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FORM 10-KSB
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U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark one)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ____________
Commission file number: 0-24285
THE RICEX COMPANY
(Name of Small Business Issuer in its Charter)
DELAWARE 68-0412200
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization No.)
1241 Hawk's Flight Court, El Dorado Hills, CA 95762
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number (916) 933-3000
Securities registered under Section 12(b) of the Exchange Act: NONE
Title of each class: None Name of each exchange on which registered: None
Securities registered under Section 12(g) Common Stock, $.001 par value
of the Exchange Act: -----------------------------
(Title of Class)
Check whether the issuer: (1) filed all reports to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $2,950,336
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. As of March 1, 1999, the aggregate market value of the company's common
stock held by non-affiliates was $9,627,016.
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date. As of March 1, 1999, 22,027,997 shares
of common stock were outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes ___ NO _X__
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FORM 10-KSB
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INDEX
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PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operation
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits, List and Reports on Form 8-K
Signatures
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PART I
Item 1. DESCRIPTION OF THE BUSINESS
OVERVIEW
The RiceX Company, a Delaware corporation (the "Company" or "RiceX Company") is
and since its formation in 1989 has been engaged in extensive research and
development efforts that resulted in the development of a process (the "RiceX
Process") that stabilizes rice bran, the outer portion of the rice kernel. Rice
bran contains over 60% of the nutritional value of rice, but without
stabilization the nutritional value of the rice bran is lost shortly after the
rice milling process due to lipase-induced rancidity. Consequently, a rich
nutrient resource must either be thrown away or disposed of as low value animal
feed. The RiceX Process stabilizes the rice bran and gives it a shelf life of at
least one-year. While other competing processes have been able to stabilize rice
bran for a limited time, the RiceX Process preserves more of the higher value
nutritional and antioxidant compounds found in rice bran for a significantly
longer time. The RiceX Process has enabled the Company to develop a variety of
nutritional food products, including its primary product RiceX-TM- Stabilized
Rice Bran ("RiceX"). The Company's customers include consumer nutrition and
healthcare companies, domestic and international food companies, and campanion
animal feed producers. The Company has formed alliances, or has entered into
negotiations to form a number of strategic alliances, for the development and/or
distribution of its products, including agreements with Monsanto Company, The
Kellogg Company, DuCoa, L.P., the Nutrilite Division of Amway Corporation and
SunJoy Enterprises.
The Company, through its subsidiary, Food Extrusion Montana, Inc. ("FoodEx MT")
is engaged in custom manufacturing of grain based products for food ingredient
companies at its production facility in Dillon, Montana. FoodEx MT has
specialized processing equipment and techniques for the treatment of grain
products to cook, convert, isolate, dry and package finished food ingredients
used in the formulation of health food and consumer food finished products.
Ricelin-TM- is a highly nutritious, carbohydrate and lipid rich fraction which
is produced at the FoodEx MT facility. The Company believes that FoodEx MT's
manufacturing capabilities are unique among grain processors.
The Company generated approximately $3.0 million and $3.3 million in revenue for
the years ended December 31, 1998 and 1997, respectively. "See Part II - Item 7.
Financial Statements."
The Company occupies approximately 36,300 square feet of executive offices,
production facilities and research facilities in El Dorado Hills, California and
Dillon, Montana. The Company is currently planning expansion through the
acquisition of additional facilities in the rice-growing regions of the United
States, although there can be no assurance that such expansion will occur. See
"Part I - Item 2. Description of Property."
RiceX-TM- and RiceX Ricelin-TM- are registered tradenames Satin
Finish-Registered Trademark- and Mirachol-Registered Trademark- are
registered trademarks and the Company holds a patent to Beta Glucan
Technology.
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RICEX PRODUCTS
The Company produces stabilized, nutrient-rich rice bran that may be used in a
wide variety of new products. The Company is pursuing the development of
proprietary rice bran products from stabilized rice bran. The Company's initial
products include:
RiceX Stabilized Rice Bran: Stable whole rice bran and germ. This is the
basic stabilized rice bran product that is both
a food supplement and an ingredient for
cereals, baked goods, companion animal feed,
health bars, etc., and also the base material
for producing Ricelin, oils and Fiber Complex.
Dextrinized Rice Bran: A carbohydrate converted stabilized rice bran
that is more suitably used in baking and mixed
health drink applications. This product
contains all of the nutrient rich components
of stabilized rice bran.
RiceX Ricelin: Carbohydrate and lipid rich fraction component
of RiceX. Ricelin also embodies a concentrated
form of the vitamins and nutrients found in
stabilized bran.
RiceX Fiber Complex: Nutrient rich insoluble fiber source
that contains rice bran oil and
associated nutrients. This product, designed
for use by the baking and health food
markets, is the remaining ingredient when
stabilized bran is processed to form
Ricelin.
In addition, Max "E" Oil, RiceX Defatted Fiber and Higher Value Fractions
("HVF") are all produced by further refining RiceX Stabilized Rice Bran into oil
and its by-products.
Max "E" Oil: Nutrient rich oil made from RiceX
Stabilized Rice Bran. This oil has a very
high flash point, which provides a very long
fry life, and it is not readily absorbed
into food. In addition, the oil maintains
many of the nutritional benefits of the
whole rice bran products.
RiceX Defatted Fiber: Low fat-soluble fiber that does not contain
rice bran oil. This is a product designed
for use by the baking industry for its high
fiber nutritional benefits.
Higher Value Fractions ("HVF"): Nutraceutical-like compounds naturally
occurring in Rice Bran and Rice Bran Products
that provide specific health benefits.
Tocopherols, tocotrienols, and gamma oryzanol
are some of the antioxidant-rich fractions
that are found in rice bran and are enhanced
by stabilization, with the gamma oryzanol
being unique to rice.
In April 1998, the Company entered into a non-binding letter of intent with the
Nutrilite Division of Amway Corporation ("Nutrilite") whereby Nutrilite would
enter into a requirements contract with the Company to purchase stabilized rice
bran oil and its by-products and receive from the Company exclusive sales rights
for the multi-level sales channel for a two-year period. The Company has
recently produced stabilized rice bran oil for Nutrilite. Nutrilite is currently
testing the oil with results expected this summer. The Company currently has no
commercial facilities for production of stabilized rice bran oils but plans to
arrange for toll manufacturing or to acquire or build these facilities upon the
successful completion of the development project. However, there can be no
assurance that such arrangement or facilities will be available. See "Factors
Affecting Operating Results."
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INDUSTRY BACKGROUND
THE IMPORTANCE OF RICE
Rice is the staple food for approximately 70% of the world's population and is
the staple food source for several of the world's largest countries. World rice
production is expected to be more than 570 million tons in 1999 (according to
the United States Department of Agriculture), constituting more than one quarter
of all cereal grains produced worldwide. The United States accounts for less
than 2% of the world's production. Ninety percent (90%) of world rice tonnage is
produced in 13 countries with aggregate populations of 3.2 billion people (USA
Rice Federation, Rice Notes). Approximately 75% of all rice production occurs in
five regions: China, India, South East Asia, Africa and South America, that have
a combined population of 2.3 billion people (nearly 50% of the world's
population) and an average per capita gross domestic product of $2,000 (less
than one tenth of the U.S. average).
Malnutrition is a common problem in this group of nations, particularly for
people located in rural villages where subsistence rice farming is a primary
livelihood. Transportation and storage are poor, consequently locally grown rice
is consumed locally and the amount of food available varies widely over time
with changes in seasons and weather. Children are especially susceptible to
variations in local agricultural output due to their heightened nutritional
needs and dependency on others for food. Per capita rice consumption in many of
the poorer rice belt countries exceeds one pound per day.
Despite the importance of rice as a world wide food source and the problems
associated with nutritional deficiencies in rice-dependent nations, more than
60% of the nutrients found in rice is destroyed during processing. Most of the
rice nutrients are contained in the outer brown layer of the rice kernel known
as "rice bran," which, because of poor stability, becomes uneatable due to
lipase-induced rancidity or microbiological spoilage shortly after the milling
process.
RICE PROCESSING AND RICE BRAN STABILIZATION
When harvested from the field, rice is in the form of paddy, or "rough" rice
where the kernel is fully enveloped by the rice hull. The hull is dried, then
removed in the first stage of milling, yielding brown rice. In the second stage
of milling, the outer brown layer, or rice bran, is removed to produce white
rice. Rice bran is composed of the rice germ and several sub-layers, which
account for approximately 8% by weight of paddy rice and contain over 60% of the
nutrients found in each kernel of rice. (Juliano, B.O., 1985 Rice: Chemistry and
Technology, American Association of Cereal Chemists, St. Paul, MN, p. 37-50.)
Under normal milling conditions, when brown rice is milled into white rice, the
oil in the bran and a potent lipase enzyme found on the surface of the bran come
into contact with one another. The lipase enzyme causes very rapid hydrolysis of
the oil, converting it into glycerol, monoglycerides, diglycerides and free
fatty acid ("FFA"). As the FFA content increases, the rice bran becomes
unsuitable for human or animal consumption. At normal room temperature, the FFA
level increases to 7-8% within 24 hours and thereafter increases at the rate of
approximately 4-5% per day. Rice bran is unfit for human consumption at 5-7%
FFA, which typically occurs within 12 hours of milling. Once the FFA
concentration exceeds 12%, it becomes unsuitable even for cattle feed.
If the lipase enzyme can be deactivated, rice bran can be stabilized, thus
preserving a potentially important nutrient source that is largely wasted today.
Heat will deactivate the lipase enzyme, reduce microbiological load and reduce
moisture levels, serving as the basis for most attempts at stabilization of rice
bran. Parboiled, or "converted" rice, is subjected to soaking and steaming prior
to being dried and milled. This process softens the rice kernel and reduces the
problem of lipase-induced hydrolysis. The bran produced from parboiled rice,
however, is only semi-stabilized, typically spoiling in 20 days or less. The
parboiling process also destroys much of the nutritional value of the bran by
chemically changing the beneficial nutrients residing in the bran. There have
been a number of attempts to develop alternative rice bran stabilization
processes that deactivate the lipase enzyme using chemicals, microwave heating,
and variants on extrusion technology. The Company believes each of these efforts
result in an inferior product that
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either does not remain stable for a commercially reasonable period and/or the
nutrients in the bran are lost, significantly reducing the nutritional value in
the bran.
THE RICEX SOLUTION
The RiceX Process uses proprietary innovations in food extrusion technology to
create a combination of temperature, pressure and other conditions necessary to
deactivate the lipase enzyme without significantly damaging the structure or
activity of other, higher value compounds, oils and proteins found in the bran.
The RiceX Process does not use chemicals to stabilize raw rice bran, and
produces an "all natural" product.
The Company's processing equipment is designed to be installed on the premises
of any two-stage rice mill and is located downstream from the rice polishers.
After hulling, the rice is transported pneumatically to the rice polishing room
where the brown rice kernels are tumbled and the rice bran is polished from the
surface of each kernel. The bran is separated from the denser polished rice
grains and is transported pneumatically to a loop conveyor system designed by
the Company. The loop conveyor system immediately carries the fresh,
unstabilized rice bran to the RiceX Company stabilizer. Stabilization is
achieved by feeding the fresh rice bran into a specially designed auger food
extruder that forces the material under pressure and heat through an orifice.
The auger is designed to create the proper temperature, shear and pressure
necessary to selectively deactivate the lipase enzyme and reduce the
microbiological load. The system is controlled by electronics that maintain
process conditions within the prescribed pressure/temperature regime. In case of
power failure or interruption of the flow of fresh bran into the system, the
electronic control system is designed to purge the RiceX Company equipment of
material in process and safely shut down.
Bran leaving the Company's stabilization system (the "RiceX bran") is deposited
on a food-grade conveyor that tempers the product and reduces moisture content.
The product is then discharged onto the cooling unit. A high volume,
low-pressure airflow further dehumidifies and cools the RiceX bran as it moves
forward. The cooled RiceX bran is then loaded into one-ton shipping containers
for transportation to other processing facilities or is transported by pneumatic
conveyor to a bagging unit for packaging in 40 and 50-pound sacks. RiceX bran
has a shelf life of at least one-year and is rich in tocopherols, tocotrienols,
oryzanols, and other nutritional and natural compounds that exhibit positive
health properties ("nutraceuticals").
The RiceX Process system is modular. Each stabilization module can process
approximately 2,500 pounds of RiceX bran per hour and has a capacity of over
8,250 tons per year. This is sufficient to process all of the bran generated by
a 78,000 ton-per-year rice mill. Stabilization production capacity can be
doubled or tripled by installing additional RiceX Company units sharing a common
conveyor and stage system, which can handle the output of the world's largest
rice mills. The Company has developed and tested a smaller production unit,
which has a maximum production capacity of 950 tons per year for installation in
countries or locations where rice mills are substantially smaller than those in
the United States.
The processing conditions created by the RiceX Process are unique, however the
ancillary equipment used to achieve these processing conditions is in wide use
throughout the food industry. It is in the stabilizer unit that the unique RiceX
Company technology resides; all of the other processing, material handling,
control, and storage components are off-the-shelf equipment items.
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BENEFITS OF RICEX STABILIZED RICE BRAN
Rice bran is a rich source of protein, oil, vitamins, antioxidants, dietary
fiber and other nutrients. The proximate composition and caloric content of
RiceX Stabilized Rice Bran is as follows:
RICEX STABLIZED RICE BRAN COMPOSITION
<TABLE>
<S> <C>
Fat 18%-23%
Protein 12%-16%
Total Dietary Fiber 23%-35%
Soluble Fiber 2%-6%
Moisture 4%-8%
Ash 7%-10%
Calories 3.2 kcal/gram
</TABLE>
Rice bran is unique in the plant kingdom. Its protein is hypoallergenic and
contains all of the essential amino acids, the necessary building blocks of
protein in the body. Rice bran contains approximately 20% oil and closely
resembles peanut oil in fatty acid composition and heat stability. Rice bran oil
contains essentially fatty acids and a broad range of nutraceutical compounds
that have been demonstrated to have therapeutic properties. (Cheruvanky and
Raghuram, 1991 Journal of the American College of Nutrition, Vol. 10, No. 4,
pp593-691.)
Nutraceuticals are food constituents that have human therapeutic effects. Some
of these compounds include a newly discovered complex of Vitamin E called
"tocotrienols," and gamma oryzanol, which is only found in rice. These compounds
are potent antioxidants that have been shown to aid in reducing damage from free
radicals in the body. RiceX bran also contains very high levels of B-complex
vitamins, betacarotene (a vitamin A precursor), other carotenoids and
phytosterols, as well as both soluble and insoluble fiber. (Saunders, 1990, Rice
Bran Oil, presented at Calorie Control Council Meeting, February 14, 1990,
Washington, D.C.)
BUSINESS STRATEGY
The Company's goal is to become the world's leading producer and distributor of
stabilized rice bran and rice bran products. The Company will produce stabilized
rice bran and related products in manufacturing facilities owned by it or
through joint venture arrangements. See "Supply and Manufacturing." The Company
does not intend to sell its technology or processing methods, but will protect
its process and products through both trade secret protection and through patent
and trademark protection. See "Patents and Trademarks."
The Company intends to continue research and development efforts, including
clinical trials, to establish the efficacy of its stabilized rice bran-based
products in providing nutritional support to individuals with chronic diseases
and in promoting human health and nutrition. The Company believes that clinical
support for stabilized rice bran products will further enhance the value of its
products as nutraceuticals and functional food ingredients. Finally, the Company
intends to aggressively market its products in four distinct product areas:
nutraceuticals, functional food ingredients, rice bran oils and performance feed
supplements. In further pursuit of this goal, the Company has focused and will
continue to focus its marketing and development efforts in two distinctly
different areas: "developed" nations, including the U.S., Europe, South Africa,
Argentina, Japan, Korea, and Taiwan; and "developing" nations, including India,
China, Indonesia and most of the other countries in Asia, Africa and South
America.
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DEVELOPED NATIONS
In developed nations, the Company's focus is on producing and selling RiceX
Company products to large consumer product marketers as health enhancing
ingredients for existing or newly developed products, and as stand-alone
products to consumers. The Company has established a relationship with a German
company to introduce RiceX Company products into the European Community. The
Company is also in negotiations with the Mercosur market, Argentina and the
Province of Entre Rios for the commercialization of stabilized rice bran and
various product forms. Although there can be no assurance that the Company's
products will be successfully introduced in Argentina and the European
Community, the Company believes that interest of this type validates the
potential opportunity and the relationship reflects the strategy for the
Company's foreign ventures. The Company intends to seek other opportunities in
the developed world by converting stabilized rice bran grown in those countries
into finished goods and higher value fractions with demonstrated health or
nutritional benefits.
DEVELOPING NATIONS
In developing nations, the Company intends to partner with local governments and
companies on a joint venture basis to stabilize locally-grown rice bran for
local consumption and for future export. To accomplish this, the Company plans
to introduce its stabilization process systems in large rice mills located in
China, India and Southeast Asia. In many developing nations, the average person
has a 300-500 calorie daily diet deficit. [The Food and Agriculture Organization
of the United Nations (FAO), Agrostat PC, on diskette (FAO, Rome, 12993); and
the World Resources Institute in collaboration with the United Nations
Environment Programme and the United Nations Development Programme, World
Resources 1994-95 (Oxford University Press; New York, 1994), p. 108]. If the
Company is able to expand into these areas, the installation of 100 RiceX
processing systems could provide 500 nutritionally dense calories per day to
over 30 million people each year. The diet supplement provided by the locally
grown and stabilized rice bran would help those people approach U.S. levels of
nutrition.
The Company also intends to access international markets by selling RiceX and
Ricelin into foreign countries. In June 1997, SunJoy Enterprises Corporation, a
China-based conglomerate ("SunJoy") entered into an international distributor
agreement with the Company, pursuant to which the Company has already begun
shipments of RiceX and Ricelin into mainland China. The Company intends to
develop this relationship into a joint venture with SunJoy to allow the Company
to stabilize and process rice bran in the local areas of the country. However,
there can be no assurances that such an arrangement will be consummated. See
"Factors Affecting Operating Results."
The United Nations Industrial Development Organization ("UNIDO") has offered to
sponsor the demonstration of the RiceX Process in Brazil and Thailand to promote
the utilization of the large amounts of rice bran that is discarded throughout
the developing world. The Company has had preliminary discussions regarding the
demonstration of its system and the end products for this technology with a
number of companies and governments including China, Argentina, Brazil, Malaysia
and certain African countries. There can be no assurance that these discussions
will lead to implementation of the RiceX Process with these companies or
governments.
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SALES AND MARKETING
The Company has targeted four distinct product areas in which RiceX and related
products may be used as the primary ingredient. Its key marketing strategy is to
form strategic alliances with industry leaders in each of its target markets.
This strategy will allow the Company to leverage the research, marketing and
distribution strengths of its partners in order to more economically and
efficiently introduce and market products. The Company has formed alliances, or
has entered into negotiations to form alliances, in each of its target markets
as follows:
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Target Market Alliance Partner
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Nutraceuticals The Nutrilite Division of Amway Corporation
Functional Food Ingredients The Kellogg Company
Rice Bran Oils Monsanto Company and
The Nutrilite Division of Amway Corporation
Performance Feed Supplements DuCoa, L.P.
</TABLE>
These relationships and the Company's overall marketing plans in each of the
four target markets are discussed below.
NUTRACEUTICALS
Nutraceuticals are food-derived substances with pharmaceutical-like properties,
including vitamins and dietary supplements. RiceX bran can be used as a
nutraceutical to provide certain specific nutrients or food components
(including antioxidants, oryzanols, Vitamin E, Vitamin B, and bran fiber) or to
address specific health applications such as cardiovascular health, diabetes
control, fighting free-radicals and general nutritional supplementation. The
Company has sold RiceX bran as an ingredient to consumer nutrition and
healthcare companies, national nutritional retailers, and multi-level personal
products marketers. The Company is continuing to develop HVFs, the
nutraceutical-like compounds found in rice bran that provide specific health
benefits, and upon completion of the development project, Nutrilite plans to
commercialize products for distribution in the United States and other countries
through its multi-level sales channel pursuant to a non-binding letter of
intent. The Company has also been informed that at least one national
nutritional retailer and other personal product marketing companies are working
on development of special products utilizing RiceX bran and its related
products. There can be no assurance that such marketing efforts will be
successful or that any of the proposed products will be developed in a
commercially reasonable time or at all.
FUNCTIONAL FOOD INGREDIENTS
RiceX bran is a low cost, all natural food product that contains a unique
combination of oil, protein, carbohydrates, vitamins, minerals, fibers, and
antioxidants that can be used to enhance the nutritional value of popular
consumer products. Several foods that are ideally suited to the addition of
RiceX bran to their ingredients include cereals, snack foods and breads. The
Company is marketing RiceX bran to consumer food companies for use in already
established products and for development of new products.
The Company has begun shipment of a variety of its stabilized rice bran and rice
bran products into mainland China pursuant to an international distributor
agreement with SunJoy. The Company intends to develop this relationship into a
joint venture with SunJoy to allow the Company to stabilize and process rice
bran in the local areas of the country.
The Kellogg Company has agreed to collaborate in a clinical research project
that could lead to commercialization of several new and reformulated consumer
food products that will contain RiceX bran as one of the major ingredients. The
Kellogg Company and the RiceX Company are currently selecting the clinician and
expect the clinical study to begin in the second quarter of 1999. There can be
no assurance that any or all of these projects will be successful.
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RICE BRAN OILS
Nutrient-rich oil made from RiceX Stabilized Rice Bran has a very high flash
point, which provides a long fry life and is not readily absorbed into food. The
oil also maintains many of the nutritional benefits of whole rice bran products,
making it ideally suited for healthy salad and cooking oils. The Nutrilite
Division of Amway Corporation has plans to commercialize edible rice bran oils
in the United States and other countries through its multi-level sales
distribution channel.
The Company and Monsanto Company have agreed to work towards the formation of
two joint venture companies. The first joint venture would be in India, the
purpose of which would be the commercialization of the Company's rice bran
stabilization technology for the purpose of increasing the yield and quality of
rice bran oil in India. The second joint venture would be for the worldwide,
non-multi-level sales distribution channel commercialization of edible rice bran
oils. However, there can be no assurance that the Nutrilite and Monsanto
collaborations will be successful.
PERFORMANCE FEED SUPPLEMENTS
The Company also markets RiceX bran as a feed supplement for animals. RiceX bran
is used as an equine feed supplement and has proven to provide greater muscle
mass, improved stamina, and hair-coat luster when added to a normal diet.
Anecdotal reports suggest that RiceX fiber increases milk production in dairy
cows by 15-20% and that RiceX bran promotes more rapid weight gain in poultry
and meat livestock. A national animal supplement distributor is now selling feed
products that incorporate RiceX bran. In February 1998, the Company formed a
strategic alliance with DuCoa, L.P. ("DuCoa") to introduce RiceX bran products
to the pet food and swine feed industry markets, which are estimated to be $11.8
billion annually, according to DuCoa. Under the agreement, DuCoa has dedicated
technical and sales resources to the formulation of the Company's products as
ingredients for pet food and swine feed.
MARKETING METHODS
As of March 1, 1999, the Company's sales staff consists of two direct in-house
sales representatives. Shipping and distribution of products are managed and
directed by RiceX Company corporate staff and by the direction of several of its
processing locations and subcontract shippers.
Pursuant to the Stabilized Rice Bran Processing Sales and Marketing Agreement
between Farmer's Rice Cooperative, a cooperative association organized under the
California Food and Agriculture Code ("Farmer's") and the Company dated June 28,
1994, Farmer's has a non-exclusive license to the Company's rice bran processing
equipment for production of stabilized rice bran solely for sale to the Company
and Farmer's customers. Pursuant to the terms of the agreement, Farmer's has
agreed to pay the Company a royalty payment for each short ton of stabilized
rice bran produced by Farmer's for sale to its customers. The royalty payment
may be adjusted from time to time to account for the changes in the market.
CUSTOMERS
Currently, the Company's major customers are (1) Wolcott Farms, (2) Anderson
Livestock, (3) Pacific Grain, and (4) California Natural Products. The Company
depends on these customers for approximately 70% of all sales revenue. Loss of
any of these companies as a customer could have a material adverse effect on the
Company's business, financial condition and results of operations.
SUPPLY AND MANUFACTURING
The Company purchases unstabilized rice bran from two major suppliers, Farmer's
Rice Cooperative and California Pacific Rice Growers. Pursuant to agreements
with these companies, the Company's stabilization machinery is physically
attached to the suppliers' rice processing plants and the rice bran by-product
is directly transferred to the Company's machinery for stabilization without the
need for shipping. The relationship with the suppliers is symbiotic, as the rice
manufacturer cannot easily dispose of the rice
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bran by-product while the Company has a ready access to unstabilized bran. These
suppliers are currently the only suppliers of unstabilized rice bran to the
Company. The Company intends to enter into additional relationships with rice
processors, both in the U.S. and abroad, as part of its overall business
strategy. The Company's production capacity currently stands at 2,700 tons per
month. The Company believes that it will be readily able to obtain additional
suppliers due to the benefits suppliers can receive from an agreement with the
Company. There can be no assurance that the Company will obtain additional
suppliers.
The Company ships stabilized rice bran from its facilities in California to its
plant in Dillon, Montana for further processing into RiceX Ricelin, Dextrinized
Rice Bran, and RiceX Fiber Complex. Current monthly production capacity is
approximately 90 tons of RiceX Ricelin and 105 tons of RiceX Fiber Complex.
Additional equipment could slightly more than double production capacity. The
Company intends to acquire or construct an additional processing facility as the
demand for Ricelin and Fiber Complex justifies expansion.
Every food product manufactured by the Company is produced under published FDA
regulations for "Good Manufacturing Practices." Quality control is overseen by
the Vice President of Operations and conducted by a microbiologist and Ph.D.
chemist. Product samples for each product code are analyzed for microbiological
adherence to a predetermined set of product specifications and each lot is
positively released.
The Company purchased machinery, parts and equipment in 1997 for its
stabilization system, from (1) Kamflex Corporation, a company whose President
and Chief Executive Officer is a shareholder and current director of the
Company, (2) MAC Equipment, and (3) Cal Mill Equipment. The Company believes
that, while its current relationships with suppliers are good, there can be no
assurance that such relationships will continue. The Company believes
replacement suppliers are readily available, if needed, because the Company does
not use custom machinery, parts or equipment. See "Certain Relationships and
Related Transactions."
PATENTS AND TRADEMARKS
The RiceX Process is an adaptation and refinement of standard food processing
technology applied to the stabilization of rice bran. The Company has chosen to
treat the RiceX Process as trade secrets and not to pursue process or process
equipment patents on the original processes, however, process improvements will
be reviewed for future patent protection. The Company believes that the unique
products, and their biological effects, resulting from RiceX Company stabilized
rice bran are patentable. The Company has filed three provisional U.S. patent
applications relating to RiceX Ricelin, Fiber Complex and HVF products and
intends to seek patent protection in selected foreign jurisdictions. The patent
applications include "A Method for Treating Diabetes Mellitus," "A Method for
Treating Hypercholesterolimia, Hyperlipidermia, and Atheroscelerosis," and "A
Method for Enhancing the Tocol Content of Rice Bran Oil." The Company may apply
for additional patents in the future as new products are developed.
RiceX-TM- and RiceX Ricelin-TM- are registered tradenames of the Company, Satin
Finish-Registered Trademark- and Mirachol-Registered Trademark- are registered
trademarks of the Company and the Company holds a patent to Beta Glucan
Technology.
Pursuant to the terms of an agreement between the Company and Wolcott Farms,
Inc., a California corporation ("Wolcott Farms"), dated March 1, 1997, the
Company granted Wolcott Farms an exclusive, worldwide license to use the
trademark Satin Finish-Registered Trademark-, agreed to transfer title to the
trademark upon full payment of the purchase price by Wolcott Farms, and
granted Wolcott Farms the right to sublicense the trademark to Natural Glo
Investors, L.P. Wolcott Farms has agreed to pay the Company minimum monthly
royalty payments which are applied towards the purchase price.
The Company endeavors to protect its intellectual property rights through
patents, trademarks, trade secrets and other measures, however, there can be no
assurance that the Company will be able to protect its technology adequately or
that competitors will not develop similar technology. There can be no assurance
that any patent applications the Company may file will be issued or that foreign
intellectual property laws
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will protect the Company's intellectual property rights. Other companies and
inventors may receive patents that contain claims applicable to the Company's
system and processes. The use of the Company's systems covered by such patents
could require licenses that may not be available on acceptable terms, if at all.
In addition, there can be no assurance that patent applications will result in
issued patents.
Although there currently are no pending claims or lawsuits against the Company
regarding possible infringement claims, there can be no assurance that
infringement claims by third parties, or claims for indemnification resulting
from infringement claims, will not be asserted in the future or that such
assertions, if proven to be true, will not materially adversely affect the
Company's business, financial condition and results of operations. In the
future, litigation may be necessary to enforce patents issued to the Company, to
protect trade secrets or know-how owned by the Company or to defend the Company
against claimed infringement of the rights of others and to determine the scope
and validity of the proprietary rights of others. Any such litigation could
result in substantial cost and diversion of resources by the Company, which
could have a material adverse effect on the Company's financial condition and
results of operations. Adverse determinations in such litigation could result in
the Company's loss of proprietary rights, subject the Company to significant
liabilities to third parties, require the Company to seek licenses from third
parties or prevent the Company from manufacturing or selling its systems, any of
which could have a material adverse effect on the Company's financial condition
and results of operations. In addition, there can be no assurance that a license
under a third party's intellectual property rights will be available on
reasonable terms, if at all. See "Factors Affecting Operating Results--Patents,
Licenses and Intellectual Property Claims."
COMPETITION
Although the Company believes that it is the only company to stabilize rice bran
so that the bran has a shelf life of over one-year, the Company competes with
other companies attempting to stabilize rice bran as well as companies producing
other food ingredients and nutritional supplements. The Company's major
competitors include Producer's Rice Mill and Uncle Ben's Rice, Inc. The
Company's competitors may have greater capital resources and experience in the
food industry. There can be no assurance that the Company will be able to
compete successfully in the rice bran industry. The Company's major nutritional
supplement competitors include producers of wheat bran and oat bran,
particularly in the functional food ingredients market segment. See "Factors
Affecting Operating Results-Competition."
RESEARCH AND DEVELOPMENT
Rice bran contains a wide variety of antioxidants, vitamins, and other nutrients
associated with good health and resistance to disease. The Company has conducted
a preliminary clinical evaluation that indicates RiceX products have efficacy in
the nutritional management of certain conditions and diseases, such as diabetes
mellitus and coronary vascular disease. Data from this study has been analyzed
and the data support the initiation of clinical trials. The Company intends to
vigorously conduct these trials and, if successful, will develop foods
containing the active nutraceutical components of RiceX bran to manufacture
products targeted at specific conditions or suitable for the maintenance of
general health and well-being. There can be no assurance that the results of
additional clinical trials will prove successful or that the Company will be
able to develop additional new products. See "Government Regulations."
As of December 31, 1998 there are five employees engaged in research and
development, including a Vice President of Research and Development, a Director
of Research and Development, Director of Science and Technology, Manager of
Analytical Services, and one Microbiologist. The Company also uses the services
of independent labs and testing facilities. Expenditures for research and
development for the years ended December 31, 1998 and 1997 totaled $1,056,702
and $790,095, respectively. The Company expects to continue research and
development expenditures to establish the scientific basis for health claims of
existing products and to develop new products and applications.
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EMPLOYEES
As of March 1, 1999, the Company has a total of 27 employees, 26 of which are
full time employees. The Company believes that its relations with its employees
are good.
FACTORS AFFECTING OPERATING RESULTS
This Annual Report contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Annual Report that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including without limitation statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. The Company's actual
results may differ materially as a result of certain factors, including those
set forth hereafter and elsewhere in this Annual Report.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; NEED FOR ADDITIONAL CAPITAL
There is limited historical financial information about the Company upon which
to base an evaluation of the Company's performance or to make a decision
regarding an investment in shares of the Company's common stock. The Company has
a shareholders' deficit of $4,755,118 and negative working capital of $6,868,577
as of December 31, 1998 and incurred a loss of $5,298,145 for the year ended
December 31, 1998. The Company's cash and cash equivalents aggregated $1,158,302
at December 31, 1998, has a payment of $1,289,149 due in January 1999 related to
the purchase of Food Extrusion Montana, Inc. and used $2,471,944 cash in its
operations for the year ended December 31, 1998. The Company commenced
manufacturing and marketing activities in June 1996, and there can be no
assurance that sales of its products will achieve significant levels of market
acceptance. The Company's business could be subject to any or all of the
problems, expenses, delays and risks inherent in the establishment of a new
business enterprise including limited capital resources, possible delays in
product development, possible cost overruns due to price and cost increases in
raw product and manufacturing processes, uncertain market acceptance and absence
of an operating history. Therefore, there can be no assurance that the Company's
business or products will be successful or that the Company will be able to
achieve or maintain profitable operations. There can be no assurance that the
Company will not encounter unforeseen difficulties that may deplete its capital
resources more rapidly than anticipated.
The Company is seeking additional equity financing to provide the capital
required to make significant investments in research and development and expand
its marketing and production capabilities.
The timing and amount of any capital requirements cannot be predicted at this
time. There can be no assurance that any financing will be available on
acceptable terms. If such financing is not available on satisfactory terms, the
Company may be unable to continue, develop or expand its business, develop new
products, or develop new markets at the rate desired and its operating results
may be adversely affected. Equity financing could result in additional dilution
to existing shareholders. See "Liabilities and Capital Resources."
MARKET RISKS OF A NEW BUSINESS
The Company has formulated its business plans and strategies based on certain
assumptions regarding the size of the rice bran market, the Company's
anticipated share of this market, and the estimated price and acceptance of the
Company's products. These assumptions are based on the best estimates of the
Company's management. There can be no assurance that the Company's assessments
regarding market size, potential market share attainable by the Company, the
price at which the Company will be able to sell its products, market acceptance
of the Company's products or a variety of other factors will prove to be
correct. Any future success of the Company may depend upon factors including
changes in the dietary
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supplement industry, governmental regulation, increased levels of competition
including the entry of additional competitors and increased success by existing
competitors, changes in general economic conditions, increases in operating
costs including costs of production, supplies, personnel, equipment, and reduced
margins cause by competitive pressures.
COMPETITION
Competition in the Company's targeted industries, including nutraceuticals,
functional food ingredients, rice bran oils and animal feed supplements is
vigorous with a large number of businesses engaged in the various industries.
Many of the competitors have established reputations for successfully developing
and marketing their products. Many of the competitors have greater financial,
managerial, and technical resources than the Company. If the Company is not
successful in competing in these markets, it may not be able to attain its
business objectives.
GOVERNMENTAL REGULATION
The processing, formulation, packaging, labeling and advertising of the
Company's products are subject to regulation by one or more federal agencies.
Although Congress has recently recognized the potential impact of dietary
supplements in promoting the health of U.S. citizens by enacting the Dietary
Supplement Health Education Act of 1994 ("DSHEA"), which severely limits the
FDA's jurisdiction in regulating dietary supplements, there is no way to predict
the potential effect of DSHEA. It may be difficult for any company manufacturing
or marketing dietary supplements to remain in strict compliance with the
technical requirements of DSHEA. The FDA has recently proposed regulations with
the purpose of implementing DSHEA and proposals have been made to modify or
change the provisions of DSHEA. It is impossible to predict whether those
regulations of proposed changes will become law or the effect that such
regulations or proposed changes, if implemented, will have on the business and
operation of the Company.
RELIANCE ON LIMITED NUMBER OF PRODUCTS
All of the Company's products are based on stabilized rice bran. Although the
Company will market rice bran as a dietary supplement, as an active food
ingredient for inclusion in other companies' products, and in other ways, a
decline in the market demand for the Company's products as well as the products
of other companies utilizing the Company's products could have a significant
adverse impact on the Company.
RELIANCE ON ADEQUATE SUPPLY OF RAW RICE BRAN
The Company's proprietary technology is used to stabilize rice bran, which is a
by-product from milling paddy rice to white rice. The Company currently has
supply arrangements with two of the largest rice mills in the United States and
is pursuing other supply sources in the United States and in foreign countries.
There can be no assurance that the Company will continue to secure adequate
sources of raw rice bran to meet its requirements to produce stabilized rice
bran products.
DEPENDENCE ON MARKETING EFFORTS
The Company is dependent on its ability to market products to mass merchandise
and health food retailers, food manufacturers, animal food producers, and to
other companies for use in their products. The Company must increase the level
of awareness of dietary supplements in general and the Company's products in
particular. The Company will be required to devote substantial management and
financial resources to its marketing and advertising efforts and there can be no
assurance that these efforts will be successful.
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DEPENDENCE ON KEY EMPLOYEES
During December, 1998, the Company's Chief Executive Officer, Chief Financial
Officer, Vice President of Sales and Marketing, and Vice President of Science
and Technology left the employment of the Company. As a result of this action,
the Company's Chairman of the Board (and former Chief Executive Officer) was
reinstated as Chief Executive Officer. The former Chief Financial Officer, who
had been serving as Corporate Controller, was appointed Principal Financial
Officer. The duties of the other departing employees are being performed by
other existing experienced employee. The Company does not believe this change in
management will have a material effect on the Company's business.
The Company believes that its success will depend to a significant extent upon
the efforts and abilities of the current group of executive, scientific and
marketing personnel. The loss of the services of one or more of these key
personnel could have a material adverse affect on the Company's business,
financial condition and results of operations. In addition, the Company's future
success will depend upon its ability to continue to attract and retain qualified
scientific and management personnel. There can be no assurance that the Company
will be successful in attracting and retaining such personnel.
PATENTS, LICENSES AND INTELLECTUAL PROPERTY CLAIMS
The Company's success depends in part on its ability to obtain patents, licenses
and other intellectual property rights for its products and technology. The
Company has three provisional U.S. patent applications pending and the Company
may decide to file corresponding international applications. The process of
seeking patent protection may be long and expensive, and there can be no
assurance that patents will be issued, that the Company will be able to protect
its technology adequately, or that competition will not be able to develop
similar technology. The Company believes the basis on which it has filed its
current pending patent applications is reasonable; however, there can be no
assurance that any patent applications filed will result in issued patents or
that the Company will choose to pursue each patent application to issuance.
There currently are no pending claims or lawsuits against the Company regarding
possible infringement claims; there can be no assurance that infringement claims
by third parties, or claims for indemnification resulting from infringement
claims, will not be asserted in the future or that such assertions, if proven to
be true, will not materially adversely affect the Company's business, financial
condition and results of operations. In the future, litigation may be necessary
to enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company or to defend the Company against claimed infringement of
the rights of others and to determine the scope and validity of the proprietary
rights of others. Any litigation could result in substantial cost and diversion
of effort by the Company, which could have a material adverse affect on the
Company's financial condition and results of operations. Adverse determinations
in any litigation could result in the Company's loss of proprietary rights,
subject the Company to significant liabilities to third parties, require the
Company to seek licenses from third parties or prevent the Company from
manufacturing or selling its systems, any of which could have a material adverse
affect on the Company's financial condition and results of operations. There can
be no assurance that a license under a third party's intellectual property
rights will be available to the Company on reasonable terms, if at all.
YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the "Year
2000", these date code fields will need to accept four digit entries in order to
distinguish 21st century dates. As a result, in less than one year, computer
systems and/or software used by many companies will need to be upgraded to
comply with Year 2000 requirements. The Company has evaluated the impact of the
Year 2000 issue as it affects its business operations and interfaces with
customers and vendors. The Company is unaware of any situation of noncompliance
that would materially adversely affect its operations or financial condition.
The only two suppliers of raw rice bran to the Company have reported to the
Company that they have an active Year 2000 program in place and that they
expect no interruptions in raw rice bran supply due to Year 2000. The Company
surveyed its other major vendors and major customers to determine if the Year
2000
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will pose a disruption in service from them. The Company has to date received
no notice that the Year 2000 will pose a problem for its vendors or major
customers. The costs associated with Year 2000 readiness are anticipated to
be minimal.
Essentially all of the Company's critical systems include new hardware and
packaged software recently purchased from large vendors who have represented
that these systems are already Year 2000 compliant. However, there can be no
assurance that instances of noncompliance which could have a material adverse
affect on the Company's operations or financial condition have not been
identified. Additionally, there can be no assurance that the systems of other
companies with which the Company transacts business will be corrected on a
timely basis, or that failure by such third party entities to correct a Year
2000 problem, or a correction which is incompatible with the Company's
information systems, would not have a material adverse affect on the Company's
financial condition and results of operations.
THIN MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
The Company's Common Stock has been traded on the OTC Bulletin Board since
December 1995 under the symbol "RICX". The Company believes that factors such as
announcements of developments related to the Company's business, fluctuations in
the Company's quarterly or annual operating results, failure to meet securities
analysts' expectations, general conditions in the international marketplace and
the worldwide economy, announcements of technological innovations or new systems
or enhancements by the Company or its competitors, developments in patents or
other intellectual property rights and developments in the Company's
relationships with customers and suppliers could cause the price of the
Company's common stock to fluctuate, perhaps substantially. In recent years the
stock market has experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. Such fluctuations
could adversely affect the market price of the Company's common stock.
ANTI-TAKEOVER EFFECT OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
Under the Company's Certificate of Incorporation, the Board of Directors of the
Company has the authority, without action by the Company's stockholders, to fix
certain terms of, and to issue, shares of Preferred Stock. The Company is
incorporated under Delaware law. Certain provisions of the Certificate of
Incorporation and certain provisions of Delaware law may have the effect of
delaying, deterring or preventing a change in control of the Company. Other
provisions in the Company's Certificate of Incorporation and Bylaws and Delaware
law impose procedural and other requirements that could make it more difficult
to effect certain corporate actions, including replacing incumbent directors.
Further, the Board is divided into three classes, each of which is to serve for
a staggered three-year term after the initial classification and election, which
may make it more difficult for a third party to gain control of the Board. By
virtue of these provisions, the Board of Directors of the Company may be able to
take or prevent actions affecting unaffiliated stockholders without such
stockholders' approval or consent. In addition, these provisions may adversely
affect the market price of the Company's Common Stock and reduce the possibility
that an investor may receive a premium for his or her shares in a tender offer.
See "Directors, Executive Officers, Promoters and Control Persons".
THE COMPANY
The Company was incorporated under Delaware law in May 1998 and succeeded to the
business of its predecessor corporation, Food Extrusion, Inc., pursuant to a
re-incorporation that was effective upon completion of the merger of the Nevada
corporation with the Delaware corporation on August 4, 1998. Food Extrusion,
Inc., ("FoodEx CA"), was incorporated in California in May 1989 and subsequently
merged in a stock-for-stock exchange into Core Iris, a Nevada corporation and
subsequently changed its name to Food Extrusion, Inc. ("Food Extrusion, Inc.").
Food Extrusion, Inc. changed its name to The RiceX Company in May 1998. Food
Extrusion Montana, Inc., ("FoodEx MT"), was incorporated in Montana in December
1996, as a wholly owned subsidiary of the Company. In January 1997, FoodEx MT
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acquired certain assets of Centennial Foods, Inc., an Idaho corporation
("Centennial") in exchange for 310,000 (adjusted to 410,000 in November 1998)
shares of $.001 par value common stock of Food Extrusion, Inc. and the
assumption of certain liabilities totaling approximately $1,320,000. These
obligations were paid in full in January 1999. See "Recent Sales of Unregistered
Securities" and "Liquidity and Capital Resources."
Item 2. DESCRIPTION OF PROPERTY
The Company currently leases (i) a 5,600 square foot office facility and (ii) an
11,400 square foot research and shipping facility at 1241 Hawk's Flight Court,
El Dorado Hills, California pursuant to a lease expiring in September 2006, with
aggregate annual lease payments for both properties approximating $125,000 and
(iii) a 3,000 square foot warehouse facility in El Dorado Hills, California,
pursuant to a month-to-month lease with a monthly payment of $1,000.
FoodEx, MT owns a 15,700 square foot production facility in Dillon, Montana,
which, at December 31, 1998, was pledged as collateral for a $368,999 non
interest bearing loan from the State of Montana, Department of Commerce, that
was repaid in full in January 1999. The Company believes the property is
adequately covered by insurance. In addition, at December 31, 1998 FoodEx MT
leased a 3,600 square foot administrative and research facility in Dillon,
Montana on a month-to-month arrangement with a monthly rent of $700, which was
terminated in February 1999 when all accounting and administrative functions
were moved and consolidated with The RiceX Company in El Dorado Hills,
California.
The Company believes that its facilities are adequate for its proposed needs
through 1999.
Item 3. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings, other
than routine litigation incidental to the Company's business, to which the
Company is a party or of which any of its property is subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal United States market for the Company's common stock is the OTC
Bulletin Board. These quotations reflect inter-dealer prices, without retail
mark-up, mark down or commissions and may not represent actual transactions. The
following is the high and low bid information for such common stock:
<TABLE>
<CAPTION>
COMMON STOCK HIGH LOW
<S> <C> <C>
1998
----
First Quarter $ 5.80 $3.30
Second Quarter $ 6.25 $3.00
Third Quarter $ 3.63 $1.22
Fourth Quarter $ 1.75 $0.53
1997
----
First Quarter $12.50 $3.75
Second Quarter $ 6.00 $1.50
Third Quarter $ 6.63 $4.50
Fourth Quarter $ 8.50 $3.13
</TABLE>
There are approximately 177 holders of record of the Company's common stock as
of March 1, 1999.
DIVIDENDS
The Company has not paid, nor declared, any dividends since its inception and
does not intend to declare any such dividends in the foreseeable future. The
Company's ability to pay dividends is subject to limitations imposed by Delaware
law and, as a quasi-California corporation, to the more restrictive provision of
California law. Under Delaware law, dividends may be paid to the extent that the
corporation's assets exceed its liabilities and it is able to pay its debts as
they become due in the usual course of business. California law generally
prohibits a corporation from paying dividends unless the retained earnings of
the corporation immediately prior to the distribution exceed the amount of the
distribution. Alternatively, a corporation may pay dividends if (i) the assets
of the corporation exceed 1 1/4 times its liabilities; and (ii) the current
assets of the corporation equal or exceed its current liabilities, but if the
average pre-tax earnings of the corporation before interest expense for the two
years preceding the distribution was less than the average interest expense of
the corporation for those years, the current assets of the corporation must
exceed 1 1/4 times its current liabilities. See "Description of Capital
Stock-Application of California General Corporate Law."
RECENT SALES OF UNREGISTERED SECURITIES
In 1998, in conjunction with the Company's re-incorporation in Delaware, the
Company increased its authorized number of common shares from 50,000,000 shares
to 100,000,000 shares and authorized 10,000,000 shares of preferred stock which
may be issued from time to time in one or more series and authorized its Board
of Directors to establish the rights, preferences and privileges of each such
series, when issued.
Effective January 1997, the Company acquired the assets of FoodEx MT in exchange
for 310,000 shares of the Company's common stock and the assumption of certain
liabilities totaling $1,320,000. The seller had an option to sell the common
shares back to the Company ("Put Option") at a price of $5.00 per share in
November 1998 or sooner upon the occurrence of certain events. The shares were
issued without registration under the Securities Act in reliance on the
exemption from registration provided by Section 3 (a) (10) of the Securities
Act.
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In 1998, the Put Option was amended to permit the holders of the 310,000 shares
to sell the shares back to the Company on July 1, 1999 based on a $5.00 value
and receive common stock with a fair value of $1,550,000. The number of shares
to be issued will be based on the average market price of the Company's common
stock for the preceding 30 days. In consideration for the extension of the Put
Option, the Company issued an additional 100,000 shares of common stock to the
Seller. The shares were issued without registration under the Securities Act in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act.
In 1998, the Company issued 285 shares of common stock and warrants to purchase
40,000 shares of common stock with an exercise price of $1.50 per share to
consultants for services rendered. The warrants were immediately exercisable and
expire in October 2003. The shares were issued without registration under the
Securities Act in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act.
In September 1998, the Company sold 1,000,000 shares of common stock and
warrants to purchase 1,075,000 (1,000,000 to the private placement investor and
75,000 issued as a finders fee in conjunction with this transaction) shares of
common stock in a private placement for $1,500,000. These warrants, which expire
in September 2000, are exercisable at $1.50 per share, if exercised prior to
September 1999 and at $1.81 per share, if exercised between September 1999 and
September 2000. The private offering agreement provides for price protection for
the private placement investor, whereby any issuance of new stock at a price
lower than $1.50 per share requires the Company to issue additional new shares
sufficient to reduce the private placement investor's average purchase price to
the lower per share price of such new issuance. Additionally, the price
protection provision requires that, should the Company issue new shares or
warrants to purchase common stock at less than $1.50 per share, the exercise
price on the warrants issued in the private placement will be reduced to the
lower issuance or exercise price. The shares of stock and warrants issued in the
December 1998 loan agreement described in Note 6 to the Financial Statements
were less than $1.50 per share. Based on the valuation information provided by
the Company's accounting firm, and contract interpretation from the Company's
counsel, an additional 1,181,818 shares of common stock were issued to the
private placement investor and the exercise price of the warrants was reduced to
$0.69 per share, effective September 10, 1998. However, the investor notified
the Company that it objects to the Company's interpretation of the price
protection provision in the warrant and believes that it should receive
additional shares of common stock underlying the warrant. The Company and its
counsel have reviewed the investors objection and the relevant documents and
believes that the Company's issuance of additional shares of common stock and
adjustment of the warrant exercise price are proper and do not believe that
any additional shares should be required to be issued under the warrants.
There can be no assurance, however that the company will not ultimately be
required to issue such additional shares. All warrants issued in conjunction
with this private placement were outstanding at December 31, 1998. The shares
were issued without registration under the Securities Act in reliance on the
exemption from registration provided by Regulation S of the Securities Act.
In December 1998, the Company entered into a loan agreement with a third party
lender (the "Lender") to borrow $1,850,000. In accordance with the loan
requirements, the Lender advanced $1,150,000 to the Company on December 31, 1998
and $700,000 in January 1999. The Company issued the Lender 940,679 shares of
common stock as prepaid interest on the loan. Additionally, the Company issued
the Lender warrants to purchase 3,743,540 shares of common stock at $0.75 per
share which expire in December 2003. The shares were issued without registration
under the Securities Act in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act.
