MAY 4, 1998
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
TORVEC, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<C> <C> 16-1509512
NEW YORK
(STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER IDENTIFICATION NO.
INCORPORATION OR ORGANIZATION)
3740 ROUTE 104
WILLIAMSON, NEW YORK 14587
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (ZIP CODE)
</TABLE>
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (716) 248-8549
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THEEXCHANGE ACT
$.01 PAR VALUE COMMON VOTING STOCK
DOCUMENTS INCORPORATED BY REFERENCE: NONE
PAGE 1 OF ______ PAGES CONTAINED IN THE SEQUENTIAL NUMBERING SYSTEM. THE
EXHIBIT INDEX MAY BE FOUND ON PAGE 42 OF THE SEQUENTIAL NUMBER SYSTEM.
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TABLE OF CONTENTS
<C> <C> <C> <C>PAGE
NUMBER
PART I
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 13
OF OPERATION
ITEM 3. DESCRIPTION OF PROPERTY 16
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 17
OWNERS AND MANAGEMENT
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND 18
CONTROL PERSONS
ITEM 6. EXECUTIVE COMPENSATION 20
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 23
ITEM 8. DESCRIPTION OF SECURITIES 24
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S 25
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
ITEM 2. LEGAL PROCEEDINGS 25
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 25
ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES 25
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS 29
PART F/S FINANCIAL STATEMENTS F-1
PART III
ITEM 1. INDEX TO EXHIBITS 42
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(A) BUSINESS DEVELOPMENT AND SUMMARY
Upon its creation in September, 1996, TORVEC, Inc. ("the Company")
acquired numerous patents, inventions and know-how developed for more than ten
years by Vernon E. Gleasman and members of his family. The Company presently is
a development company specializing in automotive technology. The Company owns
many U.S. and international patent properties developed by the Gleasmans
protecting important inventions relating to five different areas of automotive
technology, i.e., (i) steering drive for tracked vehicles, (ii) infinitely-
variable transmission (IVT), (iii) hydraulic pump and motor, (iv) CV (constant
velocity) joint and (v) spherical gearing. Its new type of automotive
transmission (IVT) is less complicated and is manufactured at a lower cost than
automatic transmissions. It will be used to significantly increase fuel mileage
and, at the same time, reduce one of the world's more serious air pollution
problems (all as described below). The primary inventor and the management team
of the Company have the pertinent business experience outlined below:
VERNON E. GLEASMAN _ INVENTOR
Mr. Gleasman is considered a world's leading authority on gear technology. He is
co-inventor (with sons, James A. and Keith E. Gleasman) of the all-gear GSD-10
(a hydro-mechanical steering system for track vehicles); conceived and
engineered the FasTrack_ vehicle (discussed below); and is inventor of the
TorsenR differential now used in many passenger automobiles around the world
such as: Porsche, Audi Quattro's, 8 car lines of Toyota (i.e., Lexus, Supra and
RAV4), Mazda Miata and RX7, Chevrolet Camero, Pontiac Firebird, Oldsmobile
Achieva, Suzuki, and the U.S. Army HMMWV (Hummer). Mr. Gleasman was the winner
of the Society of Automotive Engineers' 1983 Schwitzer Award for Most Innovative
New Product at the Indianapolis 500; is listed in Who's Who in American
Inventors 1990 Edition; and he has been nominated to the National Inventors Hall
of Fame. His work is featured in the Theory of Machines and Mechanisms, McGraw-
Hill, 1995 (Mr. Gleasman's TorsenR Differential is pictured on the jacket
cover). He has been granted over 20 patents on gearing, differentials, and
machine tools over the past 30 years, and he is the principal inventor on over
100 U.S. patents (as well as corresponding foreign patents), primarily
automotive-related. Examples (U.S. patent numbers in parenthesis): hydraulic
clutch transmission (2177213); hydraulic clutch for transmission (2226309);
Bendix fuel direct engine injector valve and Bendix diesel engine starter
(2450129); hydraulic variable-speed hydrostatic transmission (2471031); Vane-
type fluid drive (2552167), hypoid differential (2628508); fluid transmission
(2668417); White Motor Co. tilting cab (2838126), assigned to White Motor;
hydro-vector fuel-injector advance mechanism; catalytic converter for diesel
trucks. He is also the inventor of non-freeze water meter, machine tools and
other products. Early career: engineer at Bendix; and vice president
manufacturing at White Motor, where engineering and management experience
included designing and planning White's plant for manufacture of White 9000
heavy truck and organizing manufacturing and production of aircraft components
for White's Aircraft division. Later, Mr. Gleasman founded his own companies,
including Triple-D, Inc., sold to Gleason Corporation, Rochester, New York.
DR. HERBERT H. DOBBS _ CHAIRMAN OF THE BOARD OF DIRECTORS
Dr. Dobbs, Ph.D., P.E., has worked at every level from design engineer to
technical director of an Army Major Commodity Command at the two-star level. He
has worked as a hands-on engineer and scientist in industry and government,
commanded field units, managed Army R & D programs and laboratories and
currently has his own practice as a consultant engineer. He has the broad
background needed to guide the Company's growth and development.
During his career he has:
. Worked as a manufacturing engineer.
. Worked as a design engineer in the aircraft and missile industry.
. Managed Army laboratories as a captain, lieutenant colonel and colonel.
. Organized, implemented and operated the theater-wide "Red Ball Express"
quick response supply system in Vietnam to get disabled weapons and
other critical equipment repaired and back into combat as rapidly as
possible.
. Done basic research on multi-phase turbulent fluid dynamics supporting
development of the gas turbine primary power system now used in the M1
Abrams Main Battle Tank (MBT).
. Managed advanced development of the laser guided 155mm-artillery shell
now known as the "Copperhead".
. Served in Taiwan as a member of the U.S. Military Assistance Advisory
Group (MAAG) working with the Republic of China Army General Staff.
. Served as liaison officer between the Army and Air Force for development
of the laser seeker for the Hellfire missile.
. Guided development of a new family of tactical vehicles for the Army,
including the High Mobility Multipurpose Wheeled Vehicle (HMMWV) now
known as the "Hummer", which uses Vernon Gleasman's TorsenR
differential.
. Served as Technical Director of U.S. Army Tank-Automotive Command
(TACOM), which employs some 6,400 people and is responsible for all
support of U.S. military ground vehicles (a fleet of 440,000) from
development to ultimate disposal with a budget of nearly $10 billion a
year. He was also responsible for negotiation and management of military
automotive R&D agreements with the French and German Ministries of
Defense.
At the end of 1985, Herbert H. Dobbs left government service and started his own
consulting practice and began working with the Gleasmans to develop and market
Vernon Gleasman's inventions. Herbert H. Dobbs holds a Ph.D. in Mechanical
Engineering from the University of Michigan and is a registered professional
engineer in Michigan. He holds several patents of his own and, among many
affiliations, is a member of SAE, ASME, NSPE, AAAS, Sigma XI, AUSA, ADPA and the
U.S. Army Science Board. The last named organization is a small group of senior
technical and managerial people chosen from industry and academia to provide
direct advice to the Secretary of the Army, the Chief of Staff, and the
Department of the Army concerning issues of policy, budgets, doctrine,
organization, training and technology. Its advice rarely is ignored and usually
is acted on.
LEE E. SAWYER _ DIRECTOR
Over a 30-year career Mr. Sawyer has worked on the wholesale side of the
automotive industry for Ford in technical training and Toyota in sales,
marketing, motorsports and service. During the last ten years, he was part of
the start-up teams that successfully launched Hyundai and Kia Motors America
focusing on parts, service, quality assurance, fleet sales, public relations and
consumer affairs policy, procedures and systems. During his career he has
worked with these automakers as follows:
Ford Motor Company:
. As Ford's first field service engineer.
. Managed expanded Training Center with Ford, Lincoln-Mercury car and heavy
truck classrooms, and taught Ford Shelby high performance curriculum.
Toyota Motor Sales USA:
. Established 12 service Training Centers.
. Computerized the national warranty system and established an expense
control audit program.
. Managed sales, parts and service field force during a period in which
sales increased 300%
. In 1979, introduced the TorsenR differential to Toyota
. Started Motorsports - hired factory race teams, coordinated race engine
development, and conducted Long Beach Grand Prix and Pro-Celebrity Match
Race. Results: 14 national championships.
Hyundai Motor America:
. Started national Service Department: warranty, quality assurance, consumer
affairs, technical and management training.
. Managed public relation's activities, product introduction press previews,
press releases and media interviews.
Kia Motors America:
. Consulted with Kia Korea re: establishing a car company in the USA.
. Started service department: warranty, quality assurance, consumer affairs,
service training and publication.
Mr. Sawyer is a start-up specialist with the operations, management,
communications and problem solving skills required to launch the Company
successfully. He holds a B.A. in Industrial Technology and attended USC School
of Business-International Relations, Ford Marketing Institute, Toyota Management
Training, American Management Association Training, Interpersonal skills
training, and U.S. Coast Guard Leadership and Diesel Engine schools.
MORTON A. POLSTER _ DIRECTOR; SECRETARY
Partner in the intellectual property law firm of Eugene Stephens & Associates.
Formerly, General Patent Counsel and, thereafter, Secretary and Corporate
Counsel for Gleason Corporation (1969 - 1989) and prior to that, Patent Counsel
for Eastman Kodak Corporation (1960 _1969). While with Gleason Corporation, Mr.
Polster represented Gleason when the latter purchased the Gleasman's Triple D,
Inc., and exclusive rights to the Gleasman patents relating to the design and
manufacture of the Torsen differential. He was part of the management team
overseeing the operation of the Gleason Power Systems Division, which was
created to manufacture and sell the Torsen differential. Also, he represented
Gleason when the latter sold its Power Systems Division and its rights to the
Torsen Differential to Diesel Kiki, Ltd. of Japan (now Zexel Corporation).
While in private practice, since 1989, Mr. Polster represented Zexel Torsen,
Inc., (subsidiary of Zexel Corp.), which was created to manage the manufacture
and sale of Torsen Differentials. Mr. Polster has been patent counsel to the
Gleasmans since 1989 and has been in charge of the preparation and execution of
their U.S. and international patent protection.
TORVEC'S TRACKED VEHICLE
BACKGROUND
The infrastructure of most of Asia, Africa, South and Central America is
very similar to the U.S. in the early 1900's. At that time U.S. demographics
were as follows: eighty percent of the population lived in rural areas; income
was low; and transportation was limited to walking, bicycles, push carts and
animal pulled vehicles. Roads, when they existed, were dirt and at times
impassable due to terrain or inclement weather. Even with the advent of
automobiles, commerce remained inhibited because paved roads were only found in
the cities. Similarly, the wheeled vehicles of the developing country today can
only traverse the rural dirt roads during certain seasons of the year. When
roads are in rough condition (e.g., muddy, blocked by snow or ice, etc.), there
is little difference in travel time between an animal drawn cart; a man on foot
or bicycle; or a wheeled car. If they are able to travel at all, even four-
wheeled drive vehicles are usually limited to 4_5 mph under these conditions.
The idealized vehicle would be a vehicle that could travel at higher speeds (25-
50 mph.), regardless of the terrain, significantly shortening the travel time
between rural areas and the primary marketplaces in the city. A tracked
vehicle, in effect, "brings its own road with it".
TORVEC'S FASTRACK VEHICLE
The Company's FasTrack prototype vehicle (see cover) is a new type of
vehicle, that steers as easily as a car (using a steering wheel), has rubber
tracks and bridges an important gap between wheeled and tracked vehicles that
manufacturers have been trying to span for decades. This new vehicle combines
the high-speed capabilities of trucks and cars with the high-traction
capabilities of tracked vehicles. Unlike most "new generation" vehicles (e.g.,
the Model T, for which Henry Ford had to design and build almost every part),
the FasTrack can be made from existing automotive components, and lends itself
to formation of joint ventures for assembly in the developing country. FasTrack
vehicles are rubber-tracked vehicles which, by design, are environmentally
sensitive since their low ground pressure (less than 2 lbs. per sq. in.) does
not damage paved road surfaces or leave ruts or cause potholes on unpaved
surfaces. This tracked vehicle can traverse almost any terrain at higher speeds.
The tracks could be made by Goodyear; a corporation dedicated to supporting
original equipment manufacturers (OEMs). Goodyear states, "Based on product
testing and feedback from our customers, in most situations, Goodyear rubber
track has been seen to last 3 to 5 times longer than a set of standard utility
tires used in the same application." An additional feature of the FasTrack
vehicle is its alternator, which will be modified to permit the vehicle to also
serve as a mobile power plant with a 2 HP (approximately 1400 watts) electrical
generator for running a myriad of electrical items, which can contribute to
rural electrification. FasTrack vehicles perform as they do because of their
unique steering mechanism, which is protected by several patents in Europe and
Japan as well as the following U.S. patents: Multi-Axle Vehicle Steer Drive
system (4732053), No-slip imposed Differential Reduction Drive (4776235), No-
slip imposed differential (4776236), Steer-Driven Reduction Drive System
(4895052). The FasTrack also uses TORVEC's Orbital Transmission (U.S. patent
5186692), an infinitely-variable transmission (IVT). Different from the multi-
shifting automatic transmission used on passenger vehicles, TORVEC's IVT
contributes to increased fuel mileage and significantly lower emissions (see
next section below).
