10/1997 The undersigned hereby accepts and
--------------------- agrees to all the terms and provisions
of the foregoing Option Agreement and to
all of the terms and provisions of the
PHYTOTECH, INC. STOCK OPTION PLAN
incorporated herein by reference.
/s/ DEV VASUDEV
---------------------------------------
DEV VASUDEV, Optionee