In December 1998, the employment agreements of four executive officers were
terminated. As part of the severance agreements with three officers, all
previously issued options to purchase the Company's stock held by such officers
were canceled and the remaining officer's options expired. Three officers were
issued warrants, which expire in December 2000 to purchase an aggregate of
1,200,000 shares of common stock at an exercise price of $1.00 per share as part
of their severance agreement. The shares were issued without registration under
the Securities Act in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act.
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition of The
RiceX Company as of December 31, 1998 and the results of operations for the
fiscal years ended December 31, 1997 and 1998, which should be read in
conjunction with, and is qualified in its entirety by, the consolidated
financial statements and notes thereto included elsewhere in this report.
This Annual Report contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Annual Report that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including without limitation statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. The Company's actual
results may differ materially as a result of certain factors, including those
set forth hereafter and elsewhere in this Annual Report
OVERVIEW
Since its formation in 1989, the Company has been engaged in extensive research
and development activities that resulted in the development of the RiceX Process
to stabilize rice bran. During 1996, 1997 and 1998, the Company accelerated its
research, including clinical trials; product development; equipment development;
procurement of manufacturing facilities; development of markets and distribution
methods; negotiation of strategic alliances; patent applications; raising
capital; and development of corporate infrastructure, including executive
recruitment activities. The Company commenced commercial operations in 1996 with
product sales for the year aggregating approximately $784,000 and the Company
reported a net loss of approximately $5,024,000 for the year ended December 31,
1996.
During 1997, in addition to continuing its research and development, sales and
marketing and other commercial activities, the Company continued the development
of its corporate infrastructure through the recruitment of a Chief Executive
Officer (the "CEO") in April 1997 to focus on the development of the corporate
infrastructure, raise additional capital and permit Mr. Daniel McPeak, Sr., the
Company's co-founder, to devote more of his efforts to his duties as the
Chairman of the Company's Board of Directors. In September and October 1997, the
CEO successfully recruited three executives to direct the Company's Research and
Development; Sales and Marketing; and Finance and Administration activities. The
CEO also devoted significant time to raising additional capital for the Company.
Product sales for 1997 aggregated approximately $3,291,000 and the Company
reported a net loss of approximately $7,769,000 for the year ended December 31,
1997.
In December 1998, with sales lagging 1997, with unsuccessful efforts to raise
sufficient financing to support the Company's growth model and in an effort to
significantly reduce the Company's overhead, the CEO and the three executives
recruited by the CEO in 1997 agreed with the Company to terminate their
multi-year employment contracts in exchange for severance agreements that
provided for cash payments aggregating $260,000 and warrants to purchase an
aggregate of 1,200,000 shares of common stock at $1.00 per share for a period of
two years. The Board of Directors re-elected Mr. Daniel McPeak, Sr. Chief
Executive Officer, expanded Ms. McPeak's duties as President, and returned Mr.
McPeak, Jr. and Mr. Crow to the positions they had held prior to the hiring of
the CEO as managers of sales and marketing and finance and administration,
respectively. Mr. Lynch was assigned responsibility for research and
development, a function he managed while with Centennial Foods, Inc. Product
sales for 1998 aggregated approximately $2,914,000 and the Company reported a
net loss of approximately $5,298,000 for the year ended December 31, 1998.
For a complete understanding of these activities, this Management's Discussion
and Analysis should be read in conjunction with Part I. Item 1. Description of
Business and Part II. Item 7-Financial Statements to this Form 10-KSB.
20
<PAGE>
YEAR ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
Revenue in 1998 decreased approximately 11% to $2,950,336 from $3,332,617 in
1997. While revenues from the sale of stabilized rice bran and fiber complex
increased $165,000 and $140,000, respectively, such gains were offset by
declines in the sales of Ricelin and organic baby cereals of $613,000 and
$70,000, respectively. The decline is Ricelin sales was primarily due to one
customer not achieving its 1998 sales objectives. While the sales of stabilized
rice bran products accounted for approximately 88% and 89% of total sales in
1997 and 1998, respectively, the mix of such products differed significantly. In
1998, sales of stabilized rice bran, primarily for the equine market accounted
for 67% of revenue versus 53% in 1997 and sales of Ricelin and fiber complex for
use as a functional food ingredient accounted for 21% of sales in 1998 versus
36% of sales in 1997. Cereal processing for H.J. Heinz's organic infant cereal
accounted for 10% of sales in 1998 versus 11% of sales in 1997. In 1998, the
Company completed its production contract with H.J. Heinz and no future sales
to this customer are anticipated. Management is currently seeking contracts
to replace the infant cereal production.
The gross margin on sale of products was 9% and 28% in 1998 and 1997,
respectively. The decrease was primarily as a result of an inventory valuation
adjustment of $533,000 in 1998. The adjustment was attributed mostly to the
write-off of dated inventory. Gross margins in 1998, prior to the inventory
valuation adjustment, were 27% of product sales, comparable to 1997 results. The
Company expects that gross margins will improve as production capacity and sales
grow.
Research and development expenditures totaled $1,056,702 in 1998, up 34% from
$790,095 in 1997, reflecting the Company's continued commitment to research and
development. In 1998 and 1997 the Company's research and development activities
included the design of the RiceX Process for stabilizing rice bran, product
development and testing and clinical studies to test the efficacy of RiceX in
ameliorating the effect of certain diseases. The Company also successfully
developed rice bran oil for the Nutrilite Division of Amway Corporation in 1998.
Approximately $152,000 (19%) of the increase in research and development
expenditures in 1998 were associated with the salary of, and the severance
payment to the executive officer that left the Company's employment in
December 1998.
Selling, general and administrative expenses increased $261,439 (11%) to
$2,684,542 in 1998 from $2,423,103 in 1997. Selling, general and administrative
activities in 1997 were directed at raising capital, establishing manufacturing
facilities, developing a direct sales effort, adding executive management and
building corporate infrastructure. Most of these efforts carried through to
1998. Approximately $617,000 (23%) of the increase in selling, general and
administrative expenses were attributed to the salaries of, and the severance
payments to the three executive officers that left the Company's employment in
December 1998. The termination of all four executives had an immediate effect of
reducing overhead expenses by more than $1,000,000 annually.
The year ended December 31, 1998 included a non-cash charge totaling $980,476
which comprised $591,576 relating to the vested portion of previously issued
options held by the executive officers in December 1998 and $388,900
compensation expense associated with the fair value of the warrants issued to
these officers as part of their severance agreement. In 1997, a similar
non-cash charge totaling $2,031,570 was associated with the one-time issuance
and subsequent vesting of favorably priced stock options to employees and
directors.
Professional fees in 1998 were $358,001 compared to $1,907,399 to 1997. In 1997,
legal fees were incurred in connection with patent searches and applications,
consulting fees for capital raising activities and executive searches, and
litigation that was successfully concluded by December 31, 1997. The 1998
professional fees included mostly legal and accounting fees associated with the
re-incorporation and merger, SEC registration, private placement, debt financing
in December 1998, and severance agreements. See Part I. Item 1 - "The Company"
and Part II. Item 5. - "Recent Sales of Unregistered Securities."
21
<PAGE>
Interest expense in 1998 was $538,752 compared to $533,902 in 1997. In both 1998
and 1997, this primarily represents the amortization of certain debt issuance
costs and accrued interest.
1997 earnings were also impacted by a $1,325,000 non-cash charge relating to a
conversion feature granted to a lender in connection with the restructuring of
debt. The charge represents the difference between the fair market value of the
Company's stock and the conversion rate on the date of borrowing. There was no
similar charge in 1998.
The Company's net loss for 1998 totaled $5,298,145, or $.26 per share, compared
$7,768,598, or $.40 per share for 1997. As discussed above, the decrease in the
Company's net loss reflects the significant reduction in professional fees, the
non recurrence of the 1997 charge for the beneficial conversion feature, and
significant reduction in the compensation expense associated with employee stock
options; offset by an increased investment in research and development, a
significant reduction in gross profit on the Company's product sales and a
virtual elimination of interest income as the Company utilized its uninvested
cash at December 31, 1997 to fund 1998 operations.
YEAR ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
Revenue in 1997 increased to $3,332,617 from $907,802 in 1996. The increase
resulted from the Company's direct sales efforts, the establishment of
stabilized rice bran manufacturing facilities at Farmer's Rice Co-op and
California Pacific Rice Mill in March and August 1996, respectively, and the
acquisition of the FoodEx MT facility. For the year ended December 31, 1997,
approximately 88% of the Company's revenue were sales of stabilized rice bran
products, of which, approximately 60% was stabilized rice bran, primarily for
use in the equine market, and 40% was sales of RiceX Ricelin for use as a
functional food ingredient. Food processing for H.J. Heinz at the FoodEx MT
plant accounted for 11% of total sales.
The gross margin on sale of products was 28% and 35% in 1997 and 1996,
respectively. As the gross margin on RiceX Ricelin is greater than on RiceX, the
Company's core stabilized rice product, gross margins will vary depending on
product mix and utilization of production capacity.
Research and development expenditures totaled $790,095 in 1997, up from $632,975
in 1996. The Company's research and development activities included the design
of the RiceX Process for stabilizing rice bran, product development and testing
and clinical studies to test the efficacy of RiceX in ameliorating the effect of
certain diseases.
Selling, general and administrative expenses increased to $2,423,103 in 1997
from $1,033,009 in 1996. Selling, general and administrative activities in 1996
were directed at raising capital, negotiating supply contracts, establishing
manufacturing facilities, and developing a direct sales effort. In 1997, these
activities were accelerated, additional executive management and corporate
infrastructure was added, and sales and marketing efforts were stepped up to
include the development of strategic alliances and the establishment of
international markets.
The year ended December 31, 1997 also included a non-cash charge totaling
$2,031,570 associated with the one-time issuance and subsequent vesting of
favorably priced stock options to employees and directors. There was no such
similar charge in 1996.
Professional fees in 1997 were $1,907,399 compared to $919,784 to 1996. In both
years, legal fees were incurred in connection with the Core Iris, Inc. reverse
merger and in capital transactions. 1997 also included legal fees associated
with patent searches and applications, consulting fees for capital raising
activities and executive searches, and litigation that was successfully
concluded by December 31, 1997.
Interest expense in 1997 was $533,902 compared to $182,151 in 1996 due to
substantial new borrowing in the latter half of 1996 and early 1997 and the
amortization in 1997 of certain debt issuance costs on a note that was
restructured.
22
<PAGE>
1997 earnings were also impacted by a $1,325,000 non-cash charge relating to a
conversion feature granted to a lender in connection with the restructuring of
debt. The charge represents the difference between the fair market value of the
Company's stock and the conversion rate on the date of borrowing. In 1996, there
was a $2,687,000 non-cash charge to earnings related to a favorably priced stock
option granted as a finder's fee for locating financing.
The Company's net loss for 1997 totaled $7,768,598, or $.40 per share, compared
to $5,024,323, or $.28 per share for 1996. As discussed above, the increase in
the Company's net loss reflects the acceleration of its research and development
activities, along with the costs of attracting new executive management and with
building corporate infrastructure to support initial manufacturing operations
and expected growth. The net loss was also impacted by the costs of raising
capital and interest costs for the debt and equity required to support the
Company's operations until sufficient operating volumes are achieved.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company has yet to generate positive cash flow from
its operations due to the preliminary nature of such operations, substantial
ongoing investment in research and development efforts, and an infrastructure
that was built sooner than the Company realized its expected growth potential.
Consequently, the Company has been substantially dependent on private placements
of its equity securities and debt financing to fund its cash requirements.
The Company relied heavily on proceeds from the sale of common stock and from
the issuance of long-term debt to fund its activities in 1998. Cash used in
operations in 1998 totaled $2,471,944. Cash balances at December 31, 1998
increased by $295,175 to 1,158,302 from $863,127 at December 31, 1997.
In December 1998, the Company entered into a loan agreement with a third party
lender (the "Lender") to borrow $1,850,000. In accordance with the loan
agreement, the Lender advanced $1,150,000 to the Company on December 31, 1998
and $700,000 in January 1999. The Company issued the Lender 940,679 shares of
common stock as prepaid interest on the loan. Additionally, the Company issued
the Lender warrants to purchase 3,743,540 shares of common stock at $0.75 per
share which expire in December 2003.
In September 1998, the Company sold 1,000,000 shares of common stock and issued
warrants to purchase 1,075,000 (1,000,000 to the private placement investor and
75,000 issued as a finders fee in conjunction with this transaction) shares of
common stock in a private placement for $1,500,000. These warrants, which expire
in September 2000, are exercisable at $1.50 per share, if exercised prior to
September 1999 and at $1.81 per share, if exercised between September 1999 and
September 2000. The private offering agreement provides for price protection for
the private placement investor, whereby any issuance of new stock at a price
lower than $1.50 per share requires the Company to issue additional new shares
sufficient to reduce the private placement investor's average purchase price to
the lower per share price of such new issuance. Additionally, the price
protection provision requires that, should the Company issue new shares or
warrants to purchase common stock at less than $1.50 per share, the exercise
price on the warrants issued in the private placement will be reduced to the
lower issuance or exercise price. The shares of stock and warrants issued in the
December 1998 loan agreement described in Note 6 to the Financial Statements
were less than $1.50 per share. Based on the valuation information provided by
the Company's accounting firm, and contract interpretation from the Company's
counsel, an additional 1,181,818 shares of common stock were issued to the
private placement investor and the exercise price of the warrants was reduced to
$0.69 per share, effective September 10, 1998. However, the investor notified
the Company that it objects to the Company's interpretation of the price
protection provision in the warrant and believes that it should receive
additional shares of common stock underlying the warrant. The Company and its
counsel have reviewed the investors objection and the relevant documents and
believes that the Company's issuance of additional shares of common stock and
adjustment of the warrant exercise price are proper and do not believe that
any additional shares should be required to be issued under the warrant.
There can be no assurance that the Company will not ultimately be required to
issue such additional shares. All warrants issued in conjunction with this
private placement were outstanding at December 31, 1998.
In February 1997, a 1996 loan agreement ("Loan Agreement") with Monsanto
Corporation ("Monsanto") pursuant to which Monsanto had advanced $5,000,000 to
the Company, was substantially renegotiated.
23
<PAGE>
The renegotiated loan is non-interest bearing, due in November 1999 and
convertible into shares of the Company's common stock at the lower of $5.00 per
share or the price per share the Company receives in a sale of its common stock
in a financing of at least $1,000,000 occurring closest and prior to a notice of
intent to convert. The Company recorded a charge against operations of
$1,325,000 in 1997 for the beneficial conversion feature as a result of the fair
market value of the stock being greater than the conversion rate on the
scheduled dates the Company received the proceeds pursuant to the Loan
Agreement. As a result of this charge, the effective interest rate of the loan
is greater than the interest rate currently available to the Company for similar
debt; therefore no imputed interest has been calculated on this loan. The
outstanding principal of the Loan Agreement at December 31, 1998 was $5,000,000
and is convertible into 7,272,727 shares of the Company's common stock.
Effective January 1997, the Company acquired the assets of FoodEx MT in exchange
for 310,000 shares of the Company's common stock and the assumption of certain
liabilities totaling $1,320,000. The seller has the option sell the common
shares back to the Company at a price of $5.00 per share in November 1998 or
sooner upon the occurrence of certain events. In 1998, the Put Option was
amended to permit the holders of the 310,000 shares to sell the shares back to
the Company on July 1, 1999 based on a $5.00 value and receive common stock with
a fair value of $1,550,000. The number of shares to be issued will be based on
the average market price of the Company's common stock for the preceding 30 days
In consideration for the extension of the Put Option, the Company issued an
additional 100,000 shares of common stock to the Seller. The shares were issued
without registration under the Securities Act in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act.
During 1997, 88,465 shares of the Company's common stock valued at $389,727 were
issued to consultants in lieu of cash compensation and reported as professional
fees expense for the year ended December 31, 1997. In addition 50,000 stock
warrants at $2.00 per share were issued to consultants in lieu of cash
compensation. These warrants were valued at $211,950 pursuant to SFAS 123 and
recorded as professional fees expense for the year ended December 31, 1997.
As of December 31, 1998, the Company's cash reserves totaled $1,158,302 and
other total current assets were $1,333,402. In January 1999 the Company received
$700,000 pursuant to the December 1998 financing described above. The Company
used significant portions of its cash reserves to retire the FoodEx MT debt of
$1,289,149 and pay deferred compensation and severance payments to the four
executives that terminated in December 1998. The cash requirement in 1999 is
projected to be significantly reduced by the termination of the four executives
in December 1998, as well as the efforts of management to reduce projected fixed
overheads more than 50%, and budgeted 1999 sales revenues improving over last
year's performance. However there can be no assurances that such reduction or
such increase in revenue will occur or remain in effect.
The Company is taking additional steps to address the approximate $7,000,000
debt that matures in November 1999. The Company will need new debt financing or
additional capital to repay the Monsanto and Dominion liabilities or the ability
to restructure the notes to extend the payment terms consistent with the
Company's anticipated ability to repay them from the cash flow from operations
in the future.
For 1999, the Company expects to incur additional costs for research and
development, including clinical studies, and professional and legal fees for
patent and trademark applications. It also expects to expand its sales and
marketing efforts. These efforts could significantly increase demand for the
Company's products beyond the Company's current production capacity. While the
Company believes it can increase its production capacity to meet sales demand,
significant additional capital could be required to meet such expansion
requirements.
The Company is taking steps to raise equity capital. However, there can be no
assurance that any new capital would be available to the Company or that
adequate funds for the Company's operations, whether from the Company's
revenues, financial markets, collaborative or other arrangements with corporate
partners or from other sources, will be available when needed or on terms
satisfactory to the Company.
24
<PAGE>
The failure of the Company to obtain adequate additional financing may require
the Company to delay, curtail or scale back some or all of its research and
development programs, sales and marketing efforts, manufacturing operations,
clinical studies and regulatory activities and, potentially, to cease its
operations. Any additional equity financing may involve substantial dilution to
the Company's shareholders.
25
<PAGE>
Item 7. FINANCIAL STATEMENTS
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants 27
Consolidated Balance Sheet as of December 31, 1998 28
Consolidated Statements of Operations
for the years ended December 31, 1998 and 1997 29
Consolidated Statements of Shareholders' Equity (Deficit)
as of December 31, 1998 and 1997 30
Consolidated Statements of Cash Flows
for the years ended December 31, 1998 and 1997 31
Notes to Consolidated Financial Statements 32
</TABLE>
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The RiceX Company (formerly Food Extrusion, Inc.)
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial
position of The RiceX Company (formerly Food Extrusion, Inc.) at December 31,
1998 and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency which 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 this uncertainty.
/s/ PricewaterhouseCoopers LLP
Sacramento, California
March 26, 1999
27
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 1,158,302
Receivable from debt financing 700,000
Trade accounts receivable 391,743
Inventories 212,261
Deposits and other current assets 29,398
----------------
Total current assets 2,491,704
Property and equipment, net 3,692,882
Note receivable 136,604
Other assets 133,973
----------------
$ 6,455,163
----------------
----------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 7,955,428
Accounts payable and accrued liabilities 1,404,853
----------------
Total current liabilities 9,360,281
Long-term debt, net of current portion 1,850,000
----------------
Total liabilities 11,210,281
----------------
Commitments and Contingencies
Shareholders' equity (deficit):
Preferred stock, par value $.001 per share, 10,000,000 shares
authorized, no shares issued and outstanding ---
Common stock, par value $.001 per share, 100,000,000 shares
authorized, 22,027,997 shares issued and outstanding 22,028
Additional paid-in capital 18,030,155
Accumulated deficit (20,767,518)
Equity issued as prepaid interest and debt issuance costs (2,039,783)
----------------
Total shareholders' deficit (4,755,118)
----------------
$ 6,455,163
----------------
----------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
28
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------------- ----------------
<S> <C> <C>
Revenue:
Sales $ 3,291,315 $ 2,913,831
Royalties 41,302 36,505
--------------- ----------------
3,332,617 2,950,336
Cost of sales 2,364,383 2,651,469
--------------- ----------------
968,234 298,867
Research and development expenses 790,095 1,056,702
Selling, general and administrative expenses 2,423,103 2,684,542
Stock option and warrant compensation to employees 2,031,570 980,476
Professional fees 1,907,399 358,001
--------------- ----------------
Loss from operations (6,183,933) (4,780,854)
Other income (expense):
Interest and other income 275,037 22,261
Interest and other expense (533,902) (538,752)
Beneficial conversion feature (1,325,000) ---
--------------- ----------------
Loss before provision for income taxes (7,767,798) (5,297,345)
Provision for income taxes (800) (800)
--------------- ----------------
Net loss $ (7,768,598) $ (5,298,145)
--------------- ----------------
--------------- ----------------
Basic earnings per share;
Net loss per share $ (0.40) $ (0.26)
--------------- ----------------
--------------- ----------------
Weighted average number of shares outstanding 19,499,049 20,350,496
--------------- ----------------
--------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
29
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
Equity Issued
as Prepaid Total
Interest and Unearned Note Share-
Common Stock Additional Debt Stock Receivable holders'
--------------------- Paid-In Accumulated Issuance Option from Equity
Shares Amount Capital (Deficit) Costs Compensation Shareholder (Deficit)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1996 18,000,750 18,001 $ 7,738,236 $ (7,700,775) $ --- --- $ (3,050) $ 52,412
Issuance of common
stock pursuant
to the exercise of
stock options 2,126,000 2,126 4,048,874 --- --- --- (3,996,950) 54,050
Issuance of common
stock for services 88,465 88 389,639 --- --- --- --- 389,727
Issuance of stock
warrants for
services --- --- 211,950 --- --- --- --- 211,950
Issuance of stock
options to employees --- --- 3,999,350 --- --- (3,999,350) --- ---
Vesting of stock
options to employees --- --- --- --- --- 2,031,570 --- 2,031,570
Beneficial conversion
feature on long-term
debt --- --- 1,325,000 --- --- --- --- 1,325,000
Net loss for the year --- --- --- (7,768,598) --- --- --- (7,768,598)
-----------------------------------------------------------------------------------------------------------
Balance,
December 31, 1997 20,215,215 20,215 17,713,049 (15,469,373) (1,967,780) (4,000,000) (3,703,889)
Issuance of common
stock and warrants
for services 285 --- 43,540 --- --- --- --- 43,540
Issuance of common
stock for put
extension 100,000 100 117,800 --- --- --- --- 117,900
Reclassification of
redeemable common
stock 310,000 310 1,549,690 --- --- --- --- 1,550,000
Issuance of common
stock pursuant to
the exercise of stock
options 280,000 280 279,720 --- --- --- --- 280,000
Rescission of Note
Receivable and
exercise of option (2,000,000) (2,000) (3,998,000) --- --- --- 4,000,000 ---
Issuance of common
stock in private
placement, net of
offering costs of
$225,000 2,181,818 2,182 1,272,818 --- --- --- --- 1,275,000
Vesting of stock
options to employees --- --- --- --- --- 591,576 --- 591,576
Forfeiture of unvested
stock options to
employees --- --- (1,376,204) --- --- 1,376,204 --- ---
Issuance of warrants as
severance to employees --- --- 388,900 --- --- --- --- 388,900
Issuance of common stock
to prepay interest
on debt financing 940,679 941 646,245 --- (647,186) --- --- ---
Issuance of warrants
for debt issuance
costs --- --- 1,392,597 --- (1,392,597) --- --- ---
Net loss for the year --- --- --- (5,298,145) --- --- --- (5,298,145)
-----------------------------------------------------------------------------------------------------------
Balance,
December 31, 1998 22,027,997 22,028 $18,030,155 $(20,767,518) $(2,039,783) $ --- $ --- $(4,755,118)
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
30
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (7,768,598) $ (5,298,145)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 735,216 720,088
Shares, warrants and options issued for compensation
and services 2,633,247 1,024,016
Issuance of common stock for put extensions --- 117,900
Accretion of debt discount 241,526 215,736
Beneficial conversion feature 1,325,000 ---
Gain on sale of equipment --- (4,569)
Net changes in operating assets and liabilities:
Trade accounts receivable (374,086) 186,870
Inventories (377,509) 314,716
Deposits and other current assets 81,356 (17,746)
Deferred debt issuance costs 141,892 70,502
Accounts payable and accrued liabilities 730,657 198,688
------------- -------------
Net cash used in operating activities (2,631,299) (2,471,944)
------------- -------------
Cash flows from investing activities:
Sales (purchases) of property and equipment, net (611,432) 41,412
Payments for trademarks and patents (345,665) (22,900)
Collection on note receivable 54,092 109,304
------------- -------------
Net cash provided by (used for) investing activities (903,005) 127,816
------------- -------------
Cash flows from financing activities
Proceeds from issuance of common stock 54,050 1,555,000
Proceeds from issuance of long-term debt 2,500,000 1,150,000
Principal payments on long-term debt (56,919) (35,645)
Payment of long-term debt to shareholders (88,000) (30,052)
------------- -------------
Net cash provided by financing activities 2,409,131 2,639,303
------------- -------------
Net increase (decrease) in cash and cash equivalents (1,125,173) 295,175
Cash and cash equivalents, beginning of year 1,988,300 863,127
------------- -------------
Cash and cash equivalents, end of year $863,127 $1,158,302
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
31
<PAGE>
THE RICEX COMPANY
(formerly Food Extrusion, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The RiceX Company ("RiceX"), formerly Food Extrusion, Inc., was incorporated in
California in 1989 and in 1998 was reincorporated in Delaware and changed its
name to The RiceX Company. RiceX has a wholly owned subsidiary, Food Extrusion
Montana, Inc. (FoodEx Montana). The consolidated financial statements include
the accounts of RiceX and FoodEx Montana (collectively "the Company"), after the
elimination of all inter-company balances and transactions.
The Company is an agribusiness food technology company, which has developed a
proprietary process to stabilize rice bran. RiceX is headquartered in El Dorado
Hills, California and has stabilization equipment located at two rice mills in
Northern California. The Company purchases raw rice bran from these two mills
and mill employees, under Company supervision, operates the Company's equipment
to stabilize rice bran. The Company pays a processing fee to the mills for this
service. Under an agreement with one of the mills, that mill may use the
Company's equipment to stabilize rice bran for its customers in exchange for the
payment of a royalty fee to the Company. The Company intends to enter into
additional relationships with rice processors as part of its overall business
strategy.
FoodEx Montana is engaged in the business of custom manufacturing grain based
products for food ingredient companies at its production facility in Dillon,
Montana. The facility has specialized processing equipment and techniques for
the treatment of grain products to cook, enzyme treat, convert, isolate, dry and
package finished food ingredients. The soluble form of the Company's rice bran
products is produced at the Montana facility.
The processing, formulation, packaging, labeling and advertising of the
Company's products are subject to regulation by one or more federal agencies.
Congress enacted the Dietary Supplement Health Education Act of 1994
("DSHEA"), which limits the FDA's jurisdiction in regulating dietary
supplements. The FDA has recently proposed regulations with the purpose of
implementing DSHEA and proposals have been made to modify or change the
provisions of DSHEA. The effect that those regulations or proposed changes will
have on the operations of the Company cannot currently be determined.
A summary of the significant accounting principles and practices used in the
preparation of the consolidated financial statements follows:
GOING CONCERN
The financial statements have been prepared assuming the Company will continue
as a going concern. The Company has incurred operating losses and negative cash
flows from operations since inception and has a shareholders' deficit of
$4,755,118 at December 31, 1998. The Company's business could be subject to any
or all of the problems, expenses, delays and risks inherent in the establishment
of a new business enterprise including limited capital resources, possible
delays in product development, possible cost overruns due to price and cost
increases in raw product and manufacturing processes, uncertain market
acceptance and absence of an operating history. Therefore, there can be no
assurance that the Company's business or products will be successful or that the
Company will be able to achieve or maintain profitable operations. There can be
no assurance that the Company will not encounter unforeseen difficulties that
may deplete its capital resources more rapidly than anticipated.
The Company is taking steps to raise additional equity capital. The Company is
seeking additional equity financing to provide the capital required to make
significant investments in research and development. The Company also intends to
utilize the additional capital to expand its manufacturing capacity and
marketing efforts to increase sales to a level that will make the Company
self-sustaining.
32
<PAGE>
The timing and amount of any capital requirements cannot be predicted at this
time. There can be no assurance that any financing will be available on
acceptable terms. If such financing is not available on satisfactory terms, the
Company may be unable to continue, develop or expand its business, develop new
products, or develop new markets at the rate desired and its operating results
may be adversely affected. Equity financing could result in additional dilution
to existing shareholders. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of trade accounts receivable for
sales to major customers. The Company performs credit evaluations on its
customers' financial condition and generally does not require collateral on
accounts receivable. The Company maintains an allowance for doubtful accounts on
its receivables based upon expected collectibility of all accounts receivable.
Uncollected accounts have not been significant.
Three customers accounted for 63% (41%, 11%, and 10%) and 57% (30%, 17%, and
10%) of sales for the years ended December 31,1998 and December 31, 1997,
respectively. No other customer accounted for more than 10% of sales.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with an original or
remaining maturity at the time of purchase of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market determined on a first-in,
first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed on the
straight-line basis over the shorter of the estimated life of the asset or the
lease term, generally ranging from three to ten years. Upon sales or retirement,
the related cost and accumulated depreciation are removed from the accounts and
the resulting gain or loss, if any, is included in results of operations. The
cost of additions, improvements, and interest on construction are capitalized,
while maintenance and repairs are charged to operations when incurred.
DEBT ISSUANCE COSTS
Costs incurred in connection with debt financing agreement are deferred and
amortized over the terms of the related obligations using the straight-line
method.
REVENUE RECOGNITION
Revenue from product sales are recognized as products are shipped.
33
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred.
STOCK OPTIONS
The Company accounts for employee stock options in accordance with APB 25, under
which compensation expense is recognized in the financial statements when option
grants are issued at less than fair market value on the grant date. The Company
adopted the disclosure-only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", which require the Company to disclose pro forma net
income (loss) assuming compensation expense related to options granted was
determined using the fair value method. As required by SFAS 123, the Company has
valued stock option and warrants granted to non-employees and made the required
pro forma calculations under the fair value method using the Black-Scholes
option pricing model with the following weighted-average assumptions for 1997
and 1998: risk-free interest rate of 6.77% in 1997 and 5.26% in 1998; expected
option lives of one to five years; expected volatility of 72% in 1997 and 104%
in 1998; and no expected dividend in either year.
NET LOSS PER SHARE
The Company calculates earnings (loss) per share in accordance with SFAS No.
128. Basic net loss per share is computed on the weighted average number of
shares of common stock outstanding during each period. The weighted average
number of shares outstanding do not include potentially dilutive instruments
including stock options, warrants and convertible long-term debt, as the Company
has reported a loss from operations for each of the two years in the period
ended December 31, 1998.
INCOME TAXES
The Company accounts for income taxes under the liability method. Deferred
income tax assets and liabilities result from the future tax consequences
associated with temporary differences between the carry amounts and the tax
bases of assets and liabilities. A valuation allowance is established to reduce
deferred tax assets if it is more likely than not, that all, or some portion, of
such deferred tax assets will not be realized.
ACCOUNTING FOR LONG-LIVED ASSETS
Long-lived assets are recorded at the lower of amortized cost or fair value. As
part of an ongoing review of the valuation of long-lived assets, management
assesses the carrying value of such assets if facts and circumstances suggest
they may be impaired. If this review indicates that the carrying value of these
assets may not be recoverable, as determined by a non-discounted cash flow
analysis over the remaining useful life, the carrying value would be reduced to
its estimated fair value. There have been no material impairments recognized in
these consolidated financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, in 1998 which changes the way the Company reports
information about its operating segments. As the Company operates as a single
business unit, the adoption of this pronouncement had no effect on the Company's
reporting.
34
<PAGE>
2. BUSINESS COMBINATION
Effective January 1997, FoodEx Montana entered into an asset purchase agreement,
shareholders' agreement and security agreement (collectively, the "Asset
Purchase Agreements") with an unrelated company ("Seller") to acquire a
manufacturing facility located in Montana in exchange for 310,000 shares of the
Company's common stock, the assumption of certain obligations totaling
approximately $1,320,000, and the assumption of all obligations under the
Seller's 401(k) plan. The Company has recorded the acquisition using the
purchase method of accounting as follows:
<TABLE>
<S> <C>
Redeemable common stock issued $ 1,550,000
Liabilities assumed, net of $232,071 discount 1,087,964
-------------
Acquisition price of facility $ 2,637,964
-------------
-------------
</TABLE>
The Asset Purchase Agreements also granted the Seller the option to sell the
common stock back to the Company at a price of $5.00 per share for a 30 day
period beginning November 1, 1998 (the "Put Option"). The assets acquired under
the Asset Purchase Agreements are pledged as collateral for the Put Option.
In 1998, the Put Option was amended to permit the holders of the 310,000 shares
to sell the shares back to the Company on July 1, 1999 based on a $5.00 value
and receive common stock with a fair value of $1,550,000. The number of shares
to be issued will be based on the average market price of the Company's common
stock for the preceding 30 days. The Company may accelerate the Put Option at
any time prior to July 1, 1999 on terms similar to those described above. The
right to sell back the shares terminates if the Company's stock closes at or
above $5.00 per share for ten consecutive trading days prior to July 1, 1999. In
consideration for the extension of the Put Option, the Company issued an
additional 100,000 shares of common stock to the Seller. The common stock
reported as redeemable at December 31, 1997 has been reclassified as
shareholders' equity as the Put Option can no longer be exercised for cash.
3. INVENTORIES
At December 31, 1998, inventories are composed of $133,194 of finished goods and
$79,067 of packaging supplies.
4. PROPERTY AND EQUIPMENT
At December 31, 1998, property and equipment consists of the following:
<TABLE>
<S> <C>
Land and buildings $ 367,961
Equipment 4,126,702
Leasehold improvements 381,642
Furniture and fixtures 225,417
-------------
5,101,722
Less accumulated depreciation and amortization (1,610,740)
-------------
3,490,982
Equipment not placed in service 201,900
-------------
$ 3,692,882
-------------
-------------
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At December 31, 1998, accounts payable and accrued liabilities consist of the
following:
<TABLE>
<S> <C>
Trade accounts payable $ 413,317
Severance payable to employees 260,417
Accrued interest 243,323
Other accrued liabilities 487,796
-------------
$ 1,404,853
-------------
-------------
</TABLE>
35
<PAGE>
6. LONG-TERM DEBT
At December 31, 1998, long-term debt consists of the following:
<TABLE>
<S> <C>
Notes payable to related parties:
Note payable to shareholder, face amount of $1,750,000,
secured by equipment, stated interest rate of 5%, imputed
interest rate of 13%, due November 1999 $ 1,646,783
Note payable to shareholder, stated interest rate of 18%,
interest prepaid in common stock, due December 2000 1,850,000
Notes payable - other:
Note payable secured by six rice extruders, non-interest
bearing, due October 1999 5,000,000
Notes payable secured by equipment, non-interest bearing
imputed interest rate of 13%, repaid January 1999 1,289,149
Other notes payable 19,496
--------------
9,805,428
Less current portion (7,955,428)
--------------
$ 1,850,000
--------------
--------------
</TABLE>
The book value of total assets pledged as collateral on notes payable at
December 31, 1998 is $3,276,546.
At December 31, 1998, the scheduled maturities of long-term debt, at their
discounted values, are $7,955,428 and $1,850,000 in 1999 and 2000, respectively.
In December 1998, the Company entered into a loan agreement with a previously
unrelated party (the "Lender") to borrow $1,850,000. The Lender advanced
$1,150,000 to the Company on December 31, 1998 and $700,000 in January 1999. The
Company issued the Lender 940,679 shares of common stock as prepaid interest on
the loan. Additionally, the Company issued the Lender warrants to purchase
3,743,540 shares of common stock at $0.75 per share which expire in December
2003. The Company recorded $647,186 of prepaid interest reflecting the fair
market value of the shares on December 31, 1998 and $1,392,597 of debt issuance
costs, reflecting the fair value of the warrants on December 31, 1998. The
Company valued the warrants in accordance with SFAS No. 123 using the
Black-Scholes option pricing model. The prepaid interest and debt issuance costs
related to this transaction are recorded as a contra account to shareholders'
equity.
In February 1997, a 1996 loan agreement ("Loan Agreement") with Monsanto
Corporation ("Monsanto") pursuant to which Monsanto had advanced $5,000,000 to
the Company, was substantially renegotiated. The renegotiated loan is
non-interest bearing, due in November 1999 and convertible into shares of the
Company's common stock at the lower of $5.00 per share or the price per share
the Company receives in a sale of its common stock in a financing of at least
$1,000,000 occurring closest and prior to a notice of intent to convert. The
Company recorded a charge against operations of $1,325,000 in 1997 for the
beneficial conversion feature as a result of the fair market value of the stock
being greater than the conversion rate on the scheduled dates the Company
received the proceeds pursuant to the Loan Agreement. As a result of this
charge, the effective interest rate of the loan is greater than the interest
rate currently available to the Company for similar debt; therefore no imputed
interest has been calculated on this loan. The outstanding principal of the Loan
Agreement at December 31, 1998 was $5,000,000 and is convertible into 7,272,727
shares of the Company's common stock.
In connection with the acquisition of certain assets of the Montana
manufacturing facility FoodEx, Montana assumed certain existing non-interest
bearing obligations with a face value of $1,320,035. Imputed interest related to
these obligations of $128,310 and $103,140 were accreted and added to principal
during the years ended December 31, 1997 and 1998, respectively. These
obligations were paid in full in January 1999.
36
<PAGE>
In March 1996, the Company borrowed $1,750,000 from a financing company and
issued 578,000 shares of the Company's common stock to the financing company.
The Company allocated $1,339,620 of the proceeds to debt and $410,380 to common
stock. The stated interest rate on the note is 5%, while the effective
annualized interest rate on the note, taking into account the issuance of common
stock, is 13%. As of December 31, 1998, $307,163 of imputed interest has been
accreted and added to principal.
7. COMMITMENTS
The Company leases office and laboratory/warehouse space under operating leases
which expire in 2006. Beginning in October 2001, the Company has the unilateral
right to terminate the operating leases with six months written notice. Future
minimum rental payments required under these non-cancelable operating lease
agreements are $127,684 in 1999, $128,482 in 2000 and $98,158 in 2001.
Rent expense under operating leases was $136,915 and $122,478 for the years
ended December 31, 1997 and 1998, respectively.
8. SHAREHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
In 1998, in conjunction with RiceX's re-incorporation in Delaware, the
Company increased its authorized number of common shares from 50,000,000 shares
to 100,000,000 shares and authorized 10,000,000 shares of preferred stock which
may be issued from time to time, in one or more series, and authorized its Board
of Directors to establish the rights, preferences and privileges of each such
series, when issued. At December 31, 1998, an aggregate of 15,735,267 shares of
the Company's common stock was reserved for future issuance upon the conversion
of debt and the exercise of stock options and warrants.
STOCK ISSUED FOR SERVICES
In 1998, the Company issued 285 shares of common stock and warrants to purchase
40,000 shares of common stock with an exercise price of $1.50 per share to
consultants for services rendered. The warrants were immediately exercisable and
expire in October 2003. The fair value of these shares and warrants, determined
in accordance with SFAS No. 123 using the Black-Scholes option pricing model of
$43,540 is included in professional fees for the year ended December 31, 1998.
In 1997, the Company issued 88,465 shares of common stock and warrants to
purchase 50,000 shares of common stock for $2.00 per share to consultants for
services rendered. The warrants were immediately exercisable and expire in
October 2002. The fair market value of the common stock was $389,727 and the
fair value of the warrants at date of grant, was $211,950 which have been
included in professional fees for the year ended December 31, 1997.
PRIVATE PLACEMENT AND CONTINGENCY
In September 1998, the Company sold 1,000,000 shares of common stock and
issued warrants to purchase 1,075,000 (1,000,000 to the private placement
investor and 75,000 issued as a finders fee in conjunction with this
transaction) shares of common stock in a private placement for $1,500,000.
These warrants, which expire in September 2000, are exercisable at $1.50 per
share, if exercised prior to September 1999 and at $1.81 per share, if
exercised between September 1999 and September 2000. The private offering
agreement provides for price protection for the private placement investor,
whereby any issuance of new stock at a price lower than $1.50 per share
requires the Company to issue additional new shares sufficient to reduce the
private placement investor's average purchase price to the lower per share
price of such new issuance. Additionally, the price protection provision
requires that, should the Company issue new shares or warrants to purchase
common stock at less than $1.50 per share, the exercise price on the warrants
issued in the private placement will be reduced to the lower issuance or
exercise price. The shares of stock and warrants issued in the December 1998
loan agreement described in Note 6 were less than $1.50 per
37
<PAGE>
share. Accordingly, effective September 10, 1998, the Company issued an
additional 1,181,818 shares of common stock to the private placement investor
and reduced the exercise price of the warrants to $0.69 per share. At
December 31, 1998, all warrants issued in conjunction with this private
placement were outstanding.
The private placement investor disagrees with the Company's interpretation of
the private placement offering agreement relating to dilutive protection on the
warrants. The private placement investor has asserted that the Company must
issue additional warrants to purchase 1,181,818 shares of common stock at $0.69
per share. The company, with advice of legal counsel, is contesting this
assertion and the matter has not currently been resolved.
WARRANTS AND NON-EMPLOYEE STOCK OPTIONS
At December 31, 1998, the warrants and non-employee stock options outstanding
were as follows:
<TABLE>
<CAPTION>
Shares issuable under warrants and Number of Exercise Price Exercise
non-employee options Shares Per Share Period
------------------------------------ ------------- ---------------- --------------
<S> <C> <C> <C>
Balance, January 1, 1997 1,600,000 $1.75 - $4.00 3 years
Issued during the year 50,000 2.00 5 years
------------- ---------------- --------------
Balance, December 31, 1997 1,650,000 1.75-4.00 3-5 years
Issued during the year 6,058,540 0.69 - 1.81 2-5 years
------------- ---------------- --------------
Balance, December 31, 1998 7,708,540 $0.69 - $4.00 2-5 years
------------- ---------------- --------------
------------- ---------------- --------------
</TABLE>
As discussed elsewhere in these financial statements, the warrants issued in
1998 include 3,743,540 shares in connection with debt issuance costs described
in Note 6, 1,075,000 shares included in the private placement described above,
1,200,000 shares related to severance agreements discussed below and other
issuances. The warrants and non-employee options outstanding at December 31,
1998 do not include any warrants that might be issued in connection with the
private placement-offering contingency described above.
EMPLOYEE STOCK OPTIONS
The Board of Directors of the Company has granted non-statutory and incentive
stock options to officers, directors, and key employees prior to and under the
Company's Stock Option Plan. At December 31, 1998, there were 5,000,000 shares
of common stock reserved for grants made and to be made in the future under the
Stock Option Plan. At December 31, 1998, options to purchase 140,000 shares of
common stock had been granted under the Plan and 4,860,000 shares were available
for future grants. Stock option information is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Number of Exercise
Shares Price
------------- ------------
<S> <C> <C>
Shares under option at January 1, 1997 505,000 $ 1.00
Granted 3,110,000 2.48
Exercised (2,151,000) 1.93
------------- ------------
Shares under option at December 31, 1997 1,464,000 2.78
Granted 5,270,000 1.88
Exercised (280,000) 1.00
Canceled (5,700,000) 2.25
------------- ------------
Shares under option at December 31, 1998 754,000 $ 1.42
------------- ------------
------------- ------------
Options exercisable at December 31, 1998 592,667 $ 1.44
------------- ------------
------------- ------------
</TABLE>
38
<PAGE>
Compensation expense, equal to the excess of the fair market value on the date
of grant and the exercise price, is recorded over the vesting period of each
option. Compensation expense related to employee stock options was $2,031,570
and $591,576 for the years ended December 31, 1997 and 1998, respectively.
In May 1997, the Company's Chief Executive Officer and a director (the "CEO")
exercised an option to purchase 2,000,000 shares of the Company's common stock
at an exercise price of $2.00 per share in exchange for promissory notes in the
aggregate principal amount of $4,000,000 that bore interest at a rate of 8% per
annum, were secured by the 2,000,000 shares of common stock purchased and were
due at the earlier of May 2002 or upon the sale of all or a portion of the
shares of common stock acquired upon exercise. The Company agreed to reimburse
the CEO the interest payable on the notes plus the related income tax effect of
such reimbursement. The CEO agreed to rescind the exercise of his option
concurrent with the successful closing of the Private Placement described above.
In September 1998, the CEO, as agreed, rescinded the exercise of his options and
the options to purchase 2,000,000 shares of the Company's common stock were
reinstated at the original price of $2.00 per share. As the note receivable from
the CEO was cancelled in connection with the rescission, the accrued interest
income related to the notes receivable and the associated accrued liability for
the associated reimbursements were written off to operations in the year ended
December 31, 1998.
In addition, in September 1998, the Company's Board of Directors cancelled the
outstanding options to purchase an aggregate of 2,950,000 shares of common stock
with exercise prices ranging from $2.00 to $4.88 per share held by the CEO, four
of the Company's executive officers and two directors and replaced them with
options to purchase an aggregate of 2,950,000 shares of common stock at an
exercise price of $1.81 per share, the fair market value of the Company's common
stock on the date of grant.
In December 1998, four officers, including the CEO, were terminated from the
Company. As part of the severance agreements with the officers, all previously
issued options to purchase the Company's stock held by such officers were
canceled. These options had been compensatory and the Company has recognized
compensation expense relating to the portions of such grants that had vested in
1997 and 1998 prior to the officers' terminations. The unvested portion of the
accrued compensation relating to the options at the date of termination of
$1,376,204 was forfeited by the officers. In conjunction with their severance,
three of the officers were paid an aggregate of $260,417 which has been
recognized in 1998 as compensation expense and were issued warrants, which
expire in December 2000, to purchase an aggregate of 1,200,000 shares of the
Company's common stock at an exercise price of $1.00 per share. The fair value
of the warrants, determined in accordance with SFAS No. 123 using the
Black-Scholes option pricing model of $388,900 was recorded as compensation
expense for year ended December 31, 1998.
As required by SFAS No. 123, the Company has determined the pro-forma
information as if the Company had accounted for stock options granted under the
fair value method using the Black-Scholes option pricing model. The model
requires the input of highly subjective assumptions including expected stock
volatility that is subject to change. For this reason, resulting pro-forma
compensation costs are not necessarily indicative of future costs. For purposes
of pro-forma disclosures, the estimated fair value of the options is recognized
as an expense over the options' vesting period. The Company's pro-forma net loss
and net loss per share would be as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Net loss, as reported $ (7,768,598) $ (5,298,145)
Net loss, pro-forma $ (8,144,849) $ (5,933,033)
Basic net loss per share - as reported $ (0.40) $ (0.26)
Basic net loss per share - pro-forma $ (0.42) $ (0.29)
Weighted average fair value of options
granted to employees during the year $ 1.72 $ 0.96
</TABLE>
39
<PAGE>
9. INCOME TAXES
The provision for income taxes consists of $800 for the years ended December 31,
1997 and 1998 which represents the state minimum tax.
The difference between the U.S. federal statutory tax rate and the Company's
effective tax rate are as follows:
<TABLE>
<CAPTION>
TAX BENEFIT (EXPENSE)
1997 1998
---- ----
<S> <C> <C>
Federal statutory tax rate 34.0 % 34.0 %
State and local income tax, net of federal benefit 1.2 1.4
Option cancellation -- (13.0)
Beneficial conversion feature (5.8) --
Other (0.8) 1.5
Valuation allowance (28.6) (23.9)
---------- ----------
Effective tax rate 0 % 0 %
---------- ----------
---------- ----------
</TABLE>
At December 31, 1998, deferred tax assets (liabilities) are comprised of the
following:
<TABLE>
<S> <C>
Net operating loss carryforward $ 3,110,716
Options and warrants 1,458,933
Inventory reserve 185,685
Research costs 746,136
State income tax (322,879)
Other 278,407
--------------
5,456,998
Less valuation allowance (5,456,998)
--------------
$ ---
--------------
--------------
</TABLE>
Deferred taxes arise from temporary differences in the recognition of certain
expenses for tax and financial statement purposes. At December 31, 1998,
management determined that realization of these benefits is not assured and has
provided a valuation allowance for the entire amount of such benefits. At
December 31, 1998, net operating loss carryforwards were approximately
$7,978,000 for federal tax purposes that expire at various dates from 2009
through 2013 and $4,503,000 for state tax purposes that expire at various dates
from 1999 through 2003.
Utilization of net operating loss carryforwards may be subject to substantial
annual limitations due to the "change in ownership" provisions of the internal
revenue code and similar state regulations. The annual limitation may result in
expiration of net operating loss carryforwards before utilization.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments approximated carrying
value at December 31, 1998. The Company's financial instruments include cash and
short-term financial instruments for which the carrying amount approximates fair
value due to the short maturity of the instruments. The carrying amount of
long-term debt approximates fair value as the majority of the debt was recently
borrowed at rates, or imputed at rates, currently available to the Company for
similar debt.