TORVEC'S TRANSMISSION
BACKGROUND
Environmental scientists agree that "global warming" is one of the world's
primary concerns, and the President of the United States has assured an
international environmental conference that our country acknowledges the
importance of this problem. In addition, the President has recently stated "The
answer lies in promoting new energy-efficient technologies and not imposing
steep energy price increases to encourage efficiency" (Associated Press-
10/7/97). It is well recognized that carbon dioxide (C02) emissions from
automotive vehicles are presently a major contributor to this world problem and,
further, that the use of automotive vehicles is projected to increase more than
400% over the next few decades. The Society of Automotive Engineers (SAE paper
#930941) notes that the 1992 RIO conference targeted pollution as one of the
three major challenges which must be met by the International Community and it
states: "The forecast demographic and economic changes will lead to the
production of 250 million vehicles per year and a world motor vehicle fleet of
2.5 billion vehicles within the next 50 years as compared with today's
production of 50 million vehicles per year and a fleet of 550 million vehicles."
It is also well recognized that diesel engines emit much less CO2.
Unfortunately, as presently used in trucks, busses and cars, diesel engines emit
other undesirable pollutants (e.g., NOx , hydrocarbons, and particulates). In
addition, (SAE paper #930126) "The World Health Organization has concluded that
diesel particulate is a probable human carcinogen."
Such undesirable pollutants are emitted by diesel engines primarily during
those periods of operation when the speed of the diesel engine is being changed
significantly (e.g., during start-up, acceleration from gear to gear, and rapid
slow down). However, when diesel engines run at steady-state speeds, their
emission levels are very low. Further, diesel engines can exhibit approximately
30% improvement in fuel economy over gasoline engines, diesel fuel is cheaper to
produce and its manufacture results in less air pollution than does the
manufacture of gasoline.
Therefore, during the past several years, the world's vehicle manufacturers
and their suppliers have been engaged in major efforts to reduce the pollutants
from operating diesel engines. In recent years, punitive fines have been imposed
upon manufacturers and end-users throughout the world with the intent of
creating special incentives for such efforts to reduce diesel pollution. [NOTE:
Especially restrictive diesel regulations are scheduled to go into effect in the
U.S. in California and eleven other states sometime in 1998.] An example of such
an incentive is a recently proposed EPA fine to be imposed on bus companies for
any bus emitting pollutants that don't meet the standards. As quoted from Clean
Air Today (July 7, 1997), "Under the EPA program, transit agencies that do not
install a [filter] retrofit kit designed to meet strict particulate matter
standards are subject to a noncompliance penalty of $25,000 per bus. According
to EPA, the kit will cost about $7,940 for an urban bus. More than 110,000
urban buses are located in various metropolitan areas throughout the United
States." (This indicates an estimated cost of $880,000,000 for the retrofit kits
alone, not including installation and maintenance costs.)
The filter (catalytic purifier) just referred to above, is one of many
recent attempts to help solve the diesel problem, most of which are directed
primarily to "engine management" remedies such as fuel and exhaust filters,
controls relating to turbo compression of the air being delivered to the
engine's cylinders, etc. As indicated by the example above, government
environmental regulators, such as the EPA, indicate that they intend to enforce
stricter air standards as soon as proven technology permits vehicles to meet
such desired safer air standards (refer to SAE paper #920142). According to
Monetary & Economic Review, (September, 1997):
"Ford Motor Company, in a June 5 letter to all of its local dealers, warned
of 'a major policy issue that will greatly affect the auto business,' impacting
the kinds of vehicles that can be sold, the costs of driving and overall vehicle
affordability. The letter cited legally binding caps and cuts on energy use for
developed countries that would be enforced by a UN agency. 'These caps and cuts
are expected to be finalized in December of this year in Kyoto [Japan],' the
letter stated.
Continuing, the letter read, 'Such a treaty would necessitate major
gasoline price increases and likely would lead to other measures, including
higher CAFE and restrictions on vehicle use. Many countries in Europe already
are implementing such measures in anticipation of the agreement... and the UN
would be in charge of monitoring compliance."
THE TORVEC_ IVT
The TORVEC prototype transmission is an infinitely variable transmission
(IVT), meaning it provides an uninterrupted drive through an infinite number of
geared speed ratios, allowing ideal torque flow to propel the vehicle while
permitting the engine to run at optimum efficiency. In sharp contrast to other
work being done in relation to diesel/gasoline engine management, the Company's
new TORVEC transmission does not require any change, costly or otherwise, to the
manufacture or operation of existing diesel/gasoline engines. Instead, it
permits present automotive diesel/gasoline engines to operate in a steady-state
mode, with dramatically reduced pollution, at most times during normal
operation, i.e., under the starting, stopping, acceleration and deceleration of
normal urban traffic. For instance, such a steady-state optimum condition may
match the usual engine setting when the vehicle is being driven at its top urban
speed (e.g., 35-45 miles per hour). It should be noted that this optimum urban
cruising speed may be only approximately twice the normal idling speed of the
engine, and that this steady-state setting is relatively low in comparison to
the normally required engine speed of three, four or five times idling speed
that must be attained by the same diesel/gasoline engine each time the vehicle
accelerates between each of the conventional forward gears (e.g., when shifting
from first gear to second gear, then from second to third, etc.). [NOTE: Because
it is an infinitely variable transmission and changes its ratios extremely
quickly, the TORVEC IVT can accelerate a diesel-powered vehicle as quickly as a
gasoline-powered vehicle. The Torvec IVT also may be able to significantly
improve the performance of electric drive vehicles. There are a number of kinds
of electric motors that can be chosen to drive a vehicle. Their performance and
physical characteristics vary considerably. Weight (for a given power level),
zero-speed torque, useful speed range, efficiency-vs.-motor-speed, and control
characteristics are among these, and there are conflicts in making the best
choice for a given vehicle application. A transmission of some sort commonly is
needed to resolve these. The performance characteristics of the Torvec IVT make
it a promising candidate for such applications.]
In addition to having the potential of remarkably reducing particulates,
the TORVEC transmission is less complicated and has approximately 1/3 fewer
parts when compared to a conventional four or five speed automatic transmission,
making it smaller in size, lighter in weight and, therefore, further improving
fuel economy. The TORVEC transmission, which will be simpler and less expensive
to manufacture, should provide the automotive industry with a higher performing
product at a lower cost.
In view of the above, and because all vehicles currently have
transmissions, the Company believes that the TORVEC transmission will permit
substantial reductions in diesel/gasoline engine pollutants and that such
significant environmental benefits will be achieved without an economic penalty.
Further, it is believed that the TORVEC transmission will not be in direct
competition with companies who provide other diesel/gasoline engine pollution
remedies and that the latter may even be interested in working with the Company
to explore possible synergistic effects with the TORVEC transmission.
ADDITIONAL TORVEC PRODUCTS
HYDRAULIC PUMP/MOTOR, CV JOINT, AND SPHERICAL GEARING
The Company's patented TORVEC transmission incorporates a hydraulic
pump/motor machine and, although it can be operated with commercially-available
pump/motors, it is most effectively used in combination with the Company's
patented TORVEC hydraulic pump/motors (5,513,553) which, like the TORVEC
transmission, are significantly simpler, smaller and lighter than other
commercially available pump/motors having comparable performance specifications.
The key feature of the TORVEC pump/motors is their swash-plate mounting
arrangements that utilize a new form of spherical gearing which is also
proprietary to the Company (5,647,802). Further, this spherical gearing has
been incorporated in yet another TORVEC product, which has been developed to
replace CV (constant velocity) joints used, among other places, in all front-
wheel drive vehicles. The TORVEC CV Joint (5,613,914) is a remarkable departure
from known designs, and its efficiency and weight savings should provide a
significant competitive advantage in the annual CV-joint market of 180,000,000
units per year.
BUSINESS PLAN
The Company's present business strategy relating to its TORVEC products is
(1) to provide developing country FasTrack vehicle models for marketing to
potential Asian, African, South and Central American joint venture partners; (2)
to complete the installation of TORVEC transmissions into diesel-powered trucks
for appropriate testing by national and state environmental agencies in the U.S.
and other countries to quantify exact fuel savings and emissions levels and to
determine its potential effect on the worldwide problem of diesel engine
pollutants; (3) to complete the installation of the TORVEC transmission into the
best selling automobile of a major U.S automaker that has an agreement with the
Company for an exclusive "first look" at the TORVEC transmission for gasoline
engine passenger cars, providing data on gasoline engine fuel mileage and
emission levels, and the Company expects these results will create joint-
venture/licensing opportunities; (4) to promote worldwide use of TORVEC
transmissions for reducing diesel/gasoline engine pollution; (5) to enter into
appropriate licensing/joint working arrangements for all TORVEC products (the
FasTrack vehicle, IVT Transmission, Hydraulic Pump/Motor, CV Joint, and
Spherical Gearing); (6) to obtain a Website for marketing, sales, education and
information relating to the TORVEC products; 7) to obtain patent protection on
at least four new developments and improvements related to the Torvec products
described above.
(B) BUSINESS OF ISSUER
GENERAL
Preceding the formation of the Company, its principal shareholders, Vernon
E. Gleasman, James A. Gleasman and Keith E. Gleasman started a research program
that required more than 10 years of time and capital of approximately $3
million. As a family, the Gleasmans have operated and sold their own innovative
products and companies over the last 30 years. It is this knowledge base (of
the automotive industry and its trends), that was the basis of the various
research projects that are now the properties of the Company. A review of
Vernon Gleasman's first 100 plus inventions indicates that almost all of them
are improvements of other companies' technology, and most of Vernon Gleasman's
inventions were created either while he was employed by various companies, or
while he was acting as a consultant to these other companies. Therefore, the
past income of Vernon Gleasman and family does not reflect a remuneration
proportionate to the economic impact of the products he invented (e.g., the
hydraulic multi-disc clutch patent which was invented by Vernon Gleasman in the
late 30's and has been used in most automatic transmissions produced over the
last 60 years).
Unlike Vernon Gleasman's earlier inventions, the Torsena differential
produced more revenue for the Gleasman family, because the Gleasmans themselves
manufactured and produced these differentials (from the mid 1960's - 1982)
through a family-owned corporation. Their primary customers were the U.S. Air
Force and U.S. Army, with some further sales for after-market, high-performance
vehicles. In 1982, as a result of the expanding need for larger production
facilities to meet orders for Toyota and the U.S. Army HMMWV vehicle, the
company was sold to Gleason Corp., Rochester, New York for cash, stock and a
royalty package.
Historically, the major impediments to the incorporation of Gleasman
products into other companies' vehicles has been the "not invented here"
syndrome and the problems relating to enforcement of licensing agreements by an
independent inventor. It is next to impossible to sell an idea that is merely
on paper. Therefore, it is necessary to fully engineer and develop a highly
refined prototype. Thousands of hours and millions of dollars have to be
invested before a new product can be sold to an OEM (original equipment
manufacturer). A highly refined prototype of the FasTrack_ vehicle (described
immediately below) has been engineered and the Company will use a portion of the
net proceeds of this Offering to explore joint ventures to produce this vehicle.
In addition, the Company will use a portion of the net proceeds of this Offering
to engineer and develop highly refined prototypes of the infinitely variable
transmission (IVT), the hydraulic pump/motor, spherical gearing and CV Joint
(also described below) to serve as critical components of the FasTrack vehicle
as well as for direct commercialization.
TRACKED VEHICLE STEERING (GSD-10) AND HYDRAULIC PUMP/MOTOR
In response to requests from the David Taylor Marine Research Department of
the U.S. Navy for a new generation of assault vehicles using off-the-shelf
componentry, the Gleasman steering mechanism for tracked vehicles (GSD-10) was
conceived and developed. For over 60 years an adequate, economical mechanism
for steering tracked vehicles has been sought. Because they are difficult to
steer precisely, tracked vehicles generally have been cumbersome and limited to
low speed. While wheeled trucks and cars have been able to travel at higher
speed on prepared roads, they have lacked the ability to traverse truly
difficult terrain. Having developed the GSD-10 steer drive, and seeking the
best way to market it, led the Company to a new direction for commercializing
the Gleasman inventions. In contrast to the Gleasmans' past procedures of
selling their products for another company's use, the decision was made to
incorporate the new steer drive into a new type of vehicle designed as a
specific product that could be sold directly to the consumer, thereby providing
a foundation upon which the Company can propose joint ventures with countries,
automobile producers, and/or component manufacturers for producing this vehicle.
Rather than hiring a design studio in California or Michigan, costing in excess
of tens of millions of dollars, the Gleasmans designed and fully engineered a
vehicle manufactured from high-volume purchased parts. That major investment of
time, know-how and capital has resulted in the prototype FasTrack vehicle
illustrated on the cover and described in the Registration Statement Summary.
The GSD-10 steer drive can best be described in engineering terms as a
hydro-mechanical steering mechanism. The "mechanical" portion is manufactured
from conventional, high-volume gearing, while the "hydro" portion is the
Company's patented hydraulic pump and motor. Conventional hydraulic pumps and
motors are large, noisy, and inefficient at low RPM. For over 100 years, as
reflected in SAE papers and a large number of issued patents, engineers and
companies have sought a solution to these problems which have continued to be
inherent in automotive hydraulic pump and motor designs. Therefore, because
tests have indicated that the recently patented Torveca hydraulic pump/motors
have substantially solved these heretofore inherent problems, the Company
believes the GSD-10 steer drive is most effective when used with these novel
Torveca pump/motors.
INFINITELY VARIABLE TRANSMISSION (IVT)
The long quest for a perfect automotive transmission, which began almost
simultaneously with the invention of the automobile, is described in a 1987 Ford
News Release (paper 87/45) entitled A History of Automatics (Car transmission
systems through the years). This same Ford document states: "Ford began
investigations into CVT (Continuously Variable Transmission) concepts in 1969
and started detailed engineering work in 1976 on a new design, known as the Ford
CTX (Continuously variable Transaxle), developed jointly with Van Doorne and
Fiat. In late 1983, a formal programme for CTX was initiated, at a total cost
of $120 million. Using some Ford components (castings and differentials) the
CTX will be produced by Van Doorne Transmissie as the first stage in the build-
up to mass production at Ford's Bordeaux transmission plant in France." The
transmission described in this Ford document is limited to very small engines
(1.6 liter). While the CVT is a step toward the IVT (Infinitely Variable
Transmission), it does not perform the same or as well as an IVT. In addition,
unlike the Torvec_ IVT, which can be built to accommodate every size engine, the
CVT used by Ford and other companies is only viable when used in conjunction
with very small engines. In order to increase its ability to work with larger
engines (e.g., 2 liters and above), a torque converter must be used with the
CVT, adding weight and cost, increasing size, and reducing the efficiency of the
transmission. Like the GSD-10 steer drive, the Torvec IVT incorporates the new
Torvec hydraulic pump and motor, which is remarkably smaller in weight and size
when compared to standard pump/motors that would otherwise be needed for the
Torvec IVT. For example, conventional pumps/motors for the IVT could weigh as
much as 400 lbs. In comparison, the Torvec hydraulic pump/motor weighs less
than 100 lbs. In effect ,the Company's products appear to meet the essential
criteria for needed automotive innovation as expressed in a recent statement by
the Chief Executive Officer of Honda: "We must begin to make cleaner cars that
people actually want to buy_with more performance, safety and comfort and
vehicles that also use less fuel, produce fewer emissions, and yet don't cost
much more" (SAE Automotive Engineering, 10/97). Transmissions are needed by all
of the 50 million vehicles produced annually throughout the world. Therefore,
the Company's potential could be substantial in view of the proven weight, cost,
and size reductions of its products coupled with their potential to increase
fuel efficiency.
SPHERICAL GEARING
The compact size and full power start-up torque of the Torvec hydraulic
pump/motors are made possible through the invention of a revolutionary new form
of gearing based on the geometry of spheres rather than conventional gear
geometry of cylinders and cones. This new "spherical" gear is perhaps the most
important and creative Gleasman invention to date, surpassing the "impossible
geometry" of the Torsena differential gearing.
The Gleasman spherical gears have been used to form a geared ball-and-
socket coupling in which driving tooth contact is maintained continuously while,
at the same time, permitting the coupling to be flexed at 40 degrees to either
side of center. The potential versatility of the Company's spherical gears may
open the door to many yet unknown solutions and products yet to be discovered.
This new gearing paradigm is found in the swash-plate mechanism of the Torvec
hydraulic pump and motor, and it has also been used to create a constant
velocity (CV) joint that is fully engineered as a working prototype and is ready
for installation in a car. The Torvec CV joint is designed to be
interchangeable in over 40 existing car models. It is notably lighter, less
costly to manufacture, and potentially more durable than the CV joints presently
being used in all front-wheel drive vehicles. In contrast, conventional
automotive CV joints, like the conventional automotive pump/motors discussed
above, have defied major improvements over the last 60 years in spite of the
large expenditure of time and money by individuals and corporations. Further,
in spite of severe mechanical and design limitations, the CV joints currently in
use are manufactured at the rate of over "180 million units annually" according
to the 1994 Annual Report of GKN (the world's largest producer of CV joints).
THE COMPANY'S ASSETS
The Company owns the exclusive right, title and interest in and to the
following patent properties:
1. U.S. Patent No.: 4,732,053
Title: Multi-Axle Vehicle Steer Drive System
2. U.S. Patent No.: 4,776,235
Title: No-Slip, Imposed Differential Reduction Drive
3. U.S. Patent No.: 4,776,236
Title: No-Slip, Imposed Differential
4. U.S. Patent No.: 4,895,052
Title: Steer-Driven Reduction Drive System
5. U.S. Patent No.: 5,186,692
Title: Hydro-Mechanical Orbital Transmission
6. U.S. Patent No.: 5,440,878
Title: Variable Hydraulic Machine
7. U.S. Patent No.: 5,513,553
Title: Hydraulic Machine with Gear-Mounted Swash-Plate
8. U.S. Patent No.: 5,647,802
Title: Variable-Angle Gears
9. U.S. Patent No.: 5,613,914
Title: Universal Coupling
10. U.S. Patent Application (application number not yet assigned)
Title: Method for Shaping the Teeth of Spherical Gears
11. European Pat. 0 160 671:
Title: No-Slip, Imposed Differential
Validated in: France, Germany, Sweden, United Kingdom
12. Japanese Pat. No. 200255
Title: No-Slip, Imposed Differential
13. Australian Patent No. 681528
Title: Variable-Angle Gear System and Constant Velocity Joint
14. Australian Patent No. 681534
Title: Hydraulic Machine with Gear-Mounted Swash-Plate
15. International Application No. PCT/US95/06538
Title: Variable-Angle Gear System and Constant-Velocity Joint
Corresponding Regional/National applications:
Europe 95 921372.9
Brazil PI 9507908-4
Canada 2,191,701
China 95 1 94440.1
Japan 501004/96
Korea 96-706840
Mexico 96 05859
16. International Application No.: PCT/U595/08732
Title: Hydraulic Machine with Gear Mounted Swash-Plate
Corresponding Regional/National applications:
Europe 95 926258.5
Brazil PI 9508276-0
Canada 2,194,963
China 95 1 95044.4
Japan 505116/96
Korea 97-700152
Mexico 9700288
In addition, the Company owns the exclusive right, title and interest in
and to the following prototypes, automotive parts, engineering documentation,
computer-readable data and other technological assets relating to the
development and testing of the drive mechanisms for tracked vehicles,
transmission, hydraulic pump/motors, a unique form of gearing, universal joints
and constant-velocity joints disclosed and found in the above-referenced patent
properties:
1. 1997 Ford Taurus 4-door sedan.
2. FasTrack tracked vehicle (Dimensions: length - 142", width - 68",
height - 72"; weight: 4100 lbs; Engine: Ford, gasoline 2.3 liter;
Transmission: Ford A4lLd; Steering system: Gleasman Steer Drive (GSD-
10).
3. Scale Model designs for various FasTrack vehicles.
4. Prototype of Gleasman Steer Drive (GSD-10).
5. Ford automotive parts: 4 engines; transmissions; differentials; worm
gears; body parts; windshields; dashboards; and seats.
6. 3 prototypes of Gleasman Orbital (IVT) Transmission
7. One year of test results relating to testing of Gleasman IVT's at
Alfred State University.
8. Right to use laboratory equipment at Alfred State University
(equipment donated to University by Gleasmans); 250 hp eddy current
dynamometer; lebow torque sensor; strain gauge shaft sensor;
various transducers; Datatronic data acquisition system; and 1 Ford V-
6 (3 liter) engine.
9. Complete CAD/CAM design for Gleasman Ortibal (IVT) Transmission re-
engineered to adapt as retrofit for existing vehicle of a major U.S.
automaker.
10. Engineering data for adapting Gleasman Orbital (IVT) Transmission for
retrofit on U.S. Army's existing HMMWV ("Hummer" vehicle).
11. Prototype Gleasman hydraulic pump/motors.
12. Off-the-shelf automotive hydraulic pump/motors made by other
manufacturers (used for comparison testing).
13. Various prototypes of Gleasman "special" gears with supporting
technical data.
14. Parts (gears, housing, shafts) and supporting technical data, relating
to designs of Gleasman CV-joint apppropriate for retrofit in existing
vehicle of a major U.S. automaker.
15. Engineering CAD/CAM files (representing 2,000 hours of development
work) for Gleasman CV-joint designs.
16. Isuzu Commercial Vehicle NPR-Diesel
(C) SPECIAL RISK FACTORS ASSOCIATED WITH BUSINESS
The present and intended business operations of the Company must be
considered to be highly speculative and involve substantial risks, and an
investment in the Common Stock should only be considered by those persons who
can bear the economic risk of their entire investment. Among the risk factors
to be considered are the following:
DEVELOPMENT STAGE; NO OPERATING HISTORY
Since its incorporation on September 25, 1996, the Company's activities
have consisted primarily of continuing the development of and designing specific
applications for the inventions patented by Vernon E. Gleasman and Keith E.
Gleasman as independent inventors during a period of more than ten years. See
"Business of Issuer." The Company as yet has not manufactured nor entered into
any arrangements to manufacture its prototypes as commercially available
products and therefore has no operating history. To date, operations have been
funded exclusively from sales of its Common Stock, including sales made pursuant
to the terms of a Confidential Placement Memorandum, dated November 8, 1996.
The Company is subject to all of the business risks associated with a new
enterprise, including, but not limited to, risks of unforeseen capital
requirements, failure of market acceptance, failure to establish business
relationships, and competitive disadvantages as against larger and more
established companies. The Company's ability to succeed may be hampered by the
expenses, difficulties, complications and delays frequently encountered in
connection with the formation and commencement of operations of a new business,
including, but not limited to management's potential underestimation of initial
and ongoing costs associated with the enterprise, overestimation of gross
receipts and market penetration, the adverse impact of competition, as well as
the adverse impact on the Company, and its cash flow, of the Company's inability
to promote the worldwide use of Torvec_ products.
ABILITY OF COMPANY TO CONTINUE AS A GOING CONCERN
The Company's Financial Statements (contained elsewhere herein) were
prepared assuming that the Company will continue as a going concern. The
Company's independent auditors, in its report regarding the Company's Financial
Statements, has expressed the fact that the Company is experiencing net losses
and is not generating cash flows from operating activities to sustain its
operations which raises substantial doubt the Company's ability to continue as a
going concern. The Company is planning to offer up to 1,500,000 shares of its
Common Stock at $5.00 per share in the near future to generate sufficient
capital to effectuate its "Plan of Operation" described herein.
NO ASSURANCE OF COLLABORATIVE AGREEMENTS, JOINT VENTURES OR LICENSES
The Company's business strategy is based upon entering into collaborative
joint working arrangements, formal joint venture agreements and/or licensing
agreements with domestic and/or foreign governments, automotive industry
manufacturers and suppliers in order to promote the use of the Torvec products.
No such arrangements and/or licenses have been consummated to date and there is
no assurance that the Company will be able to enter into definitive joint
working arrangements or joint venture collaborative agreements with prospective
working partners or others, or that such agreements, if entered into, will be on
terms and conditions that are sufficiently attractive to the Company to enable
it to generate profits.
In addition to seeking commercially attractive collaborative working
arrangements or joint ventures, the Company may license one or more of its
Torvec products to unaffiliated third parties. There is no assurance that the
Company will be able to enter into such license arrangements or that such
licenses will produce any income to the Company. See "Plan of Operation. "
UNCERTAINTY OF MARKET ACCEPTANCE
The Company's ability to generate revenue and become profitable is
dependent, in part, upon the automotive industry's acceptance of certain of its
products, such as the steering drive for tracked vehicles, the infinitely-
variable transmission (IVT), the hydraulic pump and motor, the CV (constant
velocity) joint and spherical gearing. The Company's growth and future
financial performance will depend on demonstrating the advantages of such
products over existing technologies to an automotive industry which has
committed substantial resources to product systems utilizing old technology. In
addition, despite management's belief that its products are superior, the
Company will have to overcome the "not invented here" attitude that permeates
the industry.
The Company's future development is also dependent upon consumer acceptance
of certain other of its products, for example, the FasTrack_ vehicle especially
in the Asian, African, South and Central American markets. While the potential
domestic and international market is great, see "Business of Issuer", the
Company faces considerable obstacles in introducing the FasTrack in these
markets and there can be no assurance that it will be able to do so
successfully.
POTENTIAL NEED FOR ADDITIONAL FINANCING; OUTSOURCING-COST AND TIMING
The Company is not currently generating revenues to fund its operations for
the twelve months immediately following the effectiveness of this Registration
Statement. See "Plan of Operation-Liquidity and Capital Resources."
Accordingly, the Company has embarked and is implementing plans to raise
additional capital, including an offering for up to 1,500,000 shares of its
Common Stock at $5.00 per share. This proposed offering may not be successful.