40
<PAGE>
11. SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1997 1998
<S> <C> <C>
Supplemental cash flow information:
Cash paid for income taxes $ 800 $ 2,500
Cash paid for interest expense $ 736 $ 3,200
Non cash investing and financing activities:
Issuance (rescission) of common stock for note receivable $ 4,000,000 $ (4,000,000)
Issuance of common stock for assets and
assumptions of certain liabilities $ 2,637,964 $ ---
Sale of trademark for note receivable $ 300,000 $ ---
Assets acquired under capital leases and note payable $ 23,195 $ ---
Reclassification of redeemable common stock $ $ 1,550,000
Issuance of common stock for prepaid interest
on debt financing $ --- $ 647,186
Issuance of warrants for debt
issuance costs $ --- $ 1,392,597
</TABLE>
41
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Coopers & Lybrand LLP ("C&L") were previously the principal accountants for the
Company. On July 28, 1997, C&L's appointment as independent accountants was
terminated and the Company engaged Price Waterhouse LLP as the Company's
independent accountants. The Company's Board of Directors approved the decision
to change accountants. The opinions of C&L on the balance sheets of the Company
as of December 31, 1995 and 1996 and the related statements of operations,
shareholders' deficit, and cash flows for the years ended December 31, 1995 and
1996, did not contain any adverse opinions, disclaimers of opinions, or
modifications as to uncertainty, audit scope or accounting principles. There
were no disagreements between the Company and C&L on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements, if not resolved to the satisfaction of C&L,
would have caused it to make reference to the subject matter of the
disagreements in connection with its report.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Daniel L. McPeak, Sr. 64 Class III Director, CEO, and Chairman of the Board
Patricia McPeak 58 President and Class III Director
Dr. Michael J. Goldblatt(1)(2) 46 Class I Director
Kirit S. Kamdar(1) 57 Class I Director
Sebastian N. Rosin 72 Class I Director
Steven W. Saunders(2) 43 Class I Director
Todd C. Crow 50 Vice President Finance & Principal Financial Officer
Ike E. Lynch 54 Vice President of Operations
Daniel L. McPeak, Jr. 39 Vice President and General Manager
Dr. Rukmini Cheruvanky 65 Director of Research and Development
Dr. Reddy Sastry V. Cherukuri 62 Director of Science and Technology
</TABLE>
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
DIRECTORS AND EXECUTIVE OFFICERS
DANIEL L. MCPEAK. Mr. McPeak co-founded the Company in February 1989 and has
served as chairman of the Board of the Company since its formation. In November
1998, Mr. McPeak was re-appointed Chief Executive Officer ("CEO") of the
Company. Mr. McPeak previously served as CEO of the Company from May 1989 to
April 1997. Mr. McPeak is the spouse of Mrs. McPeak
PATRICIA MCPEAK. Mrs. McPeak co-founded the Company in February 1989 and has
served as President and Director of the Company since its formation. From
February 1989 to January 1996, Mrs. McPeak also served as Secretary of the
Company. Mrs. McPeak is the spouse of Mr. McPeak.
DR. MICHAEL J. GOLDBLATT. Dr. Goldblatt has served as a Class I Director of the
Company since July 1997 and will serve until the next election of Directors in
1999. Dr. Goldblatt currently serves as President & Chief Executive Officer for
Intelligent Biocides. Dr. Goldblatt served as Vice President of Science and
Technology for McDonalds Corporation from February 1996 to September 1998. Dr.
Goldblatt held various positions during his career at McDonalds Corporation,
beginning in 1987 as Director of Nutrition. Dr. Goldblatt is also a member of
the Board of Directors of Bernard Technologies,
42
<PAGE>
Biotechnologies Research Development Corporation and Gray Star. Mr. Goldblatt
received his Ph.D. in Nutrition from the University of California, Davis.
KIRIT S. KAMDAR. Mr. Kamdar has served as a Class I Director of the Company
since August 1998 and will serve until the next election of Directors in 1999.
Mr. Kamdar has tendered his resignation to be effective upon the appointment of
a director to fill the vacancy by (i) Monsanto upon conversion of the Monsanto
Note or (ii) appointment of a director by a majority of investors, if required
by the terms of any future offering of equity securities of the Company. From
January 1990 to September 1992, Mr. Kamdar also served as Director of the
Company, and from January 1990 to April 1994 as the Company's Executive Vice
President. Since July 1974, Mr. Kamdar has been Chairman of the Board and Chief
Executive Officer of Kamflex Corporation, a manufacturing corporation. Mr.
Kamdar received his B.A. degree in Mechanical Engineering from the University of
Bombay and his Master's Degree in Industrial Engineering and Management from
Oklahoma State University.
SEBASTIAN N. ROSIN. Mr. Rosin has served as a Class I Director of the Company
since September 1998 and will serve until the next election of Directors in
1999. He founded and was the Chairman and Managing Director of Rosin
Engineering Company Ltd. until the company was sold in 1994. Mr. Rosin is
currently the Chairman of Atritor Ltd., a leading UK manufacturer of milling
and drying equipment. Mr. Rosin, who is a chemical engineer, received a
Masters degree from Cambridge University.
STEVEN W. SAUNDERS. Mr. Saunders has served as a Class I Director of the Company
since August 1998 and will serve until the next election of Directors in 1999.
Mr. Saunders has tendered his resignation to be effective upon the appointment
of a director to fill the vacancy by (i) Monsanto upon conversion of the
Monsanto Note or (ii) appointment of a director by a majority of investors, if
required by the terms of any future offering of equity securities of the
Company. Mr. Saunders has been President of Saunders Construction, Inc., a
commercial construction firm since February 7, 1991 and President of Warwick
Corporation, a business-consulting firm.
TODD C. CROW. Mr. Crow joined the Company in May 1996 and has been the Company's
Vice President of Finance and Principal Financial Officer since November 1998
and its Secretary since January 1999. From September 1997 to November 1998, Mr.
Crow was the Company's Controller. From May 1996 to September 1997 he was the
Company's Chief Financial Officer. Mr. Crow also served as a Director of the
Company from June 1996 to January 1997. From 1989 until joining The RiceX
Company, Mr. Crow held senior financial positions with the Morning Star Group,
an agri-business holding company, and Harter, Inc., a food-processing
manufacturer.
IKE E. LYNCH. Mr. Lynch has served as Vice President of Operations of the
Company since July 1997 and as President and Chief Operations Officer of FoodEx
MT since January 1997. Previously Mr. Lynch was President and Chief Executive
Officer of Centennial Foods, Inc., since its founding in 1989 until its
acquisition by the Company in January 1997.
SIGNIFICANT EMPLOYEES
DANIEL L. MCPEAK, JR. Mr. McPeak joined the Company in July 1996 and has been
the Company's Vice President and General Manager since November 1998. From July
1996 to July 1997, he served as Director of Sales and Marketing, then moved to
the position of Business Manager until November 1998. From 1994 until joining
the Company, Mr. McPeak served as Vice President of Marketing for Fort Knox,
Inc., a security products manufacturer. Daniel L. McPeak, Jr. is the son of
Daniel L. McPeak, Sr.
DR. RUKMINI CHERUVANKY. Dr. Cheruvanky has served as the Company's Director of
Research and Development since April 1996. From January 1996 until joining the
Company, Dr. Cheruvanky was the Laboratory Supervisor for Certified Analytical
Laboratories, a company that specializes in food analysis. From November 1994 to
December 1995, Dr. Cheruvanky was Research Chemist in the Research and
Development Department of DuPont Merck Pharmaceutical Company. From May 1967 to
February 1994, Dr. Cheruvanky was Deputy Director of the National Institute of
Nutrition, the Indian Council of Medical
43
<PAGE>
Research. Dr. Cheruvanky has an M.S. degree in Organic Chemistry and a Ph.D.
degree in Organic Chemistry of Natural Products from Andhra University in India.
DR. REDDY SASTRY V. CHERUKURI. Dr. Cherukuri has served as the Company's
Director of Science and Technology since April 1996. From May 1995 until joining
the Company, Dr. Cherukuri served as Laboratory Supervisor of Customs Coatings,
Inc., a research pharmaceutical company. From December 1994 to January 1995, Dr.
Cherukuri was Chemist for DuPont Merck Pharmaceutical Company. From May 1992 to
November 1994, Dr. Cherukuri was Consultant to the Indian Council of Medical
Research. From January 1967 to May 1992, Dr. Cherukuri served as Senior Research
Manager, Chief of Medicinal Chemistry and Group Leader of New Drug Development
for Indian Drugs and Pharmaceutical, Ltd., a synthetic drugs research and
development company. Dr. Cherukuri has a M.S. degree in Organic Chemistry and a
Ph.D. degree in Organic Chemistry of Synthetic and Natural Products from Andhra
University in India.
BOARD OF DIRECTORS
The Board of Directors is classified into three classes, hereby designated
Class I, Class II and Class III. The term of office of the initial Class I
Directors shall expire at the first regularly scheduled meeting of the
stockholders following the effective date of the Certificate of Incorporation
(August 4, 1998); the term of office of the initial Class II Directors shall
expire at the second annual meeting of the stockholders following the Effective
Date and the term of the initial Class III Directors shall expire at the
third annual meeting of the stockholders following the effective date. The
classification of the Board of Directors has the effect of generally requiring
at least two annual stockholder meetings, instead of one, to replace a majority
of the members of the Board of Directors.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and Compensation
Committee.
The Audit Committee, consisting of Dr. Goldblatt and Kirit Kamdar, reviews the
adequacy of internal controls and results and scope of the audit and other
services provided by the Company's independent auditors. The Audit Committee
meets periodically with management and the independent auditors.
The Compensation Committee, consisting of Dr. Goldblatt and Steven Saunders,
establishes salaries, incentives and other forms of compensation for officers
and other employees of the Company, and administers the incentive compensation
and benefit plans of the Company.
SECTION 16(a) COMPLIANCE
Based upon a review of the Company's records, the Company is aware that
the following officers or directors of the Company failed to timely file one or
more reports disclosing beneficial ownership of securities of the Company as
required under Section 16(a) of the Securities Exchange Act of 1934, as amended,
during the fiscal year ended December 31, 1998: each of Karen D. Berriman, Dr.
Michael J. Goldblatt, Ike E. Lynch, Daniel McPeak, Sr., Patricia McPeak, Gary A.
Miller, Dennis Riddle, Allen J. Simon and Dr. Jerry Weisbach failed to timely
file Forms 3 reporting their initial statement of beneficial ownership of
securities upon the Company registering its Common Stock with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 in July 1998; Todd
C. Crow failed to timely file Forms 3 reporting his initial statement of
beneficial ownership of securities upon Mr. Crow becoming Vice President of
Finance and the Company's Principle Financial Officer in November 1998; Karen D.
Berriman failed to timely file Forms 4 reporting the following transactions
which were subsequently reported on a timely filed Form 5 (i) a cancellation of
options to purchase 200,000 shares of Common Stock on December 26, 1998 and (ii)
the issuance of warrants to purchase 100,000 shares of Common Stock on December
26, 1998; Karen D. Berriman failed to timely file Forms 4 for the following
transactions which were subsequently reported on a late Form 4 filing (i) the
cancellation of stock options on September 10, 1998 and (ii) the grant of
replacement options on September 10, 1998; Gary A. Miller failed to timely file
Forms 4 reporting the following transactions which were subsequently reported on
a timely
44
<PAGE>
filed Form 5 (i) a cancellation of options to purchase 200,000 shares of Common
Stock on December 26, 1998 and (ii) the issuance of warrants to purchase 100,000
shares of Common Stock on December 26, 1998; Allen J. Simon failed to timely
file Forms 4 reporting the following transactions which were subsequently
reported on a timely filed Form 5 (i) a cancellation of options to purchase
2,000,000 shares of Common Stock on December 26, 1998 and (ii) the issuance of
warrants to purchase 1,000,000 shares of Common Stock on December 26, 1998.
Item 10. EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the Chief Executive
Officers and each of the Company's current executive officers and two former
officers whose total salary and bonuses for fiscal 1997 and 1998 exceeded
$100,000 or would have exceeded $100,000 on an annualized basis
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
Awards
------
Securities All
Other Annual Underlying Other
Name & Principal Position Year Salary Compensation Options/SARS (#) Compensation
------------------------- ---- -------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
Daniel L. McPeak, Sr., 1998 $150,000 (2) --- ---
Chairman of the Board (1) 1997 141,798 $26,409(5) 50,000 ---
1996 116,308 (2) 50,000 ---
Patricia McPeak, President 1998 130,000 18,282(6) --- ---
1997 127,135 13,372(6) 50,000 ---
1996 113,308 (2) 50,000 ---
Allen J. Simon (1) 1998 221,534 38,471(7) --- $236,522(11)
1997 177,370 28,760(7) 2,050,000(10) ---
Ike E. Lynch, V.P. Operations 1998 137,500 25,200(8) 140,000 ---
1997 131,253 47,700(8) 60,000 ---
Karen Berriman (3) 1998 132,693 (2) --- $31,837(11)
1997 43,189 (2) 200,000(10) ---
Dennis C. Riddle (4) 1998 154,746 $52,185(9) --- ---
1997 $30,147 (2) 350,000(12) ---
</TABLE>
(1) Mr. McPeak was Chief Executive Officer from January 1996 to April 1997 and
from November 18, 1998 to present. Mr. Simon provided services as CEO from
April 1997 to November 18, 1998 and resigned from the office of CEO
effective December 13, 1998 in accordance with his severance agreement. See
"Certain Relationships and Related Transactions."
(2) Other Annual Compensation is less than 10% of Salary.
(3) Ms. Berriman served as Chief Financial Officer from September 1997 to
December 1998.
(4) Mr. Riddle served as Vice President of Sales and Marketing from October
1997 to December 1998.
(5) Represents automobile expenses of $21,787 and other prerequisites.
(6) Represents automobile allowance of $12,000 in 1998 and automobile expenses
of $9,019 in 1997 and other prerequisites paid on behalf of the executives.
(7) Represents automobile allowance of $12,600, temporary housing allowance of
$24,381 and other prerequisites in 1998; automobile allowance of $10,200,
temporary living allowance of $18,052 and other prerequisites in 1997.
(8) Represents allowances for temporary living of $18,000 and automobile of
$7,200 in 1998; and value realized upon the exercise of stock options of
$30,000, automobile allowance of $7,200 and temporary housing allowance of
$10,500 in 1997.
45
<PAGE>
(9) Represents allowances for relocation $30,000, temporary housing $8,862,
automobile $12,500 and other prerequisites.
(10) Represents options granted in 1997 that were replaced and re-priced in
September 1998, eventually cancelled in December 1998 and warrants
issued in accordance with severance agreements. See "--Re-priced
Options," "Certain Relationships and Related Transactions."
(11) Represents severance payments and accrued vacation pay: A. Simon $210,417
severance, $26,105 accrued vacation; K. Berriman $25,000 severance, $6,837
accrued vacation pay.
(12) Represents options granted in 1997 that were replaced and re-priced in
September 1998 and eventually expired subsequent to termination in
December 1998. See "--Re-priced Options," "Certain Relationships and
Related Transactions."
OPTION GRANTS IN 1998 TO EXECUTIVES
The following table sets forth for each of the Named Executive Officers certain
information concerning stock options granted during 1998.
<TABLE>
<CAPTION>
Number of Percent of total
Securities options/SARs
Underlying granted to Exercise
Options/SARs employees in price Expiration
Name granted (#) fiscal year ($/Sh) date
------------------------ ------------- ---------------- --------- ----------
<S> <C> <C> <C> <C>
Ike E. Lynch 40,000(1) 7.6% 1.8125 9/10/08
Ike E. Lynch 200,000(2) 3.8%(2) 1.8125 9/10/08
Allen J. Simon 4,000,000(3)(4) 76%(3)(4) 1.8125(3)(4) ---
Karen D. Berriman 200,000(4) 3.8%(4) 1.8125(4) ---
Dennis C. Riddle 350,000(5) 6.6%(5) 1.8125(5) ---
</TABLE>
(1) Options were granted on September 10, 1998 were fully vested and
immediately exercisable at $1.81 per share.
(2) Options to purchase 100,000 shares were granted on January 1, 1998
provided for vesting over 3 years, and were exercisable at $3.75 per
share. In September 1998, the option was cancelled and replaced with
a new option to purchase an equal number of shares of common stock at
$1.81 per share. Only 100,000 options are outstanding at year end.
(3) Pursuant to a rescission of exercise, Mr. Simon's 2,000,000 options were
reinstituted at the original exercise price of $2.00 per share. These
options were then cancelled in September 1998. See "--Re-priced Options".
(4) Original options granted in 1997, and the reinstituted options in the
case of Mr. Simon, were cancelled September 1998. Cancelled options
granted in 1997 were replaced and re-priced in September 1998, then the
replacement options were subsequently cancelled and warrants issued in
accordance with severance agreements. See "--Re-priced Options" and
"Certain Relationships and Related Transactions".
(5) Original options granted in 1997 were cancelled September 1998. Original
options were replaced and re-priced in September 1998, then expired
subsequent to termination in December 1998. See "--Repriced Options" and
"Certain Relationships and Related Transactions."
46
<PAGE>
STOCK OPTION EXERCISES AND YEAR-END VALUE TABLE
The table below reflects the number of shares covered by both exercisable and
non-exercisable stock options as of December 31, 1998 for the Named Executive
Officers. Values for "in-the-money" options represent the position spread
between the exercise price of existing options and the market value for the
Company's common stock on December 31, 1998.
<TABLE>
<CAPTION>
VALUE OF
NO. OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
------------------- OPTIONS
-------
Shares
Acquired on Value
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. McPeak, Sr. 100,000 $225,000
Allen J. Simon 50,000 93,750
Patricia McPeak 100,000 162,500
Ike Lynch 30,000 $30,000 40,000 100,000 (1) (1)
</TABLE>
(1) The fair market value of the common stock subject to options as of
December 31, 1998 was less than the exercise price of such options.
REPRICED OPTIONS
In September 1998, in conjunction with the private placement of 1,000,000 shares
of the Company's common stock, the Company's Chief Executive Officer ("CEO"), at
the request of the new investor, rescinded his 1997 exercise of a 1997 option to
acquire 2,000,000 shares of the Company's common stock in exchange for a
$4,000,000 note payable to the Company.
Coincidental with the private placement and related rescission, the Company's
Board of Directors cancelled the options granted in 1997 to the CEO, four
executive officers and two directors to acquire an aggregate of 2,950,000 shares
of the Company's common stock at exercise prices ranging from $2.00 to $4.88 per
share and re-granted new options to purchase the same number of shares to these
individuals at an exercise price of $1.81 per share, the fair market value of
the shares at the date the new options were granted ( See Note 8 of Notes to
Consolidated Financial Statements and Item 12. Certain Relationships and Related
Transactions).
DIRECTOR COMPENSATION
On July 9, 1997, the Board of Directors adopted a non-employee director
compensation plan pursuant to which non-employee directors are compensated as
follows: (i) $15,000 annual retainer payable in quarterly installments for
participation at up to six meetings of the Board of Directors; (ii) an
immediately exercisable, nonqualified stock option to purchase 50,000 shares of
common stock to be granted upon appointment to the Board of Directors, and (iii)
an immediately exercisable, nonqualified stock option to purchase 15,000 shares
of common stock to be granted on the day of each annual shareholders' meeting
during the non-employee director's service on the Board of Directors. Such
options are to be granted as free-standing options and not under the 1997 Stock
Option Plan. The exercise price shall be the fair market value of a share of
common stock on the date of grant. Directors are also reimbursed for reasonable
expenses incurred in attending meetings of the Board of Directors and committees
thereof.
47
<PAGE>
EMPLOYMENT AGREEMENTS
MCPEAK EMPLOYMENT AGREEMENT. The Company entered into an Employment Agreement
with Mr. McPeak in April 1997 (the "McPeak Employment Agreement"), pursuant to
which Mr. McPeak agreed to serve as Chairman of the Board of Directors of the
Company and previously served as Chief Executive Officer. The McPeak Employment
Agreement provides that Mr. McPeak will receive an annual base salary of
$150,000 which will be increased to $200,000 upon the Company's realization of
positive cash flow on a month-to-month basis. The McPeak Employment Agreement
terminates on December 31, 2001, unless his employment is terminated earlier.
Thereafter, the term will be automatically extended for additional one-year
periods unless either party delivers notice of election not to extend the
employment at least 60 days prior to the end of the then current term. Mr.
McPeak's employment may be terminated prior to the expiration of this agreement
under the following circumstances: (i) death; (ii) termination by the Company
for Cause (as defined in the McPeak Employment Agreement); (iii) termination by
the Company without Cause (as defined in the McPeak Employment Agreement). If
Mr. McPeak is terminated without Cause, he is entitled to the base salary in
effect at such time for the remainder of the term of the McPeak Employment
Agreement. Within three months of first receiving notice of a Change in Control
(as defined in the McPeak Employment Agreement) Mr. McPeak may elect to retire
from service and render, on a non-exclusive basis, only such consulting and
advisory services to the Company as he may reasonably accept and he is entitled
to continue receiving his benefits and salary until the later of (i) six months
after the date of such election, (ii) subsequent full-time employment with
another enterprise, or (iii) the expiration of the term of the McPeak Employment
Agreement.
MS. MCPEAK EMPLOYMENT AGREEMENT. The Company entered into an Employment
Agreement with Ms. McPeak in April 1997 (the "Ms. McPeak Employment Agreement"),
pursuant to which Ms. McPeak agreed to serve as President of the Company. The
Ms. McPeak Employment Agreement provides that Ms. McPeak will receive an annual
base salary of $130,000 which will be increased to $150,000 upon the Company's
realization of positive cash flow on a month-to-month basis. The Ms. McPeak
Employment Agreement terminates on December 31, 2001, unless her employment is
terminated earlier. Thereafter, the term will be automatically extended for
additional one-year periods unless either party delivers notice of election not
to extend the employment at least 60 days prior to the end of the then current
term. Ms. McPeak's employment may be terminated prior to the expiration of the
agreement under the following circumstances: (i) death; (ii) termination by the
Company for Cause (as defined in the Ms. McPeak Employment Agreement); (iii)
termination by the Company without Cause (as defined in the Ms. McPeak
Employment Agreement). If Ms. McPeak is terminated without Cause, she is
entitled to the base salary in effect at such time for the remainder of the term
of the Ms. McPeak Employment Agreement. Within three months of first receiving
notice of a Change in Control (as defined in the Ms. McPeak Employment
Agreement) Ms. McPeak may elect to retire from service and render, on a
non-exclusive basis, only such consulting and advisory services to the Company
as she may reasonably accept and she is entitled to continue receiving her
benefits and salary until the later of (i) six months after the date of such
election, (ii) subsequent full-time employment with another enterprise, or (iii)
the expiration of the term of the Ms. McPeak Employment Agreement.
LYNCH EMPLOYMENT AGREEMENT. In January 1997, the Company's wholly-owned
subsidiary, Food Extrusion Montana, Inc. entered into an Employment Agreement
with Mr. Lynch (the "Lynch Employment Agreement"), pursuant to which Mr. Lynch
agreed to serve as President and Chief Operations Officer. The Lynch Employment
Agreement provides that Mr. Lynch will receive an annual base salary of $125,000
per year. The Lynch Employment Agreement terminates on December 31, 2002, unless
his employment is terminated earlier. Thereafter, the term will be automatically
extended for an additional two year term unless either party delivers notice of
election not to extend the employment at least 30 days prior to the expiration
of the initial term. Mr. Lynch's employment may be terminated prior to the
expiration of the agreement under the following circumstances: (i) the mutual
written agreement of FoodEx MT and Mr. Lynch; (ii) Mr. Lynch's disability, which
shall, for the purposes of the Lynch Employment Agreement, mean Mr. Lynch's
inability due to physical or mental impairment, to perform Mr. Lynch's duties
and obligations under the Lynch Employment Agreement, despite reasonable
accommodation by FoodEx MT, for a period exceeding three months; (iii) Mr.
Lynch's death; (iv) notice of termination by FoodEx MT for cause (as defined in
the Lynch Employment Agreement); or (v) written notice of termination
48
<PAGE>
by FoodEx MT without cause upon fourteen (14) days notice, subject to the
compensation for early termination. If Mr. Lynch is terminated without cause, he
is entitled to the base salary in effect at such time for the remainder of the
term of the Lynch Employment Agreement.
1997 STOCK OPTION PLAN
The Board of Directors adopted the 1997 Stock Option Plan (the "1997 Plan") in
November 1997 and the shareholders approved the 1997 Plan in May 1998. A total
of 5,000,000 shares have been authorized for issuance under the 1997 Plan, of
which 4,860,000 shares are available for future grant as of December 31, 1998.
The 1997 Plan provides for the grant of "incentive stock options" as defined in
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), to
employees of the Company. The 1997 Plan also provides for the grant of options
that are not intended to qualify as incentive stock options under Section 422A
of the Code to employees, non-employee directors and consultants of the Company.
The exercise price of any incentive stock option granted under the 1997 Plan may
not be less than 100% of the fair market value of the Company's common stock on
the date of grant and of any nonqualified stock option 85% of fair market value
and 110% of fair market value in the case of a participant owning stock
possessing more than 10% of the voting rights of the Company's outstanding
capital stock. Shares subject to an option granted under the 1997 Plan may be
purchased for cash, in exchange for shares of common stock owned by the
optionee, or other consideration as set forth in the 1997 Plan. The 1997 Plan is
administered by the Board of Directors. Under the 1997 Plan, options vest not
less than 20% per year and have ten year terms (except with respect to 10%
stockholders which have five-year terms). If the Company sells substantially all
of its assets, is a party to a merger or consolidation in which it is not the
surviving corporation (a "Change of Control"), then the Company has the right to
accelerate unvested options and shall give the option holder written notice of
the exercisability and specify a time period in which the option may be
exercised. All options shall terminate in their entirety to the extent not
exercised on or prior to the date specified in the written notice unless the
agreement governing the Change of Control shall provide otherwise.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 1, 1999 (the
"Reference Date") with respect to the beneficial ownership of common stock of
the Company, by each person known by the Company to own beneficially more
than five percent of the Company's common stock, by each executive officer
and director, and by all officers and directors as a group. Unless otherwise
indicated, all persons have sole voting and investment powers over such
shares, subject to community property laws. As of the Reference Date, there
were 22,027,997 shares of common stock outstanding.
<TABLE>
<CAPTION>
Amount & Nature Percent
Name (1) of Beneficial Owner (2) of Class
--------------------------------------------------- ------------------------- -------------
<S> <C> <C>
FoodCeuticals, LLC
355 Madison Avenue, Morristown, NJ 07960 4,684,218 15.50%
Daniel L. McPeak, Sr., Chairman of the Board
and Patricia McPeak, President and Director 3,877,829(3) 12.81%
Heldomo, A.G.
12, Baarer Strasse, 6300 Zug, Switzerland 3,181,818 10.51%
Kirit Kamdar, Director 1,801,250(4) 5.95%
Steven W. Saunders, Director 857,300(4) --
Ike E. Lynch, V.P. Operations 200,000(4) --
Dr. Michael Goldblatt, Director 65,000(4) --
Sebastian N. Rosin, Director 50,000(4) ---
Todd C. Crow, Principal Financial Officer 110,000(4) --
All directors and executive officers,
as a group (8 persons) 6,961,379 23.0%
</TABLE>
49
<PAGE>
(1) Except as otherwise noted, the address for each person is c/o The RiceX
Company, 1241 Hawk's Flight Court, El Dorado Hills, California 95762.
(2) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
common stock listed as beneficially owned by them. A person is deemed to be
the beneficial holder of securities that can be acquired by such person
within 60 days from the Reference Date upon the exercise of warrants or
options. Each beneficial owner's percentage ownership is determined by
including shares, underlying options or warrants which are exercisable by
such person currently, or within 60 days following the Reference Date, and
excluding shares underlying options and warrants held by any other person.
(3) Ownership shown jointly because Mr. McPeak and Ms. McPeak are married.
Includes 1,808,225 shares in Mr. McPeak's name and 1,869,604 shares in Ms.
Peak's name and 200,000 held in a joint trust.
(4) Includes options for the purchase of common stock as follows: Kirit
S. Kamdar, 50,000; Steven W. Saunders, 50,000; Dr. Michael Goldblatt,
65,000; Todd C. Crow, 110,000; Sebastian N. Rosin, 50,000; Ike Lynch,
140,000.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Kirit Kamdar has been a Director of the Company since August 5, 1998 and
was a Director of the Company from January 1990 to September 1992. From
January 1990 to April 1994, Mr. Kamdar served as the Company's Executive Vice
President. Mr. Kamdar currently owns 1,801,250 shares of the Company's common
stock or 5.95% Since July 1974, Mr. Kamdar has been Chairman of the Board and
Chief Executive Officer of Kamflex Corporation, ("Kamflex"), a manufacturer
of extrusion and conveyor equipment. In 1997, Kamflex sold $83,990 worth of
such equipment to the Company pursuant to its standard commercial terms and
prices. Kamflex's sales volume to customers other than the Company is
approximately $3.5 to $4 million per year. The Company did not purchase any
equipment from Kamflex in 1998.
In May 1997, the Company's Chief Executive Officer and a director (the "CEO")
exercised an option to purchase 2,000,000 shares of the Company's common stock
at an exercise price of $2.00 per share in exchange for promissory notes in the
aggregate principal amount of $4,000,000 that bore interest at a rate of 8% per
annum, were secured by the 2,000,000 shares of common stock purchased and were
due at the earlier of May 2002 or upon the sale of all or a portion of the
shares of common stock acquired upon exercise. The Company agreed to reimburse
the CEO the interest payable on the notes plus the related income tax effect of
such reimbursement. The CEO agreed to rescind the exercise of his option
concurrent with the successful closing of the Private Placement described above.
In September 1998, the CEO, as agreed, rescinded the exercise of his option in
exchange for the cancellation of his indebtedness to the Company related to the
exercise and the reinstitution of the options to purchase 2,000,000 shares of
the Company's common stock at an exercise price of $1.81 per share the fair
market value of the shares on the date of grant. The accrued interest income
related to the notes receivable and the associated accrued liability for the
associated reimbursements were written off to operations in the year ended
December 31, 1998 in connection with the rescission.
In addition, in September 1998, the Company's Board of Directors cancelled the
outstanding options to purchase an aggregate of 2,950,000 shares of common stock
with exercise prices ranging from $2.00 to $4.88 per share held by the CEO, four
of the Company's executive officers and two directors and replaced them with
options to purchase an aggregate of 2,950,000 shares of common stock at an
exercise price of $1.81 per share, the fair market value of the Company's common
stock on the date of grant.
50
<PAGE>
In December 1998, the employment agreements of four officers were terminated.
As part of the severance agreements with three officers, all previously
issued options to purchase the Company's stock held by such officers were
canceled and the remaining officer's options expired. The unvested portion of
the accrued compensation relating to the options at the date of termination
of $1,376,204 was forfeited by the officers. In conjunction with their
terminations, three of the officers were paid an aggregate of $260,417 and
were issued warrants, which expire in December 2000, to purchase an aggregate
of 1,200,000 shares of the Company's common stock at an exercise price of
$1.00 per share as part of their severance agreements.
The Company believes that the transactions set forth above were made on terms no
less favorable to the Company than could have been obtained from unaffiliated
third parties. The Company intends that all future transactions, including
loans, between the Company and its officers, directors, principal stockholders
and their affiliates be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested outside directors on
the Board of Directors, and be on terms no less favorable to the Company than
could be obtained from unaffiliated third parties.
51
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
(a) EXHIBIT NO DESCRIPTION OF EXHIBIT
---------- ----------------------
<S> <C>
2.1 Certificate of Incorporation of the Company. (1)
2.2 Form of Bylaws of the Company. (2)
4.1 Option Agreement between the Company and David B. Lockton dated August 1, 1996. (1)
4.2 Restricted Stock Purchase Agreement between the Company and Allen J. Simon dated April 18, 1997
and amended on May 29, 1997. (1)(3)
4.3 Amendment No. 1 to Restricted Stock Purchase Agreement between the Company and Allen
J. Simon dated May 29, 1997. (1)(3)
4.4 Security Agreement between Allen J. Simon and the Company dated May 29, 1997. (1)(3)
4.5 Promissory Note Secured by Pledge of Stock for Allen J. Simon in favor of the Company in the
amount of $1,333,333.34 dated May 29, 1997. (1)(3)
4.6 Security Agreement between Allen J. Simon and the Company dated May 29, 1997. (1)(3)
4.7 Promissory Note Secured by Pledge of Stock for Allen J. Simon in favor of the Company in the
amount of $1,333,333.33 dated May 29, 1997. (1)(3)
4.8 Security Agreement between Allen J. Simon and the Company dated May 29, 1997. (1)(3)
4.9 Promissory Note Secured by Pledge of Stock for Allen J. Simon in favor of the Company in the
amount of $1,333,333.33 dated May 29, 1997. (1)(3)
4.10 Form of Rescission of Loan Agreement between the Company and Allen J. Simon dated August 27,
1998. (2)(3)
4.11 Security Agreement between Food Extrusion, Inc. and Monsanto Company dated November 1, 1996. (1)
4.12 Promissory Note of the Company in favor of Monsanto Company in the amount of $5,000,000 dated
November 1, 1996. (1)
4.13 Subscription Agreement between the Company and the Dorchester Group dated January 1, 1996. (1)
4.14 Stock Option Agreement between the Company and Allen J. Simon dated April 18, 1997. (1)(3)
4.15 Amendment No. 1 to Stock Option Agreement by and among the Company and Allen J. Simon dated May
29, 1997. (1)(3)
4.16 Registration Rights Agreement by and between the Company and Allen J. Simon dated April 18,
1997. (1)(3)
4.17 Registration Rights Agreement by and among the Company and Monsanto Company dated February 5,
1997. (1)
4.18 Form of Registration Rights Agreement between the Company and certain officers and directors.
(1)
4.19 Form of Warrant Agreement between the Company and certain investors dated February 9, 1996. (1)
4.20 Letter Agreement between the Company and certain investors dated January 15, 1999.
4.21 Stock Purchase Agreement between the Company and Marilyn Roosevelt dated July 16, 1997. (1)
4.22 Shareholders Agreement between CF Corporation (formerly Centennial Foods, Inc.) and the Company
dated March 19, 1997. (1)
4.23 Amendment No. 1 to the Shareholders Agreement between CF Corporation and the Company dated
January 15, 1999.
52
<PAGE>
4.24 Registration Rights Agreement between the Company and CF Corporation dated January 22, 1999.
4.25 1997 Stock Option Plan with (i) Form of Incentive Stock Option Agreement and (ii) Form of
Nonstatutory Stock Option Agreement. (1)(3)
4.26 Form of Directors Stock Option Agreement. (1)(3)
4.27 Directors Stock Option Agreement between the Company and Allen J. Simon dated July 9, 1997.
(1)(3)
4.28 Form of Nonstatutory Stock Option Agreement not issued under the 1997 Stock Option Plan,
governing options granted to employees by the Company. (1)(3)
4.29 Note Agreement between Monsanto Company and the Company dated October 31, 1996. (1)
4.30 Addendum No. 1 to Note Agreement dated October 31, 1996 between Monsanto Company and the
Company dated February 6, 1997. (1)
4.31 Creditor Agreement between Centennial Foods, Inc., the Company and Ike Lynch dated October 14,
1996. (1)
4.32 Creditor Agreement between Centennial Foods, Inc., the Company and Montana Department of
Environmental Quality dated October 18,1996. (1)
4.33 Assignment of Commercial Security Agreement and Business Loan and Credit Agreement dated March
4, 1996 between Seattle-First National Bank and Company 19 General Partnership. (1)
4.34 Assignment of Subordination Agreements and Negotiable Collateral between Seattle-First National
Bank and Company 19 General Partnership dated March 4, 1996. (1)
4.35 Creditor Agreement between Centennial Foods, Inc. and Company 19 General partnership dated
October 14, 1996. (1)
4.36 Form of Subordination Agreement between certain creditors of Centennial Foods, Inc. in favor of
Seafirst. (1)
4.37 Creditor's Agreement between Centennial Foods and Montana Department of Commerce dated October
11, 1996. (1)
4.38 Form of Creditor's Agreement between Centennial Foods, Inc. and certain convertible
noteholders. (1)
4.39 Amended and Restated Loan Agreement between the Company and FoodCeuticals dated as of December
31, 1998.
4.40 Promissory Note in the amount of $1,850,000 payable to FoodCeuticals dated December 31, 1998.
4.41 Registration Rights Agreement between the Company and FoodCeuticals dated December 31, 1998.
4.42 Warrant Agreement number 98-1 between the Company and FoodCeuticals dated December 31, 1998.
4.43 Warrant Agreement number 99-1 between the Company and FoodCeuticals dated January 15, 1999.
4.44 Security Agreement between the Company and FoodCeuticals dated December 31, 1998.
4.45 Form of Warrant Agreement between the Company and certain former officers of the Company dated
as of December 1998.
4.46 Subscription Agreement between the Company and Heldomo, A.G. dated September 10, 1998.
4.47 Warrant Agreement between the Company and Heldomo, A.G. dated September 10, 1998.
10.1 Employment Agreement between Allen J. Simon and the Company dated April 18, 1997. (1)(3)
10.2 Amendment to Employment Agreement between Allen J. Simon and the Company dated May 29, 1997. (1)(3)
10.3 Employment Agreement between the Company and Karen D. Berriman dated September 15, 1997. (1)(3)
10.4 Employment Agreement between the Company and Gary A. Miller dated October 6, 1997. (1)(3)
53
<PAGE>
10.5 Employment Agreement between the Company and Cherukuri Venkata Reddy Sastry dated April 14,
1996. (1)(3)
10.6 Employment Agreement between the Company and Rukmini Cheruvanky dated April 14, 1996. (1)(3)
10.7 Employment Agreement between the Company and Dennis Riddle dated September 19, 1997. (1)(3)
10.8 Employment Agreement between the Company and Daniel McPeak dated April 1, 1997. (1)(3)
10.9 Employment Agreement between the Company and Patricia Mayhew dated April 1, 1997. (1)(3)
10.10 Employment Agreement between the Food Extrusion Montana, Inc. and Ike E. Lynch dated March 19,
1997. (1)(3)
10.11 Consulting Agreement between the Company and Robert H. Hesse dated September 30, 1997. (1)(3)
10.12 Form of Indemnification Agreement by and among the Company and certain officers and directors. (1)(3)
10.13 Agreement between the Company and Wolcott Farms, Inc. dated March 1, 1997. (1)*
10.14 Stabilized Rice Bran Processing, Sales and Marketing Agreement between Farmer's Rice and the
Company dated June 28, 1994. (1)*
10.15 Amendment dated April 16, 1996 to Stabilized Rice Bran Processing, Sales and Marketing
Agreement between Farmers' Rice Cooperative and the Company dated June 28, 1994. (1)
10.16 Stabilized Rice Bran Processing, Sales and Marketing Agreement between California
Pacific Rice Milling, Ltd. and the Company dated August, 1995. (1)*
10.17 Agreement between the Company and Dry Creek Trading, Inc. dated February 1, 1997. (1)
10.18 International Distribution Agreement between the Company and SunJoy Cereal-Tech Development
Ltd. dated June 16, 1997. (1)*
10.19 Agreement between the Company and SunJoy Enterprises Corporation dated June 16, 1997. (1)
10.20 Non-binding Letter of Intent between Nutrilite Division of Amway Corporation and the Company
dated April 8, 1998. (1)
10.21 Letter Agreement between DuCoa, L.P. and the Company dated February 25, 1998. (1)*
10.22 Letter of Intent between Monsanto Company and Company dated March 16, 1998. (1)*
10.23 First Amendment to Letter Agreement between Monsanto Company and Company dated July 27, 1998. (2)
10.24 Security Agreement between CF Corporation, Food Extrusion Montana, Inc. and the Company dated
March 19, 1997. (1)
10.25 Joint Development Agreement between Kellogg Company and the Company dated May 15, 1998. (1)*
10.26 Promissory Note in favor of Dominion Resources, Inc. in the amount of $1,750,000 dated July 30,
1996. (1)
10.27 Commercial Lease and Deposit Receipt between Roebbelen Land Company and the Company
dated December 23, 1991. (1)
10.28 First Amendment of Lease between Roebbelen Land Company and the Company dated January 19, 1994. (1)
10.29 Second Amendment of Lease between Roebbelen Land Company and the Company dated July 11, 1996. (1)
10.30 Third Amendment of Lease Agreement between Roebbelen Land Company and the Company dated February 1, 1998. (1)
10.31 Lease Agreement between Roebbelen Land Company and the Company dated July 11, 1996. (1)
10.32 First Amendment of Lease between Roebbelen Land Company and the Company dated September 1996. (1)
10.33 Second Amendment of Lease Agreement between Roebbelen Land company and the Company dated
February 1, 1998. (1)
54
<PAGE>
10.34 Rental Agreement, Month to Month, between James W. Cameron, Jr. and the Company dated December
22, 1997. (1)
10.35 Plan and Agreement of Reorganization between Core Iris, Inc. and the Company dated December 5,
1996. (1)
10.36 Asset Purchase Agreement between Centennial Foods, Inc., Food Extrusion Montana, Inc. and the
Company dated January 2, 1997. (1)
10.37 Form of Severance Agreement and Mutual Release of Claims dated as of December 1998 between the
Company and certain former officers of the Company.
16 Letter from PricewaterhouseCoopers, LLP (formerly Coopers & Lybrand LLP) dated July 28, 1998.
(2)
21 List of Subsidiaries
27 Financial Data Schedule
</TABLE>
- -----------------
(1) Previously filed as an exhibit to the Company's Registration
Statement No. 000-24285 filed with the Commission on May 18,
1998.
(2) Previously filed as an exhibit to the Company's Amendment No.
2 to the Registration Statement No. 000-24285 filed with the
Commission on August 26, 1998.
(3) Represents a management contract or compensatory plan or
arrangement.
* Confidential treatment granted as to certain portions.
(b) Reports on Form 8-K
NONE
55
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized:
THE RICEX COMPANY
Date: April 15, 1999 By: /s/ Daniel L. McPeak
--------------------
Daniel L. McPeak
Chairman of the Board and
Chief Executive Officer
Date: April 15, 1999 By: /s/ Todd C. Crow
--------------------
Todd C. Crow
Vice President, Finance and
Principal Financial Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
Date: April 15, 1999 By: /s/ Patricia McPeak
----------------------------
Patricia McPeak
President and Director
Date: April 15, 1999 By: /s/ Dr. Michael J. Goldblatt
----------------------------
Dr. Michael J. Goldblatt
Director
Date: April 15, 1999 By: /s/ Kirit S. Kamdar
----------------------------
Kirit S. Kamdar
Director
Date: April 15, 1999 By: /s/ Steven W. Saunders
----------------------------
Steven W. Saunders
Director
Date: April 15, 1999 By: /s/ Sebastian N. Rosin
----------------------------
Sebastian N. Rosin
Director
56
<PAGE>
[LOGO]
January 15, 1999
RE: EXTENSION OF WARRANT EXPIRATION DATE
Dear Warrant Holder:
In January 1996 you participated in a private offering conducted by the then
"Food Extrusion, Inc., a Nevada corporation" (the Company") in which you
purchased Units, consisting of shares of the Company's common stock and warrants
to purchase the Company's common stock (the "Warrant"). Pursuant to the terms
of the Warrant, the Warrant expires on February 9, 1999. The Company would like
to extend this expiration date to February 9, 2000. This will give the warrant
holders a longer opportunity in which to exercise the warrants, to benefit from
the future growth of the Company and to thank the warrant holders for investing
in the Company and continuing to believe in our mission and goals.
As you know, in May 1998 the Company reincorporated into Delaware and changed
its name to The RiceX-TM- Company. Since then, the Company has undergone many
changes. Earlier this year, the company registered its common stock under the
Securities Exchange Act of 1934 and a management change took place last month.
Despite many troublesome events in 1998, we are optimistic about the future
prospects of the Company and are working toward a successful 1999. By extending
the expiration date of your warrants, we hope that you too will be able to enjoy
any growth in the future and will continue to support the Company's efforts.
In connection with amending the Warrant to extend the date, please sign where
indicated below and return the signature to me by mail or facsimile at (916)
933-3232.
Please do not hesitate to call me with any questions.
Very truly yours, Acknowledged and Agreed:
/s/Daniel L. McPeak, Sr.
- ----------------------------
Daniel L. McPeak, Sr. ---------------------------
Chief Executive Officer Name:
And Chairman of the Board
1241 Hawk's Flight Court - El Dorado Hills, CA 95762
- Tel: 916.933.3000 - Fax: 916.933.3232
<PAGE>
AMENDMENT NO. 1
TO
SHAREHOLDER'S AGREEMENT
This Amendment No. 1 (the "Amendment") to the Shareholder's Agreement dated
March 19, 1997 (the "Shareholder's Agreement"), is made as of January 15, 1999,
by and among The RiceX Company, a Delaware corporation (formerly known as Food
Extrusion, Inc.) (the "Company") and of CF Corporation, an Idaho corporation
(the "Shareholder") formerly known as Centennial Foods, Inc.
RECITALS
A. The Company and the Shareholder entered into the Shareholder's
Agreement in satisfaction of a condition to the obligations under the Asset
Purchase Agreement dated as of January 2, 1997 between the Company, Food
Extrusion Montana, Inc., a Montana corporation and wholly-owned subsidiary of
the Company ("FoodEx MT") and the Shareholder (the "Asset Purchase Agreement").
B. As an inducement to and as a condition of, the parties entering
into the Asset Purchase Agreement, the Company granted the Shareholder a put to
sell the 310,000 shares of common stock of the Company issued to the Shareholder
pursuant to the terms of the Asset Purchase Agreement.
C. The parties desire to amend the terms and conditions of the Put
as set forth herein and provide for additional consideration to enter into this
Amendment, including the agreement by the Company to pay the sum of $1,289,000
to the creditors of the Shareholder.
D. Unless otherwise specified herein, all capitalized terms shall
have the meanings provided in the Shareholder's Agreement, which meanings are
hereby incorporated herein by reference.
In consideration of these premises and of the mutual promises
contained in this Amendment and in the Shareholder's Agreement, the parties
hereby agree as follows:
1. SECTION 1. Section 1 of the Shareholder's Agreement is amended and
restated in its entirety as follows:
<PAGE>
1. ISSUANCE OF SHARES AND TRANSFER OF TRADEMARKS/PATENTS.
On the Closing Date (as defined in the Asset Purchase Agreement), the
Company shall issue an aggregate of 310,000 shares of common stock of the
Company to the Shareholder. The Shares shall be issued pursuant to the exemption
from registration set forth in Section 3(a)(10) of the Securities Act of 1933,
as amended (the "Act") and shall be subject to the restrictions on transfer in
Sections 4 and 7 below.
Within five business days of signing of this Amendment, the Company
shall issue an aggregate of 100,000 shares of common stock of the Company (the
"Additional Shares") to the Shareholder and upon signing this Amendment, shall
enter into a Registration Rights Agreement substantially in the form attached
hereto as Exhibit A.
As additional consideration for the issuance of Additional Shares to
the Shareholder and the Put (as defined below), the Shareholder hereby
irrevocably and forever assigns, grants and conveys, free and clear of any and
all liens, claims or other encumbrances, all right, title and interest in and to
Patent No. 5,512,287 to Beta Glucan and the Trademark No. 75-045125 for Mirachol
and all proprietary rights therein, (the Trademark and Patent together, the
"Intellectual Property"), and the Company hereby accepts such assignment to the
Company pursuant to the terms and conditions below. The Shareholder hereby
agrees to execute such instruments as may be required to convey to the Company
the Trademark and Patent and all proprietary rights therein.
The Shareholder hereby represents and warrants the following as of the
date of this Agreement:
(a) The Shareholder is the sole and exclusive owner of the
Intellectual Property; no other persons can or will claim ownership of the
Intellectual Property or a shop right or other interest in or to the
Intellectual Property, and the Shareholder has not entered into any agreement
which would diminish, alter or in any way modify the full and complete right,
title and interest being conveyed to the Company.
(b) The Intellectual Property has not been revealed or disclosed to
anyone by the Shareholder, except under a confidential undertaking evidenced by
a written confidentiality or non-disclosure agreement, and the Shareholder has
not publicly used, sold or offered to sell the Intellectual Property or any
device that embodies the Intellectual Property.
(c) The Shareholder has not filed, or caused to be filed,
application(s) for patents or obtained in his name, or caused to be obtained in
the name of others, any patents in the United States or elsewhere based in or
covering the Intellectual Property.
2
<PAGE>
(d) As of the Effective Date, the Shareholder has full, good and
marketable title to the Intellectual Property, which Intellectual Property is
free and clear of all liens, security interests, mortgages, adverse claims,
licenses or any other such encumbrances whatsoever (collectively,
"Encumbrances"). The Shareholder's right, title and interest to the Intellectual
Property are freely transferable without obtaining the consent or approval of
any other person or party.
(e) No action, suit or proceeding before any court or any
governmental body or authority has been instituted or, to the knowledge of the
Shareholder, threatened that relates in any manner to the Intellectual Property
or any portion thereof.
(f) The Intellectual Property does not infringe the intellectual
property rights of any third parties.
2. SECTION 2. Section 2 of the Shareholder's Agreement is amended and
restated in its entirety as follows:
2. PUT.
2.1 THE PUT. The Company hereby irrevocably grants and issues to
Shareholder the right and option to sell to the Company on July 1, 1999
(hereinafter referred to as the "Put") any or all of the Shares for the
consideration set forth in Section 2.3; PROVIDED, HOWEVER, that if the Company's
common stock closes at or above $5.00 (subject to adjustment under Section 6
below) (the "Termination Value") on the OTC Bulletin Board for ten (10)
consecutive trading days at any time between the date of this Amendment and on
or before July 1, 1999, the Put shall immediately terminate and be of no force
and effect without further notice or action. The right of the Shareholder to
exercise the Put under this Section 2 is not transferable.
2.2 EXERCISE OF PUT. The Shareholder may exercise the Put and sell
to the Company any or all of the Shares on July 1, 1999, and the Company agrees
to purchase such number of shares put to the Company and issue shares of common
stock of the Company in accordance with this Section 2.3 with respect to all of
the Shares put to the Company on such date (the "Exercise Date"). The
Shareholder shall exercise the Put on the Exercise Date by delivery of a written
notice prior to July 1, 1999 to the Company specifying the number of Shares as
to which the Put shall be exercised and delivery to the Company of a stock
certificate or certificates representing the total number of Shares being put
and purchased, duly endorsed in blank by the Shareholder or having attached
thereto a stock power duly executed by the Shareholder in proper form for
transfer.
3
<PAGE>
2.3 PAYMENT AND DELIVERY OF SHARES. The Company shall, within twenty
(20) calendar days after July 1, 1999, issue shares of common stock of the
Company to such Shareholder with in an amount equal to the following formula
(the "Put Shares"):
X = Remaining Debt
--------------
T
Where X equals the number of shares of common stock of the Company to be issued
to the Shareholder upon exercise of the Put within twenty days following July 1,
1999, the Remaining Debt represents the amount of $1,550,000 less any amounts
recovered by Shareholder through the sale of any Shares and T represents the
average closing price of the Company's common stock on the OTC Bulletin Board
for the period from June 1, 1999 to June 30, 1999.