In addition, the Company currently does not have a manufacturing facility and
its present intention is not to manufacture any of its products itself. Should
the Company find that it is desirable to do so, this decision would require
significant additional capital. The Company presently intends to outsource its
requirements through collaborative working agreements, joint venture
arrangements, licenses or a combination of all three. The Company may not be
able to control the terms and conditions of such outsourcing arrangements,
including the costs of labor, component parts and manufacturers' mark-up as well
as the time involved for the manufacture and/or delivery of the products it
outsources. The Company, therefore, very likely will be faced with the need for
additional financing of a capital nature in order to successfully commercialize
its products.
The Company intends to satisfy any such additional capital requirements
through debt and/or future equity financing. There can be no assurance that
such financing will be available or, if available, that it will be on favorable
terms. If adequate financing is not available, the Company may be required to
delay, scale back or eliminate certain of its research and development programs,
to relinquish rights to certain of its technologies, or to license third parties
to commercialize technologies that the Company would otherwise seek to develop
itself. See "Plan of Operation."
UNPREDICTABILITY OF PATENT PROTECTION AND PROPRIETARY TECHNOLOGY
The Company currently has the United States and foreign patent properties
listed on Page 9 of this Registration Statement. The Company's success depends,
in part, on its ability to enforce the patents which it owns, maintain trade
secrecy protection and operate without infringing on the proprietary rights of
third parties. All of the pending applications are based upon technology that
has already been patented in the United States, and therefore, the Company is
optimistic that these applications will mature into appropriate protection.
However, there can be no assurance that any of the Company's pending patent
applications will be approved, that the Company will develop additional
proprietary technology that is patentable, that any patents issued to the
Company will provide the Company with competitive advantages or will not be
challenged by third parties or that the patents of others will not have an
adverse effect on the Company's ability to conduct its business. Furthermore,
there can be no assurance that others will not independently develop similar or
superior technologies, duplicate any of the Company's automotive technologies,
or design around the Company's patented automotive technologies. It is possible
that the Company may need to contest the validity of issued or pending patents
of third parties relating to its automotive technologies. There can be no
assurance that the Company would prevail in any such contest. In addition, the
Company could incur substantial costs in defending itself in suits brought
against the Company on its patents or in bringing patent suits against other
parties.
In addition to patent protection, the Company also relies on trade secrets,
proprietary know-how and technology which it seeks to protect, in part, by
confidentiality agreements with its prospective working partners and
collaborators, employees and consultants. There can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach, or that the Company's trade secrets and proprietary know-how
will not otherwise become known or be independently discovered by others. See
"Business; Certain Proceedings Involving Stockholders."
COMPETITION
The Company believes that its patented technology is superior to similar
products manufactured in the automotive industry and in some instances represent
a true paradigm shift with respect to presently known technology. However,
once the Company commences operations, it will be marketing products that are
provided by companies in the automotive industry that have significantly
greater financial, marketing and operating resources than the Company.
DEPENDENCE ON KEY MANAGEMENT AND OTHER PERSONNEL
To date, the Company has been dependent upon and for the foreseeable
future, it will be dependent upon the efforts of its management and scientific
staff, including Herbert H. Dobbs, Lee E. Sawyer, Morton A. Polster, Vernon E.
Gleasman, Keith E. Gleasman, and James A. Gleasman. Therefore, the loss of the
services of any one or more of such persons may have a material adverse effect
on the Company. However, the Company's negotiations and communications with
others is quite well documented, and the technology relating to the Company's
FasTrack vehicle, orbital transmission, hydraulic pump/motor, CV-Joint, and
spherical gears has all (a) been quite thoroughly documented, by engineering
drawings and on CAD computer disks, and (b) already undergone considerable
applied development and testing. The Company believes that Messrs. Dobbs,
Sawyer and Polster should be capable of continuing the further development and
marketing of the Company's products supported by this just-identified
technology.
Consequently, the Company's future success will depend in large part upon
its ability to attract and retain skilled scientific, management, operational
and marketing personnel. The Company faces competition for hiring such
personnel from other companies, government entities and other organizations.
While there can be no assurance that the Company will be successful in
attracting and retaining such personnel in the future, the Company feels quite
fortunate that its management presently includes non-family individuals with
skills and experience remarkably pertinent to the Company's present needs.
CONTROL BY EXISTING STOCKHOLDERS; POSSIBLE DEPRESSIVE EFFECT ON THE COMPANY'S
COMMON STOCK
The Company's existing stockholders are able to elect all of the Company's
directors, dissolve, merge or sell all of the Company's assets and otherwise
control the Company. Such concentration of control of the Company may also have
the effect of delaying, deferring or preventing a third party from acquiring
control of the Company, may discourage bids for the Company's Common Stock at a
premium over the market price and may adversely affect the market price of the
Common Stock. See "Security Ownership of Certain Beneficial Owners and
Management."
NO DIVIDENDS
The Company has never paid any dividends on its Common Stock, and has no
plans to pay dividends on its Common Stock in the foreseeable future. Future
dividend policy will depend upon the Company's earnings, capital requirements,
financial condition and other factors considered relevant by the Company's Board
of Directors. See "Market Price of and Dividends on the Company's Common Equity
and Other Stockholder Matters."
FUTURE SALES OF RESTRICTED SECURITIES; REGISTRATION RIGHTS
The Company has 20,673,496 shares of Common Stock outstanding. These
shares of Common Stock (the "Restricted Shares") outstanding were sold by the
Company in reliance on exemptions from the registration requirements of the
Securities Act, are "restricted securities" as defined in Rule 144 promulgated
under the Securities Act and may not be sold in the absence of registration
under the Securities Act unless an exemption therefrom, including an exemption
afforded by Rule 144, is available. Under Rule 144 (and subject to the
conditions thereof), 20,453,594 of the Restricted Shares will become eligible
for sale beginning 90 days after the date of this Registration Statement, and
substantially all of the remaining 219,902 Restricted Shares will become
eligible for sale as of January 30, 1999. In addition, the holders of 1,000,000
of the Restricted Shares have certain registration rights. The sale of a
substantial number of shares of Common Stock or the availability of Common Stock
for sale could adversely affect the market price of the Common Stock prevailing
from time to time. See "Shares Eligible for Future Sale;" "Certain
Transactions."
EFFECT OF PREVIOUSLY ISSUED OPTIONS AND WARRANTS ON STOCK PRICE
The Company has reserved from the authorized, but unissued, Common Stock,
455,000 shares of Common Stock for issuance upon exercise of outstanding options
granted under the Company's 1998 Stock Option Plan, 1,545,000 shares for
issuance upon exercise of options available for future grant under the Plan and
500,000 shares reserved for issuance upon the exercise of Consulting Warrants
granted to LT Lawrence & Co., Inc. The existence of these options and warrants
may prove to be a hindrance to future financings, since the holders of such
securities may be expected to exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company. In addition, the holders of these securities have certain
registration rights, and the sale of the shares issuable upon exercise of such
securities or the availability of such shares for sale could adversely affect
the market price of the Common Stock. See "Shares Eligible for Future Sale;"
"Certain Transactions."
NO ASSURANCE OF PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF COMMON STOCK
PRICES; MARKET MAKERS' POTENTIAL INFLUENCE ON THE MARKET
There is no public market for the Common Stock, and there can be no
assurance that an active trading market for any of the Shares will develop or,
if developed, be sustained. Upon the effectiveness of this Registration
Statement, the Company intends to make appplication to have its Common Stock
traded on the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc. ("NASD").
The market price for the Company's Common Stock may be highly volatile as
has been the case with the securities of other small capitalized companies.
Factors such as the Company's financial results, the introduction of the
Company's products, its ability to enter into joint venture or licensing
agreements and various factors effecting the automotive industry may have a
significant impact on the market price of the Company's Common Stock.
Additionally, in recent years, the stock market has experienced a high level of
price and volume volatility and market prices for the stock of many companies,
particularly of small capitalization companies the Common Stock of which trade
in the over-the-counter market, have experienced wide price fluctuations which
have not necessarily been related to the operating performance of such
companies. The Company is seeking the services of one or more market makers to
make a market in the Company's Common Stock. Such activities may exert a
dominating influence on the market during their duration and such activities may
be discontinued at any time.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Registration Statement, including without limitation, statements containing the
words "believes," "anticipates," "intends," "expects," "plans" and words of
similar import, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties, assumptions and other
factors which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such factors include, among others, the risks identified
above under "Special Risk Factors." Given these uncertainties, prospective
investors are cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to publicly announce the result of any revision to any of the forward-looking
statements contained herein to reflect future events or developments.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
PLAN OF OPERATION
12-MONTH BUSINESS STRATEGY
During the twelve months immediately following the effectiveness of this
Registration Statement, the Company intends to focus its efforts upon the
following strategies:
1. TO PROVIDE DEVELOPING COUNTRY FASTRACK_ VEHICLE MODELS FOR MARKETING
TO POTENTIAL ASIAN, AFRICA, SOUTH AND CENTRAL AMERICAN JOINT VENTURE
PARTNERS.
On January 7, 1998, the Company entered into a Service and Space
Agreement with Joseph L. Neri, Sr. (a shareholder) and Joseph Neri
Chevrolet-Oldsmobile-Pontiac pursuant to which the Company is entitled
to lease the premises described below for 1 year with an option to
renew for an additional 5 years and will be provided with labor and
certain services which will enable the Company to construct, assemble
and install the Company's products into various vehicles, including
FasTrack. The Agreement will become effective upon completion of the
Company's planned initial public offering of up to 1,500,000 shares at
$5.00 per share. The facility is located at 3740 Route 104,
Williamson, New York (approximately 20 minutes from downtown
Rochester). The facility is approximately 17,000 sq. ft.,
situated on 8 acres of land. The agreement includes the facility,
all utilities (including telephone system with an after-hour
answering service), computer system, service department,
specialized equipment and tools with above-ground lifts (D.E.C.
approved) one of which has a 28,000 lb. capacity for trucks
and buses, an 8 bay body shop, complete with a paint room and
Kansas Jack straightening machine, a two floor parts
department and a 30 member staff (sales, managers, office staff,
mechanics and a computer programmer). The annual rental for the 8 acre
facility, cost of labor and services aggregate to $630,000 (payable in
12 monthly installments). This facility is sufficient to construct
all necessary FasTrack vehicles as well as assemble and install all
Torvec products. Keith Gleasman shall have the primary responsibility
to train the employees provided to the Company under the agreement
with support from other Company executives. CAD/CAM design work will
be needed and will be contracted with independent companies for
approximately $2,000 weekly.
Adjacent to this property is 80 acres which fronts Route 104 and
is ideal for demonstrating the Company's vehicles. This acreage has
ponds, swamps and woods and will require only minor changes to
construct a course that would be similar to developing country roads.
Nominal bulldozing will enable the Company to construct the course.
Under the lease/service contract, the 80 acres will be transferred and
deeded to the Company for a cost of $350,000 on the last day of the
the first year of the lease term. This tract of land, which is
approximately 1.5 miles from the premises, is appropriate for testing
all of the Company's products.
The cost of parts for building the FasTrack vehicle (windows,
doors, engines, etc.) can range from $10,000-$40,000 per vehicle,
depending on the vehicle design and size. The Company has already
ordered appropriate diesel-powered truck parts for three FasTrack
vehicles (one such set of parts has already been received from Isuzu
Motors and the parts for the other two have been promised for delivery
at the end of May 1998 by Kia Motors). IVTs will be built for the
FasTrack using parts already designed (e.g., for the Taurus, etc.) at
an estimated cost of $50,000. An additional $100,000 will be used to
build a Torvec_ steer drive. For the latter, an outside contractor
will provide the suspension components, material and frame, while
Goodyear has agreed to supply the rubber track elements.
Upon completion of the Company's planned offering to raise needed
capital, Lee E. Sawyer will commence dialogue and discussions with
various automotive manufacturers to provide a business plan to supply
parts to the Company on a purchase or joint-venture basis. After the
parts suppliers have been identified and agreements executed, the
FasTrack demonstration vehicles will be designed using the parts
supplier's components. In this regard, Kia Motors has already
indicated that it is interested in being a parts supplier for the
FasTrack and that Kia has capacity to supply parts for as many as
80,000 vehicles per year. (Note: See appendix for correspondence
from Kia Motors.) Concurrently, Herbert H. Dobbs, Chairman of the
Board of Directors, assisted by Vernon and Keith Gleasman, will work
together to finalize the design and engineering of the demonstration
vehicles. At the same time, Herbert H. Dobbs and James Gleasman will
be opening dialogue with potential developing country joint-venture
partners in order to market the FasTrack.
2. TO COMPLETE THE INSTALLATION OF A TORVEC TRANSMISSION INTO DIESEL-
POWERED TRUCKS FOR APPROPRIATE TESTING BY NATIONAL AND STATE
ENVIRONMENTAL AGENCIES IN THE U.S. AND OTHER COUNTRIES TO QUANTIFY
EXACT FUEL SAVINGS AND EMISSIONS LEVELS AND TO DETERMINE ITS
POTENTIAL EFFECT ON THE WORLDWIDE PROBLEM OF DIESEL ENGINE POLLUTANTS.
The basic engineering layout of the Torvec IVT has already been
completed. The drawings will be submitted to a CAD/CAM contractor for
the final engineering evaluation and detailing of parts. The cost of
the trucks will be approximately $80,000, in addition to $150,000 to
complete the Torvec IVT design and manufacturing.
Alfred State College has tested Torvec IVT's in the past and is
equipped for emission and fuel economy testing. The Gleasman family,
prior to the formation of the Company, had donated most of the
dynamometer test equipment to Alfred via a grant. In addition, Toyota
donated the emission test equipment. Although negotiations have not
yet been finalized, the Company expects to contract with Alfred State
College, Alfred, New York to obtain emission and fuel economy results.
The Company expects to spend $100,000-200,000 to obtain emission and
fuel economy results, depending on the requirements of the United
States Environmental Protection Agency. (Note: Re: Testing - see
appendix for correspondence to the White House Climate Change Task
Force from Yogendra B. Jonchhe of Alfred State College.)
3. A MAJOR U.S. AUTOMAKER, FORD MOTOR COMPANY HAS AN AGREEMENT WITH THE
COMPANY FOR AN EXCLUSIVE "FIRST LOOK" AT THE IVT FOR GASOLINE-ENGINE
PASSENGER CARS.
The engineering drawings for the Taurus IVT are in the final
stages of detailing and should be ready during the next business
quarter. From these drawings the parts will be manufactured, subject
to the schedule of the suppliers. When complete, the IVT will be
installed into a Ford Taurus, owned by the Company. This car,
equipped with the IVT, will be used to document emission levels and
fuel economy. The vehicle and test results will be used to establish
joint-venture/licensing opportunities with major car manufacturers
around the world. To complete the above, a budget of approximately
$350,000 has been established. (Note: Installation of the IVT into
the Taurus is more complicated than the installation into the diesel
trucks because the Taurus has a gasoline engine and also has a more
complex front-wheel drive transaxle configuration, electronic controls
and tight packaging.)
4. TO PROMOTE WORLDWIDE USE OF IVT'S FOR REDUCING DIESEL/GASOLINE ENGINE
POLLUTION:
This will be accomplished with public relations, electronic and
print news media and auto magazines. Included in the budget will be
transportation of the vehicles, travel for the Company's support
personnel, spare componentry, and promotional material. In addition,
the Company will create displays for trade shows, SAE meetings, and
other interested parties. The estmated budget to accomplish the above
will be approximately $600,000.
5. TO ENTER INTO APPROPRIATE LICENSING COLLABORATIVE JOINT WORKING
ARRANGEMENT WITH ALL TORVEC PRODUCTS (THE FASTRACK VEHICLE, IVT
TRANSMISSION, HYDRAULIC PUMP/MOTOR, CV JOINT, AND SPHERICAL GEARING):
The Torvec CV joint for a front wheel drive Ford Taurus has been
detailed by a contracted manufacturer, which has started to produce
parts from the Company's CAD/CAM files. Assuming the parts are
manufactured to specification, the completed Torvec CV joint will be
installed in the Company's Taurus for evaluation, (durability,
handling, etc.) If the results are satisfactory, the Company will
present the CV Joint to the auto industry for their appraisal. The
budget for completing the above will be approximately $100,000.
6. TO OBTAIN A WEBSITE FOR MARKETING, SALES, EDUCATION AND INFORMATION
RELATING TO THE TORVEC PRODUCTS:
The Company will enter into arrangements with one or more
companies to produce and manage Torvec's website. The beginning stages
of the design are underway and will be ready as soon as practicable.
The budget for production and management of the website is estimated
to be $50,000.
7. TO OBTAIN PATENT PROTECTION ON AT LEAST FOUR NEW DEVELOPMENTS AND
IMPROVEMENTS RELATED TO THE TORVEC PRODUCTS DESCRIBED ABOVE:
The budget, from past experience, is estimated to be
approximately $130,000 for these patents.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations to date have been funded exclusively through the
sale of 658,496 shares of Common Stock to a limited number of investors for an
aggregate purchase price of approximately $1,400,000. These shares were sold at
varying prices ranging from $1.50 to $3.00 per share. The Company does not
presently anticipate that it will be able to generate significant operating
revenues during the twelve months immediately following the effectiveness of
this Registration Statement and therefore, the Company is presently planning to
offer up to 1,500,000 shares of its Common Stock at $5.00 per share to generate
sufficient capital to fund its continuing testing, development and other working
capital requirements during the next twelve months. The Company anticipates,
based on its currently proposed plans and assumptions relating to its operations
(including assumptions regarding the nature and extent of its testing program,
the ability of the Company to secure adequate manufacturing and distribution
relationships and market acceptance of the Company's products) that if such
offering is successful, the Company shall have sufficient capital to meet the
Company's contemplated capital requirements for the next twelve months.
However, if the Company's plans change or its assumptions change or prove to be
incorrect, the Company could be required to seek additional financing. In
addition, the Company may have to raise substantial additional capital to fund
its operations, upon completion of its first year's operations. There can be no
assurance that additional financing will be available when needed on terms
acceptable to the Company, or at all.
If the Company successfully completes its planned offering of 1,500,000
shares, it will utilize the net proceeds of said offering as follows:
APPROXIMATE
DOLLAR AMOUNT
Named Executive Officers' salaries (1) $600,000
Consultant's fees(2) $450,000
Service and Space Agreement
3740 Route 104, Williamson, New York (3) $630,000
Purchase of 80 Acre Tract
3740 Route 104, Williamson, New York (4) $350,000
CAD/CAM Design Work (5) $104,000
IVT for FasTrack_ (6) $ 50,000
Torvec_ Steer Drive (7) $100,000
Diesel Trucks (8) $ 80,000
IVT Design and Manufacturing (9) $150,000
Emission and Fuel Economy Testing (Alfred State) (10) $200,000
Installation of IVT into Taurus (11) $350,000
Promotion of Worldwide Use of IVT (12) $600,000
Collaborative Joint Working Arrangements (13) $100,000
Website (14) $ 50,000
New Patents (15) $130,000
Legal and Accounting Expenses $250,000
Miscellaneous Costs of Public Offering, Including
Registration Fees and Printing Costs $150,000
Working Capital and General Corporate Purposes $3,156,000
Total $7,500,000
(1) See Page 21 of this Registration Statement for a description of
the Company's employment agreements with its Named Executive
Officers.
(2) See Page 22 of this Registration Statement for a description of
the Company's consulting agreements with Keith, James and Vernon
Gleasman.
(3) On January 7, 1998, the Company executed a Service and Space
Agreement with Jospeh L. Neri, Sr. and Joseph L. Neri Chevrolet-
Oldsmobile-Pontiac, Inc. pursuant to which the Company shall
lease the premises located at 3740 Route 104, Williamson, New
York 14589, rent equipment on premises and shall utilize Neri's
personnel to construct, assemble and install the Company's
products into vehicles. See "Plan of Operation." The agreement
is for a term of one year, effective upon the completion of this
Offering, and may be renewed, at the Company's option, for up to
four additional one-year periods. The annual fee for facility,
equipment and personnel is $630,000.
(4) Under the Space and Service Agreement, the Company has agreed to
purchase, unless it would violate zoning laws or restrictions,
an 80 acre tract of land adjacent to the premises located at
3740 Route 104 which acreage contains ponds, swamps and wood
suitable for testing vehicles containing Company products. See
"Plan of Operation." The purchase price is $350,000 and closing
is to take place one year from the effective date of the
agreement.
(5) See "Plan of Operation", Strategy 1.
(6) See "Plan of Operation", Strategy 1.
(7) See "Plan of Operation", Strategy 1.
(8) See "Plan of Operation", Strategy 2.
(9) See "Plan of Operation", Strategy 2.
(10) See "Plan of Operation", Strategy 2.
(11) See "Plan of Operation", Strategy 3.
(12) See "Plan of Operation", Strategy 4.
(13) See "Plan of Operation", Strategy 5.
(14) See "Plan of Operation", Strategy 6.
(15) See "Plan of Operation", Strategy 7.
The foregoing represents the Company's best estimate of its expenses during
the 12 months immediately following the effectiveness of this Registration
Statement. This estimate is based on certain assumptions, including that
testing, development and marketing efforts relating to the Company's products
can be completed at budgeted costs. Projected expenditures are estimates or
approximations only. Future events, including the problems, delays, expenses,
difficulties and complications frequently encountered by companies in an early
stage of development, changes in economic or competitive conditions or in the
Company's planned business, and the success or lack thereof of the Company's
development and marketing efforts during the next twelve months may make shifts
in the allocation of funds and curtailment of certain planned expenditures
necessary or desirable. Any such shifts will be at the discretion of the
Company. See "Plan of Operation."
Proceeds not immediately required for the purposes described above will be
invested principally in short-term interest bearing securities, money market
funds, certificates of deposit or direct or guaranteed obligations of the United
States government.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's operations to
date and management is currently unable to determine the extent inflation may
impact the Company's operations during the twelve months immediately following
the effectiveness of this Registration Statement.
QUARTERLY FLUCTUATIONS
As of the date of this Registration Statement, the Company has not engaged
in operations. Once the Company actually commences operations, the Company's
operating results may fluctuate significantly from period to period as a result
of a variety of factors, including product returns, purchasing patterns of
consumers, the length of the Company's sales cycle to key customers and
distributors, the timing of the introduction of new products and product
enhancements by the Company and its competitors, technological factors,
variations in sales by product and distribution channel, and competitive
pricing. Consequently, once the Company actually commences operations, the
Company's product revenues may vary significantly by quarter and the Company's
operating results may experience significant fluctuations.
ITEM 3. DESCRIPTION OF PROPERTY.
See the Company's "Plan of Operation," Strategy 1 for a narrative
description of the Company's Lease/Service Agreement, with respect to the
Company's leasehold interest in plant and equipment located at 3740 Route 104,
Williamson, New York 14587. See "Business of Issuer-The Company's Assets" for a
narrative of the Company's patented inventions and other properties.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(A) SECURITY OWNERSHIP
The following table sets forth as of the date of this Registration
Statement certain information with respect to the beneficial ownership of the
Common Stock of the Company by (i) each person known by the Company to own more
than 5% of the outstanding shares of the Common Stock of the Company, each
director, each executive officer, each consultant and (ii) all directors,
executive officers and named consultants of the Company as a group. Unless
otherwise indicated, the owners have sole voting and investment power with
respect to their respective shares.
NAME AND ADDRESS OF NUMBER OF PERCENT OF
BENEFICIAL OWNER POSITION SHARES OWNED(1) SHARES OWNED
Herbert H. Dobbs Chairman of the Board 400,000(2) 1.93%
448 West Maryknoll Road of Directors
Rochester Hills, MI 48309
Keith E. Gleasman Dir.; President and 5,493,134(3) 26.56%
11 Pond View Drive Consultant to Torvec,
Pittsford, NY 14534 Inc.
Lee E. Sawyer Director 357,000(4) 1.72%
16 Williamsburg Lane
Rolling Hills, CA 90274
Morton A. Polster Director; Secretary of 275,600(5) 1.33%
c/o Eugene Stephens Torvec, Inc.
& Associates
56 Windsor Street
Rochester, NY 14605
James A. Gleasman Director; Consultant 5,480,133(6) 26.50%
11 Pond View Drive to Torvec, Inc.
Pittsford, NY 14534
Vernon E. Gleasman Consultant to 5,493,133(7) 26.56%
11 Pond View Drive Torvec, Inc.
Pittsford, NY 14534
Samuel M. Bronsky Chief Financial Officer 1,000 Less Than
6653 Main Street 1%
Williamsville, NY 14221
All Executive Officers 17,500,000(8) 84.60%
and Directors as a Group
(7 persons)
1. Except as indicated in the footnotes to this table, the Company believes
that all the persons named in the table have sole voting and investment
power with respect to all shares shown as beneficially owned by them,
subject to community property laws where applicable. In accordance with
the rules of the Commission, a person or entity is deemed to be the
beneficial owner of securities that can be acquired by such person or
entity within 60 days from the date of this Registration Statement upon the
exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options and warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days of the date of this Registration Statement have
been exercised. The inclusion herein of such shares listed as beneficially
owned does not constitute an admission of beneficial ownership.
Percentages herein assume a base of 20,673,496 shares of Common Stock
outstanding as of the date of this Registration Statement.
2. Includes 20,000 shares which may be purchased through the exercise of an
option granted in connection with his employment agreement, exercisable at
$5.00 per share. In May, 1998, Mr. Dobbs entered into option agreements
pursuant to which related parties have the right to purchase 360,000 shares
of the Company's Common Stock from him at an exercise price of $5.00 per
share at any time during a ten year option term.
3. Includes 5,000 shares which may be purchased through the exercise of an
option granted in connection with his consulting agreement, exercisable at
$5.00 per share. In December, 1997, Mr. Gleasman entered into option
agreements pursuant to which related parties have the right to purchase
300,000 shares of the Company's Common Stock from him at an exercise price
of $5.00 per share at any time during a ten year option term.
4. Includes 36,000 shares which may be purchased through the exercise of an
option granted in connection with his employment agreement, exercisable at
$5.00 per share.
5. Includes 20,000 shares which may be purchased through the exercise of an
option granted in connection with his employment agreement, exercisable at
$5.00 per share.