2.4 ACCELERATION OF THE PUT. The Company, in its sole discretion,
may accelerate and pay the Put upon written notice to the Shareholder. Upon
such acceleration, under Section 2.3, T shall represent the average closing
price of the Company's common stock on the OTC Bulletin Board for the thirty
days preceding the date of the written acceleration notice and the Company shall
be required to issue the Put Shares under Section 2.3 and certificates
representing the Put Shares within twenty (20) calendar days after the date of
the written acceleration notice. The Shareholder shall immediately surrender
the certificates representing the Shares to the Company as provided under
Section 2.2 upon receipt of the written acceleration notice duly endorsed in
blank by the Shareholder or having attached thereto a stock power duly executed
by the Shareholder in proper form for transfer.
2.5 ISSUANCE OF NEW CLASS OF SHARES. The Company agrees that until
the earlier of (i) the automatic termination of the Put under Section 2.1 above,
(ii) the payment of the Put Shares under Section 2.4 and (ii) July 1, 1999, the
Company shall not issue any class of stock, other than common stock, without the
prior written consent of the Shareholder, which consent shall not be
unreasonably withheld.
3. SECTION 6. Section 6 of the Shareholder's Agreement is amended and
restated in its entirety as follows:
6. ADJUSTMENT TO TERMINATION VALUE AND RIGHT OF FIRST REFUSAL PRICE.
In the event the Company at any time or from time to time shall declare or
pay any dividend on the common stock payable in common stock, or effect a
subdivision or consolidation of the outstanding shares of common stock into a
greater or lesser number of shares of common stock, then and in any such event,
in the case of any such dividend, immediately after the close of business on the
record date for the determination of holders of any class of securities entitled
to receive such dividend, or in the case of any such subdivision, at the close
of
4
<PAGE>business on the date immediately prior to the date upon which such
corporate action becomes effective, the Termination Value and Right of First
Refusal Price shall be proportionately adjusted. Additionally, if, from time
to time during the term of this Agreement: (i) there is any stock dividend,
distribution or dividend of cash or property, stock split, or other change in
the character or amount of any of the outstanding securities of the Company;
or (ii) there is any consolidation, merger or sale of all, or substantially
all, of the assets of the Company; then in such event, any and all new,
substituted or additional securities, cash, or other property to which the
Shareholder is entitled by reason of his or her ownership of the Shares shall
be included in the word "Shares" for all purposes with the same force and
effect as the Shares presently subject to the Right of First Refusal and
other terms of this Agreement. The Termination Value and Right of First
Refusal Price per share shall be appropriately adjusted.
4. SECTION 7. Section 7.1 shall be amended to add the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE OFFERED, SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933 AND QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, UNLESS AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED THAT SUCH REGISTRATION AND
QUALIFICATION IS NOT REQUIRED.
5. SECTION 9.9. A Section 9.9 shall be added as follows:
9.9 INVESTMENT REPRESENTATIONS. This Amendment is made with the
Shareholder in reliance on the following specific representations to the Company
that:
(a) The Additional Shares and Put Shares, when and if issued,
purchased and issued hereunder will be acquired for the Shareholder's own
account, not as a nominee or agent, and not with a view to the distribution of
any part thereof, and the Shareholder has no present intention of selling,
granting participation in, or otherwise distributing the same. The Shareholder
has not been organized for the purpose of investing in securities of the
Company, although such investment is consistent with its purposes.
(b) The Shareholder understands that the purchase of the Additional
Shares and Put Shares, when and if issued, represents a speculative investment,
and the Shareholder is able, without impairing its financial condition, to hold
the Additional Shares, and Put Shares, for an indefinite period of time and to
suffer a complete loss of the Shareholder's investment. The Shareholder is
5
<PAGE>
aware of and has investigated the Company's business, management and financial
condition, has had the opportunity to inspect the Company's facilities and has
had access to such other information about the Company as the Shareholder has
deemed necessary or desirable to reach an informed and knowledgeable decision to
acquire the Additional Shares and Put Shares.
(c) The Shareholder understands, except as set forth in the
Registration Rights Agreement, that the Additional Shares and Put Shares will
not be registered under the Act by reason of, among other things, reliance upon
certain exemptions therefrom, and that the reliance of the Company on such
exemptions is predicated upon, among other things, the bona fide nature of the
Shareholder's investment intent as expressed herein.
(d) The Shareholder is experienced in evaluating and investing in
securities of companies in the development stage and has made investments in
securities other than those of the Company. The Shareholder acknowledges that by
reason of its business or financial experience, it has the ability to bear the
economic risk of its investment pursuant to this Agreement.
(e) RULE 144. The Shareholder understands that the Additional Shares
and Put Shares are restricted securities within the meaning of Rule 144 under
the Act; that, although the Additional Shares and Put Shares are subject to
certain registration rights hereunder, until such registration is effective such
securities are not registered and must be held indefinitely unless they are
subsequently registered or an exemption from such registration is available;
that, in any event, the exemption from registration under Rule 144 will not be
available for at least one year, and even then will not be available unless: (i)
a public trading market then exists for the Additional Shares and Put Shares;
(ii) adequate information concerning the Company is then available to the
public; and (iii) other terms and conditions of Rule 144 are complied with,
including, among other things, the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a "market
maker" and the number of shares being sold in any three-month period shall not
exceed specified limitations; and that any sale of such securities may be made
by the Shareholder only in limited amounts in accordance with such terms and
conditions if the Shareholder is an affiliate of the Company or has held such
securities less than two years.
(f) INDEPENDENT INVESTIGATION. The Shareholder has had a reasonable
opportunity to ask questions of and receive answers from the Company concerning
the Company and the purchase hereunder, and all such questions, if any, have
been answered to the full satisfaction of the undersigned. In making its
investment decision to purchase the Additional Shares and Put Shares, the
Shareholder is not relying on any oral or written representations or assurances
from the Company or any other person other than as set forth in this Agreement
or in a document executed by a duly authorized representative of the Company
making reference to this Agreement. The Shareholder has such
6
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experience in business and financial matters that it is capable of evaluating
the risk of its investment and determining the suitability of its investment. By
reason of each of the Shareholder's business or financial experience or the
business or financial experience of each of the Shareholder's professional
advisors, has the capacity to protect its own interest in connection with this
purchase.
(g) ECONOMIC RISK. The Shareholder understands and acknowledges that
an investment in the Additional Shares and Put Shares involves a high degree of
risk, including a possible total loss of investment. The Shareholder represents
that the Shareholder is able to bear the economic risk of an investment in the
Additional Shares and Put Shares. In making this statement, the Shareholder
hereby represents and warrants that the Shareholder has adequate means of
providing for the Shareholder's current needs and contingencies and the
Shareholder is able to afford to hold the Additional Shares and Put Shares for
an indefinite period.
(h) NO GOVERNMENT RECOMMENDATION OR APPROVAL. The Shareholder
understands that no United States federal or state agency or similar agency of
any other country has passed upon or made any recommendation or endorsement of
the Company, this transaction or the purchase of the Additional Shares and Put
Shares.
(i) RELIANCE ON REPRESENTATION. This Agreement is made by the
Company with each of the Shareholder in reliance upon the Shareholder's
representations, warranties and covenants made in this Section 9.9.
(j) NO REGISTRATION. The Shareholder understands that the Additional
Shares and Put Shares have not been registered under the Act and are being
offered and sold pursuant to an exemption from registration contained in the
Act, which is based, in part, upon the representations of the Shareholder
contained herein.
(k) NO PUBLIC SOLICITATION. The Shareholder knows of no public
solicitation or advertisement of an offer in connection with the proposed sale
of the Additional Shares and Put Shares.
(l) INVESTMENT INTENT. The Shareholder represents and warrants to
the Company that the Shareholder has no present plan or intention of selling the
Additional Shares or Put Shares, has made no predetermined arrangements to sell
the Additional Shares or Put Shares that the purchase and sale hereunder,
together with any subsequent resale of the Additional Shares or Put Shares, is
not part of a plan or scheme to evade the registration provisions of the Act.
(m) NO SALE IN VIOLATION OF THE ACT. The Shareholder further
covenants that the Shareholder will not make any sale, transfer or other
disposition of the Additional Shares or Put Shares in violation of the Act, the
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<PAGE>
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules
and regulations of the Securities and Exchange Commission (the "Commission")
promulgated thereunder.
(n) NO RELIANCE ON TAX ADVICE. The Shareholder has reviewed with its
own tax advisors the foreign, federal, state and local tax consequences of this
investment, where applicable, and the transactions contemplated by this
Agreement. The Shareholder is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents and
understands that the Shareholder (and not the Company) shall be responsible for
the Shareholder's own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
(o) INDEPENDENT LEGAL ADVICE. The Shareholder acknowledges that the
Shareholder has had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with its own legal counsel. The
Shareholder is relying solely on such counsel and not on any statements or
representations of the Company or any of its agents for legal advice with
respect to this investment or the transactions contemplated by this Agreement.
(p) NOT AN AFFILIATE. The Shareholder is not an officer, director or
"Affiliate" (as the term is defined in Rule 405 and Rule 501(b) of the Act) of
the Company.
(q) TRANSFER RESTRICTIONS. The Shareholder agrees that the Company
may instruct the transfer agent for the Company's common stock to not register
the transfer of the Additional Shares or Put Shares unless the restrictions
referenced in the legend in Section 7.1 have been satisfied.
6. DEFINITIONS. The defined terms in the Shareholder's Agreement, Asset
Purchase Agreement and other related agreements shall include the terms as
defined herein to the extent appropriate or necessary; for example, the term
"FoodEx" shall also include the "Company."
7. AFFECT OF AMENDMENT. Except as otherwise modified hereby, the terms
of the Shareholder's Agreement shall remain in full force and effect.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
above written date.
COMPANY: The RiceX Company
By: /s/ D. L. McPeak
------------------
Name: Daniel L. McPeak
----------------
Title: CFO/COB
---------------
THE SHAREHOLDER: CF Corporation
By: /s/ Ike Lynch
------------------
Name: Ike Lynch
----------------
Title: President & CEO
----------------
9
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 15th day of
January 1999, by and among The RiceX Company, a Delaware corporation (the
"Company"), and CF Corporation, an Idaho corporation (the "Purchasers").
R E C I T A L S:
A. The Company and the Purchasers have entered into the Amendment No. 1
to the Shareholder's Agreement dated January 15, 1999, which grants the
Purchasers certain rights relating to their purchase of 100,000 shares of common
stock of the Company. Such Agreements shall collectively be referred to as the
"Prior Agreements".
B. The Company wishes to set forth the registration rights and certain
other rights of all Purchasers in this Agreement as the sole agreement of the
Company and the Purchasers with respect thereto.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. AMENDMENT. This Agreement and the rights and obligations
included herein may hereafter be amended by the written consent of the Company
and the holders of a majority of the shares entitled to the rights being
amended.
2. REGISTRATION RIGHTS. The Company covenants and agrees as
follows:
2.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Securities and Exchange Commission ("SEC") thereunder, all as the same may be in
effect at that time;
(b) The terms "REGISTER", "REGISTERED" and "REGISTRATION" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act and the declaration or
ordering of effectiveness of such registration statement or document;
(c) "REGISTRABLE SECURITIES" shall mean (i) the Common Stock
issued to Purchasers pursuant to Sections 1 and 2.3 of the Amendment No. 1 to
Shareholder's Agreement between the Company and Purchasers of even date herewith
and (ii) any Common Stock of the Company issued as (or issuable upon the
conversion
<PAGE>
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, such Common Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 2 are not assigned;
(d) "HOLDER" shall mean any person who holds outstanding
Registrable Securities which have not been sold to the public, but only if such
person is a Purchaser or an assignee or transferee thereof in accordance with
Section 2.12 hereof;
(e) "REGISTRATION EXPENSES" shall mean all expenses incurred by
the Company in complying with Section 2.3 hereof, including, without limitation,
all registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company).
(f) "SELLING EXPENSES" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and all fees and disbursements of counsel for any
Holder.
(g) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal statute and the rules and regulations
of the SEC thereunder, all as the same may be in effect at that time.
2.2 [INTENTIONALLY OMITTED]
2.3 COMPANY REGISTRATION. If (but without any obligation to do so,
except as provided in Section 2.4(a)) the Company proposes to register
(including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its stock or other securities under
the Securities Act in connection with the public offering of such securities
solely for cash (other than a registration relating solely to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan, or a registration relating to a Rule 145 transaction
or a registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities) the Company shall, each such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 3.2, the Company shall,
subject to the provisions of Section 2.7, cause to be registered under the
Securities Act all of the Registrable Securities that each such Holder has
requested to be registered.
2
<PAGE>
2.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section
2 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously and as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities, provided that if all of the Registrable
Securities have not been previously registered, at least one such registration
statement, not involving an underwritten offering, covering the Registrable
Securities as provided in Section 2.3 shall be filed after July 1, 1999 but no
later than July 31, 1999, and use its best efforts to cause such registration
statement to become effective and, upon the request of the Holders of a majority
of the Registrable Securities registered thereunder, keep such registration
statement effective for up to one hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdiction.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
2.5 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 2 that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
2.6 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, filing, qualification or compliance pursuant
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<PAGE>
to this Section 2 shall be borne by the Company. Unless otherwise stated, all
Selling Expenses relating to securities registered by the Holders shall be borne
by the holders of such securities pro rata on the basis of the number of shares
so registered.
2.7 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares, the Company shall not be required under
Section 2.3 to include any of the Holders' Registrable Securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, and then only in such
quantity as will not, in the opinion of the underwriters or the Company,
jeopardize the success of the offering by the Company or the Company's
shareholders demanding such registration. If the total amount of Registrable
Securities that all selling Holders of the Company request to be included in
such offering exceeds (when combined with the securities being offered by the
Company or its shareholders demanding such registration) the amount of
securities that the underwriters or the Company reasonably believe compatible
with the success of the offering, then the Company shall be required to include
in the offering only that number of such Registrable Securities which the
underwriters or the Company believe will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
selling Holders according to the total amount of Registrable Securities owned by
each selling Holder or in such other proportions as shall mutually be agreed to
by such selling Holders).
2.8 DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any who controls such Holder or underwriter within the meaning of the
Securities Act or Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto; (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; or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated
4
<PAGE>
under the Securities Act, the Exchange Act or any state securities law; and the
Company will reimburse each such Holder, officer or director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action, provided, however, that the indemnity agreement contained
in this Section 2.9(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
(within the meaning of the Securities Act) for the Company or such other
Holders, any person who controls such underwriter, and any other Holder selling
securities in such registration statement or any of its directors or officers or
any person who controls such Holder, against any losses, claims, damages, or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, or underwriter or controlling person, or other such
Holder or director, officer or controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state law insofar as such
losses, claims damages, or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration, and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or controlling person, other Holder, officer,
director, or controlling person in connection with investigating or defending
any such loss, claim damage, liability, or action, provided, however, that the
indemnity agreement contained in this Section 2.9(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, notify the
indemnifying party in writing of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified
5
<PAGE>
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to notify an indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 2.9, but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 2.9.
2.10 REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to:
(a) make and keep public information available as those terms
are understood and defined in SEC Rule 144, at all times after the effective
date of the first registration statement filed by the Company for the offering
of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;
(c) use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request: (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies); (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company; and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
6
<PAGE>
2.11 [INTENTIONALLY OMITTED].
2.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to (i) a subsidiary or shareholder of Holder or (ii) a
transferee or assignee of at least 10,000 shares of such Registrable Securities,
provided the Company is, within a reasonable time after such transfer, furnished
with written notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are being
assigned; and provided, further, that such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Securities Act.
2.13 [INTENTIONALLY OMITTED]
2.14 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company sell or otherwise transfer or dispose
of any Registrable Securities, other than as selling shareholder in such
offering, during the one hundred and eighty (180) day period following the
effective date of a registration statement of the Company filed under the
Securities Act.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such one hundred and eighty (180) day
period.
3. MISCELLANEOUS.
3.1 This Agreement constitutes the entire agreement between the
Company and the Purchasers with respect to the subject matter hereof. Any
previous agreement between the Company and the Purchasers is superseded by this
Agreement. Subject to the exceptions specifically set forth in this Agreement,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective heirs, successors, administrators, executors and
assigns of the parties hereto.
3.2 Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or five (5) days after
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified as follows: if to the
Company, to the Company's President at the Company's principal executive office,
and if to a Purchaser, at the address indicated for such Purchaser on the
signature block below, or at such other address as such party may designate by
ten (10) days' advance written notice to the other parties.
7
<PAGE>
3.3 This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
3.4 This Agreement shall be governed in all respects by the laws
of the State of California applicable to contracts entered into and wholly to be
performed within the State of California by California residents.
IN WITNESS WHEREOF, the undersigned or each of their respective duly
authorized officers or representatives have set their hands as of the date set
forth above.
"THE COMPANY" "PURCHASERS"
The RiceX Company CF Corporation
By /s/ D.L. McPeak By /s/ Ike Lynch
-------------------- -------------------------
Title: COB/CEO Title: President & CEO
----------------- ----------------------
Address: 1241 Hawk's Flight Court Address: 2400 Airport Road
El Dorado Hills, CA 95672 Dillon, MT 59725
8
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
This Amended and Restated Loan Agreement (the "Agreement"), is made
and entered into as of December 31, 1998, by and between The RiceX Company,
a Delaware corporation ("Borrower"), and FoodCeuticals, LLC, a Delaware
limited liability company, and its assigns or transferees pursuant to
Section 5.5 ("Lender"), and sets forth the terms and conditions of the loan
(the "Loan") evidenced by the Borrower's promissory notes, substantially in
the form attached hereto as Exhibit A (collectively, the "Notes").
WHEREAS, Borrower desires to enter into the Loan, and Lender desires
to make the Loan on the terms and subject to the conditions set forth
herein.
WHEREAS, the obligations of the Borrower under the Loan are secured by
those certain Security Documents between Borrower and Lender or Lender's
wholly owned subsidiary dated this date substantially in the forms listed
on Schedule A and attached hereto as Exhibits C (the "Security Documents").
WHEREAS, Borrower and Lender desire to make certain representations,
warranties and agreements in connection with the Loan.
WHEREAS, the outstanding principal of the Loan is to bear interest at
the rate of 18 % per annum with such interest to be prepaid at the time of
each advance under this Loan Agreement in shares (the "Shares") of the
Borrower's Common Stock, $.001 par value (the "Common Stock") on the basis
of 50,847.5 shares for each $100,000 advanced, in accordance with Section
1.2 of this Agreement and Section 2.1 of the Note.
WHEREAS, as and for a charge for placing and procuring the Loan as of
the date hereof, Borrower has agreed to issue to Lender warrants (the
"Warrants") to purchase 202,353.5 shares of Common Stock for each $100,000
advanced (which amount shall be rounded to the nearest whole share) (the
Warrant is in the form of Exhibit B hereto) , in accordance with Section
1.2 of this Agreement and Section 2.1 of the Note.
WHEREAS, Borrower desires to grant to Lender certain registration
rights in respect of the Shares and the Common Stock that may be acquired
on the exercise of the Warrant (the "Warrant Shares"), which registration
rights shall have the terms and be subject to the conditions set forth in
the Registration Rights Agreement dated this date substantially in the form
attached hereto as Exhibit D (the "Registration Rights Agreement").
<PAGE>
WHEREAS, this Agreement, the Notes, the Warrant, the Security
Documents, and the Registration Rights Agreement are collectively referred
to herein as the "Transaction Documents".
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein, the parties agree as
follows:
ARTICLE I
THE LOAN
1.1 BORROWINGS UNDER THE LOAN. Subject to the terms of this Loan
Agreement, Lender agrees to loan to the Borrower at the Closing (as defined
herein), the sum of up to $1,850,000, of which the sum of $1,200,000 is to
be advanced at the Closing and the balance shall be advanced not later than
January 15,1999. All advances by Lender to Borrower shall be made by check
or wire transfer to the account of the Borrower.
1.2 PREPAID INTEREST; WARRANT. The Loan is to bear interest at the
rate of 18% per annum. Interest is to be prepaid by delivery of the Shares
at the time of each advance of the Loan, in accordance with Section 2.1 of
the Note. The applicable Warrants shall be delivered on the date of each
advance, in accordance with Section 2.1 of the Note.
1.3 FUTURE FINANCINGS. During the time that the Loan remains
outstanding, Borrower shall consult with Lender with respect to any
additional equity or debt financings of Borrower and shall initially
negotiate in good faith with Lender to provide any such financings prior to
engaging in negotiations with any other party.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower represents and warrants to Lender that each of the following
statements, except as set forth in the Borrower SEC Documents (as defined
below), (i) are true and correct on the date hereof and (ii) will be true
and correct in all material respects on the date each advance hereunder is
made:
-2-
<PAGE>
2.1 ORGANIZATION, STANDING AND QUALIFICATION. Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to carry
on its business as it is now being conducted. Borrower is licensed and
qualified to do business as a foreign corporation in each jurisdiction in
which the character of its properties, owned or leased, or the nature of
its activities makes such qualification or license necessary, except where
the failure to be so licensed or qualified would not have a material
adverse effect on the business of the Borrower. For purposes of this
agreement "Material Adverse Effect" means a material adverse effect on the
business, properties, assets, financial condition, liabilities or
operations of a Person or its Subsidiaries taken as a whole.
2.2 AUTHORITY; NO DEFAULTS. Borrower has all requisite corporate
power and authority to enter into the Transaction Documents and to
consummate the transactions contemplated thereby. The execution and
delivery of the Transaction Documents and the consummation of the
transactions contemplated thereby have been duly authorized by all
necessary corporate action on the part of Borrower. The Transaction
Documents have been executed and delivered by Borrower and constitute the
valid and binding obligation of Borrower, enforceable in accordance with
their terms, subject to bankruptcy, insolvency, moratorium and other
similar laws affecting creditors' rights generally and general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law). The execution and delivery of the
Transaction Documents do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with or result in a
breach of or the acceleration of any obligation under, or constitute a
default or event of default (or event which, with notice or lapse of time
or both, would constitute a default or event of default) under, any
provision of any charter, bylaw, indenture, mortgage, lien, lease,
agreement, contract, instrument, order, judgment, decree, ordinance or
regulation, or any restriction to which any property of Borrower is subject
or by which Borrower is bound, the effect of which would be materially
adverse to Borrower. Borrower is not, nor does Borrower have knowledge
that it is alleged to be, in material violation or default of any
applicable law, statute, order, rule or regulation promulgated or judgment
entered by any court, administrative agency or commission or other
governmental agency or instrumentality, domestic or foreign (a
"Governmental Entity"), relating to or affecting the operation, conduct or
ownership of the property or business of Borrower.
2.3 APPROVALS. There is no legal impediment to the execution and
delivery of the Transaction Documents by Borrower or to the consummation of
the transactions contemplated thereby, and no filing or registration with,
or authorization, consent or approval of, a Governmental Entity,
shareholders or any other third party is necessary for the consummation by
Borrower of the transactions contemplated thereby.
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2.4 CHARTER AND BYLAWS. Borrower has furnished to Lender true and
complete copies of its charter and bylaws, each as amended to date and as
presently in effect.
2.5 SEC DOCUMENTS.
(a) Borrower has made all filings with the Securities and
Exchange Commission ("SEC") that it has been required to make
under the Securities Act of 1933, as amended (the "Securities
Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") since May 18, 1998. Lender has been provided with
the opportunity to review true, complete and correct copies of
Borrower's registration statement on Form 10-SB ("Form 10-SB"),
together with all amendments and exhibits thereto thereto,
Borrower's quarterly report on Form 10-QSB for the fiscal quarter
ended September 30, 1998, together with all amendments and
exhibits thereto, and all other filings with the SEC made by
Borrower (including all exhibits to such filings) since the
filing of said Form 10-QSB (all such documents that have been
filed with the SEC, as amended, are referred to as the "Borrower
SEC Documents"). Lender has reviewed the Borrower SEC Documents
to its satisfaction. As of their respective dates, and except as
amended, Borrower SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act,
as the case may be, and none of Borrower SEC Documents contained
any 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, in light of the circumstances under which
they were made, not misleading.
(b) The financial statements of Borrower included in the
borrower SEC Documents comply as to form in all material respects
with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by Form
10-QSB) and fairly present (subject, in the case of the unaudited
statements, to normal recurring audit adjustments) the
consolidated financial position of Borrower as of the dates
thereof and the consolidated results of its operations and cash
flows for the periods then ended.
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Since September 30, 1998, (i) there have been no material adverse
changes in Borrower's business, operations or financial condition and
(ii) Borrower's operations have been conducted in the ordinary course
of business except as disclosed in writing to Lender.
2.6 LITIGATION. As of the date of this Agreement, there is no suit,
action, proceeding or investigation pending or, to the best knowledge of
Borrower, threatened against or affecting Borrower, except for litigation
arising in the ordinary course of Borrower's business which is neither
material with respect to any individual action nor material with respect to
all such actions in the aggregate, nor is there any outstanding judgment,
order, writ, injunction or decree against Borrower, which judgment would
have a material adverse effect on Borrower. Borrower is not subject to any
court order, writ, injunction, decree, settlement agreement or judgment
that contains or orders any on-going obligations, whether prohibitory or
mandatory in nature, the performance of which would have a material adverse
effect on Borrower.
2.7 CAPITALIZATION. Borrower has authorized capital stock of (a)
100,000,000 shares of Common Stock, par value $.001 per share, of which, as
of the date hereof, there are 19,805,500 shares issued and outstanding, and
(b) shares of preferred stock, par value $.001 per share, of which, as of
the date hereof, there are no shares issued and outstanding. All of the
issued and outstanding shares of Common Stock were duly and validly issued
and are fully paid and non-assessable. None of the outstanding shares of
Common Stock has been issued in violation of any preemptive rights of the
current or past stockholders of Borrower. As of the date hereof, Borrower
has reserved for issuance an aggregate of 7,239,000 shares of Common Stock
issuable on the exercise of outstanding warrants, options, or conversion of
convertible securities (including shares issuable to CF Corporation) other
than those issuable on exercise of the Warrants. Except as described above
or in the Borrower SEC Documents, there are no outstanding options,
warrants or rights to subscribe for, or commitments of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of the capital stock of Borrower or contracts,
commitments, understandings or arrangements by which Borrower is or may be
obligated to issue additional shares of its capital stock or options,
warrants, or rights to purchase or acquire any additional shares of its
capital stock. All of the Shares and the Warrant Shares will be fully
paid, non-assessable and free and clear of any Encumbrances. As used in
this Agreement, the term "Encumbrance" means and includes (i) any security
interest, mortgage, deed of trust, lien, charge, pledge, proxy, adverse
claim, equity, power of attorney, or restriction of any kind, including but
not limited to, any restriction or servitude on the use, transfer, receipt
of income, or other exercise of any attributes of ownership, and (ii) any
Uniform Commercial Code financing statement or other public filing, notice
or record that by its terms purports to evidence or notify interested
parties of any of the matters
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referred to in clause (i) that has not been terminated or released by
another proper public filing, notice or record.
2.8 SUBSIDIARIES. Food Extrusion Montana, Inc., a Montana corporation
("Subsidiary"), is the only Subsidiary of Borrower. The address of its
principal executive office is 2400 Airport Road, Dillon, Montana. The
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, has all
requisite corporate power and authority to own, to lease or to operate its
properties and to carry on its business as it is now being conducted and is
duly qualified or licensed to do business in each jurisdiction in which the
character of its properties, owned or leased, or the nature of its
activities makes such qualification or license necessary, unless the
failure to be so licensed or qualified would not have a material, adverse
effect on Borrower. All outstanding shares of capital stock of the
Subsidiary were duly and validly issued and are fully paid, non-assessable
and owned by Borrower, free and clear of all Encumbrances. There are no
options, warrants or other rights, agreements or commitments (including
preemptive rights) obligating Borrower or the Subsidiary to issue, to sell
or to transfer any shares of capital stock or other securities of the
Subsidiary. There one (1) share of capital stock of Subsidiary issued and
outstanding.
2.9 LIABILITIES. Borrower has no liabilities or obligations, either
accrued, absolute, contingent, or otherwise that have a Material Adverse
Effect, and Borrower has no knowledge of any potential liability that it
reasonably believes would likely result in a Material Adverse Effect, other
than those (a) reflected or reserved against in the balance sheets reported
on Borrower's Form 10-QSB for the fiscal quarter ended September 30, 1998,
or (b) incurred in the ordinary course of business since September 30,
1998.
2.10 LICENSES, PERMITS, AUTHORIZATIONS, ETC. Borrower holds all
material approvals, authorizations, consents, licenses, orders, franchises,
rights, registrations and permits of any type required to operate its
business as presently conducted. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will
not result in any revocation, cancellation, suspension or modification of
any such approval, authorization, consent license, order, franchise, right,
registration or permit.
2.11 TITLE TO ASSETS; ENCUMBRANCES.
(a) Borrower has good and indefeasible title to its assets,
whether real, personal or intangible, free and clear of all
Encumbrances except (i) liens for current taxes and assessments
not yet due or being contested in good faith by appropriate
proceedings, (ii) mechanic's liens arising under the operation of
law for actions contested in good faith or for which payment
arrangements have been
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made, (iii) liens granted or incurred by Borrower in the ordinary
course of its business or financing of equipment, office space,
furniture and computers in the ordinary course of its business, and
(iv) easements, rights of way, encroachments or other restrictions or
matters affecting title which do not prevent the assets from being
used for the purpose for which they are currently being used;
(b) There are no parties in possession of any of the assets
of Borrower other than personal property held by third parties in
the reasonable and ordinary course of business. Borrower enjoys
full, free and exclusive use and quiet enjoyment of its assets
and its rights pertaining thereto. Borrower enjoys peaceful and
undisturbed possession under all leases under which it is a
lessee, and all such leases are legal, valid and binding
obligations of Borrower, enforceable against Borrower in
accordance with its terms.
2.12 TAXES AND RETURNS. Borrower has filed all required tax
returns and reports. Borrower has paid all taxes, assessments and
governmental charges and penalties which it has incurred, except such as
are being or may be contested in good faith by appropriate proceedings.
Borrower is not delinquent in the payment of any tax, assessment or
governmental charge. No deficiencies for any taxes have been proposed,
asserted, or assessed against Borrower, and no requests for waivers of the
time to assess any such tax are pending. For the purposes of this
Agreement, the term "tax" (including, with correlative meaning, the terms
"taxes" and "taxable") shall include all federal, state, local and foreign
income, profits, franchise, gross receipts, payroll, sales, employment,
use, property, withholding, excise and other taxes, duties or assessments
of any nature whatsoever, together with all interest, penalties and
additions imposed with respect to such amounts.
2.13 INSURANCE. Each policy of property, fire and casualty,
product liability, worker's compensation, professional liability and title
insurance and other forms of insurance (except group, health and life
policies) and each bond issued or posted by any person with respect to any
operations or other activities of Borrower is, to the knowledge of
Borrower, the legal, valid and binding obligation of the insurer or bond
issuer, enforceable in accordance with its terms, and is in an amount and
provides for coverage as is customary in the ordinary business practices of
Borrower's industry.
2.14 PATENTS, TRADEMARKS, ETC. Schedule 2.14 lists all patents,
trademarks, service marks, works of authorship, tradenames, brandnames or
copyrights. Such patents, trademarks, service marks, works of authorship,
tradenames, brandnames, and copyrights are referred to as the "Intellectual
Property". Borrower is not using, and does not have any plan to
manufacture, use or sell anything which would violate or infringe on any
patent or proprietary right (of which
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Borrower is aware) of any other person, firm or corporation or which would
require a license under any such patent or proprietary right. Borrower has
not received any communications alleging that Borrower has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, tradenames, copyrights, works of authorship or
trade secrets or other proprietary rights in processes of any other person
or entity.
2.15 MATERIAL CONTRACTS AND OBLIGATIONS. Borrower has provided Lender
an opportunity to review, and Lender has reviewed to its satisfaction all
material agreements of any nature to which Borrower is a party or by which
it or any of its properties is bound, all employment and consulting
agreements, loan agreements, leases, purchase contracts, employee benefit,
bonus, pension, stock option, stock purchase and similar plans and
arrangements, and distributor and sales representative agreements. True
and complete copies of such written agreements have been provided to
Lender. All such agreements and contracts are valid, binding and in full
force and effect. Borrower is not in default on any of such agreements.
2.16 COMPLIANCE. Borrower has complied in all material respects with
all laws, and is not in violation of any charter or other corporate
restrictions or any law, ordinance, requirement, regulation, judgment,
injunction, award, decree, or other order applicable to its business.
There is no term or provision of any mortgage, indenture, contract,
agreement or instrument to which Borrower is a party or by which it is
bound, any provision of any state or federal judgment, decree, order,
injunction, writ, statute, rule or regulation applicable to or binding upon
Borrower, which would have a Materially Adverse Effect on Borrower. To the
knowledge of Borrower, no employee of Borrower is in violation of any term
of any employment contract, patent or other proprietary information
disclosure agreement or any other contract or agreement relating to the
employment of such employee with Borrower.
2.17 EMPLOYEES. Borrower has obtained agreements, which contain
nondisclosure and assignment of invention provisions and non-competition
provisions, from each of its employees and consultants whose
responsibilities require access to confidential and proprietary information
of Borrower. Borrower has complied in all material respects with all
applicable and material state and federal laws respecting employment and
employment practices, terms and conditions of employment, wages and hours
and other laws related to employment, and there are no arrears in the
payment of wages, or social security taxes.
2.18 TRANSACTIONS WITH AFFILIATES AND STOCKHOLDERS. No stockholder,
officer, director or employee of Borrower, nor any "affiliate" or
"associate" of such persons (as such terms are defined in the rules and
regulations promulgated under the Securities Act), is presently a party to
any transaction with Borrower, including without limitation, any contract,
agreement or other
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arrangement providing for the employment of, furnishing of services by,
rental of real or personal property from or otherwise requiring payments
to, any such person or entity.
2.19 BOOKS AND RECORDS. The minute books of Borrower furnished to
counsel to Lender for review contain complete and accurate records of all
meetings and other corporate actions of its stockholders and its Board of
Directors and committees thereof. The stock ledger and stock transfer
records of Borrower furnished by American Stock Transfer & Trust Company to
counsel to Lender for review is complete and reflects all issuances,
transfers of which Borrower is aware, repurchases and cancellations of
shares of capital stock of Borrower.
2.20 STOCKHOLDER AGREEMENTS. There are no agreements, written or
oral, which are (i) between Borrower and any holder of its capital stock,
or (ii) to the knowledge of Borrower, among any persons holding five
percent (5%) or more of Borrower's capital stock, relating to the
acquisition, disposition or voting of the capital stock of Borrower.
2.21 ERISA. Borrower has no employee benefit plans subject to the
Employment Retirement Income Security Act of 1974.
2.22 ACCOUNTS RECEIVABLE. All accounts receivable of Borrower
(including those reflected on the Balance Sheet or acquired on or prior to
the Closing Date) arose in the ordinary and usual course of business of
Borrower, represent valid obligations due to Borrower and have been
collected or are, to Borrower's best knowledge, collectible in the ordinary
and usual course of business of Borrower in the aggregate recorded amounts
thereof in accordance with their terms less in the case of accounts
receivable reflected in the Financial Statements, all allowance for
doubtful accounts marked therein, and in the case of accounts receivable
thereafter, all allowances for doubtful accounts consistent with past
practices of Borrower.
2.23 HAZARDOUS WASTES AND SUBSTANCES. Neither the operations of
Borrower nor the use of its assets violates any applicable federal, state
or local law, statute, ordinance, rule, regulation, memorandum of
understanding, order or notice requirement pertaining to the collection,
transportation, storage, treatment, discharge, release or disposal of
hazardous or non-hazardous waste or substances, including without
limitation (i) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C, Sections 9601 ET SEQ.), as amended from
time to time on or before the Closing Date ("CERCLA") (including, without
limitation, as amended pursuant to the Superfund Amendments and
Reauthorization Act of 1986), and such regulations promulgated under CERCLA
on or before the Closing Date, (ii) the Resources Conservation and Recovery
Act of 1976 (42 U.S.C. Sections 6901 ET SEQ.), as amended from time to time
("RCRA") on or before the Closing Date, and such regulations promulgated
under RCRA, or (iii) any applicable federal, state or local laws or
regulations relating to the
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environment in effect or on the Closing Date (collectively, the "Applicable
Environmental Laws"). None of the operations of Borrower has ever been
conducted nor have any of its assets been used in such a manner as to
constitute a violation of any of the Applicable Environmental Laws. No
notice has been served on Borrower by any person or Governmental Entity
regarding any existing, pending or threatened investigation or inquiry
related to violations under any Applicable Environmental Law, or regarding
any claims for corrective action, remedial obligations or contribution for
removal costs or damages under any Applicable Environmental Law, or
regarding the designation of Borrower or any of its affiliates as a
potentially responsible party for any facility under the Applicable
Environmental Laws, nor does any fact or circumstance exist which, if
disclosed publicly, would be reasonably likely to result in the service on
Borrower of any such notice. There has been no action taken, or omitted to
be taken by Borrower which has caused, or would be reasonably likely to
cause, a "release" of any "hazardous substance" at any "facility," without
limitation, within the meaning of such terms as defined in the Applicable
Environmental Laws.
2.24 DISCLOSURES. Neither this Agreement nor any Exhibit hereto, nor
any certificate or other instrument furnished to Lender or its counsel by
Borrower in connection with the transactions contemplated hereby, contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which they were made, not misleading.
ARTICLE III
INVESTMENT REPRESENTATIONS
3.1 INVESTMENT REPRESENTATIONS. This Agreement is made with the
Lender in reliance on the following specific representations to the
Borrower that:
(a) The Notes, Shares and the Warrants issued to
Lender hereunder will be acquired for the Lender's own account,
not as a nominee or agent, and the Lender has no present
intention of selling, granting participation in, or otherwise
distributing the same in violation of the registration
requirements of the Securities Act of 1933, as amended (the
"Act").
(b) The Lender understands that the Notes, Shares and
the Warrants represent a speculative investment, and the Lender
is able, without impairing its financial condition, to hold the
Notes, Shares and the Warrants for an indefinite period of time
and to suffer a complete loss of the Lender's investment. The
Lender is aware of and has investigated the Borrower's business,
management and financial condition, has had the opportunity to
inspect the
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Borrower's facilities and has had access to such other information
about the Borrower as the Lender has deemed necessary or desirable to
reach an informed and knowledgeable decision to acquire the Notes,
Shares and the Warrants.
(c) The Lender understands, except as set forth in the
Registration Rights Agreement, that the Shares, the Warrants and
the Warrant Shares will not be registered under the Act by reason
of, among other things, reliance upon certain exemptions
therefrom, and that the reliance of the Borrower on such
exemptions is predicated upon, among other things, the bona fide
nature of the Lender's investment intent as expressed herein.
(d) The management of the Lender is experienced in
evaluating and investing in securities of companies in the
development stage and has made investments in securities other
than those of the Borrower. The Lender acknowledges that by
reason of its business or financial experience, it has the
ability to bear the economic risk of its investment pursuant to
this Agreement.
3.2 RULE 144. The Lender understands that the Notes, the Shares,
the Warrants, and the Warrant Shares, are restricted securities within
the meaning of Rule 144 under the Act; that such securities are not
registered and must be held indefinitely unless they are subsequently
registered or an exemption from such registration is available; that,
in any event, the exemption from registration under Rule 144 will not
be available for at least one year, and even then will not be
available unless: (i) a public trading market then exists for the
Notes, the Shares, the Warrants and the Warrant Shares, (ii) adequate
information concerning the Company is then available to the public;
and (iii) the other terms and conditions of Rule 144 are complied
with, including, among other things, the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions
directly with a "market maker" and the number of shares being sold in
any three-month period shall not exceed specified limitations; and
that any sale of such securities may be made by the Lender only in
limited amounts in accordance with such terms and conditions if the
Lender is an affiliate of the Borrower or has held such securities
less than two years.
3.3 INDEPENDENT INVESTIGATION: ACCREDITED INVESTOR. The Lender
has had a reasonable opportunity to ask questions of and receive
answers from the Borrower concerning the Borrower and the purchase
hereunder, and all such questions, if any, have been answered to the
full satisfaction of the undersigned. In making its investment
decision to purchase the Notes, the Shares, and the Warrants, the
Lender is not relying on any oral or written representations or
assurances from the Borrower or any other person
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other than as set forth in this Agreement or in a document executed by a
duly authorized representative of the Borrower making reference to this
Agreement. The Lender has such experience in business and financial
matters that it is capable of evaluating the risk of its investment and
determining the suitability of its investment. The Lender is an
"accredited investor" as defined in Rule 501 of Regulation D and by reason
of the Lender's professional advisors, has the capacity to protect its own
interest in connection with this purchase.
3.4 ECONOMIC RISK. The Lender understands and acknowledges that
an investment in the Notes and the Warrant involves a high degree of
risk, including a possible total loss of investment in the Notes and
the Warrant. In making this statement, the Lender hereby represents
and warrants that the Lender has adequate means of providing for the
Lender's current needs and contingencies and the Lender is able to
afford to hold the Notes and the Warrant for an indefinite period.
3.5 NO GOVERNMENT RECOMMENDATION OR APPROVAL. The Lender
understands that no United States federal or state agency or similar
agency of any other country has passed up or made any recommendation
or endorsement of the Borrower, this transaction or the purchase of
the Notes and Warrant.
3.6 RELIANCE ON REPRESENTATION. This Agreement is made by the
Borrower with the Lender in reliance upon the Lender's representations
and covenants made in this Article III.
3.7 NO REGISTRATION. The Lender understands that the Notes,
the Shares, and the Warrants have not been registered under the Act
and are being issued pursuant to an exemption from registration
contained in the Act, which is based, in part, upon the
representations of the Lender contained herein.
3.8 NO PUBLIC SOLICITATION. The Lender knows of no public
solicitation or advertisement of an offer in connection with the
issuance of the Notes, the Shares and the Warrants.
3.9 INVESTMENT INTENT. The Lender represents and warrants to
the Borrower that the Lender has no present plan or intention of
selling the Notes, the Shares, and the Warrants in violation of the
registration requirements of the Act, has made no predetermined
arrangements to sell the Notes, the Shares, and the Warrants in
violation of the terms of this Agreement, and that the purchase and
sale hereunder, together with any
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subsequent resale of the Notes, the Shares and the Warrants, is not part of
a plan or scheme to evade the registration provisions of the Act.
3.10 NO SALE IN VIOLATION OF THE ACT. The Lender further
covenants that the Lender will not make any sale, transfer or other
disposition of the Notes, the Shares and the Warrants in violation of
the Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or the rules and regulations of the Securities and
Exchange Commission (the "Commission") promulgated thereunder.
3.11 NO RELIANCE ON TAX ADVICE. The Lender has reviewed with
its own tax advisors foreign, federal, and state and local tax
consequences of this investment, where applicable, and the
transactions contemplated by this Agreement. The Lender is relying
solely on such advisors and not on any of its agents and understands
that the Lender (and not the Borrower) shall be responsible for the
Lender's own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
3.12 INDEPENDENT LEGAL ADVICE. The Lender acknowledges that
the Lender has had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with its own legal
counsel. The Lender is relying solely on such counsel and not on any
statements or representations of the Borrower or any of its agents for
legal advice with respect to this investment or the transactions
contemplated by this Agreement.
3.13 NOT AN AFFILIATE. The Lender is not an officer, director
or "Affiliate" (as the term defined in Rule 405 and Rule 501(b) of the
Act) of the Borrower.
ARTICLE IV
THE CLOSING
4.1 TIME AND PLACE. Subject to the provisions hereto, the initial
closing and the closing of subsequent advances of the purchase and sale of
the Notes, the Shares and the Warrants (the "Closings") will take place on
the dates agreed to by the parties (the "Closing Dates"), at the offices of
Graham & James LLP, Sacremento, California, unless another time and place
are agreed to by the parties.
4.2 CONDITIONS TO THE OBLIGATION OF BORROWER. The obligation of
Borrower to effect each Closing is subject to Lender delivering, or causing
to be delivered, to Borrower at the Closing the following:
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4.2.1 The sum of $1,200,000 as provided in Section 1.1
hereof on the first Closing Date and the sum of $650,000 on January 15,
1999 (the "Second Closing Date")..
4.2.2 The Agreement.
4.3 CONDITIONS TO THE OBLIGATION OF LENDER. The obligation of
Lender to effect the Closing is subject to Borrower delivering, or causing
to be delivered, to Lender at the initial Closing the following documents:
4.3.1 copies of the charter of Borrower and all
amendments thereto and a certificate of an Officer of Borrower
certifying that there have been no amendments to such charter since
such date, and copies, certified by the Secretary of Subsidiary as of
the Closing Date, of the charter of Subsidiary and all amendments
thereto. Copies of the charter of Borrower certified by the Secretary
of State of Delaware will be provided on or before January 8, 1999;
4.3.2 copies, certified by the Secretary of each of
Borrower and Subsidiary as of the Closing Date, of the bylaws of
Borrower, and all amendments thereto;
4.3.3 the Agreement;
4.3.4 the Note in the principal amount of up to $1,850,000;
4.3.5 the Warrant to purchase 2,428,242 shares of Common
Stock;
4.3.6 the Security Agreement of Borrower;
4.3.7 the Registration Rights Agreement;
4.3.8 a certificate of an Officer of Borrower to
the effect that the representations and warranties of Borrower
herein contained shall be true as of and at the Closing Date with
the same effect as though made at such date, except as affected
by transactions permitted or contemplated by this Agreement; and
further to the effect that Borrower shall have performed and
complied with all covenants required by this Agreement to be
performed or complied with by each before the Closing Date;
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4.4. SUBSEQUENT ADVANCES. Upon the advance by Lender of the
additional $650,000 on or before January 15, 1999, additional Warrants
and Shares will be issued in accordance with Section 1.2 and the
Recitals under this Agreement.
4.5. POST-CLOSING COVENANTS. The Borrower agrees to comply
with the following post-closing covenants:
4.5.1. As soon as reasonably practicable, Borrower will
deliver, or cause its transfer agent to deliver, a certificate
representing 610,170 shares of Common Stock, dated December 31, 1998,
representing prepaid interest on the initial $1,200,000 advance.
4.5.2. In the event that the Lender timely satisfies all
conditions under this Agreement and lends an additional $2,350,000 on
or prior to March 1, 1999, Lender will be issued an aggregate of
8,545,532 in shares (for prepaid interest) and five-year warrants
exercisable at $.75 per share to purchase common shares on terms
substantially similar to those in this Agreement.
4.5.3 On or prior to January 8, 1999, Lender will
be provided with copies, certified by the Secretary of Borrower
as of the initial Closing Date, of resolutions duly adopted by
the board of directors of Borrower authorizing the execution and
delivery by Borrower of the Transaction Documents and all other
agreements attached hereto as Exhibits or contemplated herein,
the completion of the sale of the Note, the Shares and Warrants
and the taking of all such other corporate action as shall have
been required as a condition to, or in connection with, the sale
of the Note, the Shares and Warrants;
4.5.4. Financing statements on Form UCC -1 as Lender
may request, and such other assignments, agreements and other
documents (including documents for filing or recording) as Lender
may request so as to perfect its security interest in the
collateral described in the Security Agreement will be provided
to Lender upon request, including, execution and delivery to
Lender of all documentation requested by Lender to perfect a
security interest in and to and in favor of Lender as to all
Intellectual Property in such manner and form as required to
allow the same to be perfected by filing and/or recording in
accordance with all laws, rules, and regulations of the United
States Patent Office pertaining thereto;
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4.5.5 As soon as reasonably practicable, Borrower
shall take steps to cause the appointment or election of two
persons to the Borrower's Board of Directors as designated by
Lender to serve until the Borrower's 1999 annual meeting of
stockholders and until their successors have been elected and
qualified.
ARTICLE V
GENERAL PROVISIONS
5.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations, warranties and agreements contained in this Agreement
shall survive the Closing and each advance hereunder.
5.2 NOTICES. All notices or other communications which are required
or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person, transmitted by
telecopier (with receipt confirmed) or mailed by registered or certified
first class mail, postage prepaid, return receipt requested to the parties
hereto at the address set forth below (as the same may be changed from time
to time by notice similarly given) or the last known business or residence
address of such other person as may be designated by either party hereto in
writing.
(a) If to Borrower: The RiceX Company
1241 Hawk's Flight Court
El Dorado Hills, California 95762
Attention:Daniel McPeak, Chairman of the
Board
(b) If to Lender: FoodCeuticals, LLC.
The Abbey
355 Madison Avenue
Morristown, New Jersey 07960
Attention: Mr. Joseph Bellantoni
5.3 MISCELLANEOUS. This Agreement (i) constitutes the entire
agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to
the subject matter hereof, and (ii) shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns and is not intended to confer upon any other person any rights or
remedies hereunder.
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5.4 PUBLICITY. Borrower and Lender promptly shall advise and
cooperate with the other prior to issuing, or permitting any of its
directors, officers, employees or agents to issue, any press release with
respect to this Agreement or the transactions contemplated hereby, provided
that Borrower shall be permitted to issue any press release or make such
other public disclosure as may be required by law without the consent of
the Lender. Notwithstanding the foregoing, without the prior consent of
Lender, neither Borrower nor any of its directors, officers, employees or
agents shall issue any press release which includes the name of Lender or
any of Lender's affiliates, unless otherwise required by applicable law.
5.5 ASSIGNMENT.
(a) Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by Borrower (whether
by operation of law or otherwise) without the prior written
consent of the Lender.
(b) Lender may assign its rights and obligations hereunder,
under the Notes, or any of them, the Warrant or any other
Transaction Document, subject to any applicable restrictions
under Federal and state securities laws, to any other person who
shall participate with Lender in the purchase of the Notes and
Warrant, subject to the terms hereof and upon prior written
notice to Borrower. Each such assignee (an "Assignee") shall
execute an Assignment and Acceptance and upon the execution of
such Assignment and Acceptance by such Assignee, (i) the Assignee
shall be a "Lender" hereunder and, to the extent provided in the
Assignment and Acceptance, shall have the rights and obligations
of a Lender hereunder, and (ii) the assigning Lender (an
"Assignor") shall, to the extent provided in the Assignment and
Acceptance, be released from its obligations hereunder.