6. Includes 5,000 shares which may be purchased through the exercise of an
option granted in connection with his consulting agreement, exercisable at
$5.00 per share. In November, December 1997, Mr. Gleasman entered into
option agreements pursuant to which related parties have the right to
purchase 364,000 shares of the Company's Common Stock from him at an
exercise price of $5.00 per share at any time during a 10 year option term.
7. Includes 5,000 shares which may be purchased through the exercise of an
option granted in connection with his consulting agreement, exercisable at
$5.00 per share. In December, 1997, Mr. Gleasman entered into option
agreements pursuant to which related parties have the right to purchase
2,000,000 shares of the Company's Common Stock from him at an exercise
price of $5.00 per share at any time during a 10 year option term.
8. Includes an aggregate 91,000 shares which may be purchased through the
exercise of options granted in connection with employment and consulting
agreements, exercisable at $5.00 per share.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
IDENTIFICATION OF DIRECTORS, EXECUTIVE OFFICERS AND CONSULTANTS
The following table sets forth certain information about the current
directors, executive officers of the Company and its consultants.
DATE OF DATE OF
ELECTION OR TERMINATION
NAME AGE POSITIION DESIGNATION OR RESIGNATION
Herbert H. Dobbs 66 Chairman of the 02/20/98 *
48 West Maryknoll Rd Board of Directors
Rochester Hills, MI
48309
Keith E. Gleasman 50 Director; President 09/26/96 *
11 Pond View Drive and Consultant to
Pittsford, NY 14534 Torvec, Inc.
Lee E. Sawyer 56 Director 09/27/96 *
16 Williamsburg Lane
Rolling Hills, CA 90274
Morton A. Polster 70 Director; Secretary of 09/27/96 *
c/o Eugene Stephens & Torvec, Inc.
Associates
56 Windsor Street
Rochester, NY 14605
James A. Gleasman 57 Director; Consultant to 02/20/98 *
11 Pond View Drive Torvec, Inc.
Pittsford, NY 14534
Vernon E. Gleasman 86 Consultant to Torvec, 12/01/97 *
11 Pond View Drive Inc.
Pittsford, NY 14534
Samuel M. Bronsky 36 Chief Financial Officer 04/01/98 *
6653 Main Street
Williamsville, NY 14221
*CHANGES IN CONTROL
To the knowledge of the Company's management, there are no present
arrangements or pledges of the Company's Common Stock which may result in a
change of control of the Company. The members of the Board of Directors shall
serve until the next annual meeting of shareholders and until their successors
are elected or appointed and shall have qualified, or until their prior
resignation or termination.
(B) BUSINESS EXPERIENCE
The business experience of Messrs. Dobbs, Sawyer, Polster and Vernon E.
Gleasman is provided on Pages 3 and 4 of this Registration Statement.
The following sets forth the business experience of Messrs. James A. and
Keith E. Gleasman:
1. JAMES A. GLEASMAN - CONSULTANT
. Life-long entrepreneur.
. Skilled in management, finance, strategic planning, organizing and
marketing.
. Co-inventor of the Gleasman GSD-10 steer drive.
. Established manufacturing of the TorsenR Differential in Argentina,
Brazil, etc.
. Principal at two of the family companies, raised capital,
negotiated international, military and automotive contracts.
. Set business strategies for small company's dealings with large
companies, including sale of family company to Gleason Corp., New
York.
. Joint venture partner with Clayton Brokerage Co. of St. Louis, MO.
. Owned financial-consulting business.
. Negotiated with numerous Asian Corporations (including Mitsubishi
and Mitsui).
. Educated in Asian philosophy, business practices and culture.
2. KEITH E. GLEASMAN - CONSULTANT
Co-Inventor with Vernon E. Gleasman on all Torvec patents, Mr.
Gleasman's strengths include his extensive marketing and sales
executive experience, in addition to his design and development
knowledge. His particular expertise has been in the area of defining
and demonstrating the products to persons within all levels of the
automotive industry, race crew members, educators and students.
. As Vice President of Sales for Gleason Corporation (Power Systems
Division), designed and conducted seminars on vehicle driveline
systems for engineers at the U.S. army tank automotive command.
. Designed a complete nationwide after-market program for the Torsen
Differential, which included trade show participation for the
largest after-market shows in the U.S.,SCORE and SEMA.
. Extensive after-market experience including pricing, distribuiton,
sales catalogs, promotions, trade show booths designs and vehicle
sponsorships.
. Responsible for over 300 articles in trade magazines highlighting
the Torsen Differential (e.g., Popular Science, Auto Week, Motor
Trend, Off-Road, and Four Wheeler).
. Designed FasTrack_ vehicle prototype, (from concept to asssembly).
. Assisted in developing engineering and manufacturing procedures
for the Torsen Differential and for all of the Torvec prototypes.
. Instructed race teams on use of the Torsen Differential (Indy cars,
Formula 1, SCCA Trans-Am, IMSA, GTO, GTU, GT-1, NASCAR, truck
pullers and off-road racers).
. Has been trained for up-to-date manufacturing techniques such as
NWH, statistical process control and MRP II.
Mr. Gleasman has extensive technical and practical experience,
covering all aspect of the Company's products such as, promotion,
engineering and manufacturing.
3. SAMUEL M. BRONSKY - CHIEF FINANCIAL OFFICER
Owner of a Certified Public Accounting firm specializing in small
to medium-sized businesses. Services include audits, reviews,
compilations, and consulting services, including among other items,
business valuations, computer applications, assisting in debt
acquisition and consolidation, purchasing and selling of businesses
and related tax ramifications, and general business assistance for
clients. In addition, Mr. Bronsky has worked with various government
agencies in a variety of audit contexts, including sales tax audits,
IRS examinations. Mr. Bronsky is a member of the New York State
Society of CPAs and the American Institute of CPAs. He is a
director of the East Buffalo Credit Union and the Erie Community
College Foundation and is the treasurer of the East Buffalo Credit
Union. Mr. Bronsky is past treasurer and director of the Amherst
Chamber of Commerce.
(C) FAMILY RELATIONSHIPS
Vernon E. Gleasman is the father of James A. and Keith E. Gleasman. There
are no other family relationships between any directors or executive officers of
the Company, either by blood or by marriage.
(D) CERTAIN PROCEEDINGS INVOLVING STOCKHOLDERS
1. On August 29, 1997, McElroy Manufacturing, Inc. of Tulsa, Oklahoma,
and two of its employees (collectively "MMI"), initiated a lawsuit against
Vernon and Keith Gleasman in the United States District Court for the Northern
District of Oklahoma. The Company is not a party to this litigation. The
plaintiffs seek money damages against the Gleasmans in the amount of $750,000
representing amounts MMI allegedly contributed to the development of hydraulic
pump/motor prototypes and also allege that the two MMI employees should have
been named as co-inventors on three patents.
In responding to the MMI complaints, the Gleasmans requested dismissal
of the complaint on the grounds that the claims relate to an Agreement dated
October 10, 1991, entered into by MMI and the Gleasmans under which the parties
agreed to arbitrate "any controversy or claim arising out of or relating to this
Agreement." The Gleasmans also requested dismissal of the complaint on the
additional grounds that the two individuals were not co-inventors and, even if
they were, that pursuant to the Agreement the individuals and MMI assigned any
and all interest they may have had in such patents and prototypes to the
Gleasmans.
On February 6, 1998, the Court stayed all aspects of the litigation
pending arbitration in New York State. In the opinion of the Gleasmans, MMI's
claims are without merit.
As indicated above, the Company is not a party to this MMI litigation.
The litigation sets forth claims which do not effect the validity of the
patents, but could impact the Company's exclusive ownership of three patents
listed among the future products of the Company on Page 9 of this Registration
Statement, namely the Hydraulic Pump/Motor, CV-Joint, and Spherical Gearing
thus, enabling MMI to commercialize such patents. The claims are based upon the
allegations that (1) the products were not included within the Agreement between
the parties and therefore not assigned to the Gleasmans which fact is disputed
by the Gleasmans and is one of the subjects of the arbitration, and (2) the
plaintiffs are co-inventors of the invention with the Gleasmans, which
allegation is contrary to every fact known by the Gleasmans. In the opinion of
the Company, if the plaintiffs are successful, this will not effect the
development and marketing of the FasTracka. Two of the three products are not
used in the FasTrack. The third will be used by the Company, but a
non-exclusive interest in that product, which is all that the plaintiffs could
win, will not enable them to build the FasTrack which relies heavily on other
Company patents, particularly the steer-drive patents.
2. In 1993, James A. Gleasman, after a dramatic reduction in income,
suffered financial reverses and filed for protection under Chapter 11 of the
United States Bankruptcy Code in United States Bankruptcy Court for the Western
District of Texas. The reorganization was completed within 14 months and all
allowed claims were paid in full.
ITEM 6. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Pursuant to the terms of the Company's employment agreements with Messrs.
Herbert H. Dobbs, Lee E. Sawyer and Morton A. Polster (as more fully described
below), such persons shall assume the capacities of Chief Executive Officer,
President and Chief Operating Officer, and Secretary, Legal and Patent Counsel,
respectively, on the first day of the month in which the Company completes its
planned initial public offering of 1,500,000 shares of its Common Stock at
$5.00 per share. The following table sets forth the aggregate compensation
to be paid or accrued by the Company for services rendered in such capacities
during the twelve month period beginning on the first day of the month
following completion of such offering by Herbert H. Dobbs, Lee E. Sawyer and
Morton A. Polster (together, the "Named Executive Officers").
<TABLE>
LONG TERM
<CAPTION>
<CAPTION> COMPENSATION AWARDS
<C> <C> <C>NUMBER OF SHARES <C>
OF COMMON STOCK
ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL BONUS _________________ ____________
SALARY
POSITION
Herbert H. Dobbs $150,000 (1) $ -0- 100,000 (2) $0
Lee E. Sawyer $240,000 (1) $60,000 180,000 (2) $0
Morton A. Polster $150,000 (1) $ -0- 100,000 (2) $0
</TABLE>
(1) Prior to the date of this Registration Statement, the Company did not pay
cash compensation to the Company's Chief Executive Officer or to the Company's
other Named Executive Officers. The Named Executive Officers and the
consultants named below have performed services to the Company to date in
exchange for receipt of shares of Common Stock in the Company and in the case of
the Gleasmans, a cash reimbursement in the amount of $365,000 for expenses
incurred prior to the Company's formation with respect to the Company's
inventions and patent properties. See "Security Ownership of Management and
Certain Security Holders"; "Certain Transactions." It is not anticipated that
such personnel will receive additional shares for such past services. The
Company has executed employment agreements with its Named Executive Officers and
consulting agreements with its consultants, the salient terms and conditions of
which are described below. See "Employment Agreements;" "Consulting
Agreements."
(2) In 1998 380,000 stock options have been granted to the Named Executive
Officers in connection with their employment agreements exercisable in
cumulative increments at the rate of 20% annually.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information for the Named Executive
Officers with respect to the exercise of options to purchase Common Stock
during the fiscal year ended December 31, 1997 and the number and value of
securities underlying unexercised options held by the Named Executive Officers
as of April 15, 1998.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED VALUE APRIL 15, 1998 AT APRIL 15, 1998(1)
NAME ON EXECISE REALIZED EXERCISAB(2) UNEXERCISAB EXERCISAB UNEXERCISAB
Herbert H. Dobbs 0 0 20,000 80,000 $0 $0
Lee E. Sawyer 0 0 36,000 144,000 $0 $0
Morton A. Polster 0 0 20,000 80,000 $0 $0
(1) Calculated on the basis of the planned initial public offering price of the
the Common Stock of $5.00 per share, minus the per share exercise price
multiplied by the number of shares underlying the option.
(2) At December 31, 1997 the options indicated as exercisable were included
in the unexercisable column.
EMPLOYMENT AGREEMENTS
On February 6, 1998, the Company entered into a 3 year employment agreement
with Herbert H. Dobbs, commencing on the first day of the month in which the
Company receives the proceeds from the completion of its planned initial public
offering of up to 1,500,000 shares at $5.00 per share, under which he is
obligated to devote substantially all of his business and professional
time to the Company and its Plan of Operation in the capacity as Chairman
and Chief Executive Officer of the Company. Under such agreement,
Herbert H. Dobbs is entitled to receive a salary of $150,000 during the
first year of the agreement, $150,000 during the second year and $150,000
during the last year. He is also entitled to certain employee benefits
normally associated with employment such as vacation, health and disability
insurance and was granted an option to purchase 100,000 shares of the
Company's Common Stock pursuant to the Company's 1998 Stock Option Plan
conditioned upon shareholder approval of the 1998 Stock Option Plan. The
agreement is automatically renewable for an additional 3 years and may be
terminated earlier by the employee upon 12 months notice or by the Company upon
payment of a severence of 12 months base pay, except if the termination is for
cause.
On February 6, 1998, the Company entered into a 3 year employment agreement
with Lee E. Sawyer, commencing on the first day of the month in which the
Company receives the proceeds from the completion of its planned initial public
offering of up to 1,500,000 shares at $5.00 per share, under which he
is obligated to devote substantially all of his business and professional
time to the Company and its Plan of Operation in the capacity as President
and Chief Operating Officer of the Company. Under such agreement,
Mr. Sawyer is entitled to receive a salary of $240,000 during the
first year of the agreement, $252,000 during the second year and $264,000
during the last year and a minimum bonus of $15,000 per quarter during
the agreement's term, with bonus increases determined by the Board of
Directors depending upon such factors as performance, profitability and
the financial condition of the Company. He is also entitled to certain employee
benefits normally associated with employment such as vacation, health and
disability insurance and was granted an option to purchase 180,000 shares of the
Company's Common Stock pursuant to the Company's 1998 Stock Option Plan
conditioned upon shareholder approval of the 1998 Stock Option Plan. The
agreement is automatically renewable for an additional 3 years and may be
terminated earlier by the employee upon 12 months notice or by the Company upon
payment of a severence of 12 months base pay and minimum bonus, except if the
termination is for cause.
On February 6, 1998, the Company entered into a 3 year employment agreement
with Morton A. Polster, commencing on the first day of the month in which
the Company receives the proceeds from the completion of its planned initial
public offering of up to 1,500,000 shares at $5.00 per share, under which he
is obligated to devote substantially all of his business and professional
time to the Company and its Plan of Operation in the capacity as Secretary
and Legal and Patent Counsel of the Company. Under such agreement,
Mr. Polster is entitled to receive a salary of $150,000 during the first
year of the agreement, $150,000 during the second year and $150,000 during
the last year. He is also entitled to certain employee benefits normally
associated with employment such as vacation, health and disability insurance
and was granted an option to purchase 100,000 shares of the Company's
Common Stock pursuant to the Company's 1998 Stock Option Plan
conditioned upon shareholder approval of the 1998 Stock Option Plan. The
agreement is automatically renewable for an additional 3 years and may be
terminated earlier by the employee upon 12 months notice or by the Company upon
payment of a severence of 12 months base pay, except if the termination is for
cause.
CONSULTING AGREEMENTS
On December 1, 1997, the Company entered into a 3 year consulting
agreement with Vernon E. Gleasman, under which he is obligated to devote
substantially all of his business and professional time to the Company and its
Plan of Operation in the capacity of Consultant to the Company. Under such
agreement, Mr. Vernon Gleasman shall receive an annual consulting fee of
$150,000 and was granted an option to purchase 25,000 shares of the Company's
Common Stock pursuant to the Company's 1998 Stock Option Plan conditioned upon
shareholder approval of the 1998 Stock Option Plan.
On December 1, 1997, the Company entered into a 3 year consulting
agreement with James A. Gleasman, under which he is obligated to devote
substantially all of his business and professional time to the Company and its
Plan of Operation in the capacity of Consultant to the Company. Under such
agreement, Mr. James A. Gleasman shall receive an annual consulting fee of
$150,000 and was granted an option to purchase 25,000 shares of the Company's
Common Stock pursuant to the Company's 1998 Stock Option Plan conditioned upon
shareholder approval of the 1998 Stock Option Plan.
On December 1, 1997, the Company entered into a 3 year consulting
agreement with Keith E. Gleasman, under which he is obligated to devote
substantially all of his business and professional time to the Company and its
Plan of Operation in the capacity of Consultant to the Company. Under such
agreement, Mr. Keith E. Gleasman shall receive an annual consulting fee of
$150,000 and was granted an option to purchase 25,000 shares of the Company's
Common Stock pursuant to the Company's 1998 Stock Option Plan conditioned upon
shareholder approval of the 1998 Stock Option Plan.
Each of the employment agreements and each of the consulting agreements
contain customary covenants prohibiting the employee or the consultant, as the
case may be, from disclosure of confidential information regarding the Company,
its inventions and its products, and provisions confirming that all inventions
conceived, made or developed by the employee or the consultant, as the case may
be, and relating to the business of the Company constitutes the sole property of
the Company. Each of the consulting agreements contains covenants restricting
the consultant from engaging in any activities competitive with the business of
the Company during the terms of such agreements and for a period of two years
after termination. Each of the consulting agreements also contain a provision
that the benefits provided thereunder continue even if the consultant were to
become unable to perform services for the Company during its term.
1998 STOCK OPTION PLAN
On December 1, 1997, the Company's Board of Directors adopted the Company's
1998 Stock Option Plan pursuant to which officers, directors, key employees
and/or consultants of the Company may be granted incentive stock options and/or
non-qualified stock options to purchase up to an aggregate of 2,000,000 shares
of the Company's Common Stock. The Company intends to submit its 1998 Stock
Option Plan to existing shareholders prior to the effective date of this
Registration Statement.
With respect to incentive stock options, the Plan provides that the
exercise price of each such option must be at least equal to 100% of the fair
market value of the Common Stock on the date that such option is granted (110%
of fair market value in the case of shareholders who, at the time the option is
granted, own more than 10% of the total outstanding Common Stock), and requires
that all such options have an expiration date not later than the date which is
one day before the tenth anniversary of the date of the grant of such options
(or the fifth anniversary of the date of grant in the case of 10% shareholders).
However, in the event that the option holder ceases to be an employee of the
Company, such option holder's incentive options immediately terminate. Pursuant
to the provisions of the Plan, the aggregate fair market value, determined as of
the date(s) of grant, for which incentive stock options are first exercisable by
an option holder during any one calendar year cannot exceed $100,000.
With respect to non-qualified stock options, the Plan permits the exercise
price to be less than the fair market value of the Common Stock on the date the
option is granted and permits Board discretion with respect to the establishment
of the terms of such options. Unless the Board otherwise determines, in the
event that the option holder ceases to be an employee of the Company, such
option holder's non-qualified options immediately terminate.
In connection with their employment agreements, the Company's Board of
Directors granted stock options under the 1998 Stock Option Plan to the
Company's Named Executive Officers entitling them to purchase an aggregate of
380,000 shares of Common Stock, all of which provide for an exercise price of
$5.00 per share, are exercisable on a cumulative basis at the rate of 20% per
year beginning on January 1, 1998 and provide that the right to exercise the
option in accordance with its terms shall survive the executive's termination of
employment. Each option expires on December 31, 2007 and is conditioned upon
shareholder approval of the Plan. In connection with their consulting
agreements, the Board of Directors granted stock options under the 1998 Stock
Option Plan to the Company's consultants entitling them to purchase an aggregate
of 75,000 shares of Common Stock, all of which provide for an exercise price of
$5.00 per share, are exercisable on a cumulative basis at the rate of 20% per
year beginning on December 1, 1997 and provide that the right to exercise the
option in accordance with its terms shall survive the consultant's termination
of services. Each option expires on November 30, 2007 and is conditioned upon
shareholder approval of the Plan.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN TRANSACTIONS
As stated elsewhere in this Registration Statement, during the ten plus
years prior to the incorporation of the Company, Vernon E., Keith E. and James
A. Gleasman invented and patented numerous improvements relating to drive
mechanisms for tracked vehicles, transmissions, hydraulic pumps/motors, a unique
form of gearing, universal joints, and constant velocity joints as disclosed in
such patents. Upon the Company's incorporation, the Gleasmans assigned all
their right, title and interest to and in such inventions and patents to the
Company in exchange for the issuance of 16,464,400 shares of the Company's
Common Stock and the agreement of the Company to pay the Gleasmans the sum of
$365,000 for expenditures in the development of these inventions and products,
the Gleasmans having agreed to waive and release the Company from payment of any
other expenses that they incurred in the development of these inventions and
products. The Board of Directors of the Company concluded that the value of
the inventions, patents and patent applications assigned to the Company, as well
as the value of the services rendered, had a value in excess of the par value of
the number of shares transferred to the assignors and service providers,
respectively. Shares issued are fully paid and nonassessable.
Mr. Morton A. Polster, a director of the Company and its Secretary, has
been Patent Counsel to the Gleasman family since 1989 and has been in charge of
the preparation and execution of the Gleasmans' and now the Company's U.S. and
international patent protection. Mr. Polster received 291,600 shares of the
Company's Common Stock at the inception of the Company.
See Page 13 of this Registration Statement for a discussion of the
lease/service contract entered into between the Company and Joseph L. Neri, Sr.,
who owns 95,000 shares of the Common Stock of the Company.
On February 11, 1997, the Company entered into a consulting agreement to
retain LT Lawrence & Co., Inc. on a nonexclusive basis as a financial consultant
for a period of three years. Under the agreement, the consultant will assist
the Company in developing, studying and evaluating financing, merger and
acquisition proposals, assist the Company in obtaining short and long-term
financing and serve as a liaison between the Company and individuals and
financial institutions in the investment community, such as security analysts,
portfolio managers and market makers. As compensation, the Company issued an
aggregate 1,000,000 shares of its Common Stock to the consultant's principals
and granted the same persons 500,000 Consulting Warrants exercisable for a
period of 5 years, commencing upon the consummation of this Offering, at an
exercise price equal to the initial public offering price. If 50% or more of
the Company's assets or Common Stock is acquired by a third party during the 5
year Consulting Warrant term, the exercise price shall be $1.50. In the event
that the Representative originates an acquisition or merger transaction to which
the Company is a party, LT Lawrence & Co., Inc. will also be entitled to receive
a finder's fee in consideration for origination of such transaction.
The Company has agreed to register, at the request of the holders of a
majority of the 1,000,000 shares and/or the 500,000 Consulting Warrants and at
Company expense, the shares and/or the shares of Common Stock underlying the
Consulting Warrants under the Securities Act on one occasion during the
Consulting Warrant term and to include such underlying shares in any
registration statement that is filed by the Company during the Consulting
Warrant term and for two years after its expiration.
Each of consultant's principals have agreed not to offer, sell, assign,
pledge or transfer any of such shares of Common Stock or the shares of Common
Stock underlying the Consulting Warrants for a period of 12 months from the date
of this Registration Statement.
Certain officers, directors and consultants may engage in transactions with
the Company in the ordinary course of the business of the Company. It is
expected that the terms and conditions of such transactions will be
substantially the same as similar transactions with unrelated parties.
Other than as described herein, and other than as described in Part I, Item
6, there have been no material transactions, series of similar transactions or
currently proposed transactions to which the Company was or is a party, in which
the amount invested exceeds $60,000 and in which any director or executive
officer, or any security holder who is known to the Company to own of record or
beneficially more than five percent of the Company's Common Stock, or any
member of the immediate family of any of the foregoing persons, had a material
interest.
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
The Company is authorized to issue 40,000,000 shares of Common Stock, $.01
par value per share, of which 20,673,496 shares are currently issued and
outstanding. Once issued for consideration, the shares of Common Stock are not
subject to assessment or call. The following summary description of the Common
Stock is qualified in its entirety by reference to the Company's Certificate of
Incorporation, as amended, a copy of which is included as an exhibit to the
Company's Registration Statement.
The holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting with respect to the election of directors, which means that
the holders of more than 50% of the outstanding shares of Common Stock can elect
all of the Company's directors if they choose to do so and, in such event, the
holders of the remaining shares would not be able to elect any directors.
Holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor and,
in the event of the liquidation, dissolution or winding up of the Company, are
entitled to share ratably in all assets remaining after payment of all
liabilities. Holders of the Common Stock do not have subscription, redemption
or conversion rights, nor do they have any preemptive rights. In the event the
Company were to elect to sell additional shares of its Common Stock following
this Offering, investors in this Offering would have no right to purchase such
additional shares. As a result, their percentage equity interest in the Company
would be diluted. All of the outstanding shares of Common Stock are, and the
shares to be outstanding upon completion of this Offering will be, duly
authorized, validly issued, fully paid and nonassessable. The Board of
Directors is authorized to issue additional shares of Common Stock, not to
exceed the amount authorized by the Company's Certificate of Incorporation as
amended from time to time, and to issue options and warrants for the purchase of
such Common Stock, on such terms and conditions and for such consideration as
the Board of Directors may deem appropriate without further stockholder action.
OUTSTANDING WARRANTS
The Company has outstanding Consulting Warrants granting the holders the
right to purchase up to an aggregate of 500,000 shares of Common Stock at a
purchase price equal to the initial public offering price per share. The
Consulting Warrants may be exercised on the date the Registration Statement
filed with the Commission of which this Registration Statement is a part is
declared effective by the Commission and shall expire five years thereafter.
The Consulting Warrant holders are entitled to one demand and unlimited
piggyback registration rights with respect to the underlying shares. See
"Certain Transactions."
SHARES ELIGIBLE FOR FUTURE SALE
As of the effective date of the Registration Statement, the Company will
have issued and outstanding 20,673,496 shares of Common Stock. Of such shares,
all 20,673,496 shares of Common Stock are restricted securities within the
meaning of Rule 144 under the Securities Act and, in general, if held for at
least one year, will be eligible for sale in the public market in reliance upon
and subject to the limitations of Rule 144.