(c) An Assignor hereunder shall, if requested by the
Assignee, deliver the Notes and Warrant in favor of such Assignor
to the Borrower, and the Borrower shall issue replacement Notes
and Warrant in favor of the Assignor and the Assignee in the
amounts and for such shares as are indicated in the Assignment
and Acceptance. The replacement Warrant shall be issued for an
exercise price per share equal to the exercise price set forth in
the Warrant to be delivered to Borrower under this Section
5.5(c).
5.6 SCHEDULES. All statements contained in any exhibit, schedule,
appendix, certificate or other instrument delivered by or on behalf of the
parties hereto, or in connection with the
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transactions contemplated hereby, are an integral part of this Agreement
and shall be deemed representations and warranties hereunder.
5.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which constitutes an original execution and, in the
aggregate, constitute a single document.
5.8 EXPENSES OF DISPUTE RESOLUTION. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement or
any of the other Transaction Documents, the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and necessary disbursements
in addition to any other relief to which it may be entitled.
5.9 SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity,
legality and enforceability of such provision in every other respect and of
the remaining provisions contained herein shall not be affected or impaired
thereby.
5.10 ADDITIONAL AGREEMENTS. It is understood and agreed that
promptly after the Closing the following additional agreement shall be
entered into:
5.10.1 a Distribution Agreement between the Borrower and
Lender (or its designee) whereby Lender or its designee shall
have the right to distribute the Borrower's products on terms no
less favorable than are granted to other persons.
5.11 GOVERNING LAW This Agreement and the Note shall be governed
by and construed in accordance with the laws of the State of New
Jersey without giving effect to applicable principles of conflicts of
laws to the extent that the application of the law of another
jurisdiction would be required thereby.
5.12 DEFAULT. Any default under the Note shall operate as a
default under this Agreement.
5.13. FURTHER ASSURANCES. Each of the parties hereto
covenants, without the need for any additional consideration, that it
will take such further actions and execute upon request any further
documents as may be reasonably required to fully effectuate the terms,
conditions and intent of this Agreement.
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BORROWER'S SIGNATURE PAGE
IN WITNESS WHEREOF, Borrower has signed this Agreement as of the date first
written above.
The RiceX Company
By: /s/ Daniel L. McPeak
---------------------------------------
Daniel L. McPeak, Chairman of the Board
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LENDER'S SIGNATURE PAGE
IN WITNESS WHEREOF, Lender has signed this Agreement as of the date
first written above.
FoodCeuticals, LLC
By: /s/ Joseph Bellantoni
---------------------------------------
Name: Joseph Bellantoni
Title: Managing Member
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EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS AND,
ACCORDINGLY, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION OR
QUALIFICATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS.
THE RICEX COMPANY
$1,850,000 PROMISSORY NOTE
$1,850,000 El Dorado Hills, California December 31, 1998
THE RiceX COMPANY, a Delaware corporation (hereinafter called the
"Company," which term includes any directly or indirectly controlled
subsidiaries or successor entities), for value received, hereby promises to pay
to FoodCeuticals, LLC, a Delaware limited liability company, (hereinafter
called "Holder"), or its registered assigns, the principal sum of up to One
Million Eight-Hundred Fifty Thousand Dollars ($1,850,000), together with
interest on the amount of such principal sum, payable in accordance with the
terms set forth below and in the Loan Agreement between the Company and Holder
dated December 31, 1998 (the "Loan Agreement").
The obligations of the Company are subject to the terms of the Security
Documents (as defined in the Loan Agreement) and the Holder is entitled to the
benefits thereof and the remedies thereunder.
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. For all purposes of this Note, except as otherwise
expressly provided or unless the context otherwise requires: (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular; (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as promulgated from time to time by the
Association of
<PAGE>
Independent Certified Public Accountants; and (c) the words "herein," "hereof"
and "hereunder" and other words of similar import refer to this Note as a whole
and not to any particular Article, Section or other subdivision. Any term used
herein as a defined term and not otherwise defined herein, shall be defined as
set forth in the Loan Agreement.
"BOARD OF DIRECTORS" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
"BUSINESS DAY" means any day on which national banking associations in
the State of California are open for business.
"DEFAULT" means any event which is, or after notice or passage of time
would be, an Event of Default.
"EVENT OF DEFAULT" has the meaning specified in Section 3.1.
"INDEBTEDNESS" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (a) for the principal of and premium, if any, and
interest on all debts of the Person whether outstanding on the date of this Note
or thereafter created (i) for money borrowed by such Person (including
capitalized lease obligations), (ii) for money borrowed by others (including
capitalized lease obligations) and guaranteed, directly or indirectly, by such
Person, or (iii) constituting purchase money indebtedness, or indebtedness
secured by property at the time of the acquisition of such property by such
Person, for the payment of which the Person is directly or contingently liable;
(b) for all accrued obligations of the Person in respect of any contract,
agreement or instrument imposing an obligation upon the Person to pay over
funds; (c) for all trade debt of the Person; and (d) for all deferrals,
renewals, extensions and refundings of, and amendments, modifications and
supplements to, any of the indebtedness referred to in (a), (b) or (c) above.
"MATURITY DATE", when used with respect to this Note, means a date two
years from the date hereof, December 31, 1998, (or such earlier date upon which
this Note becomes due and payable under Section 3.2).
"NOTE" means this Promissory Note, as hereafter amended, modified,
substituted or replaced.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, estate,
other entity, unincorporated organization or government or any agency or
political subdivision thereof.
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"SECURITY DOCUMENTS" means the Security Documents entered into
concurrently and as specified pursuant to the Loan Agreement.
"SUBSIDIARY" means a corporation or other entity more than 50% of the
outstanding voting stock of which, or more than 50% of the equity interest in
which, is owned, directly or indirectly, by the Company or by one or more other
Subsidiaries of the Company, or by any combination of the Company and one or
more other Subsidiaries. For purposes of this definition, "voting stock" means
stock which ordinarily has voting power for the election of directors, whether
at all times or only so long as no senior class of stock has such voting power
by reason of any contingency.
ARTICLE II
PAYMENTS
2.1 PAYMENT OF INTEREST AND ISSUANCE OF WARRANTS.
(a) On the date of each advance hereunder, the Company shall instruct
its transfer agent to issue to Holder 50,847.5 shares of its
Common Stock, $.001 par value, for each $100,000 advanced. No
further interest shall be payable hereunder.
(b) On the date of each advance hereunder, the Company shall issue to
the Holder as and for a charge for placing and procuring the Loan
as of the date hereof a Warrant to purchase 202,353.5 shares of
its Common Stock, $.001 par value, for each $100,000 advanced.
(c) The payment of interest in shares of Common Stock and the
issuance of the Warrants under Sections 2.1 (a) and (b) shall be
immediately refundable to the Company, and Holder, upon the
Company repaying this Note in full within fourteen (14) days of
January 15, 1999, agrees to immediately return any such shares or
Warrants issued thereunder, if Holder fails to initiate the wire
transfer of $650,000 to the Company (or in accordance with its
instructions) not later than 11:00 am EST on January 15, 1999
(such initiation to be confirmed by telephonic confirmation to
the Company from Ms. Anna Marie Laugh, an employee of Summit
Bank, The Abbey Branch, Morristown, New Jersey (973)-682-4890).
If Holder initiates such wire transfer (confirmed as provided
above), Holder shall be entitled to keep the Warrants issued
under Section 2.1(b) representing in the aggregate Warrants to
purchase 3,743,540
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shares of Common Stock and prepaid interest in shares of Common
Stock aggregating 940,679 shares, such securities representing
the aggregate amounts required to be issued for the $1,850,000
Loan.
(d) Upon receipt by the Company of future advances in excess of the
$1,850,000 Loan by Holder hereunder and under the Loan Agreement,
any shares of Common Stock issued as prepaid interest and any
warrants to purchase Common Stock issued on the terms provided in
Sections 2.1(a) and (b) above, shall be non-refundable.
2.2 PAYMENT OF PRINCIPAL. The principal of this Note shall be due and
payable in full on the Maturity Date.
2.3 PREPAYMENTS. The Company may prepay the principal outstanding on this
Note, in whole or in part, at any time without penalty or premium, provided that
Holder shall be entitled to keep the shares of Common Stock and the Warrants
issued under Sections 2.1(a) and (b) above in accordance with Section 2.1(c) and
in no event shall any of such shares or Warrants, or any portion thereof, be
deemed to be a premium, penalty or unearned. Holder shall not be required to
return any shares of Common Stock or Warrants in the event of prepayment.
2.4 MANNER OF PAYMENT. Cash payments of principal on this Note will be
made by delivery of checks to Holder at its address as set forth in this Note or
wire transfers pursuant to instructions from Holder. If the date upon which the
payment of principal is required to be made pursuant to this Note occurs other
than on a Business Day, then such said payment date shall be the next Business
Day.
ARTICLE III
REMEDIES
3.1 EVENTS OF DEFAULT. An "Event of Default" occurs if:
(a) the Company defaults in the payment of the principal on this
Note or any other Note issued pursuant to the Loan Agreement when such
principal becomes due and payable and such default remains uncured for
a period of fifteen days; or
(b) the Company defaults in the performance of any covenant made
by the Company, and such default remains uncured for a period of 45
days, in any of
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(i) the Agreement; (ii) the Warrant issued by the Company to Holder; (iii)
the Registration Rights Agreement; or (iv) this Note or any other Note
issued pursuant to the Loan Agreement (other than a default in the
performance of a covenant specifically addressed elsewhere in this Section
3.1); PROVIDED THAT a default in the performance of any covenant in
Section 4.1 of this Note shall be an Event of Default immediately upon
occurrence; or
(c) any representation or warranty made by the Company in the
Agreement, the Warrant, the Registration Rights Agreement, or this
Note or any other Note issued pursuant to the Loan Agreement or in any
certificate furnished by the Company in connection with the
consummation of the transaction contemplated thereby or hereby, is
untrue in any material respect as of the date of making thereof and
such default remains uncured for a period of 45 days; or
(d) the Company or any Subsidiary defaults in the payment when
due (whether by lapse of time, by declaration, by call for redemption
or otherwise) of the principal of or interest on any Indebtedness of
the Company or such Subsidiary (other than the Indebtedness evidenced
by this Note and trade debt incurred in the ordinary course of
business) having an aggregate principal amount in excess of $100,000
or on any Indebtedness of the Company to any of its stockholders, and
such default remains uncured for a period of 45 days; or
(e) a court of competent jurisdiction enters a judgment or
judgments against the Company or any Subsidiary, or any property or
assets of the Company or any Subsidiary, for the payment of money
aggregating $100,000 or more in excess of applicable insurance
coverage and such default remains uncured for a period of 45 days; or
(f) a court of competent jurisdiction enters (i) a decree or
order for relief in respect of the Company or any Subsidiary in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or (ii) a
decree or order adjudging the Company or any Subsidiary a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in
respect of the Company or any Subsidiary under any applicable federal
or state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the
Company or any Subsidiary or of any substantial part of the property
of the Company or any Subsidiary or ordering the winding up or
liquidation of the affairs of the Company or any Subsidiary and any
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such decree or order of relief or any such other decree or order remains
unstayed for a period of 90 days from its date of entry; or
(g) the Company or any Subsidiary commences a voluntary case or
proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the Company
or any Subsidiary files a petition, answer or consent seeking
reorganization or relief under any applicable federal or state law, or
the Company or any Subsidiary makes an assignment for the benefit of
creditors, or admits in writing its inability to pay its debts
generally as they become due;
(h) any person or group (within the meaning of Section 13(d) of
the Securities Exchange Act of 1934) becomes the beneficial owner of
30% or more of the total voting power of the Company and was not the
beneficial owner of 30% or more of the total voting power of the
Company as of the date hereof; provided that the foregoing shall not
include any person or group who or which acquires the Warrant or
shares of the Company's Common Stock issuable upon exercise of the
Warrant; and further provided that such default has not been cured or
waived within ninety (90) days following such change of beneficial
ownership; or
(i) the Company or any Subsidiary (1) merges or consolidates
with or into any other Person (unless the Company or any of its
Subsidiaries is the surviving or acquiring party); (2) dissolves or
liquidates; or (3) sells all or any substantial portion of its assets
(unless the purchaser is a Subsidiary of the Company).
3.2 ACCELERATION OF MATURITY. This Note shall automatically become
immediately due and payable if an Event of Default described in Sections 3.1(f),
3.1(g) or 3.1(i) occurs and, this Note shall, at the option of the Holder in its
sole discretion, become immediately due and payable if any other Event of
Default occurs, and in every such case the Holder of the Note may declare the
principal on the Note to be due and payable immediately.
ARTICLE IV
COVENANTS
The Company covenants and agrees that, so long as this Note is outstanding:
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4.1 PAYMENT OF PRINCIPAL AND ACCRUED INTEREST. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note and will
prepay interest thereon from the date hereof to the Maturity Date in accordance
with the terms hereof and of the Loan Agreement.
4.2 CORPORATE EXISTENCE. The Company will, and will cause each Subsidiary
to, do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, rights (charter and statutory) and
franchises; provided, however, that the Company or a Subsidiary shall not be
required to preserve any such right or franchise if it shall reasonably
determine that the preservation thereof is no longer desirable in the conduct of
its business.
4.3 TAXES; CLAIMS; ETC. The Company will, and will cause each Subsidiary
to, promptly pay and discharge all lawful taxes, assessments, and governmental
charges or levies imposed upon it or upon its income or profits, or upon any of
its properties, real, personal, or mixed, before the same shall become in
default, as well as all lawful claims for labor, materials, and supplies or
otherwise which, if unpaid, might become a lien or charge upon such properties
or any part thereof, and which lien or charge will have a material adverse
effect on the business of the Company; provided, however, that neither the
Company nor any Subsidiary shall be required to pay or cause to be paid any such
tax, assessment, charge, levy, or claim prior to institution of foreclosure
proceedings if the validity thereof shall concurrently be contested in good
faith by appropriate proceedings and if the Company shall have established
reserves deemed by the Company adequate with respect to such tax, assessment,
charge, levy, or claim.
4.4 MAINTENANCE OF EXISTENCE AND PROPERTIES. The Company will, and will
cause each Subsidiary to, keep its material properties in good repair, working
order, and condition, ordinary wear and tear excepted, so that the business
carried on may be properly conducted at all times in accordance with prudent
business management.
4.5 SEC REPORTS. The Company will deliver to the Holder within 20 days
after it files them with the SEC, copies of its annual and quarterly reports and
of the information, documents, and other reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe) which
the Company is required or elects to file with the SEC pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934. The Company will timely comply
with its reporting and filing obligations under the applicable federal
securities laws.
4.6 NOTICE OF DEFAULTS. The Company will promptly notify the Holder in
writing of the occurrence of (i) any Event of Default under this Note, and (ii)
any event of default (or if any event of default would result upon any payment
with respect to this Note) with respect to any
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Indebtedness as such event of default is defined therein or in the instrument
under which it is outstanding, permitting holders to accelerate the maturity of
such Indebtedness.
4.7 COMPLIANCE WITH LAWS. The Company will promptly comply with all laws,
ordinances and governmental rules and regulations to which it is subject, the
violation of which would materially and adversely affect the Company.
4.8 AMENDMENTS TO CHARTER AND BY-LAWS. The Company will not amend or
modify its Charter or By-Laws without the unanimous consent of the Company's
Board of Directors.
4.9 ELECTION OF DIRECTORS. The Company will use its best efforts to cause
the election, at all shareholders' meetings called for the purpose of electing
directors of the Company or in any other action taken to elect such directors,
of two persons designated by the holders of a majority in principal amount of
Notes outstanding under the Loan Agreement as nominees (the "Designated
Directors"). If a vacant directorship arises due to the resignation or
disability of a Designated Director, or if a Designated Director is removed for
any reason, so long as the Note is outstanding, the Company will use its best
efforts to cause the appointment of another person so designated by the Holders
to replace the Designated Director.
ARTICLE V
MISCELLANEOUS
5.1 CONSENT TO AMENDMENTS. This Note may be amended, and the Company may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, if and only if the Company shall obtain the written consent
to such amendment, action or omission to act from the holders of a majority of
the aggregate principal amount of this Note.
5.2 BENEFITS OF NOTE. Nothing in this Note, express or implied, shall
give to any Person, other than the Company, Holder, and their successors any
benefit or any legal or equitable right, remedy or claim under or in respect of
this Note.
5.3 SUCCESSORS AND ASSIGNS. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
5.4 TRANSFER OF NOTE. This Note is transferable in the same manner and
with the same effect as in the case of a negotiable instrument payable to a
specified person. Any lender to which Holder grants a security interest in this
Note shall be entitled to exercise all remedies to
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which it is entitled by contract or by law, including (without limitation)
transferring this Note into its own name or into the name of any purchaser at
any sale undertaken in connection with enforcement by such lender of its
remedies.
5.5 NOTICE; ADDRESS OF PARTIES. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the third business day after being sent as certified or registered
mail, postage and charges prepaid, to the following addresses: if to the
Company: The RICEX Company, 1241 Hawk's Flight Court, El Dorado Hills,
California 95762, Attention, Daniel L. McPeak, Chairman of the Board, or at any
other address designated by the Company in writing to Holder; if to the Holder:
FoodCeuticals, LLC., The Abbey, 355 Madison Avenue, Morristown, New Jersey
07960, or at any other address designated by Holder to the Company in writing.
5.6 SEPARABILITY CLAUSE. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
5.7 GOVERNING LAW. This Note shall be governed by, and construed in
accordance with, the internal laws of the State of New Jersey (without regard to
principles of choice of law).
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5.8 USURY. It is the intention of the parties hereto to conform strictly
to the applicable laws of the State of New Jersey and the United States of
America, and judicial or administrative interpretations or determinations
thereof regarding the contracting for, charging and receiving of interest for
the use, forbearance, and detention of money (hereinafter referred to in this
Section 5.8 as "Applicable Law"). The Holder shall have no right to claim, to
charge or to receive any interest in excess of the maximum rate of interest, if
any, permitted to be charged on that portion of the amount representing
principal which is outstanding and unpaid from time to time by Applicable Law.
Determination of the rate of interest for the purpose of determining whether
this Note is usurious under Applicable Law shall be made by amortizing,
prorating, allocating and spreading in equal parts during the period of the
actual time of this Note, all interest or other sums deemed to be interest
(hereinafter referred to in this Section 5.8 as "Interest") at any time
contracted for, charged or received from the Company in connection with this
Note. Any Interest contracted for, charged or received in excess of the maximum
rate allowed by Applicable Law shall be deemed a result of a mathematical error
and a mistake. If this Note is paid in part prior to the end of the full stated
term of this Note and the Interest received for the actual period of existence
of this Note exceeds the maximum rate allowed by Applicable Law, Holder shall
credit the amount of the excess against any amount owing under this Note or, if
this Note has been paid in full, or in the event that it has been accelerated
prior to maturity, Holder shall refund to the Company the amount of such excess,
and shall not be subject to any of the penalties provided by Applicable Law for
contracting for, charging or receiving Interest in excess of the maximum rate
allowed by Applicable Law. Any such excess which is unpaid shall be canceled.
The RiceX Company
By: /s/ D.L. McPeak
---------------------------------------
Daniel L. McPeak, Chairman of the Board
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Registration Rights Agreement")
is made December 31, 1998, by and between The RiceX Company, a Delaware
corporation (the "Company"), and FoodCeuticals, LLC, a Delaware limited
liability company (the "Purchaser").
WHEREAS, on the date hereof, Purchaser agreed to loan to the Company money
and the Company has agreed to issue the Promissory Notes in the original
principal amount of up to $1,850,000;
WHEREAS, on the date hereof, the Company agreed to issue to the Purchaser
as prepaid interest up to 940,679 shares (the "Shares") of the Company's Common
Stock, par value $.001 per share ("Common Stock") and one or more Common Stock
Purchase Warrants (the "Warrant") which may be exercised to acquire up to
3,743,540 shares of Common Stock, subject to adjustment (the "Warrant Shares");
and
WHEREAS, the Company wishes to grant the Purchaser certain registration
rights in respect of the Shares and the Warrant Shares, as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set
forth below:
1.1 "COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
1.2 "HOLDER" shall mean Purchaser and any transferee of any Warrants or
holder of any Shares issued upon exercise of any Warrants.
1.3 "REGISTRABLE SECURITIES" shall mean (i) the Shares; (ii) the Warrant
Shares and (iii) any Common Stock issued or issuable at any time or from time to
time in respect of the Shares or the Warrant Shares upon a stock split, stock
dividend, recapitalization or other similar event involving the Company until
such Common Stock is sold pursuant to a Registration Statement or the exemption
from registration under Rule 144(k) (or successor Rule) under the Securities Act
is available with respect to the Shares.
1.4 The terms "REGISTER", "REGISTERED", and "REGISTRATION" refer to a
registration
<PAGE>
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering by the Commission of the
effectiveness of such registration statement.
1.5 "REGISTRATION EXPENSES" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with this
Registration Rights Agreement, including, without limitation, all registration,
qualification and filing fees, exchange listing fees, printing expenses, escrow
fees, fees and disbursements of counsel for the Company, blue sky fees and
expenses, the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company and excluding commissions and
discounts payable by Purchaser with respect to the sale of any Registerable
Securities).
1.6 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
1.7 "SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Purchaser and, except as set forth above, all fees and disbursements of
counsel for the Purchaser.
1.8 "UNDERWRITTEN PUBLIC OFFERING" shall mean a public offering in which
the Common Stock is offered and sold on a firm commitment basis through one or
more underwriters, all pursuant to an underwriting agreement between the Company
and such underwriters.
ARTICLE II
REGISTRATION RIGHTS
2.1 DEMAND REGISTRATION.
2.1.1 On demand of Purchaser, or, in the event there is more than
one holder of Warrants, on demand of the holders of a majority of the shares
issuable on exercise of the Warrants, the Company shall file with the Securities
and Exchange Commission a shelf registration statement covering the resale of
the Shares on Form SB-2 or other available form (the "Registration Statement")
which shall remain effective for the lesser of: (i) 2 years, or (ii) until such
time as the Holder does not beneficially own any Registrable Securities. The
Company shall use its reasonable best efforts to cause such Registration
Statement to become effective as soon as practicable and to cause the Shares to
be qualified in such state jurisdictions as the Purchaser may reasonably
request. A demand for registration hereunder may be made on not more than two
(2) occasions.
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<PAGE>
2.1.2 Except as set forth herein, the Company shall take all
reasonable steps necessary to keep the Registration Statement current and
effective until all Shares have been distributed by the Purchaser including any
necessary refiling of additional registration statements.
2.1.3 The Company shall be entitled to require that the parties
refrain from effecting any public sales or distributions of the Registrable
Securities pursuant to a Registration Statement that has been declared effective
by the Commission or otherwise, if the board of directors of the Company
reasonably determines in good faith that such public sales or distributions
would interfere in any material respect with any transaction involving the
Company that the board of directors reasonably determines to be material to the
Company or there is any other development that renders the Registration
Statement materially misleading. The board of directors shall, as promptly as
practicable, give the Purchaser written notice of any such development. In the
event of a request by the board of directors of the Company that the Purchaser
refrain from effecting any public sales or distributions of the Registrable
Securities, the Company shall be required to lift such restrictions regarding
effecting public sales or distributions of the Registrable Securities as soon as
reasonably practicable after the board of directors shall reasonably determine
public sales or distributions by the Purchaser of the Registrable Securities
shall not interfere with such transaction, or that such development has been
disclosed.
2.2 PIGGYBACK REGISTRATION.
2.2.1 Subject to the terms hereof, if: (i) at any time or from
time to time the Company or any shareholder of the Company shall determine to
register any of its securities (except for registration statements on Form S-8
or relating to employee benefit plans or exchange offers), either for its own
account or the account of a security holder; and (ii) the Purchaser is the
beneficial owner of any Warrant or Registrable Securities; the Company will
promptly give to the Purchaser written notice thereof no less than 10 days prior
to the filing of any registration statement; and include in such registration
(and any related qualification under blue sky laws or other compliance), and in
the underwriting involved therein, if any, such Registrable Securities as
Purchaser may request in a writing delivered to the Company within 5 days after
Purchaser's receipt of Company's written notice.
2.2.2 The Purchaser may participate in any number of registrations
until all of the Registrable Securities held by such Purchaser have been
distributed pursuant to a registration.
2.2.3 If any registration statement is an Underwritten Public
Offering, the right of the Purchaser to registration pursuant to this Section
shall be conditioned upon such Purchaser's participation in such reasonable
underwriting arrangements as the Company shall make regarding the offering, and
the inclusion of Registrable Securities in the underwriting shall be limited to
the
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<PAGE>
extent provided herein. The Purchaser and all other shareholders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section, if the managing underwriter
concludes in its reasonable judgment that the number of shares to be registered
for selling shareholders (including the Purchaser) would materially adversely
effect such offering, the number of Shares to be registered, together with the
number of shares of Common Stock or other securities held by other shareholders
proposed to be registered in such offering, shall be reduced or eliminated on a
pro rata basis based on the number of Shares proposed to be sold by the
Purchaser as compared to the number of shares proposed to be sold by all
shareholders. If the Purchaser disapproves of the terms of any such
underwriting, it may elect to withdraw therefrom by written notice to the
Company and the managing underwriter, delivered not less than ten days before
the effective date. The Registrable Securities excluded by the managing
underwriter or withdrawn from such underwriting shall be withdrawn from such
registration, and shall not be transferred in a public distribution prior to 60
days after the effective date of the registration statement relating thereto, or
such other shorter period of time as the underwriters may require.
2.2.4 The Company shall have the right to terminate or withdraw
any registration initiated by it under this Section prior to the effectiveness
of such registration whether or not the Purchaser has elected to include
securities in such registration.
2.3 EXPENSES OF REGISTRATION. All Registration Expenses shall be borne by
the Company. Unless otherwise stated herein, all Selling Expenses relating to
securities registered on behalf of the Purchaser shall be borne by the
Purchaser.
2.4 BEST REGISTRATION RIGHTS. If, on or after the date of this
Registration Rights Agreement, the Company grants to any person with respect to
any security issued by the Company or any of its Subsidiaries registration
rights that provide for terms that are in any manner more favorable to the
holder of such registration rights than the terms granted to the Purchaser (or
if the Company amends or waives any provision of any agreement providing
registration rights to others or takes any other action whatsoever to provide
for terms that are more favorable to other holders than the terms provided to
the Purchaser) then this Registration Rights Agreement shall immediately be
deemed amended to provide the Purchaser with any (and all) of such more
favorable terms as the Purchaser shall elect to include herein.
2.5 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep the Purchaser advised in
writing as to the initiation of each registration, qualification and
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<PAGE>
compliance and as to the completion thereof. At its expense, the Company will:
2.5.1 Prepare and file with the Commission a registration
statement with respect to such securities and use its commercially reasonable
efforts to cause such registration statement to become and remain effective as
promptly as practicable until the distribution described in such registration
statement has been completed;
2.5.2 Furnish to each underwriter such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such underwriter
may reasonably request in order to facilitate the public sale of the shares by
such underwriter, and promptly furnish to each underwriter and the Purchaser
notice of any stop-order or similar notice issued by the Commission or any state
agency charged with the regulation of securities, and notice of any Nasdaq or
securities exchange listing.
2.5.3 Use its best efforts to cause the Shares to be listed on the
Nasdaq SmallCap Market and each Securities Exchange on which the Common Stock is
approved for listing.
2.6 INDEMNIFICATION.
2.6.1 To the extent permitted by law, the Company will indemnify
the Purchaser, each of its officers and directors and partners, and each person
controlling the Purchaser within the meaning of Section 15 of the Securities
Act, with respect to which registration, qualification or compliance has been
effected pursuant to this Agreement, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, to the extent such
expenses, claims, losses, damages or liabilities arise out of or are based on
any untrue statement (or alleged untrue statement) of a material fact contained
in any registration statement, prospectus, offering circular or other similar
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse Purchaser, each of
its officers and directors and partners, and each person controlling Purchaser,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action; provided, however, that the indemnity contained herein shall not apply
to amounts paid in
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<PAGE>
settlement of any claim, loss, damage, liability or expense if settlement is
effected without the consent of the Company (which consent shall not
unreasonably be withheld); provided, further, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by Purchaser, such
controlling person or such underwriter specifically for use therein.
Notwithstanding the foregoing, insofar as the foregoing indemnity relates to any
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the registration
statement becomes effective or in the final prospectus filed with the Commission
pursuant to the applicable rules of the Commission or in any supplement or
addendum thereto, the indemnity agreement herein shall not inure to the benefit
of any underwriter if a copy of the final prospectus filed pursuant to such
rules, together with all supplements and addenda thereto, was not furnished to
the person or entity asserting the loss, liability, claim or damage at or prior
to the time such furnishing is required by the Securities Act.
2.6.2 To the extent permitted by law, the Purchaser will, if
securities held by the Purchaser are included in the securities as to which
such registration, qualification or compliance is being effected pursuant to
terms hereof, indemnify the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, and each other person selling the
Company's securities covered by such registration statement, each of such
person's officers and directors and each person controlling such persons within
the meaning of Section 15 of the Securities Act, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by Purchaser of any rule or regulation
promulgated under the Securities Act applicable to Purchaser and relating to
action or inaction required of Purchaser in connection with any such
registration, qualification or compliance, and will reimburse the Company, such
other persons, such directors, officers, persons, underwriters or control
persons for any legal or other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Purchaser specifically for use therein; provided, however, that
the indemnity contained herein shall not apply to amounts paid in settlement of
any claim, loss, damage, liability or expense if settlement is effected without
the
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<PAGE>
consent of such Purchaser (which consent shall not be unreasonably withheld).
Notwithstanding the foregoing, the liability of such Purchaser under this
subsection (b) shall be limited in an amount equal to the net proceeds from the
sale of the shares sold by Purchaser, unless such liability arises out of or is
based on willful conduct by Purchaser. In addition, insofar as the foregoing
indemnity relates to any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the Commission at the time
the registration statement becomes effective or in the final prospectus filed
pursuant to applicable rules of the Commission or in any supplement or addendum
thereto, the indemnity agreement herein shall not inure to the benefit of the
Company or any underwriter if a copy of the final prospectus filed pursuant to
such rules, together with all supplements and addenda thereto, was not furnished
to the person or entity asserting the loss, liability, claim or damage at or
prior to the time such furnishing is required by the Securities Act.
2.6.3 Notwithstanding the foregoing paragraphs (a) and (b) of this
Section, each party entitled to indemnification under this Section (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or as to which the
Indemnifying Party is asserting separate or different defenses, which defenses
are inconsistent with the defenses of the Indemnified Party. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. No Indemnified Party shall
consent to entry of any judgment or enter into any settlement without the
consent of each Indemnifying Party.
2.6.4 If the indemnification provided for in this Section is
unavailable to an Indemnified Party in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the
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<PAGE>
Company on the one hand and all shareholders offering securities in the offering
(the "Selling Security Holders") on the other from the offering of the Company's
securities, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Selling Security Holders on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Selling Security Holders on the other shall be the net proceeds from the
offering (before deducting expenses) received by the Company on the one hand and
the Selling Security Holders on the other. The relative fault of the Company on
the one hand and the Selling Security Holders on the other shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the Selling
Security Holders and the parties' relevant intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Selling Security Holders agree that it would not be just and
equitable if contribution pursuant to this Section were based solely upon the
number of entities from whom contribution was requested or by any other method
of allocation which does not take account of the equitable considerations
referred to above in this Section. The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages and liabilities referred to
above in this Section 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, subject to the provisions hereof.
Notwithstanding the provisions of this Section, no Selling Security Holder shall
be required to contribute any amount or make any other payments under this
Agreement which in the aggregate exceed the proceeds received by such Selling
Security Holder. No person guilty of fraudulent misrepresentation (within the
meaning of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
2.7 CERTAIN INFORMATION.
2.7.1 The Purchaser agrees, with respect to any Registrable
Securities included in any registration, to furnish to the Company such
information regarding Purchaser, the Registrable Securities and the distribution
proposed by the Purchaser as the Company may reasonably request in writing and
as shall be required in connection with any registration, qualification or
compliance referred to herein.
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<PAGE>
2.7.2 The failure of the Purchaser to furnish the information
requested pursuant to this Section shall not affect the obligation of the
Company to the other Selling Security Holders who furnish such information
unless, in the reasonable opinion of counsel to the Company or the underwriters,
such failure impairs or may impair the legality of the Registration Statement or
the underlying offering.
2.8 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of Restricted Securities (used herein as defined in Rule 144 under the
Securities Act) to the public without registration, the Company agrees to use
its best lawful efforts to:
2.8.1 Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
during which the Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act");
2.8.2 File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at all times during which the Company is subject to such reporting
requirements); and
2.8.3 So long as the Purchaser owns any Restricted Securities (as
defined in Rule 144 promulgated under the Securities Act), to furnish to
Purchaser forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 and with regard to
the Securities Act and the Exchange Act (at all times during which the Company
is subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company and other information in the possession of or reasonably obtainable by
the Company as the Purchaser may reasonably request in availing itself of any
rule or regulation of the Commission allowing the Purchaser to sell any such
securities without registration.
2.9 TRANSFERABILITY. The rights conferred by this Agreement shall be
freely transferable to a recipient of Registrable Securities.
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<PAGE>
2.10 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of Delaware.
2.11 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject hereof. This Agreement, or any provision hereof, may be amended,
waived, discharged or terminated upon the written consent of the Company and the
Purchaser.
2.12 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger
including Federal Express or similar courier service, addressed (a) if to the
Purchaser: to Madison Avenue Financial Corp., The Abbey, 355 Madison Avenue,
Morristown, New Jersey 07960, or at such other address as the Purchaser shall
have furnished to the Company in writing, or (b) if to the Company: to The
RiceX Company, 1241 Hawk's Flight Court, El Dorado Hills, California 95762,
Attention, Daniel L. McPeak, Chairman of the Board, or at such other address as
the Company shall have furnished to the Purchaser. Each such notice or other
communication shall for all purposes of this Agreement be treated as effective
upon receipt.
2.13 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to any party to this
Agreement shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party to this Agreement, shall be cumulative and not alternative.
2.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
2.15 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
2.16 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not considered in construing or
interpreting this Agreement.
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<PAGE>
THE COMPANY'S SIGNATURE PAGE
IN WITNESS WHEREOF, the Company has executed this agreement effective upon
the date first set forth above.
The RiceX Company
By: /s/ D.L. McPeak
------------------------------------
Daniel L. McPeak, Chairman of the Board
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<PAGE>
THE PURCHASER'S SIGNATURE PAGE
IN WITNESS WHEREOF, the Purchaser has signed this Agreement as of the date
first written above.
FoodCeuticals, LLC
By: /s/ Joseph L. Bellantoni
------------------------------------
Name: Joseph L. Bellantoni
Title: Managing Member
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<PAGE>
THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE
THEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY,
THE SECURITIES REPRESENTED BY THIS WARRANT MAY NOT BE RESOLD, PLEDGED, OR
OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT
AND IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS.
WARRANT
to Purchase Common Stock of
THE RICEX COMPANY
Warrant Number 98-1 Expiring on December 31, 2003
This Warrant to Purchase Common Stock (the "Warrant") certifies that for
value received, FoodCeuticals, LLC a Delaware limited liability company (the
"Holder"), or its registered assigns, is entitled to subscribe for and purchase
from the Company (as hereinafter defined), in whole or in part, 2,428,242 shares
of duly authorized, validly issued, fully paid and non-assessable shares of
Common Stock (as hereinafter defined) at an initial Exercise Price (as
hereinafter defined), subject, however, to the provisions and upon the terms and
conditions hereinafter set forth. The number of Warrants (as hereinafter
defined), the number of shares of Common Stock purchasable hereunder, and the
Exercise Price therefor are subject to adjustment as hereinafter set forth.
This Warrant and all rights hereunder shall expire at 5:00PM, New York City
time, on December 31, 2003.
As used herein, the following terms shall have the meanings set forth
below:
"COMPANY" shall mean The RiceX Company, a Delaware corporation, and shall
also include any successor thereto with respect to the obligations hereunder, by
merger, consolidation or otherwise.
"COMMON STOCK" shall mean and include the Company's Common Stock, par value
$0.001 per share, authorized on the date of the original issue of this Warrant
and shall also include (i) in case of any reorganization, reclassification,
consolidation, merger, share exchange
<PAGE>
or sale, transfer or other disposition of assets of the character referred to in
Section 3.5 hereof, the stock, securities provided for in such Section 3.5, and
(ii) any other shares of common stock of the Company into which such shares of
Common Stock may be converted.
"EXERCISE PRICE" shall mean the initial purchase price of $0.75 per share
of Common Stock payable upon exercise of the Warrant. The Exercise Price shall
be adjusted from time to time pursuant to the provisions hereof.
"MARKET PRICE" for any day, when used with reference to Common Stock, shall
mean the price of said Common Stock determined as follows: (i) the last reported
sale price for the Common Stock on such day on the principal securities exchange
on which the Common Stock is listed or admitted to trading or if no such sale
takes place on such date, the average of the closing bid and asked prices
thereof as officially reported, or, if not so listed or admitted to trading on
any securities exchange, the last sale price for the Common Stock on the
National Association of Securities Dealers National Market System or SmallCap
Market on such date, or, if there shall have been no trading on such date or if
the Common Stock shall not be listed on such system, the average of the closing
bid and asked prices in the over-the-counter market as furnished by any NASD
member firm selected from time to time by the Company for such purpose, in each
such case, unless otherwise provided herein, averaged over a period of ten (10)
consecutive Trading Days ending two (2) days prior to the date as of which the
determination is to be made; or (ii) if the Common Stock shall not be listed or
admitted to trading or the closing bid and asked prices are unable to be
furnished by an NASD member firm, as provided in clause (i) above, the fair
market value of the Common Stock as determined in good faith by the Board of
Directors of the Company.
"NOTES" shall mean the Promissory Notes of the Company issued to the Holder
as of the date hereof in the original principal amount of up to $4,000,000, as
may be amended, modified, substituted or replaced.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof, estate or other
entity.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement dated the date hereof between the Company and the Holder providing for
the registration of the Common Stock under the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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<PAGE>
"TRADING DAYS" shall mean any days during the course of which the principal
securities exchange on which the Common Stock is listed or admitted to trading
is open for the exchange of securities.
"WARRANT" shall mean the right upon exercise to purchase one Warrant Share.
"WARRANT SHARES" shall mean the shares of Common Stock purchased or
purchasable by the holder hereof upon the exercise of the Warrants.
ARTICLE I
EXERCISE OF WARRANTS
1.1 METHOD OF EXERCISE. The Warrants represented hereby may be exercised
by the holder hereof, in whole or in part, at any time and from time to time on
or after the date hereof until 5:00PM, New York City time, on December 31, 2003.
To exercise the Warrants, the holder hereof shall deliver to the Company, at the
Warrant Office designated in Section 2.1 hereof, (i) a written notice in the
form of the Subscription Notice attached as an exhibit hereto, stating therein
the election of such holder to exercise the Warrants in the manner provided in
the Subscription Notice; (ii) payment in full of the Exercise Price (A) in cash
or by bank check for all Warrant Shares purchased hereunder, or (B) through a
"cashless" or "net-issue" exercise of each such Warrant ("Cashless Exercise");
the holder shall exchange each Warrant subject to a Cashless Exercise for that
number of Warrant Shares determined by multiplying the number of Warrant Shares
issuable hereunder by a fraction, the numerator of which shall be the difference
between (x) the Market Price and (y) the Exercise Price for each such Warrant,
and the denominator of which shall be the Market Price; the Subscription Notice
shall set forth the calculation upon which the Cashless Exercise is based, or
(C) a combination of (A) and (B) above; and (iii) this Warrant. The Warrants
shall be deemed to be exercised on the date of receipt by the Company of the
Subscription Notice, accompanied by payment for the Warrant Shares and surrender
of this Warrant, as aforesaid, and such date is referred to herein as the
"Exercise Date". Upon such exercise, the Company shall, as promptly as
practicable and in any event within three (3) business days, issue and deliver
to such holder a certificate or certificates for the full number of the Warrant
Shares purchased by such holder hereunder, and shall, unless the Warrants have
expired, deliver to the holder hereof a new Warrant representing the number of
Warrants, if any, that shall not have been exercised, in all other respects
identical to this Warrant. As permitted by applicable law, the Person in whose
name the certificates for Common Stock are to be issued shall be deemed to have
become a holder of record of such Common Stock on the Exercise Date and shall be
entitled to all of the benefits of such holder on the Exercise Date, including
without
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limitation, the right to receive dividends and other distributions for which the
record date falls on or after the Exercise Date and the right to exercise voting
rights.
1.2 EXPENSES AND TAXES. The Company shall pay all expenses and taxes
(including, without limitation, all documentary, stamp, transfer or other
transactional taxes) other than income taxes attributable to the preparation,
issuance or delivery of the Warrants and of the shares of Common Stock issuable
upon exercise of the Warrants.
1.3 RESERVATION OF SHARES. The Company shall reserve at all times so long
as the Warrants remain outstanding, free from preemptive rights, out of its
treasury Common Stock or its authorized but unissued shares of Common Stock, or
both, solely for the purpose of effecting the exercise of the Warrants, a
sufficient number of shares of Common Stock to provide for the exercise of the
Warrants.
1.4 VALID ISSUANCE. All shares of Common Stock that may be issued upon
exercise of the Warrants will, upon issuance by the Company, be duly and validly
issued, fully paid and non-assessable and free from all taxes, liens and charges
with respect to the issuance thereof and, without limiting the generality of the
foregoing, the Company shall take no action or fail to take any action which
will cause a contrary result (including, without limitation, any action that
would cause the Exercise Price to be less than the par value, if any, of the
Common Stock).
1.5 LOAN AGREEMENT. The Warrants represented hereby are part of a duly
authorized issuance of warrants to purchase Common Stock issued as prepaid
interest pursuant to that certain Loan Agreement dated December 31, 1998 (the
"Loan Agreement"), between the Company and the Holder. The holder hereof shall
be entitled to registration under the Securities Act and any applicable state
securities or blue sky laws to the extent set forth in the Registration Rights
Agreement, as it may hereafter be amended. The terms of the Loan Agreement are
hereby incorporated herein for all purposes and shall be considered a part of
this Warrant as if they had been fully set forth herein. Notwithstanding the
previous sentence, in the event of any conflict between the provisions of the
Loan Agreement and of this Warrant, the provisions of this Warrant shall
control.
1.6 ACKNOWLEDGMENT OF RIGHTS. At the time of the exercise of the Warrants
in accordance with the terms hereof and upon the written request of the holder
hereof, the Company will acknowledge in writing its continuing obligation to
afford to such holder any rights (including, without limitation, any right to
registration of the Warrant Shares) to which such holder shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant;
PROVIDED, HOWEVER, that if the holder hereof shall fail to make any such
request, such
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failure shall not affect the continuing obligation of the Company to afford to
such holder any such rights.
1.7 NO FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If more than
one Warrant shall be presented for exercise at the same time by the same holder,
the number of full shares of Common Stock which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number of whole shares
of Common Stock purchasable on exercise of the Warrants so presented. If any
fraction of a share of Common Stock would, except for the provisions of this
Section 1.7, be issuable on the exercise of this Warrant, the Company shall pay
an amount in cash calculated by it to be equal to the Market Price of one share
of Common Stock at the time of such exercise multiplied by such fraction
computed to the nearest whole cent.
ARTICLE II
TRANSFER
2.1 WARRANT OFFICE. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's offices at The RiceX Company, 1241 Hawk's Flight Court, El
Dorado Hills, California 95762, Attention, Daniel L. McPeak, Chairman of the
Board, and may subsequently be such other office of the Company or of any
transfer agent of the Common Stock in the continental United States as to which
written notice has previously been given to the holder hereof. The Company
shall maintain, at the Warrant Office, a register for the Warrants in which the
Company shall record the name and address of the Person in whose name this
Warrant has been issued, as well as the name and address of each permitted
assignee of the rights of the registered owner hereof.
2.2 OWNERSHIP OF WARRANTS. The Company may deem and treat the Person in
whose name the Warrants are registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Article II. Notwithstanding the foregoing, the Warrants
represented hereby, if properly assigned in compliance with this Article II, may
be exercised by an assignee for the purchase of Warrant Shares without having a
new Warrant issued.
2.3 RESTRICTIONS ON TRANSFER OF WARRANTS. The Company agrees to maintain
at the Warrant Office books for the registration and transfer of the Warrants.
Subject to the restrictions
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on transfer of the Warrants in this Section 2.3, the Company, from time to time,
shall register the transfer of the Warrants in such books upon surrender of this
Warrant at the Warrant Office properly endorsed or accompanied by appropriate
instruments of transfer and written instructions for transfer satisfactory to
the Company. Upon any such transfer and upon payment by the holder or its
transferee of any applicable transfer taxes, new Warrants shall be issued to the
transferee and the transferor (as their respective interests may appear) and the
surrendered Warrants shall be canceled by the Company. The Company shall pay
all taxes (other than securities transfer taxes or income taxes) and all other
expenses and charges payable in connection with the transfer of the Warrants
pursuant to this Section 2.3.
2.3.1 RESTRICTIONS IN GENERAL. The holder of the Warrants agrees
that it will not transfer the Warrants unless registration of such Warrant
Shares under the Securities Act and any applicable state securities or blue sky
laws has become effective or the holder has provided to the Company an opinion
of counsel acceptable to the Company that such registration is not required.
Prior to any transfer as provided herein, the transferor shall provide written
notice to the Company and an opinion of counsel to the effect that the proposed
transfer is exempt from registration under all applicable securities laws, all
in form and substance reasonably satisfactory to the Company. Any lender or
lenders to which the Holder grants a security interest in the Warrants shall be
entitled to exercise all remedies to which it is entitled by contract or by law,
including (without limitation) transferring the Warrants into its own name or
into the name of any purchaser at any sale undertaken in connection with
enforcement by such lender of its remedies.
2.4 COMPLIANCE WITH SECURITIES LAWS. Subject to the terms of the
Registration Rights Agreement, and notwithstanding any other provisions
contained in this Warrant except Section 2.3.1, the holder hereof understands
and agrees that the following restrictions and limitations shall be applicable
to all Warrant Shares and to all resales or other transfers thereof pursuant to
the Securities Act:
2.4.1 The holder hereof agrees that the Warrant Shares shall not
be sold or otherwise transferred unless the Warrant Shares are registered under
the Securities Act and applicable state securities or blue sky laws or are
exempt therefrom.
2.4.2 A legend in substantially the following form will be placed
on the certificate(s) evidencing the Warrant Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES
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ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE SECURITIES REPRESENTED
BY THIS CERTIFICATE MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE
SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES
LAWS."
2.4.3 Stop transfer instructions will be imposed with respect to
the Warrant Shares so as to restrict resale or other transfer thereof, subject
to this Section 2.4.
ARTICLE III
ANTI-DILUTION
3.1 ANTI-DILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the Exercise Price, the holder of this Warrant shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
shares of Common Stock obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
3.2 ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF COMMON STOCK.
3.2.1 (a) If and whenever after the date hereof the Company shall
issue or sell any Common Stock for no consideration or for a consideration per
share less than the Exercise Price then, forthwith, upon such issue or sale, the
Exercise Price shall be reduced (but not increased, except as otherwise
specifically provided in Section 3.2.2(c) hereof), to a price equal to the price
at which the shares were issued (calculated to the nearest one ten-thousandth of
a cent, but in any event not less than $0.001 per share).
(b) Notwithstanding the provisions of this Section 3.2, no adjustment
shall be made in the Exercise Price in the event that the Company issues, in one
or more transactions, (i) Common Stock or convertible securities upon exercise
of any options issued to officers, directors or employees of the Company
pursuant to a stock option plan or an employment, severance or
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consulting agreement as now or hereafter in effect, in each case approved by the
Board of Directors (provided that the aggregate number of shares of Common Stock
which may be issuable, including options issued prior to the date hereof, under
all such employee plans and agreements shall at no time exceed the number of
such shares of Common Stock that are issuable under currently effective employee
plans and agreements); (ii) Common Stock upon exercise of the Warrants or any
other warrant issued pursuant to the terms of the Agreement or otherwise issued
to the Holder; or (iii) Common Stock upon exercise of any stock purchase
warrant or option (other than the options referred to in clause (i) above) or
other agreement to issue shares of Common Stock or any convertible security
outstanding on the date hereof
3.2.2 For purposes of this Section 3.2, the following
Sections 3.2.2(a) to 3.2.2(e) inclusive, shall be applicable:
(a) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time after
the date hereof the Company shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to purchase,
or any options for the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such convertible or
exchangeable stock or securities being herein called "Convertible Securities")
(other than warrants, options or convertible securities issued as consideration
for or assumed in conjunction with an acquisition or to officers, directors or
employees of the acquired entity in conjunction therewith), whether or not such
rights or options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which shares
of Common Stock are issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by dividing
(i) the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of such rights or options, or plus, in the case of such rights
or options that relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the exercise of
such rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights or options)
shall be less than the Exercise Price in effect as of the date of granting such
rights or options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon conversion or
exchange of all such Convertible Securities issuable upon the exercise of such
rights or options shall be deemed to be outstanding as of the date of the
granting of such rights or options and to have been issued for such price per
share, with the effect on the Exercise Price specified in Section 3.2.1 hereof.
Except as provided in Section 3.2.2
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hereof, no further adjustment of the Exercise Price shall be made upon the
actual issuance of such Common Stock or of such Convertible Securities upon
exercise of such rights or options or upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities.
(b) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the
happening of any of the following events, namely, if the purchase price provided
for in any right or option referred to in Section 3.2.2, the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in Section 3.2.2, or the rate at which any
Convertible Securities referred to in Section 3.2.2, are convertible into or
exchangeable for Common Stock shall change (other than under or by reason of
provisions designed to protect against dilution), the Exercise Price then in
effect hereunder shall forthwith be readjusted (increased or decreased, as the
case may be) to the Exercise Price that would have been in effect at such time
had such rights, options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initially granted, issued or sold. On the
expiration of any such option or right referred to in Section 3.2.2, or on the
termination of any such right to convert or exchange any such Convertible
Securities referred to in Section 3.2.2, the Exercise Price then in effect
hereunder shall forthwith be readjusted (increased or decreased, as the case may
be) to the Exercise Price that would have been in effect at the time of such
expiration or termination had such right, option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination,
never been granted, issued or sold, and the Common Stock issuable thereunder
shall no longer be deemed to be outstanding. If the purchase price provided for
in Section 3.2.2 or the rate at which any Convertible Securities referred to in
Section 3.2.2 are convertible is reduced at any time under or by reason of
provisions with respect thereto designed to protect against dilution, then in
case of the delivery of Common Stock upon the exercise of any such right or
option or upon conversion or exchange of any such Convertible Securities, the
Exercise Price then in effect hereunder shall, if not already adjusted,
forthwith be adjusted to such amount as would have obtained had such right,
option or Convertible Securities never been issued as to such Common Stock and
had adjustments been made upon the issuance of the Common Stock delivered as
aforesaid, but only if as a result of such adjustment the Exercise Price then in
effect hereunder is thereby reduced.
(c) CONSIDERATION FOR STOCK. In case at any time Common Stock
or Convertible Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or sold for cash, the
consideration therefor shall be deemed to be the amount received by the Company
therefor. In case at any time any Common Stock, Convertible Securities or any
rights or options to purchase any such Common Stock or
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Convertible Securities shall be issued or sold for consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be deemed to be the fair value of such consideration, as determined
reasonably and in good faith by the Board of Directors of the Company. In case
at any time any Common Stock, Convertible Securities or any rights or options to
purchase any Common Stock or Convertible Securities shall be issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration received therefor shall be
deemed to be the fair value, as determined reasonably and in good faith by the
Board of Directors of the Company, of such portion of the assets and business of
the non-surviving corporation as such Board of Directors may determine to be
attributable to such Common Stock, Convertible Securities, rights or options as
the case may be. In case at any time any rights or options to purchase any
shares of Common Stock or Convertible Securities shall be issued in connection
with the issuance and sale of other securities of the Company, together
consisting of one integral transaction in which no consideration is allocated to
such rights or options by the parties, such rights or options shall be deemed to
have been issued with consideration.
(d) RECORD DATE. In the case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (i) to receive
a dividend or other distribution payable in Common Stock or Convertible
Securities, or (ii) to subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the date of the issuance
or sale of the Common Stock or Convertible Securities deemed to have been issued
or sold as a result of the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(e) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned directly by the
Company in treasury, and the disposition of any such shares shall be considered
an issuance or sale of Common Stock for the purpose of this Section 3.2.
3.3 STOCK DIVIDENDS. In case the Company shall declare a dividend or make
any other distribution upon any shares of the Company, payable in Common Stock
or Convertible Securities, any Common Stock or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
3.4 STOCK SPLITS AND REVERSE SPLITS. In the event that the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise
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Price in effect immediately prior to such subdivision shall be proportionately
reduced and the number of Warrant Shares purchasable pursuant to this Warrant
immediately prior to such subdivision shall be proportionately increased, and
conversely, in the event that the outstanding shares of Common Stock shall at
any time be combined into a smaller number of shares, the Exercise Price in
effect immediately prior to such combination shall be proportionately increased
and the number of Warrant Shares purchasable upon the exercise of this Warrant
immediately prior to such combination shall be proportionately reduced. Except
as provided in this Section 3.4, no adjustment in the Exercise Price and no
change in the number of Warrant Shares purchasable shall be made under this
Article III as a result of, or by reason of, any such subdivision or
combination.
3.5 REORGANIZATIONS AND ASSET SALES. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another Person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that a holder of Common Stock of
the Company shall be entitled to receive capital stock, securities or assets
with respect to or in exchange for their shares, then the following provisions
shall apply:
3.5.1 As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer or other disposition
(except as otherwise provided below in this Section 3.5), lawful and adequate
provisions shall be made whereby the holder of Warrants shall thereafter have
the right to purchase and receive upon the terms and conditions specified in
this Warrant and in lieu of the Warrant Shares immediately theretofore
receivable upon the exercise of the rights represented hereby, such shares of
capital stock, securities or assets as may be issued or payable with respect to
or in exchange for a number of outstanding shares of such Common Stock equal to
the number of Warrant Shares immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger, share exchange or sale
not taken place, and in any such case appropriate provision reasonably
satisfactory to such holder shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price and of the
number of Warrant Shares receivable upon the exercise) shall thereafter be
applicable, as nearly as possible, in relation to any shares of capital stock,
securities or assets thereafter deliverable upon the exercise of Warrants.
3.5.2 In the event of a merger, share exchange or consolidation of
the Company with or into another Person as a result of which a number of shares
of Common Stock or its equivalent of the successor Person greater or lesser than
the number of shares of Common Stock outstanding immediately prior to such
merger, share exchange or consolidation are issuable to
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holders of Common Stock, then the Exercise Price in effect immediately prior to
such merger, share exchange or consolidation shall be adjusted in the same
manner as though there were a subdivision or combination of the outstanding
shares of Common Stock.
3.5.3 The Company shall not effect any such consolidation, merger,
share exchange, sale, transfer or other disposition unless prior to or
simultaneously with the consummation thereof the successor Person (if other than
the Company) resulting from such consolidation, share exchange or merger of the
Person purchasing or otherwise acquiring such assets shall have assumed by
written instrument executed and mailed or delivered to the holder hereof at the
last address of such holder appearing on the books of the Company the obligation
to deliver to such holder such shares of capital stock, securities or assets as,
in accordance with the foregoing provisions, such holder may be entitled to
receive, and all other liabilities and obligations of the Company hereunder.
Upon written request by the holder hereof, such successor Person will issue a
new warrant revised to reflect the modifications in this Warrant effected
pursuant to this Section 3.5.
3.5.4 If a purchase, tender or exchange offer is made to and
accepted by the holders of 50% or more of the outstanding shares of Common
Stock, the Company shall not effect any consolidation, merger, share exchange or
sale, transfer or other disposition of all or substantially all of the Company's
assets with the Person having made such offer or with any affiliate of such
Person, unless prior to the consummation of such consolidation, merger, share
exchange, sale, transfer or other disposition the holder hereof shall have been
given a reasonable opportunity to then elect to receive upon the exercise of the
Warrants either the capital stock, securities or assets then issuable with
respect to the Common Stock or the capital stock, securities or assets, or the
equivalent, issued to previous holders of the Common Stock in accordance with
such offer.
3.6 ADJUSTMENT FOR ASSET DISTRIBUTION. If the Company declares a dividend
or other distribution payable to all holders of shares of Common Stock in
evidences of indebtedness of the Company or other assets of the Company
(including, cash (other than regular cash dividends declared by the Board of
Directors), capital stock (other than Common Stock, Convertible Securities or
options or rights thereto) or other property), the Exercise Price in effect
immediately prior to such declaration of such dividend or other distribution
shall be reduced by an amount equal to the amount of such dividend or
distribution payable per share of Common Stock, in the case of a cash dividend
or distribution, or by the fair value of such dividend or distribution per share
of Common Stock (as reasonably determined in good faith by the Board of
Directors of the Company), in the case of any other dividend or distribution.
Such reduction shall be made whenever any such dividend or distribution is made
and shall be effective as of the
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date as of which a record is taken for the purpose of such dividend or
distribution or, if a record is not taken, the date as of which holders of
record of Common Stock entitled to such dividend or distribution are determined.
3.7 DE MINIMIS ADJUSTMENTS. No adjustment in the number of shares of
Common Stock purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one share of Common Stock
purchasable upon an exercise of each Warrant and no adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least $0.01 in the Exercise Price; provided, however, that any
adjustments which by reason of this Section 3.7 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest full share or nearest one
hundredth of a dollar, as applicable.
3.8 NOTICE OF ADJUSTMENT. Whenever the Exercise Price or the number of
Warrant Shares issuable upon the exercise of the Warrants shall be adjusted as
herein provided, or the rights of the holder hereof shall change by reason of
other events specified herein, the Company shall compute the adjusted Exercise
Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare an Officer's Certificate setting forth the
adjusted Exercise Price and the adjusted number of Warrant Shares issuable upon
the exercise of the Warrants or specifying the other shares of stock, securities
or assets receivable as a result of such change in rights, and showing in
reasonable detail the facts and calculations upon which such adjustments or
other changes are based. The Company shall cause to be mailed to the holder
hereof copies of such Officer's Certificate together with a notice stating that
the Exercise Price and the number of Warrant Shares purchasable upon exercise of
the Warrants have been adjusted and setting forth the adjusted Exercise Price
and the adjusted number of Warrant Shares purchasable upon the exercise of the
Warrants.
3.9 NOTIFICATIONS TO HOLDERS. In case at any time the Company proposes:
(i) to declare any dividend upon its Common Stock payable in
capital stock or make any special dividend or other distribution (other than
cash dividends) to the holders of its Common Stock;
(ii) to offer for subscription pro rata to all of the holders of
its Common Stock any additional shares of capital stock of any class or other
rights;
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(iii) to effect any capital reorganization, or reclassification of
the capital stock of the Company, or consolidation, merger or share exchange of
the Company with another Person, or sale, transfer or other disposition of all
or substantially all of its assets; or
(iv) to effect a voluntary or involuntary dissolution,
liquidation or winding up of the Company,
then, in any one or more of such cases, the Company shall give the holder hereof
(a) at least 10 days' (but not more than 90 days') prior written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining rights
to vote in respect of such issuance, reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer, disposition, dissolution,
liquidation or winding up, and (b) in the case of any such issuance,
reorganization, reclassification, consolidation, merger, share exchange, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 10 days'
(but not more than 90 days') prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause (a) shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled thereto,
and such notice in accordance with the foregoing clause (b) shall also specify
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock, as the case may be, for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
share exchange, sale, transfer, disposition, dissolution, liquidation or winding
up, as the case may be.
3.10 COMPANY TO PREVENT DILUTION. If any event or condition occurs as to
which other provisions of this Article III are not strictly applicable or if
strictly applicable would not fairly protect the exercise or purchase rights of
the Warrants evidenced hereby in accordance with the essential intent and
principles of such provisions, or that might materially and adversely affect the
exercise or purchase rights of the holder hereof under any provisions of this
Warrant, then the Company shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such exercise and purchase rights as aforesaid, and any adjustments
necessary with respect to the Exercise Price and the number of Warrant Shares
purchasable hereunder so as to preserve the rights of the holder hereunder. In
no event shall any such adjustment have the effect of increasing the Exercise
Price as otherwise determined pursuant to this Article III except in the event
of a combination of shares of the type contemplated in Section 3.4 hereof, and
then in no event to an amount greater than the Exercise Price as adjusted
pursuant to Section 3.4 hereof.
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ARTICLE IV
MISCELLANEOUS
4.1 ENTIRE AGREEMENT. This Warrant, together with the Agreement, contains
the entire agreement between the holder hereof and the Company with respect to
the Warrant Shares purchasable upon exercise hereof and the related transactions
and supersedes all prior arrangements or understandings with respect thereto.
4.2 GOVERNING LAW. This warrant shall be governed by and construed in
accordance with the laws of the State of Delaware.
4.3 WAIVER AND AMENDMENT. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the holder hereof and the Company, except that any waiver of any
term or condition, or any amendment or supplementation, of this Warrant shall be
in writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way effect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with every
term or condition of this Warrant.
4.4 ILLEGALITY. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
4.5 COPY OF WARRANT. A copy of this Warrant shall be filed among the
records of the Company.
4.6 NOTICE. Any notice or other document required or permitted to be
given or delivered to the holder hereof shall be in writing and delivered at, or
sent by certified or registered mail to such holder at, the last address shown
on the books of the Company maintained at the Warrant Office for the
registration of this Warrant or at any more recent address of which the holder
hereof shall have notified the Company in writing. Any notice or other document
required or permitted to be given or delivered to the Company, other than such
notice or documents required to be delivered to the Warrant Office, shall be
delivered at, or sent by certified or registered mail to, the offices of the
Company at 1241 Hawk's Flight Court, El
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<PAGE>
Dorado Hills, California 95762, Attention, Daniel L. McPeak, Chairman of the
Board, or such other address within the continental United States of America as
shall have been furnished by the Company to the holder of this Warrant.
4.7 LIMITATION OF LIABILITY; NOT STOCKHOLDERS. No provision of this
Warrant shall be construed as conferring upon the holder hereof the right to
vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the purchase price of any shares of Common Stock or
as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
4.8 EXCHANGE, LOSS, DESTRUCTION, ETC. OF WARRANT. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of this Warrant, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity or such other security in such
form and amount as shall be reasonably satisfactory to the Company, or in the
event of such mutilation upon surrender and cancellation of this Warrant, the
Company will make and deliver a new warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any warrant issued under the provisions
of this Section 4.8 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or in lieu of any mutilated Warrant, shall constitute an original
contractual obligation on the part of the Company. This Warrant shall be
promptly canceled by the Company upon the surrender hereof in connection with
any exchange or replacement. The Company shall pay all taxes (other than
securities transfer taxes or income taxes) and all other expenses and charges
payable in connection with the preparation, execution and delivery of warrants
pursuant to this Section 4.8.
4.9 REGISTRATION RIGHTS. The Warrant Shares shall be entitled to such
registration rights under the Securities Act and under applicable state
securities laws as are specified in the Registration Rights Agreement and the
Agreement.
4.10 HEADINGS. The Article and Section and other headings herein are for
convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its
name.
Dated: December 31, 1998
The RiceX Company
By: /s/ D.L. McPeak
------------------------------------
Daniel L. McPeak, Chairman of the Board
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<PAGE>
SUBSCRIPTION NOTICE
The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented thereby and to purchase thereunder,
_______________ shares of the Common Stock covered by such Warrant, and herewith
makes payment in full for such shares pursuant to Section 1.1 of such Warrant,
and requests (a) that certificates for such shares (and any other securities or
other property issuable upon such exercise) be issued in the name of, and
delivered to ______________________________ and (b) if such shares shall not
include all of the shares issuable as provided in such Warrant, that a new
warrant of like tenor and date for the balance of the shares issuable thereunder
be delivered to the undersigned.
---------------------------------------------
Date:
------------------------------
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<PAGE>
ASSIGNMENT
For value received, _______________________, hereby sells, assigns, and
transfers unto _________________________ the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ________________________ attorney, to transfer such Warrant on the books
of the Company, with full power of substitution.
---------------------------------------------
Date:
------------------------------
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<PAGE>
THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE
THEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY,
THE SECURITIES REPRESENTED BY THIS WARRANT MAY NOT BE RESOLD, PLEDGED, OR
OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT
AND IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS.
WARRANT
to Purchase Common Stock of
THE RICEX COMPANY
Warrant Number 99-1 Expiring on December 31, 2003
This Warrant to Purchase Common Stock (the "Warrant") certifies that for
value received, FoodCeuticals, LLC a Delaware limited liability company (the
"Holder"), or its registered assigns, is entitled to subscribe for and purchase
from the Company (as hereinafter defined), in whole or in part, 1,315,298 shares
of duly authorized, validly issued, fully paid and non-assessable shares of
Common Stock (as hereinafter defined) at an initial Exercise Price (as
hereinafter defined), subject, however, to the provisions and upon the terms and
conditions hereinafter set forth. The number of Warrants (as hereinafter
defined), the number of shares of Common Stock purchasable hereunder, and the
Exercise Price therefor are subject to adjustment as hereinafter set forth.
This Warrant and all rights hereunder shall expire at 5:00PM, New York City
time, on December 31, 2003.
As used herein, the following terms shall have the meanings set forth
below:
"COMPANY" shall mean The RiceX Company, a Delaware corporation, and shall
also include any successor thereto with respect to the obligations hereunder, by
merger, consolidation or otherwise.
"COMMON STOCK" shall mean and include the Company's Common Stock, par value
$0.001 per share, authorized on the date of the original issue of this Warrant
and shall also include (i) in case of any reorganization, reclassification,
consolidation, merger, share exchange
<PAGE>
or sale, transfer or other disposition of assets of the character referred to in
Section 3.5 hereof, the stock, securities provided for in such Section 3.5, and
(ii) any other shares of common stock of the Company into which such shares of
Common Stock may be converted.
"EXERCISE PRICE" shall mean the initial purchase price of $0.75 per share
of Common Stock payable upon exercise of the Warrant. The Exercise Price shall
be adjusted from time to time pursuant to the provisions hereof.
"MARKET PRICE" for any day, when used with reference to Common Stock, shall
mean the price of said Common Stock determined as follows: (i) the last reported
sale price for the Common Stock on such day on the principal securities exchange
on which the Common Stock is listed or admitted to trading or if no such sale
takes place on such date, the average of the closing bid and asked prices
thereof as officially reported, or, if not so listed or admitted to trading on
any securities exchange, the last sale price for the Common Stock on the
National Association of Securities Dealers National Market System or SmallCap
Market on such date, or, if there shall have been no trading on such date or if
the Common Stock shall not be listed on such system, the average of the closing
bid and asked prices in the over-the-counter market as furnished by any NASD
member firm selected from time to time by the Company for such purpose, in each
such case, unless otherwise provided herein, averaged over a period of ten (10)
consecutive Trading Days ending two (2) days prior to the date as of which the
determination is to be made; or (ii) if the Common Stock shall not be listed or
admitted to trading or the closing bid and asked prices are unable to be
furnished by an NASD member firm, as provided in clause (i) above, the fair
market value of the Common Stock as determined in good faith by the Board of
Directors of the Company.
"NOTES" shall mean the Promissory Notes of the Company issued to the Holder
as of the date hereof in the original principal amount of up to $4,000,000, as
may be amended, modified, substituted or replaced.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof, estate or other
entity.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement dated the date hereof between the Company and the Holder providing for
the registration of the Common Stock under the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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<PAGE>
"TRADING DAYS" shall mean any days during the course of which the principal
securities exchange on which the Common Stock is listed or admitted to trading
is open for the exchange of securities.
"WARRANT" shall mean the right upon exercise to purchase one Warrant Share.
"WARRANT SHARES" shall mean the shares of Common Stock purchased or
purchasable by the holder hereof upon the exercise of the Warrants.
ARTICLE I
EXERCISE OF WARRANTS
1.1 METHOD OF EXERCISE. The Warrants represented hereby may be exercised
by the holder hereof, in whole or in part, at any time and from time to time on
or after the date hereof until 5:00PM, New York City time, on December 31, 2003.
To exercise the Warrants, the holder hereof shall deliver to the Company, at the
Warrant Office designated in Section 2.1 hereof, (i) a written notice in the
form of the Subscription Notice attached as an exhibit hereto, stating therein
the election of such holder to exercise the Warrants in the manner provided in
the Subscription Notice; (ii) payment in full of the Exercise Price (A) in cash
or by bank check for all Warrant Shares purchased hereunder, or (B) through a
"cashless" or "net-issue" exercise of each such Warrant ("Cashless Exercise");
the holder shall exchange each Warrant subject to a Cashless Exercise for that
number of Warrant Shares determined by multiplying the number of Warrant Shares
issuable hereunder by a fraction, the numerator of which shall be the difference
between (x) the Market Price and (y) the Exercise Price for each such Warrant,
and the denominator of which shall be the Market Price; the Subscription Notice
shall set forth the calculation upon which the Cashless Exercise is based, or
(C) a combination of (A) and (B) above; and (iii) this Warrant. The Warrants
shall be deemed to be exercised on the date of receipt by the Company of the
Subscription Notice, accompanied by payment for the Warrant Shares and surrender
of this Warrant, as aforesaid, and such date is referred to herein as the
"Exercise Date". Upon such exercise, the Company shall, as promptly as
practicable and in any event within three (3) business days, issue and deliver
to such holder a certificate or certificates for the full number of the Warrant
Shares purchased by such holder hereunder, and shall, unless the Warrants have
expired, deliver to the holder hereof a new Warrant representing the number of
Warrants, if any, that shall not have been exercised, in all other respects
identical to this Warrant. As permitted by applicable law, the Person in whose
name the certificates for Common Stock are to be issued shall be deemed to have
become a holder of record of such Common Stock on the Exercise Date and shall be
entitled to all of the benefits of such holder on the Exercise Date, including
without
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<PAGE>
limitation, the right to receive dividends and other distributions for which the
record date falls on or after the Exercise Date and the right to exercise voting
rights.
1.2 EXPENSES AND TAXES. The Company shall pay all expenses and taxes
(including, without limitation, all documentary, stamp, transfer or other
transactional taxes) other than income taxes attributable to the preparation,
issuance or delivery of the Warrants and of the shares of Common Stock issuable
upon exercise of the Warrants.
1.3 RESERVATION OF SHARES. The Company shall reserve at all times so long
as the Warrants remain outstanding, free from preemptive rights, out of its
treasury Common Stock or its authorized but unissued shares of Common Stock, or
both, solely for the purpose of effecting the exercise of the Warrants, a
sufficient number of shares of Common Stock to provide for the exercise of the
Warrants.
1.4 VALID ISSUANCE. All shares of Common Stock that may be issued upon
exercise of the Warrants will, upon issuance by the Company, be duly and validly
issued, fully paid and non-assessable and free from all taxes, liens and charges
with respect to the issuance thereof and, without limiting the generality of the
foregoing, the Company shall take no action or fail to take any action which
will cause a contrary result (including, without limitation, any action that
would cause the Exercise Price to be less than the par value, if any, of the
Common Stock).
1.5 LOAN AGREEMENT. The Warrants represented hereby are part of a duly
authorized issuance of warrants to purchase Common Stock issued as prepaid
interest pursuant to that certain Loan Agreement dated December 31, 1998 (the
"Loan Agreement"), between the Company and the Holder. The holder hereof shall
be entitled to registration under the Securities Act and any applicable state
securities or blue sky laws to the extent set forth in the Registration Rights
Agreement, as it may hereafter be amended. The terms of the Loan Agreement are
hereby incorporated herein for all purposes and shall be considered a part of
this Warrant as if they had been fully set forth herein. Notwithstanding the
previous sentence, in the event of any conflict between the provisions of the
Loan Agreement and of this Warrant, the provisions of this Warrant shall
control.
1.6 ACKNOWLEDGMENT OF RIGHTS. At the time of the exercise of the Warrants
in accordance with the terms hereof and upon the written request of the holder
hereof, the Company will acknowledge in writing its continuing obligation to
afford to such holder any rights (including, without limitation, any right to
registration of the Warrant Shares) to which such holder shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant;
PROVIDED, HOWEVER, that if the holder hereof shall fail to make any such
request, such
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<PAGE>
failure shall not affect the continuing obligation of the Company to afford to
such holder any such rights.
1.7 NO FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If more than
one Warrant shall be presented for exercise at the same time by the same holder,
the number of full shares of Common Stock which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number of whole shares
of Common Stock purchasable on exercise of the Warrants so presented. If any
fraction of a share of Common Stock would, except for the provisions of this
Section 1.7, be issuable on the exercise of this Warrant, the Company shall pay
an amount in cash calculated by it to be equal to the Market Price of one share
of Common Stock at the time of such exercise multiplied by such fraction
computed to the nearest whole cent.
ARTICLE II
TRANSFER
2.1 WARRANT OFFICE. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's offices at The RiceX Company, 1241 Hawk's Flight Court, El
Dorado Hills, California 95762, Attention, Daniel L. McPeak, Chairman of the
Board, and may subsequently be such other office of the Company or of any
transfer agent of the Common Stock in the continental United States as to which
written notice has previously been given to the holder hereof. The Company
shall maintain, at the Warrant Office, a register for the Warrants in which the
Company shall record the name and address of the Person in whose name this
Warrant has been issued, as well as the name and address of each permitted
assignee of the rights of the registered owner hereof.
2.2 OWNERSHIP OF WARRANTS. The Company may deem and treat the Person in
whose name the Warrants are registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Article II. Notwithstanding the foregoing, the Warrants
represented hereby, if properly assigned in compliance with this Article II, may
be exercised by an assignee for the purchase of Warrant Shares without having a
new Warrant issued.
2.3 RESTRICTIONS ON TRANSFER OF WARRANTS. The Company agrees to maintain
at the Warrant Office books for the registration and transfer of the Warrants.
Subject to the restrictions
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<PAGE>
on transfer of the Warrants in this Section 2.3, the Company, from time to time,
shall register the transfer of the Warrants in such books upon surrender of this
Warrant at the Warrant Office properly endorsed or accompanied by appropriate
instruments of transfer and written instructions for transfer satisfactory to
the Company. Upon any such transfer and upon payment by the holder or its
transferee of any applicable transfer taxes, new Warrants shall be issued to the
transferee and the transferor (as their respective interests may appear) and the
surrendered Warrants shall be canceled by the Company. The Company shall pay
all taxes (other than securities transfer taxes or income taxes) and all other
expenses and charges payable in connection with the transfer of the Warrants
pursuant to this Section 2.3.
2.3.1 RESTRICTIONS IN GENERAL. The holder of the Warrants agrees
that it will not transfer the Warrants unless registration of such Warrant
Shares under the Securities Act and any applicable state securities or blue sky
laws has become effective or the holder has provided to the Company an opinion
of counsel acceptable to the Company that such registration is not required.
Prior to any transfer as provided herein, the transferor shall provide written
notice to the Company and an opinion of counsel to the effect that the proposed
transfer is exempt from registration under all applicable securities laws, all
in form and substance reasonably satisfactory to the Company. Any lender or
lenders to which the Holder grants a security interest in the Warrants shall be
entitled to exercise all remedies to which it is entitled by contract or by law,
including (without limitation) transferring the Warrants into its own name or
into the name of any purchaser at any sale undertaken in connection with
enforcement by such lender of its remedies.
2.4 COMPLIANCE WITH SECURITIES LAWS. Subject to the terms of the
Registration Rights Agreement, and notwithstanding any other provisions
contained in this Warrant except Section 2.3.1, the holder hereof understands
and agrees that the following restrictions and limitations shall be applicable
to all Warrant Shares and to all resales or other transfers thereof pursuant to
the Securities Act:
2.4.1 The holder hereof agrees that the Warrant Shares shall not
be sold or otherwise transferred unless the Warrant Shares are registered under
the Securities Act and applicable state securities or blue sky laws or are
exempt therefrom.
2.4.2 A legend in substantially the following form will be placed
on the certificate(s) evidencing the Warrant Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
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<PAGE>
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE RESOLD, PLEDGED,
OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN
ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS."
2.4.3 Stop transfer instructions will be imposed with respect to
the Warrant Shares so as to restrict resale or other transfer thereof, subject
to this Section 2.4.
ARTICLE III
ANTI-DILUTION
3.1 ANTI-DILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the Exercise Price, the holder of this Warrant shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
shares of Common Stock obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
3.2 ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF COMMON STOCK.
3.2.1 (a) If and whenever after the date hereof the Company shall
issue or sell any Common Stock for no consideration or for a consideration per
share less than the Exercise Price then, forthwith, upon such issue or sale, the
Exercise Price shall be reduced (but not increased, except as otherwise
specifically provided in Section 3.2.2(c) hereof), to a price equal to the price
at which the shares were issued (calculated to the nearest one ten-thousandth of
a cent, but in any event not less than $0.001 per share).
(b) Notwithstanding the provisions of this Section 3.2, no adjustment
shall be made in the Exercise Price in the event that the Company issues, in one
or more transactions, (i) Common Stock or convertible securities upon exercise
of any options issued to officers, directors or employees of the Company
pursuant to a stock option plan or an employment, severance or
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<PAGE>
consulting agreement as now or hereafter in effect, in each case approved by the
Board of Directors (provided that the aggregate number of shares of Common Stock
which may be issuable, including options issued prior to the date hereof, under
all such employee plans and agreements shall at no time exceed the number of
such shares of Common Stock that are issuable under currently effective employee
plans and agreements); (ii) Common Stock upon exercise of the Warrants or any
other warrant issued pursuant to the terms of the Agreement or otherwise issued
to the Holder; or (iii) Common Stock upon exercise of any stock purchase
warrant or option (other than the options referred to in clause (i) above) or
other agreement to issue shares of Common Stock or any convertible security
outstanding on the date hereof
3.2.2 For purposes of this Section 3.2, the following
Sections 3.2.2(a) to 3.2.2(e) inclusive, shall be applicable:
(a) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time after
the date hereof the Company shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to purchase,
or any options for the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such convertible or
exchangeable stock or securities being herein called "Convertible Securities")
(other than warrants, options or convertible securities issued as consideration
for or assumed in conjunction with an acquisition or to officers, directors or
employees of the acquired entity in conjunction therewith), whether or not such
rights or options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which shares
of Common Stock are issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by dividing
(i) the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of such rights or options, or plus, in the case of such rights
or options that relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the exercise of
such rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights or options)
shall be less than the Exercise Price in effect as of the date of granting such
rights or options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon conversion or
exchange of all such Convertible Securities issuable upon the exercise of such
rights or options shall be deemed to be outstanding as of the date of the
granting of such rights or options and to have been issued for such price per
share, with the effect on the Exercise Price specified in Section 3.2.1 hereof.
Except as provided in Section 3.2.2
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<PAGE>
hereof, no further adjustment of the Exercise Price shall be made upon the
actual issuance of such Common Stock or of such Convertible Securities upon
exercise of such rights or options or upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities.
(b) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the
happening of any of the following events, namely, if the purchase price provided
for in any right or option referred to in Section 3.2.2, the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in Section 3.2.2, or the rate at which any
Convertible Securities referred to in Section 3.2.2, are convertible into or
exchangeable for Common Stock shall change (other than under or by reason of
provisions designed to protect against dilution), the Exercise Price then in
effect hereunder shall forthwith be readjusted (increased or decreased, as the
case may be) to the Exercise Price that would have been in effect at such time
had such rights, options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initially granted, issued or sold. On the
expiration of any such option or right referred to in Section 3.2.2, or on the
termination of any such right to convert or exchange any such Convertible
Securities referred to in Section 3.2.2, the Exercise Price then in effect
hereunder shall forthwith be readjusted (increased or decreased, as the case may
be) to the Exercise Price that would have been in effect at the time of such
expiration or termination had such right, option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination,
never been granted, issued or sold, and the Common Stock issuable thereunder
shall no longer be deemed to be outstanding. If the purchase price provided for
in Section 3.2.2 or the rate at which any Convertible Securities referred to in
Section 3.2.2 are convertible is reduced at any time under or by reason of
provisions with respect thereto designed to protect against dilution, then in
case of the delivery of Common Stock upon the exercise of any such right or
option or upon conversion or exchange of any such Convertible Securities, the
Exercise Price then in effect hereunder shall, if not already adjusted,
forthwith be adjusted to such amount as would have obtained had such right,
option or Convertible Securities never been issued as to such Common Stock and
had adjustments been made upon the issuance of the Common Stock delivered as
aforesaid, but only if as a result of such adjustment the Exercise Price then in
effect hereunder is thereby reduced.
(c) CONSIDERATION FOR STOCK. In case at any time Common Stock
or Convertible Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or sold for cash, the
consideration therefor shall be deemed to be the amount received by the Company
therefor. In case at any time any Common Stock, Convertible Securities or any
rights or options to purchase any such Common Stock or
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Convertible Securities shall be issued or sold for consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be deemed to be the fair value of such consideration, as determined
reasonably and in good faith by the Board of Directors of the Company. In case
at any time any Common Stock, Convertible Securities or any rights or options to
purchase any Common Stock or Convertible Securities shall be issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration received therefor shall be
deemed to be the fair value, as determined reasonably and in good faith by the
Board of Directors of the Company, of such portion of the assets and business of
the non-surviving corporation as such Board of Directors may determine to be
attributable to such Common Stock, Convertible Securities, rights or options as
the case may be. In case at any time any rights or options to purchase any
shares of Common Stock or Convertible Securities shall be issued in connection
with the issuance and sale of other securities of the Company, together
consisting of one integral transaction in which no consideration is allocated to
such rights or options by the parties, such rights or options shall be deemed to
have been issued with consideration.
(d) RECORD DATE. In the case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (i) to receive
a dividend or other distribution payable in Common Stock or Convertible
Securities, or (ii) to subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the date of the issuance
or sale of the Common Stock or Convertible Securities deemed to have been issued
or sold as a result of the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(e) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned directly by the
Company in treasury, and the disposition of any such shares shall be considered
an issuance or sale of Common Stock for the purpose of this Section 3.2.
3.3 STOCK DIVIDENDS. In case the Company shall declare a dividend or make
any other distribution upon any shares of the Company, payable in Common Stock
or Convertible Securities, any Common Stock or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
3.4 STOCK SPLITS AND REVERSE SPLITS. In the event that the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise
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Price in effect immediately prior to such subdivision shall be proportionately
reduced and the number of Warrant Shares purchasable pursuant to this Warrant
immediately prior to such subdivision shall be proportionately increased, and
conversely, in the event that the outstanding shares of Common Stock shall at
any time be combined into a smaller number of shares, the Exercise Price in
effect immediately prior to such combination shall be proportionately increased
and the number of Warrant Shares purchasable upon the exercise of this Warrant
immediately prior to such combination shall be proportionately reduced. Except
as provided in this Section 3.4, no adjustment in the Exercise Price and no
change in the number of Warrant Shares purchasable shall be made under this
Article III as a result of, or by reason of, any such subdivision or
combination.
3.5 REORGANIZATIONS AND ASSET SALES. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another Person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that a holder of Common Stock of
the Company shall be entitled to receive capital stock, securities or assets
with respect to or in exchange for their shares, then the following provisions
shall apply:
3.5.1 As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer or other disposition
(except as otherwise provided below in this Section 3.5), lawful and adequate
provisions shall be made whereby the holder of Warrants shall thereafter have
the right to purchase and receive upon the terms and conditions specified in
this Warrant and in lieu of the Warrant Shares immediately theretofore
receivable upon the exercise of the rights represented hereby, such shares of
capital stock, securities or assets as may be issued or payable with respect to
or in exchange for a number of outstanding shares of such Common Stock equal to
the number of Warrant Shares immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger, share exchange or sale
not taken place, and in any such case appropriate provision reasonably
satisfactory to such holder shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price and of the
number of Warrant Shares receivable upon the exercise) shall thereafter be
applicable, as nearly as possible, in relation to any shares of capital stock,
securities or assets thereafter deliverable upon the exercise of Warrants.
3.5.2 In the event of a merger, share exchange or consolidation of
the Company with or into another Person as a result of which a number of shares
of Common Stock or its equivalent of the successor Person greater or lesser than
the number of shares of Common Stock outstanding immediately prior to such
merger, share exchange or consolidation are issuable to
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<PAGE>
holders of Common Stock, then the Exercise Price in effect immediately prior to
such merger, share exchange or consolidation shall be adjusted in the same
manner as though there were a subdivision or combination of the outstanding
shares of Common Stock.
3.5.3 The Company shall not effect any such consolidation, merger,
share exchange, sale, transfer or other disposition unless prior to or
simultaneously with the consummation thereof the successor Person (if other than
the Company) resulting from such consolidation, share exchange or merger of the
Person purchasing or otherwise acquiring such assets shall have assumed by
written instrument executed and mailed or delivered to the holder hereof at the
last address of such holder appearing on the books of the Company the obligation
to deliver to such holder such shares of capital stock, securities or assets as,
in accordance with the foregoing provisions, such holder may be entitled to
receive, and all other liabilities and obligations of the Company hereunder.
Upon written request by the holder hereof, such successor Person will issue a
new warrant revised to reflect the modifications in this Warrant effected
pursuant to this Section 3.5.
3.5.4 If a purchase, tender or exchange offer is made to and
accepted by the holders of 50% or more of the outstanding shares of Common
Stock, the Company shall not effect any consolidation, merger, share exchange or
sale, transfer or other disposition of all or substantially all of the Company's
assets with the Person having made such offer or with any affiliate of such
Person, unless prior to the consummation of such consolidation, merger, share
exchange, sale, transfer or other disposition the holder hereof shall have been
given a reasonable opportunity to then elect to receive upon the exercise of the
Warrants either the capital stock, securities or assets then issuable with
respect to the Common Stock or the capital stock, securities or assets, or the
equivalent, issued to previous holders of the Common Stock in accordance with
such offer.
3.6 ADJUSTMENT FOR ASSET DISTRIBUTION. If the Company declares a dividend
or other distribution payable to all holders of shares of Common Stock in
evidences of indebtedness of the Company or other assets of the Company
(including, cash (other than regular cash dividends declared by the Board of
Directors), capital stock (other than Common Stock, Convertible Securities or
options or rights thereto) or other property), the Exercise Price in effect
immediately prior to such declaration of such dividend or other distribution
shall be reduced by an amount equal to the amount of such dividend or
distribution payable per share of Common Stock, in the case of a cash dividend
or distribution, or by the fair value of such dividend or distribution per share
of Common Stock (as reasonably determined in good faith by the Board of
Directors of the Company), in the case of any other dividend or distribution.
Such reduction shall be made whenever any such dividend or distribution is made
and shall be effective as of the
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<PAGE>
date as of which a record is taken for the purpose of such dividend or
distribution or, if a record is not taken, the date as of which holders of
record of Common Stock entitled to such dividend or distribution are determined.
3.7 DE MINIMIS ADJUSTMENTS. No adjustment in the number of shares of
Common Stock purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one share of Common Stock
purchasable upon an exercise of each Warrant and no adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least $0.01 in the Exercise Price; provided, however, that any
adjustments which by reason of this Section 3.7 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest full share or nearest one
hundredth of a dollar, as applicable.
3.8 NOTICE OF ADJUSTMENT. Whenever the Exercise Price or the number of
Warrant Shares issuable upon the exercise of the Warrants shall be adjusted as
herein provided, or the rights of the holder hereof shall change by reason of
other events specified herein, the Company shall compute the adjusted Exercise
Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare an Officer's Certificate setting forth the
adjusted Exercise Price and the adjusted number of Warrant Shares issuable upon
the exercise of the Warrants or specifying the other shares of stock, securities
or assets receivable as a result of such change in rights, and showing in
reasonable detail the facts and calculations upon which such adjustments or
other changes are based. The Company shall cause to be mailed to the holder
hereof copies of such Officer's Certificate together with a notice stating that
the Exercise Price and the number of Warrant Shares purchasable upon exercise of
the Warrants have been adjusted and setting forth the adjusted Exercise Price
and the adjusted number of Warrant Shares purchasable upon the exercise of the
Warrants.
3.9 NOTIFICATIONS TO HOLDERS. In case at any time the Company proposes:
(i) to declare any dividend upon its Common Stock payable in
capital stock or make any special dividend or other distribution (other than
cash dividends) to the holders of its Common Stock;
(ii) to offer for subscription pro rata to all of the holders of its
Common Stock any additional shares of capital stock of any class or other
rights;
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<PAGE>
(iii) to effect any capital reorganization, or reclassification of
the capital stock of the Company, or consolidation, merger or share exchange of
the Company with another Person, or sale, transfer or other disposition of all
or substantially all of its assets; or
(iv) to effect a voluntary or involuntary dissolution, liquidation
or winding up of the Company,
then, in any one or more of such cases, the Company shall give the holder hereof
(a) at least 10 days' (but not more than 90 days') prior written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining rights
to vote in respect of such issuance, reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer, disposition, dissolution,
liquidation or winding up, and (b) in the case of any such issuance,
reorganization, reclassification, consolidation, merger, share exchange, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 10 days'
(but not more than 90 days') prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause (a) shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled thereto,
and such notice in accordance with the foregoing clause (b) shall also specify
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock, as the case may be, for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
share exchange, sale, transfer, disposition, dissolution, liquidation or winding
up, as the case may be.
3.10 COMPANY TO PREVENT DILUTION. If any event or condition occurs as to
which other provisions of this Article III are not strictly applicable or if
strictly applicable would not fairly protect the exercise or purchase rights of
the Warrants evidenced hereby in accordance with the essential intent and
principles of such provisions, or that might materially and adversely affect the
exercise or purchase rights of the holder hereof under any provisions of this
Warrant, then the Company shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such exercise and purchase rights as aforesaid, and any adjustments
necessary with respect to the Exercise Price and the number of Warrant Shares
purchasable hereunder so as to preserve the rights of the holder hereunder. In
no event shall any such adjustment have the effect of increasing the Exercise
Price as otherwise determined pursuant to this Article III except in the event
of a combination of shares of the type contemplated in Section 3.4 hereof, and
then in no event to an amount greater than the Exercise Price as adjusted
pursuant to Section 3.4 hereof.
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<PAGE>
ARTICLE IV
MISCELLANEOUS
4.1 ENTIRE AGREEMENT. This Warrant, together with the Agreement,
contains the entire agreement between the holder hereof and the Company with
respect to the Warrant Shares purchasable upon exercise hereof and the related
transactions and supersedes all prior arrangements or understandings with
respect thereto.
4.2 GOVERNING LAW. This warrant shall be governed by and construed in
accordance with the laws of the State of Delaware.
4.3 WAIVER AND AMENDMENT. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the holder hereof and the Company, except that any waiver of any
term or condition, or any amendment or supplementation, of this Warrant shall be
in writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way effect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with every
term or condition of this Warrant.
4.4 ILLEGALITY. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
4.5 COPY OF WARRANT. A copy of this Warrant shall be filed among the
records of the Company.
4.6 NOTICE. Any notice or other document required or permitted to be
given or delivered to the holder hereof shall be in writing and delivered at, or
sent by certified or registered mail to such holder at, the last address shown
on the books of the Company maintained at the Warrant Office for the
registration of this Warrant or at any more recent address of which the holder
hereof shall have notified the Company in writing. Any notice or other document
required or permitted to be given or delivered to the Company, other than such
notice or documents required to be delivered to the Warrant Office, shall be
delivered at, or sent by certified or registered mail to, the offices of the
Company at 1241 Hawk's Flight Court, El
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<PAGE>
Dorado Hills, California 95762, Attention, Daniel L. McPeak, Chairman of the
Board, or such other address within the continental United States of America as
shall have been furnished by the Company to the holder of this Warrant.
4.7 LIMITATION OF LIABILITY; NOT STOCKHOLDERS. No provision of this
Warrant shall be construed as conferring upon the holder hereof the right to
vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the purchase price of any shares of Common Stock or
as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
4.8 EXCHANGE, LOSS, DESTRUCTION, ETC. OF WARRANT. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of this Warrant, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity or such other security in such
form and amount as shall be reasonably satisfactory to the Company, or in the
event of such mutilation upon surrender and cancellation of this Warrant, the
Company will make and deliver a new warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any warrant issued under the provisions
of this Section 4.8 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or in lieu of any mutilated Warrant, shall constitute an original
contractual obligation on the part of the Company. This Warrant shall be
promptly canceled by the Company upon the surrender hereof in connection with
any exchange or replacement. The Company shall pay all taxes (other than
securities transfer taxes or income taxes) and all other expenses and charges
payable in connection with the preparation, execution and delivery of warrants
pursuant to this Section 4.8.
4.9 REGISTRATION RIGHTS. The Warrant Shares shall be entitled to such
registration rights under the Securities Act and under applicable state
securities laws as are specified in the Registration Rights Agreement and the
Agreement.
4.10 HEADINGS. The Article and Section and other headings herein are for
convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its
name.
Dated: January 15, 1999
The RiceX Company
By: /s/ D.L. McPeak
---------------------------------------
Daniel L. McPeak, Chairman of the Board
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<PAGE>
SUBSCRIPTION NOTICE
The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented thereby and to purchase thereunder,
_______________ shares of the Common Stock covered by such Warrant, and herewith
makes payment in full for such shares pursuant to Section 1.1 of such Warrant,
and requests (a) that certificates for such shares (and any other securities or
other property issuable upon such exercise) be issued in the name of, and
delivered to ______________________________ and (b) if such shares shall not
include all of the shares issuable as provided in such Warrant, that a new
warrant of like tenor and date for the balance of the shares issuable thereunder
be delivered to the undersigned.
--------------------------------------------
Date:
------------------------------
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<PAGE>
ASSIGNMENT
For value received, _______________________, hereby sells, assigns, and
transfers unto _________________________ the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ________________________ attorney, to transfer such Warrant on the books
of the Company, with full power of substitution.
--------------------------------------------
Date:
------------------------------
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<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of December 31, 1998 (this "Security
Agreement"), is executed by The RiceX Company, a Delaware corporation
("Debtor"), in favor of FoodCeuticals, LLC, a Delaware limited liability company
("Secured Party").
RECITALS
A. WHEREAS, Debtor and Secured Party have entered into that certain
Loan Agreement, dated as of the date hereof (the "Loan Agreement"), pursuant to
which Secured Party has agreed to lend to Debtor the principal amount of
$1,850,000 (the "Loan");
B. WHEREAS, the Loan is to be evidenced by one or more promissory
notes substantially in the form of EXHIBIT A attached hereto to be executed and
delivered by Debtor to Secured Party in accordance with the terms of the Loan
Agreement (collectively, the "Note"); and
C. WHEREAS, in order to induce Secured Party to extend credit on the
terms and conditions set forth in the Note and the Loan Agreement, Debtor has
agreed to enter into this Security Agreement and to grant the security interest
in the Collateral as described herein.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtor hereby agrees with Secured Party as follows:
1. DEFINITIONS AND INTERPRETATION. When used in this Security Agreement,
the following terms shall have the following respective meanings:
"Collateral" shall have the meaning given to that term in Section 2
hereof.
"Indebtedness" shall mean and include the aggregate amount of, without
duplication, (i) all obligations for borrowed money, (ii) all obligations
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations to pay the deferred purchase price of property or services (other
than accounts payable incurred in the ordinary course of business determined in
accordance with generally accepted accounting principles), (iv) all obligations
with respect to capital leases, (v) all obligations created or arising under any
conditional sale or other title retention agreement with respect to property
acquired, (vi) all reimbursement and other payment obligations, contingent or
otherwise, in respect of letters of credit; and (vii) all guaranty obligations
with respect to the types of Indebtedness listed in clauses (i) through (vi)
above.
<PAGE>
"Lien" shall mean, with respect to any tangible or intangible
property, any security interest, mortgage, pledge, lien, claim, charge or other
encumbrance in, of, or on such property or the income therefrom, including,
without limitation, the interest of a vendor or lessor under a conditional sale
agreement, capital lease or other title retention agreement, or any agreement to
provide any of the foregoing, and the filing of any financing statement or
similar instrument under the UCC or comparable law of any jurisdiction.
"Obligations" shall mean and include all loans, advances, debts,
liabilities and obligations owed by Debtor to Secured Party of every kind and
description now existing or hereafter arising under or pursuant to the terms of
the Note or the Loan Agreement, including all interest, fees, charges, expenses,
reasonable attorneys' fees and costs chargeable to and payable by Debtor
hereunder and thereunder, in each case, whether direct or indirect, absolute or
contingent, due or to become due, and whether or not arising after the
commencement of a proceeding under Title 11 of the United States Code (11 U.S.C.
Section 101 ET SEQ.), as amended from time to time (including post-petition
interest) and whether or not allowed or allowable as a claim in any such
proceeding.
"Permitted Liens" shall mean and include: (i) Liens for taxes or other
governmental charges not at the time delinquent or thereafter payable without
penalty or being contested in good faith, provided provision is made to the
reasonable satisfaction of Secured Party for the eventual payment thereof if
subsequently found payable; (ii) Liens of carriers, warehousemen, mechanics,
materialmen, vendors, and landlords incurred in the ordinary course of business
for sums not overdue or being contested in good faith, provided provision is
made to the reasonable satisfaction of Secured Party for the eventual payment
thereof if subsequently found payable; (iii) deposits under workers'
compensation, unemployment insurance and social security laws or to secure the
performance of bids, tenders, contracts (other than for the repayment of
borrowed money) or leases, or to secure statutory obligations of surety or
appeal bonds or to secure indemnity, performance or other similar bonds in the
ordinary course of business; (iv) Liens securing obligations under a capital
lease where such Liens do not extend to property other than the property leased
under such capital lease; (v) Liens upon any equipment acquired or held by the
Debtor or any of its subsidiaries to secure the purchase price of such equipment
or indebtedness incurred solely for the purpose of financing the acquisition of
such equipment, so long as such Lien extends only to the equipment financed and
any accessions, replacements, substitutions and proceeds (including insurance
proceeds) thereof or thereto; (vi) easements, reservations, rights of way,
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances affecting real property in a manner not materially or adversely
affecting the value or use of such property; (vii) Liens in favor of Secured
Party; and (viii) Liens in favor of holders of Senior Indebtedness.
"Senior Indebtedness" shall mean (i) unless expressly subordinated to
or made on parity with the amounts due under the Note, the principal of (and
premium, if any), unpaid interest on and amounts reimbursable for fees,
expenses, costs of enforcement and
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<PAGE>
other amounts due in connection with, indebtedness of the Debtor to banks,
commercial finance lenders, insurance companies, leasing or equipment financing
institutions or other lending institutions regularly engaged in the business of
lending money (excluding venture capital, investment banking or similar
institutions which sometimes engage in lending activities but which are
primarily engaged in investments in equity securities), which is for money
borrowed, or purchase or leasing of equipment in the case of lease or other
equipment financing, whether or not secured, and (ii) all Liens on the
Collateral existing on the date hereof.
"UCC" shall mean the Uniform Commercial Code as in effect in the State
of California from time to time.
All capitalized terms not otherwise defined herein shall have the respective
meanings given in the Note. Unless otherwise defined herein, all terms defined
in the UCC shall have the respective meanings given to those terms in the UCC.
2. GRANT OF SECURITY INTEREST. As security for the Obligations, Debtor
hereby pledges and assigns to Secured Party and grants to Secured Party a
security interest in all right, title and interests of Debtor in and to the
property described in Attachment 1 hereto (collectively and severally, the
"Collateral"), which Attachment 1 is incorporated herein by this reference.
3. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Secured Party that Debtor is the owner of the Collateral (or, in the case of
after-acquired Collateral, at the time Debtor acquires rights in the Collateral,
Debtor will be the owner thereof) and that no other person has (or, in the case
of after-acquired Collateral, at the time Debtor acquires rights therein, will
have) any right, title, claim or interest (by way of Lien or otherwise) in,
against or to the Collateral, except for Permitted Liens.
4. COVENANTS RELATING TO COLLATERAL. While any amount is outstanding
under the Loan Agreement, Debtor hereby agrees (a) to perform all acts that may
be reasonably requested by Secured Party and that are necessary to maintain,
preserve, protect and perfect the Collateral, the Lien granted to Secured Party
therein and the priority of such Lien, except for Permitted Liens; (b) to
procure, execute and deliver from time to time any endorsements, assignments,
financing statements and other writings reasonably deemed necessary or
appropriate by Secured Party to perfect, maintain and protect its Lien hereunder
and the priority thereof; (c) to appear in and defend any action or proceeding
which may affect its title to or Secured Party's interest in the Collateral; and
(d) to comply with all material requirements of law relating to the production,
possession, operation, maintenance and control of the Collateral.
5. AUTHORIZED ACTION BY AGENT. Debtor hereby irrevocably appoints
Secured Party as its attorney-in-fact and agrees that, upon the occurrence and
during the continuance of an Event of Default (as defined in the Note), Secured
Party may perform any act which Debtor is obligated by this Security Agreement
to perform, and exercise such
3
<PAGE>
rights and powers as Debtor might exercise with respect to the Collateral,
including, but not limited to, those rights and powers enumerated in Section 6
hereof.
6. DEFAULT AND REMEDIES. In addition to the remedies provided for in the
Note, upon the occurrence or existence of any Event of Default, Secured Party
shall have the rights of a secured creditor under the UCC, all rights granted by
this Security Agreement, the Loan Agreement and the Note and by law, including
the right to: (a) require Debtor to assemble the Collateral and make it
available to Secured Party at a place to be designated by Secured Party; and
(b) prior to the disposition of the Collateral, store, process, repair or
recondition it or otherwise prepare it for disposition in any manner and to the
extent Secured Party deems appropriate and in connection with such preparation
and disposition, without charge, use any trademark, trade name, copyright,
patent or technical process used by Debtor. Debtor hereby agrees that thirty
(30) days' notice of any intended sale or disposition of any Collateral is
reasonable.
7. LIEN SUBORDINATION. Any Lien of Secured Party, whether now or
hereafter existing in connection with the amounts due under the Note, on any of
the Collateral or any proceeds therefrom which Secured Party may have at any
time as security for any amounts due and obligations under the Note shall be
subordinate to all Liens now or hereafter granted to a holder of Senior
Indebtedness by Debtor or by law, notwithstanding the date, order or method of
attachment or perfection of any such Lien or the provisions of any applicable
law.
8. MISCELLANEOUS.
(a) NOTICES. Except as otherwise provided herein, all notices,
requests, demands, consents, instructions or other communications to or upon
Debtor or Secured Party under this Security Agreement shall be by telecopy or in
writing and telecopied, mailed or delivered to each party at telecopier number
or its address set forth below (or to such other telecopy number or address as
the recipient of any notice shall have notified the other in writing). All such
notices and communications shall be effective (a) when sent by Federal Express
or other overnight service of recognized standing, on the business day following
the deposit with such service; (b) when mailed, by registered or certified mail,
first class postage prepaid and addressed as aforesaid through the United States
Postal Service, upon receipt; (c) when delivered by hand, upon delivery; and (d)
when telecopied, upon confirmation of receipt.
SECURED PARTY:
FoodCeuticals, LLC
The Abbey
355 Madison Avenue
Morristown, New Jersey 07960
Attn: Mr. Joseph Ballantoni
4
<PAGE>
DEBTOR:
The RiceX Company
1241 Hawk's Flight Court
El Dorado Hills, California 95762
Attn: Daniel McPeak, Chairman of the Board
(b) NONWAIVER. No failure or delay on Secured Party's part in
exercising any right hereunder shall operate as a waiver thereof or of any other
right nor shall any single or partial exercise of any such right preclude any
other further exercise thereof or of any other right.
(c) AMENDMENTS AND WAIVERS. This Security Agreement may not be
amended or modified, nor may any of its terms be waived, except by written
instruments signed by Debtor and Secured Party. Each waiver or consent under
any provision hereof shall be effective only in the specific instances for the
purpose for which given.
(d) EXPENSES. Debtor shall pay on demand all reasonable fees and
expenses, including reasonable attorneys' fees and expenses, incurred by Secured
Party in connection with custody, preservation or sale of, or other realization
on, any of the Collateral or the enforcement or attempt to enforce any of the
Obligations which is not performed as and when required by this Security
Agreement.
(e) GOVERNING LAW. This Security Agreement shall be governed by and
construed in accordance with the laws of the State of California without
reference to conflicts of law rules (except to the extent governed by the UCC).
[SIGNATURES ON FOLLOWING PAGE]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the
date first written above.
"SECURED PARTY"
FOODCEUTICALS, LLC
By: /s/ J.L. Bellantoni
-------------------------
Name: Joseph L. Bellantoni
-----------------------
Title: Managing Member
----------------------
"DEBTOR"
THE RICEX COMPANY
By: /s/ D.L. McPeak
-----------------------
Name: Daniel L. McPeak
---------------------
Title: COB/CEO
--------------------
6
<PAGE>
ATTACHMENT 1
TO SECURITY AGREEMENT
All right, title and interest of Debtor now owned or hereafter acquired in and
to the following, except to the extent that the following are located at, arise
out of or relate to Food Extrusion Montana, Inc., Dillon, Montana:
(a) All accounts, accounts receivable, contract rights and general
intangibles, including, without limitation, all forms of payment, all present
and future incomes, rents, revenues, issues and profits, goodwill, licenses and
license rights, bailment or leasehold interests, whether as lessor or lessee,
all choses in action and recoveries for any loss in value of the real estate of
Debtor or items of property described herein, rights in and to security
agreements and other contracts or assignments providing security to Debtor, book
debts, credits, indemnities, warranties or guarantees payable to Debtor upon
loss or damage of property, inventions, designs, design registrations,
trademarks, trade styles, trade names, know-how, powers, privileges, logos,
franchise rights, payments in kind, advertising and promotional materials, trade
secrets, patents, patent rights, copyrights, patent applications, tax refunds,
customer lists, business and accounting records, including all ledger account
cards, computer tapes and discs and other computer information, in all cases
whether now owned or hereafter created or acquired by Debtor or in which Debtor
may now have or may hereafter acquire an interest;
(b) All inventory, including, without limitation, all goods held for sale
or lease, furnished goods, merchandise, parts and supplies, of every kind and
description, whether now owned or hereafter acquired by Debtor, or in which
Debtor may now have or may hereafter acquire an interest, including, without
limitation, inventory temporarily out of Debtor's custody or possession and any
returns or repossessions upon any sales or accounts;
(c) All goods, including, without limitation, equipment, machinery,
materials, furniture, furnishings, engines, appliances, fixtures, tools, parts,
supplies and vehicles of every kind and description, whether now owned or
hereafter acquired by Debtor or delivered to the real property of Debtor, or in
which Debtor may now have or may hereafter acquire an interest, and all
additions, accessions, replacements, substitutions and improvements thereto;
(d) All documents, documents of title, deposit accounts, negotiable and
non-negotiable instruments, shares, stocks, bonds, debentures, securities,
moneys, sources of money, uncalled capital, letters of credit and chattel paper
whether now owned or hereafter acquired by Debtor; and
(e) All proceeds and products of any of the foregoing, in any form,
including, without limitation, proceeds of any insurance relating thereto or
fire and/or builder's risk
<PAGE>
insurance and unrenewed insurance premiums, proceeds consisting of any of the
above types of collateral, all awards made in eminent domain proceedings or
purchase in lieu thereof, and proceeds of any tort cause of action now or
hereafter in existence, and all replacements, substitutions, renewals, returns,
additions, accessions, rents, royalties, issues, documents of ownership and
receipts for any of the foregoing.
<PAGE>
EXHIBIT A
---------
NOTE
<PAGE>
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF
THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS
THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102
OR 25106 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO
THIS WARRANT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO
SUCH SECURITIES FILED UNDER THE ACT AND COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF
THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE CAPITAL STOCK
OF
THE RICEX COMPANY
This Warrant is entered into pursuant to the terms of the Severance
Agreement and Mutual Release of Claims Agreement between _______________ and
The RiceX Company (the "Company"). The Company hereby grants to ________, or
her permitted registered assigns ("Registered Holder"), subject to the terms
and conditions of this Warrant, the right to purchase from the Company at any
time after the date of this Warrant and prior to 5:00 p.m. Pacific Time on
December 13, 2000, up to the number of shares (subject to adjustment as set
forth herein and rounded to whole shares) of Warrant Stock (as defined below)
at a purchase price per share equal to the Purchase Price (as defined below)
subject to adjustment as provided herein, upon surrender of this Warrant at
the principal office of the Company together with a duly executed
Subscription Form in the form attached hereto as Exhibit 1 and simultaneous
payment of the full Purchase Price, as adjusted to the extent provided
herein, in lawful money of the United States of America.
1. CERTAIN DEFINITIONS. The following terms shall have the meaning
set forth below:
1.1 BOARD. The "Board" means the Board of Directors of the
Company.
1.2 COMPANY. The "Company" means The RiceX Company, a Delaware
corporation.
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1.3 EXPIRATION DATE. "Expiration Date" means 5:00 p.m. Pacific
Time on December 13, 2000, or, if earlier, the date and time determined under
Section 5.4 of this Warrant.
1.4 ISSUE DATE. "Issue Date" means the date of this Warrant.
1.5 PURCHASE PRICE. "Purchase Price" means one dollar ($1.00)
per share of Warrant Stock. The Purchase Price is subject to adjustment, as
provided herein.
1.6 REGISTERED HOLDER. "Registered Holder" means _______ or her
permitted registered assigns.
1.7 SEC. "SEC" means the Securities Exchange Commission of the
United States of America.
1.8 WARRANT. "Warrant" means this Warrant and Warrant(s) delivered
in substitution or exchange therefor, as provided herein.
1.9 WARRANT STOCK. "Warrant Stock" means up to ________ shares
of the Common Stock of the Company and any other consideration issuable under
this Agreement upon exercise of this Warrant or any portion thereof. The
number and character of shares of Warrant Stock are subject to adjustment as
provided herein and the term "Warrant Stock" shall include stock and other
securities and property at any time receivable or issuable upon exercise of
this Warrant.
2. EXERCISE. Subject to the terms of this Warrant and compliance
with all applicable securities laws, Registered Holder may exercise this
Warrant at any time, on any business day before the Expiration Date, for up
to the number of shares of Warrant Stock that is set forth in Section 1.9
above, by surrendering this Warrant at the principal office of the Company at
1241 Hawks Flight Court, El Dorado Hills, California 95762, with the
subscription form attached hereto duly executed by the Registered Holder,
together with full payment in cash or check of the sum obtained by
multiplying (a) the number of shares of Warrant Stock the Registered Holder
desires to purchase by (b) the Purchase Price or adjusted Purchase Price
therefor, if applicable, as determined in accordance with the terms hereof.
Registered Holder may exercise this Warrant for less than the full number of
shares of Warrant Stock purchasable hereunder but must exercise this Warrant
in increments of at least twenty-five percent (25%) of the initial shares of
Warrant Stock, as adjusted pursuant hereto, if the exercise is for less than
all remaining Warrant Stock then exercisable hereunder. Upon Registered
Holder's partial exercise, Registered Holder must surrender this Warrant, and
the Company shall issue to the Registered Holder a new Warrant of the same
tenor for purchase of the number of remaining shares of Warrant Stock not
purchased. Registered Holder shall be deemed to have exercised this Warrant
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and shall be treated for all purposes as the
holder of record of such shares as of the close of business on such date. As
soon as practicable on or after such date, the Company shall issue and deliver
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to the Registered Holder or Holders a certificate or certificates for the
number of whole shares of Warrant Stock issuable upon such exercise, together
with cash in lieu of any fraction of a share equal to such fraction of the
current fair market value of one whole share of Warrant Stock as of the date
of exercise, as determined in good faith by the Company's Board. No
fractional shares may be issued upon any exercise of this Warrant.
3. FULLY PAID SHARES. All shares of Warrant Stock the Company
issues upon exercise of this Warrant shall be validly issued, fully paid and
non-assessable.
4. TRANSFER AND EXCHANGE. Subject to the terms of this Warrant
and compliance with all applicable securities laws, this Warrant and all
rights hereunder are transferable, in whole or in part, on the books of the
Company maintained for such purpose at the principal office of the Company
referred to above, by the Registered Holder hereof in person, or by duly
authorized attorney, upon Registered Holder's surrender of this Warrant
properly endorsed and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. Upon any partial transfer,
the Company shall issue and deliver to the Registered Holder a new Warrant or
Warrants with respect to the shares of Warrant Stock not so transferred.
Until a transfer of this Warrant is registered on the books of the Company,
the Company may treat the Registered Holder hereof as the owner for all
purposes. Notwithstanding the foregoing, this Warrant and the rights
hereunder may not be transferred unless such transfer (a) complies with all
applicable securities laws and the provisions of Section 11 hereof, and (b)
effects the transfer of the right to purchase at least five percent (5%) of
the initial shares of Warrant Stock, as adjusted, or the right to purchase
all remaining shares of Warrant Stock purchasable under this Warrant if the
right to purchase less than five percent (5%) of the initial shares of
Warrant Stock remains untransferred.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number
or character of shares of Warrant Stock issuable upon exercise of this
Warrant and the Purchase Price therefor shall be adjusted to the extent
provided below upon occurrence of the following events:
5.1 ADJUSTMENT FOR STOCK SPLITS, STOCK DIVIDENDS,
RECAPITALIZATION AND SIMILAR EVENTS. The Purchase Price of this Warrant and
the number of shares of Warrant Stock issuable upon exercise of this Warrant
shall each be proportionally adjusted to reflect any stock split, reverse
stock split, combination of shares, reclassification, recapitalization or
other similar event affecting the number of outstanding shares of the
Company's Stock. For example, if there should be a 2-for-1 stock split of
the Company's Stock, the Purchase Price of this Warrant shall be divided by
two (2) and the number of shares of Warrant Stock purchasable under this
Warrant shall be doubled. An adjustment under this Section 5.1 shall be
effective at the close of business on the date such event becomes effective.
5.2 ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Company shall make or issue, or shall fix a record date for the determination
of eligible holders entitled to receive, a dividend or other distribution
with respect to the Warrant Stock
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<PAGE>
payable in securities of the Company, then, and in each such case, the
Registered Holder of this Warrant on exercise of this Warrant at any time
after the consummation, effective date or record date of such event, shall
receive, in addition to the shares of Warrant Stock issuable on such exercise
prior to such date, the securities or such other securities of the Company to
which such Registered Holder would have been entitled upon such date if such
Registered Holder had exercised this Warrant immediately prior thereto (all
subject to further adjustment as provided in this Warrant).
5.3 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER.
In case of any reorganization of the Company (or any successor corporation,
the stock or other securities of which are at the time receivable on the
exercise of this Warrant), after the Issue Date, or in case, after such date,
the Company (or any other such successor corporation) shall consolidate all
of its assets to another corporation, then, and in each such case, the
Registered Holder of this Warrant, upon the exercise hereof (as provided in
Section 2) at any time after the consummation of such reorganization,
consolidation, merger, or conveyance, shall be entitled to receive, in lieu
of the stock or other securities and property receivable upon the exercise of
this Warrant prior to such consummation, the stock or other securities or
property to which such Registered Holder would have been entitled had
Registered Holder exercised this Warrant immediately prior thereto, all
subject to further adjustment as provided in this Section 5, and the
successor or purchasing corporation in such reorganization, consolidation,
merger or conveyance (if other than the Company) shall duly execute and
deliver to the Registered Holder a supplement hereto acknowledging such
corporation's obligations under this Warrant; and in each such case, the
terms of this Warrant shall be applicable to the shares of stock or other
securities or property receivable upon the exercise of this Warrant after
such consummation.
5.4 CONVERSION OF WARRANT STOCK. In case all the authorized
Warrant Stock of the Company is converted, pursuant to the Company's
Certificate of Incorporation, into other securities or property, or the
Warrant Stock otherwise ceases to exist, then, in such case, the Registered
Holder of this Warrant, on exercise hereof at any time after the date on
which the Warrant Stock is so converted or ceases to exist (the "Termination
Date") shall receive, in lieu of the number of Shares of Warrant Stock that
would have been issuable upon such exercise immediately prior to the
Termination Date (the "Former Issuable Number of Shares of Warrant Stock"),
the stock and other securities and property to which such Registered Holder
would have been entitled to receive upon the Termination Date if such
Registered Holder had exercised this Warrant with respect to the Former
Issuable Number of Shares of Warrant Stock immediately prior to the
Termination Date (all subject to further adjustment as provided in this
Warrant).
5.5 ADJUSTMENTS TO PURCHASE PRICE. Although an adjustment to the
Purchase Price may occur pursuant to this Section 5, the aggregate purchase
price for the total number of shares of Warrant Stock purchasable hereunder
(as adjusted) shall remain the same.
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6. NO IMPAIRMENT. The Company may not, by amendment of its
Certificate of Incorporation or Bylaws, or through reorganization,
consolidation, merger, dissolution, issue or sale of securities, sale of
assets or any other voluntary action, willfully avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but shall at
all times in good faith assist in the carrying out of all such terms and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Registered Holder against impairment. Without
limiting the generality of the foregoing, the Company (a) will not set nor
increase the par value (if any par value exists) of any shares of stock
issuable upon the exercise of this Warrant above the amount payable therefor
upon such exercise, and (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully
paid and non-assessable shares of Warrant Stock upon the exercise of this
Warrant.
7. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment
in either the Purchase Price or in the number of share of Warrant Stock, or
other stock, securities or property receivable on the exercise of this
Warrant, the Treasurer of the Company shall, upon request from Registered
Holder, compute such adjustment in accordance with the terms of this Warrant
and prepare a certificate setting forth such adjustment and showing in detail
the facts upon which such adjustment is based, including a statement of the
adjusted Purchase Price. Thereafter, the Company shall cause copies of such
certificate to be mailed (by first class mail, postage prepaid) to the
Registered Holder.
8. NOTICES OF RECORD DATE. In case:
(a) The Company shall take a record of the holders of its
Warrant Stock for the purpose of entitling them to receive any dividend or
other distribution; or
(b) Of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of
all or substantially all of the assets of the Company to another corporation
in which holders of the Company's stock are to receive stock, securities,
cash or property of another corporation; or
(c) Of any voluntary dissolution, liquidation or winding-up
of the Company; or
(d) Any redemption or conversion into Common Stock of all
outstanding Warrant Stock.
then, and in each such case, the Company shall mail or cause to be mailed to
the Registered Holder of this Warrant a notice specifying, as the case may
be, (a) the date on which a record is to be taken for the purpose of such
dividend or distribution, and stating the amount and character of such
dividend or distribution, or (b) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution,
liquidation, winding-up, redemption or conversion is to take place, and the
time, if any is to be fixed, as of which the holders of record of Warrant
Stock shall be
5
<PAGE>
entitled to exchange their shares of Warrant Stock or Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
ten (10) days prior to the effective or record date therein specified, as
applicable. Failure to provide notice under this Section 8 or any defect
therein shall not affect the validity of any action taken in connection with
such dividend, distribution, reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation, winding-up, redemption or
conversion.
9. LOSS OR MUTILATION. Upon Registered Holders delivery to the
Company of evidence reasonably satisfactory to the Company of the ownership,
and the loss, theft, destruction or mutilation, of this Warrant, and of
indemnity reasonably satisfactory to the Company, and (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company
shall execute and deliver to the Registered Holder in lieu thereof a new
Warrant of like tenor.
10. RESERVATION OF WARRANT STOCK. If at any time the number of
authorized but unissued shares the Company's Common Stock or other securities
shall not be sufficient to effect the exercise of this Warrant, the Company
shall take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock or
other securities to such number of shares of Common Stock or other securities
as shall be sufficient for such purpose.
11. RESTRICTIONS ON TRANSFER.
11.1 ACKNOWLEDGMENT, REPRESENTATION AND WARRANTIES OF REGISTERED
HOLDER. The Registered Holder understands and acknowledge that neither this
Warrant nor the shares of Warrant Stock have been registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws.
As a condition to the issuance of this Warrant and to its exercise the
Registered Holder hereby represents and warrants to the Company that:
(a) The Warrant and, if applicable, the shares of Warrant
Stock (collectively, the "Securities") have been acquired by the Registered
Holder for investment and not with a view to the sale or other distribution
thereof within the meaning of the Act and the Registered Holder has no present
intention of selling or otherwise disposing of all or any portion of the
Securities.
(b) The Registered Holder has acquired the Securities for the
Registered Holder's own account only and no one else has any beneficial
ownership in the Securities.
(c) The Registered Holder is capable of evaluating the
merits and risks of any investment in the Securities, is financially capable
of bearing a total loss of this investment and has either (i) a preexisting
personal or business relationship with the Company or its principals or (ii)
by reason of the Registered Holder's business
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<PAGE>
or financial experience, has the capacity to protect her or its own interest
in connection with this investment.
(d) The Registered Holder has had access to all information
regarding the Company, its present and prospective business, assets,
liabilities and financial condition that the Registered Holder considers
important to making the decision to acquire the Securities and has had ample
opportunity to ask questions of and receive answers from the Company's
representatives concerning an investment in the Securities and to obtain any
and all documents requested in order to supplement or verify any of the
information supplied.
(e) The Registered Holder understands that the Securities
shall be deemed restricted securities under the Act and may not be resold
unless they are registered under the Act and any applicable state securities
law, or in the opinion of counsel in form and substance satisfactory to the
Company, an exemption from such registration is available.
(f) The Registered Holder is aware of Rule 144 promulgated
under the Act, which rule provides, in substance, that (i) after one year
from the date restricted securities have been purchased and fully paid for, a
holder may transfer restricted securities provided certain conditions are
met, e.g., certain public information is available about the Company, and
specific limitations on the amount of shares which can be sold within certain
periods and the manner in which such shares must be sold are complied with,
and (ii) after two years from the date the Securities have been purchased and
fully paid for, holders who are not "affiliates" of the Company may sell
restricted securities without satisfying such conditions.
(g) The Registered Holder further understands that if the
requirements of Rule 144 are not met, registration under the Act, compliance
with Regulation A, or some other registration exemption will be required for
any disposition of the Securities; and that, although Rule 144 is not
exclusive, the SEC has expressed its opinion that persons proposing to sell
restricted securities other than in a registered offering or other than
pursuant to Rule 144 will have a substantial burden of proof in establishing
that an exemption from registration is available for such offers or sales and
such persons and the brokers who participate in the transactions do so at
their own risk.
11.2 SALE OR TRANSFER OF WARRANT STOCK. The Registered Holder of
this Warrant, by acceptance hereof, agrees that, absent an effective
registration statement filed with the SEC under the Act, covering the
disposition or sale of this Warrant or the Warrant Stock issued or issuable
upon exercise hereof, such Registered Holder will not sell or transfer any or
all of this Warrant or such Warrant Stock, as the case may be, without first
providing the Company with an opinion of counsel satisfactory to the Company
to the effect that such sale or transfer will be exempt from the registration
and prospectus delivery requirements of the Act, and such Registered Holder
consents to the Company making a notation on its records, or giving
instructions to any transfer agent of this Warrant, or such Warrant Stock, in
order to implement this restriction on transfer. The share certificates
issued upon exercise of this Warrant shall bear legends
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referring to the restrictions on transfer set forth in this Section 11. As a
condition to the transfer of this Warrant or transfer of the shares issuable
on exercise hereof, any permitted transferee must execute and deliver to the
Company representations and warranties similar to those set forth in this
Section 11.
12. REGISTRATION RIGHTS.
12.1 DEFINITIONS. For purposes of this Section 12:
(a) ACT. The term "Act" means the Securities Act of
1933, as amended;
(b) REGISTRABLE SECURITIES. The term "Registrable
Securities" means (i) the Common Stock of the Company issuable upon exercise
of this Warrant and (ii) the Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such Common Stock, excluding in
all cases, any Registrable Securities sold by a person in a transaction in
which her rights under this Section 12 are not assigned.
(c) 1934 ACT. The term "1934 Act" means the Securities
Exchange Act of 1934, as amended;
(d) REGISTRATION; REGISTER OR REGISTERED. The terms
"Register," "Registered," and "Registration" refer to a registration effected
by preparing and filing a registration statement in compliance with the Act
and the declaration or ordering of the effectiveness of such registration
statement;
(e) REQUIRED INFORMATION. The term "Required
Information" means (i) facts or events representing a material or fundamental
change in the information included in the Registration Statement or (ii)
prospectus required by Section 19(a)(3) of the Act;
(f) RULE 144. The term "Rule 144" means Rule 144 as
promulgated by the SEC under the Act, as amended from time to time, or any
similar or successor rule that may be promulgated by the SEC;
(g) RULE 145 The term "Rule 145" shall mean Rule 145 as
promulgated by the SEC under the Act, as amended from time to time, or any
similar or successor rule that may be promulgated by the SEC; and
(h) SEC. The term "SEC" means the Securities and Exchange
Commission.
12.2 COMPANY REGISTRATION. Subject to Section 12.6, if at any
time (but without obligation to do so), the Company proposes to Register any
of its common stock under the Act (i) in connection with an underwritten
public offering of such securities (other than a registration relating solely
to the sale of securities to employees of the
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Company pursuant to a stock option, stock purchase or similar plan, or a
registration relating to a Rule 145 transaction or a registration on any form
which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Company's common stock) on a form that would also permit the Registration of
the Registrable Securities or (ii) for the account of a shareholder or
shareholders exercising their respective registration rights ((i) and (ii)
above shall be considered a "Company Registration"), the Company shall, each
such time, promptly give Registered Holder written notice of such
determination. Upon the written request of Registered Holder given within
twenty (20) days after the mailing of any such notice by the Company in
accordance with Section 13.3, the Company shall, subject to the provisions of
Section 12.6 and subject to any rights the Company may have, pursuant to the
terms of other registration rights agreements the Company has entered into or
otherwise, to withdraw, suspend or otherwise terminate a Registration
Statement for a Company Registration, cause to be Registered all of the
Registrable Securities that Registered Holder requested be Registered.
12.3 REGISTRATION PROCEDURES. Whenever required under Section
12.2 to use its best efforts to effect the Registration of any Registrable
Securities, the Company shall accomplish the following as expeditiously as
reasonably possible:
(a) REGISTRATION STATEMENT. Prepare and file with the
SEC a registration statement with respect to such Registrable Securities
("Registration Statement") and use its best efforts to cause such
Registration Statement to become and remain effective. In connection with any
proposed Registration intended to permit an offering of any securities from
time to time, the Company shall not be obligated to cause any such
Registration to remain effective (i) for more than one hundred and twenty
(120) days nor (ii) until the Registered Holder has completed the
distribution; provided, that such one hundred twenty (120) day period shall
be extended for such period of time as the Registered Holder refrains from
selling any securities included in such Registration at the request of an
underwriter of common stock or other securities of the Company;
(b) AMENDMENTS. Prepare and file with the SEC such
amendments and supplements to such Registration Statement as may be necessary
to comply with the provisions of the Act for the disposition of securities
covered by such Registration Statement;
(c) COPIES. Furnish to Registered Holder copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act and all applicable SEC rules and regulations, and
such other documents as the Registered Holder may reasonably request in order
to facilitate the disposition of Registrable Securities owned by Registered
Holder, including without limitation an earnings statement which satisfies
the provisions of Section 11(a) of the Act; and
(d) BLUE SKY. Use its best efforts to Register and
qualify the securities covered by such Registration Statement under such
other securities or blue sky laws of such jurisdictions as shall reasonably
be appropriate for the distribution of
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the securities covered by the Registration Statement; provided, that the
Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdictions. If any jurisdiction in which the
securities shall be qualified shall require that expenses incurred in
connection with the qualification of the securities in the jurisdiction be
borne by the selling shareholders, then expenses shall be payable by the
selling shareholders pro rata, to the extent required by such jurisdiction.
12.4 REGISTERED HOLDER INFORMATION. As a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement,
the Registered Holder shall furnish to the Company such information regarding
Registered Holder, the Registrable Securities held by Registered Holder, and
the intended method of disposition of such securities as the Company shall
reasonably request and as shall be required in connection with the action to
be taken by the Company.
12.5 REGISTRATION EXPENSES. The Company shall bear all expenses
of Registration (excluding underwriting discounts and the legal fees of
counsel separately retained by the selling Registered Holder and expenses
directly incurred by the selling Registered Holder). Such expenses of
Registration shall include without limitation, Registration, qualification
and filing fees and legal fees of the Company. All underwriting discounts
with respect to such shares shall be borne by the Registered Holder
requesting registration.
12.6 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 12.2 to include any of the Registered
Holder's Registrable Securities in such underwriting unless the Registered
Holder accepts the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it and then only in such quantity as
will not, in the written opinion of the underwriters or the Company,
jeopardize the success of the offering by the Company. If the total amount
of securities that the Registered Holder requests to be included in such
offering exceeds the amount of securities that the underwriters or the
Company reasonably believe to be compatible with the success of the offering,
the Company shall only be required to include in the offering so many of the
securities of the selling Registered Holder as the underwriters or the
Company believe will not jeopardize the success of the offering determined
as provided in Section 12.7 below.
12.7 ALLOCATION OF RIGHTS. Except as may otherwise be required
under any other agreement to which the Company is a party on the date of this
Warrant, if the total number of shares of Registrable Securities and other
common stock with registration rights (including common stock to be received
upon conversion of convertible securities) ("Other Shares") exceeds the
number of shares to be included in a Registration, then the number of shares
of Registrable Securities and Other Shares to be included in the Registration
shall be allocated among the Registered Holder of the Registrable Securities
and shareholders of the Other Shares who hold similar or greater registration
rights on the basis of the proportionate number of shares held by such
Registered Holder (assuming full conversion). If any Registered Holder or
other selling
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shareholder does not request inclusion of the maximum number of shares of
Registrable Securities and Other Shares allocated to Registered Holder, then
the remaining portion of Registered Holders allocation shall be reallocated
among those requesting Registered Holders and other selling shareholders
whose allocations did not satisfy their requests on the basis of the number
of shares of Registrable Securities and Other Shares held by such Registered
Holders and other selling shareholders (assuming full conversion). This
procedure shall be repeated until all Registrable Securities and Other Shares
which may be included in the Registration have been so allocated.
12.8 NO DELAY OF REGISTRATION. No Registered Holder shall have
any right to take any action to restrain, enjoin, or otherwise delay any
Registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Agreement.
12.9 INDEMNIFICATION. In the event any Registrable Securities is
included in a Registration Statement pursuant to this Agreement:
(a) INDEMNIFICATION BY THE COMPANY. To the extent
permitted by law, the Company shall indemnify and hold harmless Registered
Holder requesting or joining in a Registration, any underwriter (as defined
in the Act) for it, and each person, if any, who controls such Registered
Holder or underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, to which they may become
subject under the Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) (i) arise out of or are based
on any untrue or alleged untrue statement of any material fact contained in
such Registration Statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii)
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, or (iii) arise out of any violation by
the Company of any rule or regulation promulgated under the Act applicable to
the Company and relating to action or inaction required of the Company in
connection with any such Registration. In such event the Company shall
reimburse each such Registered Holder, such underwriter or controlling person
for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 12.9(a) shall not apply to (i) amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld) nor (ii) any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in connection with such
Registration Statement, preliminary prospectus, final prospectus or amndments
or supplements thereto, in reliance upon and in conformity with written
information furnished expressly for use in connection with such Registration
by any such Registered Holder.
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(b) INDEMNIFICATION BY REGISTERED HOLDER. To the extent
permitted by law, each Registered Holder requesting or joining in a
Registration will indemnify and hold harmless the Company, each of its
officers, legal counsel and directors, and each person, if any, who controls
the Company within the meaning of the Act and each agent, any underwriter
(within the meaning of the Act) for the Company or such other holders, any
person who controls such underwriter and any other holder of selling
securities in such Registration Statement or any of its officers or directors
or any person who controls such holder against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, legal counsel, controlling person, agent or underwriter may become
subject, under the Act, the 1934 Act or other federal or state law, or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon (i) any untrue or alleged
untrue statement of any material fact contained in such Registration
Statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (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, or (iii)
arise out of any violation by the Registered Holder of any rule or regulation
promulgated under the Act applicable to the Registered Holder and relating to
action or inaction required of the Registered Holder in connection with any
such Registration, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in such Registration Statement, preliminary or final
prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished by such Registered Holder
expressly for use in connection with such registration. Such Registered
Holder will reimburse any lgal or other expenses reasonably incurred by the
Company or any such director, officer, legal counsel, controlling person,
agent or underwriter in connection with investigating or defending any such
loss, claim, damage, liability or action;
(c) NOTICE. Promptly after receipt by an indemnified
party under this Section 12.9 of notice of the commencement of any action
(including any government action), such indemnified party shall, if a claim
in respect thereof is to be made against any indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof
and the indemnifying party shall have the right to participate in and,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, if representation jointly would be inappropriate due to potential
differing interests between such parties in such proceeding, either party may
retain counsel of its own. The failure to notify an indemnifying party
promptly of the commencement of any such action, if prejudicial to her or its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section, but the failure to
notify the indemnifying party shall not relieve him of any liability that the
indemnifying party may have to any indemnified party otherwise than under
this Section 12.9; and
(d) CONTRIBUTION. If the indemnification provided for
in this Section 12.9 is held by a court of competent jurisdiction to be
unavailable to an
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indemnified party hereunder with respect to any loss, liability, claim,
damage or expense, then the indemnifying party, in lieu of indemnifying such
indemnified party shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and of the indemnified party in connection with the
statement or omissions that resulted in such loss, liability, claim, damage
or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or
the indemnified party, and the opportunity to correct or prevent such
statement or omission. Such allocation shall be consistent with the
principles of indemnification provisions under Sections 12.9 (a) and (b)
above.
12.10 TERMINATION OF THE COMPANY'S OBLIGATIONS. The right of any
Registered Holder to request Registration pursuant to this Agreement shall
terminate on, or on the first date after, the closing of the first Registered
public offering of the Company's common stock initiated by the Company if
all shares of Registrable Securities held or entitled to be held upon
conversion by such Registered Holder may immediately be sold under Rule 144
of the Act during any ninety (90)-day period.
12.11 REPORTS UNDER 1934 ACT. In order to allow the Registered
Holders the benefits of Rule 144 promulgated under the Act and any other rule
or regulations of the SEC that may at any time permit the Registered Holder
to sell securities of the Company to the public without Registration, the
Company agrees to use its best efforts to:
(a) PUBLIC INFORMATION. Make and keep public information
available, as those terms are understood and defined in Rule 144;
(b) FILING. File with the SEC in a timely manner all
reports and other documents required of the Company under the Act and the
1934 Act; and
(c) COPIES OF REPORTS. Furnish upon request to any
Registered Holder, so long as such Registered Holder owns any Registrable
Securities: (i) a written statement by the Company that the Company has
complied with the reporting requirements of Rule 144, the Act and the 1934
Act (at any time after it has become subject to such reporting requirements);
(ii) a copy of the most recent annual or quarterly report of the Company; and
(iii) such other reports and documents so filed by the Company as may be
reasonably requested in availing any Registered Holder of any rule or
regulation of the SEC permitting the selling of any such securities without
Registration.
12.12 LOCKUP AGREEMENT. Upon the request of the Company
or the underwriters managing any firm commitment underwritten offering of the
Company's securities, in connection with any Registration, each Registered
Holder agrees that it shall not, sell or otherwise dispose of any Registrable
Securities during a period of up to
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one-hundred and eighty days (or more if requested by the underwriter or the
Company) following the effective date of a registration statement; provided
that such agreement shall only apply to the first such Registration including
securities sold on behalf of the Company to the public in an underwritten
offering. The obligations of the Registered Holders under this paragraph
12.12 shall not apply to a registration relating solely to employee benefit
plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the
future. The Company may impose stop-transfer instructions with respect to all
shares (or securities) subject to the foregoing restriction until the end of
such one hundred eighty (180)-day period (or such longer period). Registered
Holder will not be required to lockup Registrable Securities on terms less
favorable than the terms of lockup agreements with the Company's officers
and/or directors.
12.13 NO LIMITATION ON FUTURE REGISTRATION RIGHTS. Other than the
obligations imposed hereunder on the Company to allocate registration rights,
the Company shall not be restricted from granting any form of registration
rights to any person.
12.14 TRANSFER OF REGISTRATION RIGHTS. The registration rights of
Registered Holder under this Agreement may be transferred to any transferee
who acquires from Registered Holder shares representing at least one percent
(1%) of the issued and outstanding Shares of the Company; provided, that the
Company is given written notice by the Registered Holder at the time of such
transfer stating the name and address of the transferee and identifying the
securities with respect to which the rights under this Agreement are being
assigned.
13. GENERAL PROVISIONS.
13.1 NO RIGHTS OR LIABILITIES AS SHAREHOLDER. This Warrant does
not by itself entitle the Registered Holder to any voting rights or other
rights as a shareholder of the Company. In the absence of affirmative action
by Registered Holder to purchase Warrant Stock by exercise of this Warrant,
no provisions of this Warrant, and no enumeration herein of the rights or
privileges of the Registered Holder shall cause such Registered Holder to be
a shareholder of the Company for any purpose by virtue hereof.
13.2 AMENDMENT. The provisions of this Agreement may be modified
at any time by agreement of the parties. Any such agreement hereafter made
shall be ineffective to modify this Agreement in any respect unless in
writing and signed by the parties against whom enforcement of the
modification or discharge is sought.
13.3 NOTICES. Any notice under this Agreement shall be in
writing, and any written notice or other document shall be deemed to have
been duly given (i) on the date of personal service on the parties, (ii) on
the third business day after mailing, if the document is mailed by registered
or certified mail, (iii) one day after being sent by professional or
overnight courier or messenger service guaranteeing one-day delivery, with
receipt confirmed by the courier, or (iv) on the date of transmission if sent
by telegram, telex, telecopy or other means of electronic transmission
resulting in written copies, with receipt confirmed. Any such notice shall
be delivered or addressed to
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the parties at the addresses set forth below or at the most recent address
specified by the addressee through written notice under this provision:
If to the Company:
Daniel McPeak
Chief Executive Officer
The RiceX Company
1241 Hawk's Flight Court
El Dorado Hills, CA 95762
Fax: (916) 933-3232
With a copy to:
Graham & James LLP
400 Capitol Mall
24th Floor
Sacramento, CA 95814
Attn: Gilles Attia, Esq.
If to the Registered Holder:
Failure to conform to the requirement that mailings be done by registered or
certified mail shall not defeat the effectiveness of notice actually received
by the addressee.
13.4 CHANGE; WAIVER. Any of the terms or conditions of this
Agreement may be waived at any time by the party entitled to the benefit
thereof, but no such waiver shall affect or impair the right of the waiving
party to require observance, performance or satisfaction either of that term
or condition as it applies on a subsequent occasion or of any other term or
condition.
13.5 HEADINGS. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof.
13.6 LAW GOVERNING. The rights and obligations of the parties and
the interpretation and performance of this Agreement shall be governed by the
law of California, excluding its conflict of laws rules
13.7 INTEGRATION. This Agreement constitutes the entire agreement
between the Company and the Registered Holder with respect to the subject
matter hereof. Any previous agreement between the Company and the Registered
Holder is superseded by this Agreement. Subject to the exceptions
specifically set forth in this Agreement, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
heirs, successors, administrators, executors and assigns of the parties
hereto.
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13.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.9 SEVERABILITY. If any provision of this Agreement is
adjudicated by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of the Agreement which can be given full force
and effect without the invalid provision shall continue in full force and
effect and shall in no way be impaired or invalidated..
Dated: As of ___________, 1998
COMPANY
The RiceX Company, a Delaware
corporation
By:
------------------------------
Its:
-----------------------------
REGISTERED HOLDER
-----------------------
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EXHIBIT 1
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned Registered Holder of this Warrant irrevocably exercises
this Warrant for the purchase of shares of Stock of
, purchasable with this Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant. The representations and warranties of the undersigned contained in
Section 11 of this Warrant continue to be true and complete on the date
hereof.
Dated: __________
---------------------------------
(Signature of Registered Holder)
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip)
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned Registered Holder of this Warrant
hereby sells, assigns and transfers unto the Assignee named below in
accordance with the terms and conditions of the Warrant, all of the rights of
the undersigned under the within Warrant, with respect to the number of
shares of Warrant Stock set forth below:
Name of Assignee Address No. Of Shares
and does hereby irrevocably constitute and appoint Attorney to
make such transfer on the books of maintained for the purpose,
with full power of substitution in the premises.
Dated:
By:
-------------------------------
(Registered Holder)
Name:
-----------------------------
Title:
---------------------------
<PAGE>
SUBSCRIPTION AGREEMENT
SEPTEMBER 10, 1998
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES COMMISSION OF ANY STATE UNDER ANY
STATE SECURITIES LAW. THEY ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER REGULATION S ("REGULATION S") PROMULGATED UNDER THE ACT.
THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE
SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS,
OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AVAILABLE EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. INVESTORS IN THE SECURITIES
MAY NOT ENGAGE IN HEDGING TRANSACTIONS WITH REGARD TO SUCH SECURITIES UNLESS
IN COMPLIANCE WITH THE ACT.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY BY OR
TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD
BE UNLAWFUL. INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK. IN
MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND THE
RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED OR DETERMINED THE ACCURACY OR
ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
INVESTORS IN THE UNITS OFFERED BY THIS SUBSCRIPTION AGREEMENT SHOULD
CONSIDER THE INVESTMENT TO BE SPECULATIVE AND TO INVOLVE A HIGH DEGREE OF
RISK. ONLY PERSONS WHO CAN ABSORB THE POTENTIAL LOSS OF THEIR ENTIRE
INVESTMENT SHOULD PARTICIPATE. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER ALL INFORMATION WITHIN THIS SUBSCRIPTION AGREEMENT AND
OBTAINED FROM THE COMPANY THAT CONCERNS THE COMPANY AND ITS BUSINESS AS WELL
AS THE INFORMATION CONTAINED IN THE CONFIDENTIAL OFFERING MEMORANDUM OF THE
COMPANY DATED SEPTEMBER 9, 1998, INCLUDING BUT NOT LIMITED TO, THE RISK
FACTORS CONTAINED THEREIN.
The RiceX Company, a Delaware corporation ("RiceX" or the "Company"),
hereby offers and Heldomo, A.G., a Swiss corporation (the "Subscriber"),
agrees to purchase, 15 Units (the "Units") at a purchase price of $100,000
per Unit for an aggregate consideration of One Million Five Hundred Thousand
Dollars ($1,500,000) (the "Offering"). Each Unit shall consist of 66,666.7
shares of the Company's Common Stock
<PAGE>
and Warrants to purchase up to 66,666.7 shares of Common Stock (for clarity,
the 15 Units therefore comprising in total 1,000,000 shares of the Company's
Common Stock and Warrants to purchase up to 1,000,000 shares of the Company's
Common Stock.) The Warrants will expire two (2) years from the date of
issuance. For the first year following the closing of the Offering, the
Warrants may be exercised at $1.50 per share of Common Stock. Thereafter,
the exercise price shall be $1.8125 per share of Common Stock. The holder of
the Warrants shall be entitled to certain anti-dilution rights as contained
in the Warrants. The Warrants shall be in substantially the same form as
contained in Exhibit A. This Subscription Agreement (the "Agreement" or the
"Subscription Agreement") is executed by the Subscriber in connection with
the Offering. The Offering is being conducted pursuant to Regulation S
promulgated under the Act. A portion of the purchase price for the Units may
be used to pay commissions or finder's fees in connection with this Offering.
It is agreed as follows:
TERMS OF THE OFFERING
1. Offer to Subscribe; Purchase Price.
The Subscriber hereby offers to purchase and subscribe 15 Units at the
purchase price of $100,000 per Unit. The Closing shall be deemed to occur
when both the Subscriber and the Company execute this Agreement (the
"Closing"). Payment shall be made by delivering the purchase price by
certified check, bank draft or bank transfer in same day funds, in United
States Dollars, along with this Agreement and all other documents referenced
herein, to Graham & James LLP (the "Trustee"), in trust for the Company, or
in such other manner as may be specified by the Trustee (the "Purchase
Price"). The Trustee is hereby irrevocably authorized to deliver the
Purchase Price pursuant to Section 1.1.
1.1 The Subscriber acknowledges and agrees that the Purchase Price
delivered in connection herewith will be held by the Trustee until such time
as the condition precedents contained in Section 5.1 are satisfied.
1.2 Upon the satisfaction of such conditions, the Trustee will, and the
Subscriber hereby irrevocably authorizes the Trustee to, at the Closing,
deliver the Purchase Price, and any documents delivered to the Trustee in
connection herewith, to the Company against delivery by the Company of
evidence that certificates representing the Common Stock and Warrants as
contemplated herein are prepared and ready to be delivered by the Company to
the Subscriber. In the event that this Subscription Agreement is not
accepted by the Company or the conditions referred to above are not satisfied
by the Company within 30 days of the execution of this Agreement by the
Subscriber, this Subscription Agreement, the Purchase Price and any other
documents delivered in connection herewith will be returned to the Subscriber
at the address of the Subscriber set forth on the signature page of this
Subscription Agreement.
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<PAGE>
2. Delivery.
As soon as practicable after the Closing with respect to the Units, the
Company will deliver to the Subscriber certificates representing the Common
Stock and Warrants comprising the Units which certificates shall be issued in
the Subscriber's name as set forth on the signature page of this Agreement.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Subscriber that:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized and existing under the laws of the State of Delaware and is in good
standing under such laws. The Company has the requisite corporate power to
own and operate its properties and assets, and to carry on its business as
presently conducted and as proposed to be conducted as provided in the
Company's Business Plan dated July 15, 1998, and the Confidential Offering
Memorandum dated September 9, 1998, copies of which have been provided to the
Subscriber.
3.2 CORPORATE POWER. The Company has all requisite corporate power to
enter into this Agreement, to sell the Units as provided herein and to carry
out and perform its obligations under the terms of this Agreement.
3.3 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the sale and issuance
of the Units pursuant hereto and the performance of the Company's obligations
hereunder has been taken. This Agreement, when executed and delivered by the
Company, shall constitute a valid and binding obligation of the Company,
enforceable in accordance with its terms, except as enforcement may be
limited by applicable bankruptcy laws or other similar laws affecting
creditors' rights generally, and except insofar as the indemnification
provisions of Section 6.5 and the availability of equitable remedies may be
limited by applicable law. The Common Stock and Warrants comprising the
Units, when issued in compliance with the provisions of this Agreement, will
be validly issued, fully paid and non-assessable.
4. Representations and Warranties of the Subscriber; Access to Information;
Independent Information; Independent Investigation.
Except as otherwise agreed in writing and acknowledged by the Company,
the Subscriber represents and warrants to and covenants with the Company, on
its own behalf and on behalf of each person or entity for which the
Subscriber is acting as a fiduciary, as follows:
4.1 AUTHORITY. The Subscriber has now, and will have at the Closing,
all requisite legal or other power to enter into this Agreement, to purchase
the Units hereunder and to perform its obligations under the terms of this
Agreement.
4.2 AUTHORIZATION. All action on the part of the Subscriber necessary
for the purchase of the Units and the performance of the Subscriber's
obligations hereunder, has been taken or will be taken prior to the Closing.
This Agreement, when executed and
3
<PAGE>
delivered by the Subscriber, will constitute a valid and legally binding
obligation of the Subscriber, enforceable in accordance with its terms.
4.3 INVESTMENT REPRESENTATIONS. This Agreement is made with the
Subscriber in reliance on the following specific representations to the
Company that:
(a) The Units purchased hereunder will be acquired for the
Subscriber's own account and not with a view to the distribution of any part
thereof, and the Subscriber has no present intention of selling, granting
participation in, or otherwise distributing the same. If other than an
individual, the Subscriber has not been organized for the purpose of
investing in securities of the Company, although such investment is
consistent with its purposes.
(b) The Subscriber understands that the purchase of the Units
represents a speculative investment, and the Subscriber is able, without
impairing its financial condition, to hold the Units for an indefinite
period of time and to suffer a complete loss of the Subscriber's investment.
The Subscriber is aware of and has investigated the Company's business,
management and financial condition, has had the opportunity to inspect the
Company's facilities and has had access to such other information about the
Company as the Subscriber has deemed necessary or desirable to reach an
informed and knowledgeable decision to acquire the Units.
(c) The Subscriber understands, except as set forth in Section 6,
that the Units will not be registered under the Act by reason of, among other
things, reliance upon certain exemptions therefrom, and that the reliance of
the Company on such exemptions is predicated upon, among other things, the
bona fide nature of the Subscriber's investment intent as expressed herein.
(d) The Subscriber is experienced in evaluating and investing in
securities of companies in the development stage and has made investments in
securities other than those of the Company. The Subscriber acknowledges that
by reason of its business or financial experience, it has the ability to bear
the economic risk of its investment pursuant to this Agreement.
(e) Although Impact Capital Partners Limited and West Sussex
Trading, Inc. (the "Advisors") may have introduced the Subscriber to the
Company, the Subscriber and the Company acknowledge and agree with the
Advisors (such acknowledgments and agreements to survive the Closing), that:
(i) the Advisors and their directors, officers, employees,
agents and representatives have no responsibility or liability of
any nature whatsoever for the accuracy or adequacy of the
information contained in this Agreement, the Company's Business
Plan dated July 15, 1998 or the Confidential Offering Memorandum
dated September 9, 1998 or as to whether all information concerning
the Company required to be disclosed by it has generally been
disclosed;
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<PAGE>
(ii) the Advisors are entitled to rely upon the undertakings
of the Subscriber contained in this Agreement and that the
Subscriber will hold harmless the Advisors from any loss or damage
they may suffer as a result of the Subscriber's failure to comply
with such undertakings;
(iii) the Subscriber and the Company hereby release the
Advisors from any and all claims that may arise in respect of this
Agreement.
4.4 RULE 144. The Subscriber understands that the Units, the Warrants,
and the Common Stock, are restricted securities within the meaning of Rule
144 under the Act; that such securities are not registered and must be held
indefinitely unless they are subsequently registered or an exemption from
such registration is available; that, in any event, the exemption from
registration under Rule 144 will not be available for at least one year, and
even then will not be available unless: (i) a public trading market then
exists for the Units, the Warrants and the Common Stock; (ii) adequate
information concerning the Company is then available to the public; and (iii)
other terms and conditions of Rule 144 are complied with, including, among
other things, the sale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a "market maker" and
the number of shares being sold in any three-month period shall not exceed
specified limitations; and that any sale of such securities may be made by
the Subscriber only in limited amounts in accordance with such terms and
conditions if the Subscriber is an affiliate of the Company or has held such
securities less than two years.
4.5 CONFIDENTIALITY; INDEPENDENT INVESTIGATION; ACCREDITED INVESTOR.
The Subscriber will keep confidential, in accordance with the Nondisclosure
Agreement executed by the Subscriber, all non-public information regarding
the Company that the Subscriber receives from the Company unless disclosure
of such information is compelled by a court or other administrative body.
The Subscriber has had a reasonable opportunity to ask questions of and
receive answers from the Company concerning the Company and the Offering, and
all such questions, if any, have been answered to the full satisfaction of
the undersigned. In making its investment decision to purchase Units, the
Subscriber is not relying on any oral or written representations or
assurances from the Company or any other person other than as set forth in
this Agreement or in a document executed by a duly authorized representative
of the Company making reference to this Agreement. The Subscriber has such
experience in business and financial matters that it is capable of evaluating
the risk of its investment and determining the suitability of its investment.
The Subscriber is an accredited investor as defined in Rule 501 of
Regulation D and by reason of the Subscriber's business or financial
experience or the business or financial experience of the Subscriber's
professional advisors, has the capacity to protect its own interest in
connection with this Offering.
4.6 ECONOMIC RISK. The Subscriber understands and acknowledges that an
investment in the Units involves a high degree of risk, including a possible
total loss of investment. The Subscriber represents that the Subscriber is
able to bear the economic risk of an investment in the Units. In making this
statement, the Subscriber hereby
5
<PAGE>
represents and warrants that the Subscriber has adequate means of providing
for the Subscriber's current needs and contingencies and the Subscriber is
able to afford to hold the Units for an indefinite period.
4.7 NO GOVERNMENT RECOMMENDATION OR APPROVAL. The Subscriber
understands that no United States federal or state agency or similar agency
of any other country has passed upon or made any recommendation or
endorsement of the Company, this transaction or the subscription of the Units.
4.8 RELIANCE ON REPRESENTATION. This Agreement is made by the Company
with the Subscriber in reliance upon the Subscriber's representations and
covenants made in this Section 4.
4.9 NO REGISTRATION. The Subscriber understands that the Units have
not been registered under the Act and are being offered and sold pursuant to
an exemption from registration contained in the Act, which is based, in part,
upon the representations of the Subscriber contained herein.
4.10 NO PUBLIC SOLICITATION. Without conducting any independent
investigation, the Subscriber knows of no public solicitation or
advertisement of an offer in connection with the proposed sale of the Units.
4.11 INVESTMENT INTENT. The Subscriber represents and warrants to the
Company that the Subscriber has no present plan or intention of selling the
Units, has made no predetermined arrangements to sell the Units and that the
Offering, together with any subsequent resale of the Units, is not part of a
plan or scheme to evade the registration provisions of the Act. The
Subscriber currently has no short position in the Units, including any short
call position or any long put position or any contract or arrangement that
has the effect of eliminating or substantially diminishing the risk of
ownership of the Units, nor has the Subscriber engaged in any hedging
transaction with respect to the Units.
4.12 NO SALE IN VIOLATION OF THE ACT. The Subscriber further covenants
that the Subscriber will not make any sale, transfer or other disposition of
the Units in violation of the Act (including Regulation S), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or the rules and
regulations of the Securities and Exchange Commission (the "Commission")
promulgated thereunder.
4.13 NO RELIANCE ON TAX ADVICE. The Subscriber has reviewed with its
own tax advisors the foreign, federal, state and local tax consequences of
this investment, where applicable, and the transactions contemplated by this
Agreement. The Subscriber is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents and
understands that the Subscriber (and not the Company) shall be responsible
for the Subscriber's own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
4.14 INDEPENDENT LEGAL ADVICE. The Subscriber acknowledges that the
Subscriber has had the opportunity to review this Agreement and the
transactions
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<PAGE>
contemplated by this Agreement with its own legal counsel. The Subscriber is
relying solely on such counsel and not on any statements or representations
of the Company or any of its agents for legal advice with respect to this
investment or the transactions contemplated by this Agreement.
4.15 NOT AN AFFILIATE. The Subscriber is not an officer, director or
"Affiliate" (as the term is defined in Rule 405 and Rule 501(b) of the Act)
of the Company.
4.16 INVESTMENT RISK. The Subscriber recognizes that an investment in
the Units involves a high degree of risk, including those set forth in the
Confidential Offering Memorandum under the caption 'Risk Factors."
4.17 FOREIGN REPRESENTATIONS. The Subscriber represents and warrants to
and covenants with the Company, on its own behalf and on behalf of each
person or entity for which the Subscriber is acting as a fiduciary, as
follows:
(a) OFFSHORE TRANSACTION. The Subscriber represents and warrants
to the Company that (i) neither the Subscriber nor any of the investors on
whose behalf the Subscriber may purchase and hold Units is a "U.S. person" as
that term is defined in Rule 902 (o) of Regulation S and the Subscriber is
not an entity organized or incorporated under the laws of any foreign
jurisdiction by any "U.S. person" principally for the purpose of investing in
securities not registered under the Act, unless the Subscriber is or was
organized or incorporated by "U.S persons" who are accredited investors (as
defined in Rule 501(a) under the Act) and who are not natural persons,
estates or trusts ("Institutional Investors"), and all owners of interests in
such equity who are "U.S. persons" are Institutional Investors, and not
natural persons, estates or trusts; (ii) the Units were not offered to the
Subscriber in the United States and at the time of execution of this
Agreement and of any offer to the Subscriber to purchase the Units hereunder,
the Subscriber was physically outside the United States; (iii) the Subscriber
is purchasing the Units for its own account and not on behalf of or for the
benefit of any U.S. person and the sale and resale of the Units have not been
prearranged with any buyer in the United States; (iv) the Subscriber hereby
agrees that all offers and sales of the Units shall not be made except in
accordance with Regulation S, pursuant to registration under the Act, or
pursuant to an available exemption from registration, and hedging
transactions involving the Units may not be conducted unless in compliance
with the Act. The Subscriber has not been engaged by or acted as or on
behalf of a distributor or dealer (and is not an affiliate of a distributor
or dealer) with respect to this transaction.
(b) NO DIRECTED SELLING EFFORTS IN REGARD TO THIS TRANSACTION.
The Subscriber represents and warrants that the Company has not conducted any
"directed selling efforts" as that term is defined in Rule 902 of Regulation
S.
5. Conditions to Closing.
5.1 CONDITIONS TO THE SUBSCRIBER'S OBLIGATIONS. The obligation of the
Subscriber to purchase the Units is subject to the fulfillment on or prior to
the Closing of the following conditions:
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(a) REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct on the Closing.
(b) QUALIFICATIONS. All authorizations, approvals or permits of
any governmental authority that are required in connection with the lawful
issuance and sale of the Units under this Agreement shall have been duly
obtained and effective, or will be obtained or made in a timely manner so as
to comply with the requirements of such governmental authority.
(c) EXECUTION AND DELIVERY. The Company shall have executed and
delivered the Agreement or such execution and delivery shall have been waived.
(d) RESCISSION OF LOAN AGREEMENT. The Subscriber shall have
received a true and correct copy of the executed Rescission of Loan
Agreement, between the Company and Allen Simon in a form as attached as
Exhibit B, relating to the rescission of Simon's exercise of an option to
purchase 2,000,000 shares of Common Stock by means of a Promissory Note, and
such agreement shall be in full force and effect on the date of the Closing.
(e) CANCELLATION OF UNEXERCISED STOCK OPTIONS AGREEMENT. The
Subscriber shall have received a true and correct copy of a Cancellation of
Unexercised Stock Option Agreement from each director and officer of the
Company with unexercised options as of the date of this Agreement, each of
whom is listed on Exhibit C hereto, in the form attached as Exhibit D.
(f) EMPLOYMENT AGREEMENT AMENDMENT. The Subscriber shall have
received true and correct copies of agreements between the Company and Daniel
McPeak, Patricia McPeak and Allen Simon (the "Directors") wherein the
Directors agree to defer salaries for a period of ninety days in the form
attached hereto as Exhibit E.
(g) OPINION OF COUNSEL. The Subscriber shall have received a
written opinion (addressed to the Subscriber and dated the Closing Date) of
Graham & James LLP, counsel for the Company, substantially in the form of
Exhibit F hereto. The Subscriber hereby requests counsel to deliver such
opinion.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation
to sell and issue the Units at the Closing is subject to the fulfillment on
or prior to such Closing of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF
OBLIGATIONS. The representations and warranties of the Subscriber in Section
4 hereof shall be true and correct as of the Closing and the Subscriber shall
have performed all obligations and conditions herein required to be performed
by it on or prior to the Closing.
(b) QUALIFICATIONS. All other authorizations, approvals or
permits of any other governmental authority that are required in connection
with the lawful issuance and sale of the Units under this Agreement shall
have been duly obtained and effective, or will
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<PAGE>
be obtained or made in a timely manner so as to comply with the requirements
of such governmental authority.
(c) EXECUTION AND DELIVERY. Each of the Company and the
Subscriber shall have executed and delivered the Agreement.
(d) PURCHASE PRICE. The Company shall have received the Purchase
Price.
6. Registration.
6.1 DEFINITIONS. As used in this Section 6:
(a) The terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering by the Commission of
the effectiveness of such registration statement;
(b) The term "Registrable Securities" means: any Common Stock of
the Company issued pursuant to this Agreement, any Common Stock issuable upon
exercise of the Warrants or any Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of, such Common Stock;
(c) The term "Holder" means the Subscriber or other holder of
outstanding Registrable Securities who acquires such securities in accordance
with Section 6.8 hereof; and
(d) The term "Confidential Offering Memorandum" means the
Company's Confidential Offering Memorandum dated September 9, 1998.
6.2 REGISTRATION. The Company shall cause the Registrable Securities
held by each Holder to be registered under the Act so as to permit the resale
thereof upon the earlier of (a) registration of any other investor's shares
of Common Stock or (b) within one hundred and eighty days (180) from the
exercise of the Warrants; provided, however, that each Holder shall provide
all such information and materials to the Company and take all other action
as may be required in order to permit the Company to comply with all
applicable requirements of the Act. Such provision of information and
materials by the Holders is a condition precedent to the obligations of the
Company under this Agreement. The offering made pursuant to such registration
shall not be underwritten. If the Company fails to have the Commission
declare such registration statement effective in accordance with clauses (a)
or (b) above, the Company shall be subject to a penalty (the "Penalty") of 3%
per month on the total amount raised through the Unit offering to the
Subscriber. The penalty shall be payable monthly to the Holders on a pro
rata basis, calculated on the number of Units held by each such Holder. Any
unnecessary delay caused by the Holder's failure to provide the necessary
information to file such registration statement shall not be counted for
purposes of the Penalty.
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<PAGE>
6.3 EXPENSES OF REGISTRATION. All expenses incurred in connection with
any registration, qualification or compliance pursuant to this Section 6;
including, without limitation, all registration, filing and qualification
fees, printing expenses, fees and disbursements of counsel for the Company,
accounting fees incidental to or required by such registration, shall be
borne by the Company.
6.4 REGISTRATION PROCEDURES. In the case of the registration,
qualification or compliance effected by the Company pursuant to this Section
6, the Company will keep each Holder participating therein advised in writing
as to the initiation of the registration, qualification and compliance and as
to the completion thereof. The Company, at its expense, will furnish such
number of prospectuses and other documents incident thereto as a Holder
participating in such registration from time to time may reasonably request.
6.5 INDEMNIFICATION.
(a) To the extent permitted by law, the Company will indemnify
each Holder (and each officer, director and controlling person of such
Holder) with respect to which registration, qualification or compliance has
been effected pursuant to this Section 6, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on
(i) any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including
any related registration statement, notification or the like) incident to any
such registration, qualification or compliance, or (ii) any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (iii)
any violation by the Company of any rule or regulation promulgated under the
Act applicable to the Company and relating to action or inaction required of
the Company in connection with such registration, qualification or
compliance, and will reimburse each such person, each of its officers and
directors, and each person controlling such person, for any legal and any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, provided that
the Company will not be liable in any such case to the extent that any such
claim, loss, damage or liability arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company
by an instrument duly executed by such person or underwriter and stated to be
specifically for use therein.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by or issuable to such person are included in the
securities as to which such registration, qualification or compliance is
being effected, indemnify the Company, each of its directors and officers who
sign such registration statement, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company within the meaning of the Act and each other such Holder and each
of its officers and directors and each person controlling such Holder,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on (i) any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document provided by the
Holder to the Company for purposes of such registration, or (ii) any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if Holder
fails to
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<PAGE>
provide such information known by the Holder at the time of registration, and
will reimburse the Company and such Holders and directors, officers, persons
or underwriters for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder and stated to be specifically for use therein.
(c) Each party entitled to indemnification under this Section 6.5
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, if such counsel is other than counsel named herein, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified
Party to give notice as provided herein shall, if such failure is prejudicial
to the Indemnifying Party's ability to defend such action, relieve the
Indemnifying Party of its obligations under this Section 6, but not of any
obligation arising apart from this Section 6. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. If any such Indemnified
Party shall have reasonably concluded that there may be one or more legal
defenses available to such Indemnified Party which are different from or
additional to those available to the Indemnifying Party, or that such claim
or litigation involves or could have an effect upon matters beyond the scope
of the indemnity agreement provided in this Section 6.5, the Indemnifying
Party shall not have the right to assume the defense of such action on behalf
of such Indemnified Party and such Indemnifying Party shall reimburse such
Indemnified Party and any person controlling such Indemnified Party for that
portion of the fees and expenses of any counsel retained by the Indemnified
Party which are reasonably related to the matters covered by the indemnity
agreement provided in this Section 6.5.
6.6 INFORMATION BY HOLDER. The Holders whose securities are included
in any registration shall furnish in writing to the Company such information
regarding such persons and the distribution proposed by such persons as the
Company may request in writing and as shall be required in connection with
any registration, qualification or compliance referred to in this Section 6.
The Company's obligations under this Section 6 are conditioned upon
compliance by such persons with the provisions of this Section 6.6.
6.7 SALE WITHOUT REGISTRATION. The Holder of each certificate
representing securities of the Company required to bear the legend in
substantially the form set forth in
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Section 9.1 hereof (or any similar legend) by acceptance thereof agrees to
comply in all respects with the provisions of this Section 6.7. Prior to any
proposed transfer of any Registrable Securities, which have not been
registered under the Act, the Holder thereof shall give written notice to the
Company of such Holder's intention to effect such transfer, accompanied by:
(a) such information as is reasonably necessary in order to establish that
such transfer may be made without registration under the Act; and (b) if
requested by the Company, a written opinion of legal counsel, satisfactory in
form and substance to the Company, to the effect that such transfer may be
made without registration under the Act.
6.8 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
to register securities granted by the Company under Section 6.2 may be
assigned by the Subscriber to a transferee or assignee of any portion of the
Registrable Securities (as adjusted for stock splits and the like), held by
the Subscriber, provided that such transfer may otherwise be effected in
accordance with applicable securities laws and provided further that the
Company is given written notice of any such transfer within thirty (30) days
of the date of said transfer, stating the name and address of said transferee
or assignee and identifying the securities with respect to which such
registration rights are being assigned.
7. Price Protection.
In the event that the Company, within two years from the date of this
Agreement, issues shares of Common Stock (or options or warrants to purchase
shares of Common Stock) for a consideration per share (or exercise price)
less than $1.50 ("Lower Price"), the Company shall issue new shares of Common
Stock ("New Shares") to the Subscriber sufficient to reduce its average
purchase price to the Lower Price and the exercise price of the Warrants
shall be reduced to the Lower Price (the "Price Protection"). The issuance
of the New Shares by the Company shall be accounted for as fully paid and
non-assessable and issued as of the date hereof.
8. Resales.
The Subscriber acknowledges and agrees that the Units, the Warrants
(including the shares of Common Stock to be issued upon exercise of the
Warrants (the "Underlying Common")) and the Common Stock may only be resold
pursuant to a Registration Statement under the Act or pursuant to an
exemption from registration under the Act.
9. Legends; Subsequent Transfer of Securities.
9.1 LEGENDS. The Subscriber agrees that the certificate(s)
representing the Common Stock shall bear the legend set forth below and any
other legend, if such legend or legends are reasonably required to comply
with state, federal or foreign law, including, without limitation, Regulation
S.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR REGISTERED OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS, IN RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION
AND QUALIFICATION PROVIDED IN THE ACT AND APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND
QUALIFICATION OR REGISTRATION UNDER THE APPLICABLE STATE SECURITIES
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LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
REGISTRATION OR QUALIFICATION IS NOT REQUIRED.
9.2 TRANSFERS. The Subscriber agrees that the Company may instruct the
transfer agent for the Units to not register the transfer of the Warrants
(including the Underlying Common) or Common Stock unless the restrictions
referenced in the foregoing legends have been satisfied.
10. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California, applicable to agreements made in and wholly
to be performed in that jurisdiction, except for matters arising under the
Act or the Exchange Act which matters shall be construed and interpreted in
accordance with such laws. Any action brought to enforce, or otherwise
arising out of, this Agreement shall be heard and determined in either a
federal or state court sitting in the State of California.
11. Entire Agreement; Amendment.
This Agreement and the documents referenced hereunder constitute the
full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof; and no party shall be liable or bound to
any other party in any manner by any warranties, representations or covenants
except as specifically set forth herein or therein. Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the party against whom enforcement of any such amendment, waiver, discharge
or termination is sought.
12. Notices, Etc.
Any notice, demand or request required or permitted to be given by
either the Company or the Subscriber pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or by
facsimile, with a hard copy to follow by two-day courier addressed to the
parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other
in writing.
13. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
14. Severability.
In the event that any provision of this Agreement becomes or is declared
by a court of competent jurisdiction to be illegal, unenforceable or void,
this Agreement shall continue in full force and effect without said
provision, provided that no such severability
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<PAGE>
shall be effective if it materially changes the economic benefit of this
Agreementto any party.
15. Titles and Subtitles.
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
The undersigned Subscriber acknowledges that this Subscription Agreement
shall not be effective unless accepted by the Company as indicated below.
The Subscriber hereby subscribes for 15 Units for an aggregate purchase
price of One Million Five Hundred Thousand Dollars ($1,500,000.00) and pays
herewith, by certified check, bank draft or bank transfer in same day funds, the
amount of One Million Five Hundred Thousand U.S. Dollars ($1,500,000).
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<PAGE>
Dated this 10th day of September 1998.
HELDOMO, A.G.
BY: /s/ Dr. Jur. Hans Rudolf Barth
-----------------------------------
Dr. Barth, Director
Address: 12, Baarer Strasse
6300 Zug, Switzerland
Telephone: 41-41-729-1500; Facsimile: 41-41-729-1515
Place of Execution: Zug, Switzerland
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE 10th DAY OF SEPTEMBER
1998.
THE RICEX COMPANY
By: /s/ Allen J. Simon
--------------------
Print Name: Allen J. Simon
--------------
Title: Chief Executive Officer
-----------------------
Address: 1241 Hawk's Flight Court
El Dorado Hills, California 95762
Telephone: (916) 933-3000; Facsimile: (916) 933-3232
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULES 701 AND 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE
HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT IS AVAILABLE. THE HOLDER HEREOF MAY NOT ENGAGE IN HEDGING TRANSACTIONS WITH
REGARD TO SUCH SECURITIES UNLESS IN COMPLIANCE WITH THE ACT.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE HEREWITH.
Warrant to Purchase up to
1,000,000 Shares of Common Stock
of The RiceX Company
WHEREAS, reference is made to the Subscription Agreement dated
September 10, 1998 in which The RiceX Company (the "Company") sold and Heldomo,
A.G. ("Investor") purchased 15 Units, each Unit consisting of 66,666.7 shares of
Common Stock and a Warrant to Purchase 66,666.7 shares of Common Stock (the
"Subscription Agreement"); and
WHEREAS, this Warrant shall represent the Warrants referenced in the
Subscription Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Grant.
On the terms and subject to the conditions set forth herein, Investor
is hereby granted the right to purchase, at any time during the Exercise Period
(as hereinafter defined) up to 1,000,000 shares of Common Stock (the "Warrant
Shares") of the Company at the Exercise Price (as defined below and as subject
to adjustment as provided in Article 5 hereof).
2. Exercise of Warrant.
<PAGE>
2.1 EXERCISE PERIOD. This warrant is exercisable at any time during
the two (2) year period beginning on the date hereof (the "Exercise Period").
2.2 EXERCISE. The Warrant may be exercised by payment of the
Exercise Price in cash or by check to the order of the Company, or any
combination of cash or check. Upon surrender of the Warrant Certificate with
the annexed Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Warrant Shares purchased, at the
Company's principal offices, Investor (or other registered holder(s) of the
Warrant Certificate) (the "Holder") shall be entitled to receive a certificate
or certificates for the Warrant Shares so purchased. The purchase rights
represented by this Warrant are exercisable at the option of the Holder, in
whole or in part (but not as to fractional Warrant Shares). In the case of the
purchase of less than all the Warrant Shares purchasable under this Warrant, the
Company shall cancel said Warrant upon the surrender thereof and shall execute
and deliver a new Warrant of like tenor for the balance of the Warrant Shares
purchasable thereunder.
2.3 ISSUANCE OF CERTIFICATES. Upon the exercise of this Warrant
pursuant to Section 2.2 above, the issuance of certificates for the Warrant
Shares purchased shall be made forthwith (and in any event within three business
days thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance thereof, and
such certificates shall (subject to the provisions of Article 4 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
Upon exercise, in part or in whole, of this Warrant, certificates
representing the Warrant Shares shall bear a legend substantially similar to the
following:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD
EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, (II) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES), OR (III) UPON THE DELIVERY BY THE HOLDER
TO THE COMPANY OF AN OPINION OF COUNSEL,
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REASONABLY SATISFACTORY TO THE ISSUER, STATING THAT AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE."
3. Restriction on Transfer of Warrants.
Investor, by its acceptance hereof, covenants and agrees that this
Warrant is being acquired as an investment and not with a view to the
distribution thereof, and that neither this Warrant nor, if exercised, any
Warrant Shares, may be offered or sold except (i) pursuant to an effective
registration statement under the Act, (ii) to the extent applicable, pursuant to
Rule144 under the Act (or any similar rule under such Act relating to the
disposition of securities), or (iii) upon the delivery by the Holder to the
Company of an opinion of counsel, reasonably satisfactory to the issuer, stating
that an exemption from registration under such Act is available.
Initial and Adjusted Exercise Price.
The initial exercise price of this Warrant per Warrant Share shall be
equal to $1.50 for the first year from the date of this Warrant and at an
exercise price of $1.8125 thereafter. The adjusted exercise price shall be the
price which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Article 5 hereof.
4.1 EXERCISE PRICE. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
5. Adjustments of Exercise Price and Number of Warrant Shares.
5.1 PRICE PROTECTION ADJUSTMENT. In the event that the Company,
prior to the expiration of this Warrant, issues shares of Common Stock (or
options or warrants to purchase shares of Common Stock) for a consideration per
share (or exercise price) less than $1.50 ("Lower Price"), the Exercise Price
shall be adjusted to the Lower Price (the "Price Protection Adjustment").
5.2 STOCK SPLIT, STOCK DIVIDEND, SUBDIVISION AND COMBINATION. In
case the Company shall at any time subdivide or combine the outstanding shares
of Common Stock (including by way of a stock dividend), the Exercise Price shall
forthwith be proportionately decreased in the case of subdivision or increased
in the case of combination. Upon each adjustment of the Exercise Price pursuant
to the provisions of this Section 5.2, the number of Warrant Shares issuable
upon the exercise of this Warrant shall be adjusted to the nearest full Warrant
Share by multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the
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number of Warrant Shares issuable upon exercise of the Warrant immediately prior
to such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
5.3 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of the property of the
Company as an entirety, the Holder shall thereafter have the right to purchase
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holder were the owners of the Warrant Shares underlying the
Warrant at a price equal to the product of (x) the number of shares of Common
Stock issuable upon conversion of the Warrant Shares and (y) the Exercise Price
prior to the record date for such reclassification, change, consolidation,
merger, sale or conveyance as if such Holder had exercised the Warrant.
5.4 REDEMPTION OF WARRANT; REDEMPTION OF WARRANT SHARES.
Notwithstanding anything to the contrary contained in the Warrant or elsewhere,
the Warrant cannot be redeemed by the Company under any circumstances.
5.5 DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO OUTSTANDING
SECURITIES. In the event that the Company shall at any time prior to the
exercise of the Warrant declare a dividend (other than a dividend consisting
solely of shares of Common Stock (which shall be governed by Section 5.2) or a
cash dividend or distribution payable out of current or retained earnings) or
otherwise distribute to its shareholders any monies, assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another person or entity, or any other thing
of value, the Holder of the Warrant shall thereafter be entitled, in addition to
the securities receivable upon the exercise thereof, to receive, upon the
exercise of such Warrant, the same monies, property, assets, rights, evidences
of indebtedness, securities or any other thing of value that he would have been
entitled to receive at the time of such dividend or distribution. At the time
of any such dividend or distribution, the Company shall make appropriate
reserves to ensure the timely performance of the provisions of this Section 5.5.
5.6 SUBSCRIPTION RIGHTS FOR SHARES OF COMMON STOCK OR OTHER
SECURITIES. In the case that the Company or an affiliate of the Company shall
at any time after the date hereof and prior to the exercise of the Warrant issue
any rights to
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<PAGE>
subscribe for shares of Common Stock or any other securities of the Company or
of such affiliate to all the shareholders of the Company, the Holder of the
unexercised Warrant shall be entitled, in addition to the securities receivable
upon the exercise of the Warrant, to receive such rights at the time such rights
are distributed to the other shareholders of the Company.
6. Exchange and Replacement of Warrant Certificates.
This Warrant is exchangeable without expense, upon the surrender
hereof by the registered Holder at the principal executive office of the
Company, for a new Warrant Certificate of like tenor and date representing in
the aggregate the right to purchase the same number of Warrant Shares in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of the Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrant, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
7. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of Warrant Shares upon the exercise of the Warrant, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of Warrant Shares.
8. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrant, such number of shares of Common Stock (or other
securities) as shall be issuable upon such exercise or conversion, as the case
may be. The Company covenants and agrees that, upon exercise of the Warrant and
payment of the Exercise Price therefor (if a cash exercise), all shares of
Common Stock issuable upon such exercise shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
shareholder.
5
<PAGE>
9. Notices to Warrant Holder.
If, at any time prior to the expiration of the Warrants and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of Common Stock of the Company or securities convertible
into or exchangeable for shares of Common Stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, the Company shall give written notice
to the Holder of such event at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the determination
of the shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
10. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrant, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the signature page
of this Warrant or to such other address as the Company may designate by notice
to the Holder.
6
<PAGE>
11. Successors.
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holder inure to the benefit of their respective
successors and assigns hereunder.
12. Governing Law.
This Warrant shall be deemed to be a contract made under the laws of
the State of California and for all purposes shall be construed in accordance
with the laws of said State.
13. Counterparts.
This Warrant may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed under its corporate seal.
Dated: September 10, 1998 THE RICEX COMPANY
[SEAL] By: /s/ Allen J. Simon
--------------------------------
Name: Allen J. Simon
Title: Chief Executive Officer
Attest:
/s/ Karen D. Berriman
- ------------------------
Secretary
ACCEPTED BY AND AGREED TO:
HELDOMO, A.G.
/s/ Dr. Jur. Hans Rudolf Barth
- ------------------------------
By: Dr. Barth
Its: Director
8
<PAGE>
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase _________ shares of Common Stock of
The RiceX Company (or its successor) and herewith tenders in payment for such
shares cash or a check payable to the order of The RiceX Company in the
amount of $______________, all in accordance with the terms hereof. The
undersigned requests that a certificate for such shares be registered in the
name of ___________________, whose address is _______________________________
________, and that such Certificate be delivered to _______________________,
whose address is ________________________________________________.
Dated: Signature:
-------------------- --------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
--------------------------------
--------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
9
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________________________ hereby sells,
assigns and transfers unto _____________________________________________(Please
print name and address of transferee) this Warrant [or a portion of this Warrant
equal to ____________ shares of Common Stock], together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
_______________, Attorney, to transfer the within Warrant Certificate on the
books of the within-named Company, with full power of substitution.
Dated: Signature:
-------------------- --------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate)
- -------------------------------
- -------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
10
<PAGE>
SEVERANCE AGREEMENT AND MUTUAL RELEASE OF CLAIMS
____________ (hereinafter "Employee") and THE RICEX COMPANY, a Delaware
corporation (hereinafter "Employer") enter into this Severance Agreement and
Mutual Release of Claims (hereinafter, "Agreement") under the following terms
and conditions:
1. BACKGROUND AND PURPOSE.
1.1 Employee was employed by Employer pursuant to an employment
agreement executed by Employee on or about _____________ ("Employment
Agreement").
1.2 Employee and Employer desire to mutually sever the
employment relationship between them on the terms and conditions set forth
below.
2. RESIGNATION. The parties hereby terminate all of the terms of
the Employment Agreement and Employee resigns as an employee of Employer
effective ________________ ("Resignation Date").
3. CONSIDERATION. In consideration of the mutual releases and
agreements set forth in this Agreement, Employer agrees to provide Employee
with the following severance benefits:
3.1 A lump sum severance benefit payment in the amount of
__________________ Dollars ($_____) less all legally required employee
deductions and withholdings, which shall be payable upon the expiration of
the seven (7) day revocation period established pursuant to Section 4.6.
Such payment includes the payment of Employee's gross salary from
_____________ through_____________ in the amount of ________________ Dollars
($______). Upon signing of this Agreement, Employer shall deliver said lump
sum (less deductions and withholdings) by check or wire transfer to
_____________ for deposit into the firm's trust account and to be released
pursuant to the Joint Escrow Instructions attached hereto as Exhibit A.
3.2 Employer shall grant to Employee certain rights to
purchase up to ____________ shares of Employer's common stock on the terms
and conditions set forth in the form of Warrant to Purchase Capital Stock
("Warrant") attached hereto as Exhibit A. Upon the expiration of the seven
(7) day revocation period established pursuant to Section 4.6, Employer shall
properly execute and deliver to Employee the Warrant. Employee and Employer
further agree that any prior agreements between the Employee and Employer for
the option, warrant or right to purchase common stock of the Employer shall
be terminated and of no further force and effect upon the execution and
delivery of the Warrant pursuant to this Section 3.2.
3.3 Continuing Directors' and Officers' liability insurance
coverage on terms no less favorable to Employee than those contained in the
policy in effect as of
<PAGE>
November 1, 1998 with regard to Employee's services for Employer for a period
of three (3) years following the Resignation Date.
3.4 Employer further agrees to seal Employee's personnel
records and to only release the records upon written request of Employee or
pursuant to subpoena, a Court order, an administrative ruling, or as
otherwise required by law or legal or judicial process.
3.5 Employer further agrees to maintain Employee's and, if
applicable, Employee's dependents', health insurance coverage through December
31, 1998; thereafter Employee and Employee's dependents shall be entitled to
COBRA rights under applicable law.
3.6 Employer further agrees that it will not contest any
claim by Employee for unemployment compensation benefits based on services
performed by Employee for Employer; PROVIDED HOWEVER that Employer makes no
representation whatsoever regarding Employee's eligibility for, or
entitlement to, any such unemployment compensation.
4. RELEASES OF LIABILITY.
4.1 In consideration of the promises and covenants contained
in this Agreement, Employer and Employee agree to the following releases.
4.2 SPECIFIC RELEASE OF AGE DISCRIMINATION CLAIM. Employee
represents that Employee understands and acknowledges that the Age
Discrimination in Employment Act of 1967, as amended, provides Employee the
right to bring a claim against Employer if Employee believes that Employee
has been discriminated against on the basis of age. Employee expressly
warrants that Employee will not file any claim or action against Employer or
any entity or employee associated with or employed by Employer based on any
alleged violations of the Age Discrimination in Employment Act of 1967, as
amended, arising through the date of this Agreement. Employee hereby waives
any right to assert a claim for relief under this Act, including but not
limited to, back pay, attorneys' fees, damages, reinstatement or injunctive
relief.
4.3 SPECIFIC RELEASE OF STATUTORY RIGHTS CLAIMS. Employee
understands and acknowledges that Title VII of the Civil Rights Act of 1964 as
amended, the Civil Rights Act of 1991, the Americans With Disabilities Act, the
Vietnam Era Veterans Readjustments Assistance Act of 1974, the California Family
Rights Act of 1991, the Federal Family and Medical Leave Act of 1993, and the
California Fair Employment and Housing Act, as amended, and applicable
provisions of California's Labor Code provide the right to an employee to bring
charges, claims or complaints against an employer if the employee believes he or
she has been discriminated against on a number of bases, including race,
ancestry, color, religion, sex, marital status, national origin, age, status as
a veteran of the Vietnam era, request or need for family or medical leave,
physical or mental disability, medical condition, or sexual preference.
Employee, with full understanding of the rights afforded Employee under these
federal
2
<PAGE>
and state laws, agrees that Employee will not file, or cause to be filed,
against Employer, any charges, complaints, or actions based on any alleged
violation of these federal and state laws, or any successor or replacement
federal or state laws, relating to or arising out of Employee's employment
with Employer or Employee's Resignation. Employee hereby waives any right to
assert a claim for relief against Employer arising up to and including the
date of execution of this Agreement which may be available under these
federal and state laws including, but not limited to, back pay, attorneys'
fees, damages, reinstatement, or injunctive relief, which Employee may
otherwise recover based on any alleged violation of these federal and state
laws, or any successor or replacement federal or state laws.
4.4 MUTUAL GENERAL RELEASE. Employee, for Employee's part,
shall and hereby does release and forever discharge Employer, and Employer's
predecessors, successors, heirs, assigns, executors, administrators, agents,
employees, representatives, attorneys, affiliates, subsidiaries, and any and
all past or present officers and directors of Employer in their individual
and representative capacities, and all of them, as well as any and all
persons acting or allegedly acting by, under, through or in concert with any
of them ("Employer Releasees"), against any and all claims, damages, actions,
causes of action, liabilities, judgments, liens, contracts, agreements,
rights, debts, suits, obligations, promises, acts, costs and expenses
(including, but not limited to, attorneys' fees), damages and charges of
whatsoever nature, whether known or unknown, suspected or unsuspected,
foreseen or unforeseen, fixed or contingent, or ever filed or prosecuted
(hereinafter, collectively referred to as "Claims") which Employee may now
have, or claims to have, or any time heretofore had, or claimed to have had,
against Employer Releasees as a result of things undertaken, said, stated,
done or admitted to be done up to and including the date of this Agreement;
PROVIDED HOWEVER that Employee shall not be deemed to release Employer under
this Section 4.4 for obligations of the Employer arising out of this
Agreement or the Indemnification Agreement between Employer and Employee or
any other rights Employee may have to indemnification or contribution from
Employer.
Excepting the obligations set forth in this Agreement, Employer, and its
predecessors, successors, heirs, assigns, executors, administrators, agents,
employees, representatives, attorneys, affiliates, subsidiaries, and any and
all past or present officers and directors for their part, shall and hereby
do release and forever discharge Employee and Employee's predecessors,
successors, heirs, assigns, agents, representatives, attorneys executors and
administrators and all of them ("Employee Releasees") against any and all
Claims (as defined in the preceding paragraph) which Employer may now have,
or claims to have, or at any time heretofore had or claimed to have had
against Employee Releasees as a result of things undertaken, said, stated,
done or admitted to be done up to and including the date of this Agreement;
PROVIDED HOWEVER that if Employer at any time before the Resignation Date or
on or before the day six months after the Resignation Date, discovers that
Employee has stolen, taken, destroyed, or otherwise tampered with any
confidential materials and/or information of Employer, or has disclosed any
confidential materials and/or information of Employer to any third party
without the express written authorization of Employer (other than actions
taken by Employee in good faith and in the normal course of business in her
capacity as
3
<PAGE>
an officer of Employer and for the benefit and in the best interests of
Employer), during Employee's term of employment or following the Resignation
Date, Employer (i) shall not be deemed to have released Employee from any
liability for such action and Employer shall file an action, claim or suit
against Employee for such actions discovered within seven months after the
Resignation Date and (ii) that Employer shall not be deemed to release
Employee under this Section 4.4 for obligations of the Employee arising out
of the Confidentiality Agreement between Employer and Employee.
4.5 WAIVER OF UNKNOWN AND UNANTICIPATED CLAIMS. It is
understood and agreed that the releases as referred to in this Agreement are
full and final releases by Employee of Employer Releasees and by Employer of
Employee Releasees, and that such full and final releases include, without
limitation, all unknown and unanticipated claims, injuries, debts, or
damages, as well as those now known or disclosed. With respect to any claims
by Employee against Employer, or by Employer against Employee, the parties to
this Agreement expressly waive the provisions of California Civil Code
section 1542 which provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
In that connection, the parties hereto, and each of them, realize and
acknowledge that one or more of the Claims may include losses sustained by
Employee on account of Employer, or losses sustained by Employer on account
of Employee, that are presently unknown or unsuspected, and that such losses
as were sustained may give rise to additional losses and expenses in the
future which are not now anticipated. Nevertheless, Employee and Employer
acknowledge that this release has been negotiated and agreed upon and that in
consideration for the rights and benefits under this Agreement, Employee
intends and hereby does release, acquit and forever discharge Employer, and
Employer intends and hereby does release, acquit and forever discharge
Employee, as set forth above, from any and all Claims, including those that
are unknown, unsuspected or unforeseen or that are presently unknown and
unanticipated.
4.6 OLDER WORKERS BENEFIT PROTECTION ACT. Pursuant to the
terms of the Older Workers' Benefit Protection Act (OWBPA), Employee
acknowledges that Employee has twenty-one (21) days from the date of
presentation of this Agreement to Employee, which occurred on December 16,
1998 in which to consider the terms and conditions of this Agreement.
Employee acknowledges that, by the terms of this Agreement, Employee has been
advised in writing that during the aforementioned twenty-one (21) day period,
Employee should consult with an attorney regarding the terms and conditions
of this Agreement. Employee further acknowledges that, by the terms of this
Agreement, Employee has been advised that following execution of this
Agreement, Employee has seven (7) days in which Employee may revoke this
Agreement and that this Agreement does not become effective until the seventh
day
4
<PAGE>
following execution of the Agreement. The date seven (7) days following the
execution of the Agreement shall be the effective date of this Agreement.
5. CONFIDENTIALITY OF EMPLOYER'S PROPRIETARY INFORMATION.
Employee acknowledges that by reason of Employee's position with Employer,
Employee has been given access to confidential and/or proprietary information
or materials respecting Employer's business affairs. Such confidential
information may include, but is not limited to, Employer's business
strategies, financial results, contractual agreements between Employer and
other individuals or entities, strategies and ideas, compilation of
information and records which are owned by Employer and are regularly used in
operation of Employer's business, procedures, written descriptions,
processes, research projects, protocols or other tangible items and
documentation, including computer programs, reports and marketing
information, which has not been released by Employer as general public
information. For purposes of this Agreement, "confidential information" does
not include information which has become general public information through
no involvement of Employee. Employee represents that Employee has held all
such information confidential and will continue to do so. Employee
represents and agrees that Employee shall not disclose any such confidential
information. Employee further represents that all files, records, documents,
lists, equipment, inventions, computer programs, research projects,
protocols, processes and similar items relating to the business of Employer,
whether prepared by Employee or otherwise coming into Employee's possession,
shall remain the exclusive property of Employer and shall not be removed from
the premises of Employer. Employee further represents that Employee does not
have in Employee's possession any of the confidential materials and/or
information described in this paragraph and has returned all such
confidential materials and/or information to Employer.
5.1 REPRESENTATION AND WARRANTY. Employee represents and
warrants to Employer as a material inducement to Employer entering into this
Agreement that Employee (i) has not retained, acquired or delivered to any
third parties any of Employer's records or data, including without limitation
any financial information, client lists, electronic data, research and
development records, recorded strategies, plans or proposals or other
proprietary information, and (ii) Employee has not destroyed, erased or
spoiled or altered any of the records or data referenced in this Section 5.1
(other than actions taken by Employee in good faith and in the normal course
of business in her capacity as an officer of Employer and for the benefit and
in the best interests of Employer).
6. RESOLUTION OF DISPUTES. Any disputes regarding the rights or
obligations of the parties under this Agreement shall be conclusively
determined by binding arbitration. The arbitration shall be conducted as
follows:
6.1 BINDING ARBITRATION. Any dispute between the parties
shall be submitted to, and conclusively determined by, binding arbitration in
accordance with this paragraph. The provisions of this paragraph shall not
preclude any party from seeking injunctive or other provisional or equitable
relief in order to preserve the status quo of the parties pending resolution
of the dispute, and the filing of an action seeking
5
<PAGE>
injunctive or other provisional relief shall not be construed as a waiver of
that party's arbitration rights. The arbitration of any dispute between the
parties to this Agreement shall be governed by the provisions of the California
Arbitration Act (California Code of Civil Procedure section 1280, et seq.).
6.2 INITIATION OF ARBITRATION. In the case of any dispute
between the parties to this Agreement, either party shall have the right to
initiate the binding arbitration process provided for in this paragraph by
serving upon the other party a demand for arbitration. Notwithstanding any
other provision of law, in order to be enforceable a demand for arbitration
must be served within one hundred and eighty (180) days of the date on which
a party discovers, or reasonably should have discovered, facts giving rise to
a dispute as defined above.
6.3 SELECTION OF ARBITRATORS. Within thirty (30) days of
service of a demand for arbitration by either party to this Agreement, the
parties shall endeavor in good faith to select a single arbitrator. If they
fail to do so within that time period, each party shall have an additional
period of fifteen (15) days in which to appoint an arbitrator and those
arbitrators within fifteen (15) days shall select an additional arbitrator.
If any party fails to appoint an arbitrator or if the arbitrators initially
selected by the parties fail to appoint an additional arbitrator within the
time specified herein, any party may apply to have an arbitrator appointed
for the party who has failed to appoint, or to have the additional arbitrator
appointed, by the presiding judge for the Superior Court, Sacramento County,
California. If the presiding judge, acting in his or her personal capacity,
is unable or unwilling to appoint the additional arbitrator, that arbitrator
shall be selected in accordance with California Code of Civil Procedure
section 1281.6.
6.4 LOCATION OF ARBITRATION. Any arbitration hearing shall be
conducted in Sacramento County, California.
6.5 APPLICABLE LAW. The law applicable to the arbitration of
any dispute shall be the law of the State of California, excluding its
conflicts of law rules.
6.6 ARBITRATION PROCEDURES. Except as otherwise provided in
this paragraph, the arbitration shall be governed by the California
Arbitration Act (Code Civ. Proc., Section 1280 et seq.). In addition,
either party may choose, at that party's discretion, to request that the
arbitrators resolve any dispositive motions prior to the taking of evidence
on the merits of the dispute. By way of example, such dispositive motions
would include, but not be limited to, those which would entitle a party to
summary judgement or summary adjudication of issues pursuant to Code of Civil
Procedure section 437c or resolution of a special defense as provided for at
Code of Civil Procedure section 597. In the event a party to the arbitration
requests that the arbitrators resolve a dispositive motion, the arbitrators
shall receive and consider any written or oral arguments regarding the
dispositive motion, and shall receive and consider any evidence specifically
relating thereto, and shall render a decision thereon, before hearing any
evidence on the merits of the dispute.
6
<PAGE>
6.7 LIMITATION ON SCOPE OF ARBITRATORS' AWARD OR DECISION.
Employer and Employee agree that if the arbitrators find any disputed claim
to be meritorious, the arbitrators shall have the authority to order legal
and/or equitable relief appropriate to the claim.
6.8 COSTS OF ARBITRATION; ATTORNEYS' FEES. Each party shall
bear equally the costs of the arbitration and shall bear its own attorneys'
fees. However, Employer and Employee agree that the arbitrators, in their
discretion, may award to the prevailing party the costs, including the costs
of the arbitration, and attorneys' fees incurred by that party in
participating in the arbitration process.
6.9 ACKNOWLEDGMENT OF CONSENT TO ARBITRATION. NOTICE: BY
EXECUTING THIS AGREEMENT YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF
THE MATTERS INCLUDED IN THE "RESOLUTION OF DISPUTES" PROVISION DECIDED BY
NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY
RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL. BY EXECUTING THIS AGREEMENT, YOU ARE GIVING UP YOUR JUDICIAL RIGHTS
TO APPEAL UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE "RESOLUTION OF
DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING
TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF
THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR EXECUTION OF THIS AGREEMENT
INDICATING YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
BY EXECUTING THIS AGREEMENT AND INITIALLING IN THE SPACE BELOW, YOU ARE
INDICATING THAT YOU HAVE READ AND UNDERSTOOD THE FOREGOING AND UNDERSTAND
THAT, BY EXECUTING THIS AGREEMENT, YOU AGREE TO SUBMIT DISPUTES ARISING OUT
OF THE MATTERS INCLUDED IN THIS "RESOLUTION OF DISPUTES" PROVISION TO NEUTRAL
ARBITRATION.
Employer's Authorized Representative's Initials: _________
Employee's Initials: ___________
7. NO REHIRE. Employee shall not be subject to rehire as an
employee of Employer.
8. ENTIRE AGREEMENT. This document constitutes the entire
agreement between the parties, all oral agreements being merged herein, and
supersedes all prior representations and agreements. There are no
representations, agreements, arrangements, or understandings, oral or
written, between or among the parties relating to the subject matter of this
Agreement that are not fully expressed herein.
9. WAIVER. Any of the terms or conditions of this Agreement may
be waived at any time by the party entitled to the benefit thereof, but no
such waiver shall affect or impair the right of the waiving party to require
observance, performance or satisfaction
7
<PAGE>
either of that term or condition as it applies on a subsequent occasion or of
any other term or condition hereof.
10. AMENDMENT. The provisions of this Agreement may be modified or
amended at any time by agreement of the parties. Any such amendment or
modification as hereinafter may be made shall be ineffective to modify this
Agreement in any respect unless in writing and signed by the party or parties
against whom enforcement of the modification or amendment is sought.
11. REPRESENTATION BY COUNSEL. This Agreement has been carefully
read by the parties and the contents hereof are known and understood by all
parties. The parties have each received independent legal advice from
attorneys of their choice with respect to the preparation, review and
advisability of executing this Agreement. Prior to the execution of this
Agreement by each party, the parties' attorneys reviewed the Agreement, and
the parties acknowledge that they have executed this Agreement after
independent investigation and without fraud, duress or undue influence.
12. SEVERABILITY. If any provision of this Agreement is
adjudicated by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of the Agreement which can be given full force
and effect without the invalid provision shall continue in full force and
effect and shall in no way be impaired or invalidated.
13. ATTORNEYS' FEES; PREJUDGMENT INTEREST. If the services of an
attorney are required by any party to secure the performance of this
Agreement or otherwise upon the breach or default of another party to this
Agreement, or if any judicial remedy or arbitration is necessary to enforce
or interpret any provision of this Agreement or the rights and duties of any
person in relation thereto, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and other expenses, in addition to any
other relief to which such party may be entitled. Any award of damages
following judicial remedy or arbitration as a result of the breach of this
Agreement or any of its provisions shall include an award of prejudgment
interest from the date of the breach at the maximum amount of interest
allowed by law.
14. SUCCESSION. Subject to the provisions otherwise contained in
this Agreement, this Agreement shall inure to the benefit of, and be binding
upon, the successors and assigns of each of the respective parties hereto.
15. GOVERNING LAW AND CONSENT TO JURISDICTION. The rights and
obligations of the parties, and the interpretation and performance of this
Agreement, shall be governed by the laws of the State of California,
excluding its conflict of law rules. To the maximum extent permitted by law,
the parties agree that all actions or proceedings arising in connection with
this Agreement shall be tried and determined in the Superior Court of the
State of California, in and for the County of Sacramento.
16. NOTICES. Any notice under this Agreement shall be in writing,
and any written notice or other document shall be deemed to have been duly
given (i) on the date of personal service on the parties, (ii) on the third
business day after mailing, if the
8
<PAGE>
document is mailed by registered or certified mail, (iii) one day after being
sent by professional or overnight courier or messenger service guaranteeing
one-day delivery, with receipt confirmed by the courier, or (iv) on the date
of transmission if sent by telegram, telex, telecopy or other means of
electronic transmission resulting in written copies, with receipt confirmed.
Failure to give notice in accordance with any of the foregoing methods shall
not defeat the effectiveness of notice actually received by the addressee.
Any notice under this Agreement shall be addressed as follows:
If to Employee:
If to Employer: Daniel McPeak
The RiceX Company
1241 Hawk's Flight Court
El Dorado Hills, CA 95762
17. CAPTIONS. All paragraph captions are for reference only and
should not be considered in construing this Agreement.
18. NONASSIGNABILITY. This Agreement shall not be assigned by any
party without the prior written consent of the other parties. Any assignment
contrary to the provisions of this Agreement shall be deemed a default under
the Agreement, allowing the nondefaulting parties to exercise all remedies
available under law.
19. COUNTERPARTS. The 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-in-the-same document.
Dated:
-----------------------
EMPLOYEE
-----------------------------------
THE RICEX COMPANY, a Delaware
corporation
By:
--------------------------------
Its:
-------------------------------
9
<PAGE>
EXHIBIT 21
Subsidiaries of the Company
Food Extrusion Montana, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
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