In general under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
affiliate of the Company as that term is defined under the Securities Act, is
entitled to sell, within any three-month period, a number of shares beneficially
owned for at least one year that does not exceed the greater of (i) one percent
of the number of the then outstanding shares of Common Stock or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. Furthermore, a person who is not deemed
to have been an affiliate of the Company during the ninety days preceding a sale
by such person and who has beneficially owned such shares for at least two years
is entitled to sell such shares without regard to the volume, manner of sale,
public information or notice requirements. Under Rule 144 (and subject to the
conditions thereof), of the 20,673,496 shares of Common Stock outstanding as of
the date of this Registration Statement, 20,453,594 will become eligible for
sale beginning 90 days after the date of this Registration Statement and
substantially all of the remaining 219,902 shares will become eligible for sale
as of January 30, 1999. In addition, the Company has granted certain
registration rights with respect to 1,000,000 shares of Common Stock issued to
certain principals of the LT Lawrence & Co., Inc. and with respect to the
500,000 shares of Common Stock underlying the Representative's Warrants and the
Consulting Warrants, respectively. See "Certain Transactions."
There has been no public market for the Company's securities. The Company
cannot predict the effect, if any, that market sales of the Common Stock, or the
availability of such shares for sale, will have on the market price prevailing
from time to time. Nevertheless, sales by the existing stockholders of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices for the Company's securities. In addition, the
availability for sale of substantial amounts of Common Stock acquired through
the exercise of options or warrants could adversely affect prevailing market
prices for the Common Stock.
No prediction can be made as to the effect, if any, that sales of Common
Stock and of Common Stock underlying outstanding options or warrants or the
availability of such shares for sale in the public market will have on the
market price for the Common Stock prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market and/or upon
the exercise of outstanding options and warrants after the restrictions
described above lapse, or in the case of LT Lawrence & Co., Inc. after the
exercise of its registration rights, could adversely effect prevailing market
prices for the Common Stock and impair the ability of the Company to raise
capital through an offering of its equity securities in the future.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
(A) MARKET INFORMATION
Since the Company's incorporation in September, 1996, there has been no
public market for the Company's Common Stock. The Company anticipates that upon
the effectiveness of this Registration Statement, it will apply to have its
Common Stock traded on the "Electronic Bulletin Board" of the National
Association of Securities Dealers, Inc. ("NASD") and it is anticipated that upon
such event, high and low bid and asked prices for the Company's Common Stock as
reported by NASD will become available.
(B) HOLDERS
As of April 15, 1998, the Company had 113 shareholders of record.
(C) DIVIDEND POLICY
The Company has not paid any dividends to its shareholders since its
inception. The declaration or payment of dividends, if any, to its shareholders
is within the discretion of the Board of Directors of the Company and will
depend upon the Company's earnings, capital requirements, financial condition
and other relevant factors. The Board of Directors does not currently intend to
declare or pay any dividends in the foreseeable future and intends to retain any
earnings to finance the growth of the Company.
(D) REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other periodic reports as the
Company may determine to be appropriate or as may be required by law. Upon the
effectiveness of this Registration Statement, the Company will be required to
comply with periodic reporting, proxy solicitation and certain other
requirements of the Securities Exchange Act of 1934.
(E) TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company has been appointed as the
Company's Transfer Agent and Registrar for its Common Stock.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any pending , material legal proceeding. To
the knowledge of management, no federal, state or local governmental agency is
presently contemplating any proceeding against the Company. See "Management-
Certain Proceedings Involving Consultants."
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None, not applicable
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following table provides information with respect to the sale of all
"unregistered" and "restricted" securities sold by the Company since its
incorporation in September, 1996, which were not registered under the Securities
Act of 1933, as amended:
<TABLE>
<C> <C>DATE OF <C>NO. <C>AMOUNT PAID
NAME OF STOCKHOLDER SALE SHARES
Gleasman, Keith E. 9-27-96 1.0 Founder's Shares
Gleasman, Vernon E. 9-27-96 5,488,133.0 Founder's Shares
Gleasman, Keith E. 9-27-96 5,488,133.0 Founder's Shares
Gleasman, James A. 9-27-96 5,488,133.0 Founder's Shares
Vogt, James M. 9-27-96 380,000.0 60,845.00
Polster, Morton A. 9-27-96 291,600.0 46,691.00
Oppenheimer, Robert 9-27-96 95,000.0 15,211.00
Jackson Investment 9-27-96 190,000.0 30,423.00
Sawyer, Lee 9-27-96 285,000.0 45,634.00
Cleaver, Derek 9-27-96 285,000.0 45,634.00
Martindale, Michael 9-27-96 190,000.0 30,423.00
Gleasman, David 9-27-96 95,000.0 15,211.00
Smith, Tim 9-27-96 47,500.0 7,607.00
McCracken, Peter 9-27-96 47,500.0 7,607.00
Neri, Joseph 9-27-96 95,000.0 15,211.00
Neri, Gerard J. 9-27-96 154,000.0 24,658.00
Dobbs, Herbert 9-27-96 380,000.0 60,845.00
Post, John A. II 1-7-97 3,000.0 4,500.00
Kettle, John 1-7-97 2,000.0 3,500.00
Testa, David R. 1-7-97 4,000.0 6,000.00
Jordan, William E. 1-7-97 10,000.0 15,000.00
and Janis
Bauer, Gerard R. 1-7-97 2,800.0 4,200.00
and Barbara
Post, Jack E. 1-7-97 10,000.0 15,000.00
Resch, David P. 1-7-97 13,000.0 19,500.00
Lawson, Alfred C. 1-7-97 6,000.0 9,000.00
and Audrey
Gale, Diane L. 1-7-97 10,000.0 15,000.00
Bonn, Kenneth Sr. 1-7-97 5,000.0 7,500.00
Liberty Systems 1-7-97 5,000.0 7,500.00
Warner, Greg 1-7-97 20,000.0 30,000.00
Husser, John D. 1-7-97 5,000.0 7,500.00
Bauer, Kimberly A. 1-7-97 2,000.0 3,000.00
Tallo, Gerard A. 1-7-97 4,500.0 6,750.00
and Sandra
Woodworth, Richard L. 1-7-97 3,334.0 5,001.00
and Essie M.
Cook, Clark 1-7-97 66,660.0 100,000.00
Brenner, Lloyd M. 1-7-97 3,333.3 5,000.00
and Wyllo
Miller, Gregory 1-7-97 2,500.0 3,750.00
and Mary Ann
Ellison, Deborah M. 1-7-97 3,333.0 5,000.00
Millet, Carol S. 1-7-97 1,000.0 1,500.00
Millet, David J. 1-7-97 7,000.0 10,500.00
Maker, Christine M. 1-7-97 2,000.0 3,000.00
Hampton, William R. 1-7-97 6,666.0 10,000.00
and Shirley
DeManincor, Daniel 1-7-97 6,667.0 10,000.00
and Donna
Visconte, Joseph J. 1-7-97 9,334.0 14,001.00
and Diane M.
Visconte, Joseph D. 1-7-97 6,667.0 10,000.00
and Irene M.
</TABLE>
<TABLE>
<C> <C>DATE OF SALE <C>NO. SHARES <C>AMOUNT PAID
NAME OF STOCKHOLDER
Lyles, James and Nancy 2-5-97 5,000.0 7,500.00
Webster, Odgen H. 2-5-97 6,667.0 10,000.50
Gysel, Charles P. and Jeri 2-5-97 3,333.3 5,000.00
Dailey, Kenneth P. and Marcia 2-5-97 6,666.0 10,000.00
Radford, Gary 2-5-97 4,000.0 6,000.00
Schmidt, Stephen and Patricia 2-5-97 4,600.0 6,900.00
Case, Theodore D. 2-5-97 4,000.0 6,000.00
Mihevc, Mayda 2-5-97 10,000.0 15,000.00
Hanson, James R. and Portia P. 2-5-97 10,000.0 15,000.00
Williams, Fred 2-5-97 2,000.0 3,000.00
Miller, Michael T. 2-5-97 2,000.0 3,000.00
Galusha, Gloria 2-5-97 5,000.0 7,500.00
Weinstein, Eugene A. 2-5-97 4,000.0 6,000.00
Nygard, Kirsten Erica 2-5-97 700.0 1,050.00
Hubbard, Gary A. 2-24-97 3,334.0 5,001.00
Schmidt, Stephen and Patricia 2-24-97 1,666.0 2,500.00
Schmidt, Pete W. and Lorraine J. 2-24-97 4,666.0 7,000.00
Gerace, Vincent J. 2-24-97 4,000.0 6,000.00
Warner, W. Greg 2-24-97 20,000.0 30,000.00
Warner, W. Greg 2-25-97 20,000.0 30,000.00
Sevene, Paul H. Jr. 2-25-97 1,334.0 2,001.00
and Dalessando Paul
Marvek Investments, Inc. 2-25-97 10,667.0 16,000.50
Principato, Lawrence 4-15-97 250,000.0 10.00
Roberti, Todd 4-15-97 250,000.0 10.00
Paone, Richard J. 4-15-97 250,000.0 10.00
Gold, Joel 4-15-97 125,000.0 10.00
Toto, James 4-15-97 125,000.0 10.00
Resch, David P. 6-1-97 15,000.0 22,500.00
Marvek Investments 6-1-97 15,000.0 22,500.00
Post, Jack E. 6-1-97 5,000.0 15,000.00
Lawson, Alfred C. and Audrey F. 6-1-97 2,500.0 7,500.00
Canan, Patricia L. 6-1-97 2,500.0 7,500.00
Martin, Henry A. and Annabelle V. 6-1-97 2,000.0 6,000.00
Polster, Keith A. and Theresa 6-1-97 16,000.0 48,000.00
Polster, Evan D. 6-1-97 2,000.0 6,000.00
Polster, Mark S. 6-1-97 1,000.0 3,000.00
Runberg, Jon E. 6-1-97 500.0 1,500.00
Sharpe, Joanne L. 6-1-97 500.0 1,500.00
Sharpe, Larissa M. 6-1-97 500.0 1,500.00
Hampton, William R. and Shirley 6-1-97 1,667.0 5,000.00
Martindale, Michael and Dorothy 6-1-97 16,000.0 48,000.00
Miller, Michael T. and 6-1-97 1,000.0 3,000.00
Elizabeth J.
Stendardo, Joseph G. and Ellicot, 6-1-97 3,500.0 10,500.00
Laurie B.
Cook, Clark W. 6-1-97 1,000.0 3,000.00
</TABLE>
<TABLE>
<C> <C>DATE OF SALE <C>NO. SHARES <C>AMOUNT PAID
NAME OF STOCKHOLDER
Ramsey, Christine E. 6-1-97 1,000.0 3,000.00
Ramsey, Donald W. and Suzanne M. 6-1-97 1,000.0 3,000.00
Miller, Gregory J. and Mary Ann 6-1-97 1,000.0 3,000.00
Weinstein, Eugene 6-1-97 2,000.0 6,000.00
Post, John A. 6-1-97 2,500.0 7,500.00
Radford, G. Gary and Patricia M. 6-1-97 1,000.0 3,000.00
(Living Trust)
Millet, David J. 6-1-97 3,000.0 9,000.00
Runberg, Jon and Janet 6-1-97 1,000.0 3,000.00
Maker, Christine 6-1-97 1,000.0 3,000.00
Siconolfi, Samuel A. and Mary 7-25-97 1,667.0 5,001.00
Siconolfi, Gary A. 7-25-97 6,667.0 20,000.00
Flammia, James M. Sr. 7-25-97 1,667.0 5,001.00
Lunn, Robert J. and Paul L. 7-25-97 1,667.0 5,001.00
Alberti, Joseph 7-25-97 1,667.0 5,001.00
Gabel, Donald W. and Dora N. 7-25-97 5,000.0 7,500.00
R.L.T. Associates, Inc. 7-25-97 5,000.0 7,500.00
Elting, Arthur S. and Marilyn M. 7-25-97 1,000.0 3,000.00
Dreyer, Charles 7-25-97 1,000.0 3,000.00
Pastore, Carl P. 7-25-97 1,000.0 3,000.00
Dickinson, Jerry B. 7-25-97 1,000.0 3,000.00
Bradia, David Jr 8-1-97 12,000.0 36,000.00
Toscano, Joseph 9-1-97 1,667.0 5,001.00
Ray, Larry G. and Rebecca M. 9-1-97 2,000.0 6,000.00
Rogers, Mark 9-1-97 1,500.0 4,500.00
Abelove, David 9-1-97 20,000.0 60,000.00
Hopson, Bradford J. 9-1-97 1,700.0 5,100.00
Giosio, Angelo 9-1-97 1,700.0 5,100.00
Howard Norvasel Trust 9-1-97 20,000.0 60,000.00
MLPF&S f/b/o M. Mihevc 9-1-97 10,000.0 30,000.00
Richter, Douglas C. and Jean S. 10-1-97 2,000.0 6,000.00
Miller, Russell S. 10-1-97 2,000.0 6,000.00
Whitehead, James A. and Susan S 10-1-97 1,000.0 3,000.00
Gleasman, Jason 10-1-97 500.0 1,500.00
Gleasman, Patricia 10-1-97 500.0 1,500.00
Gleasman, Howard and Patricia 10-1-97 1,000.0 3,000.00
Kane, Clifford and Jill 10-1-97 2,000.0 3,000.00
Paul, James R. 10-5-97 1,000.0 3,000.00
Dolan, Brendan 10-5-97 1,000.0 3,000.00
Bunner, Robert B. IRA 12-30-97 10,000.0 30,000.00
Horton, Robert C. 12-30-97 100,000.0 300,000.00
Bronsky,Samuel M. 3-13-98 1,000.0 3,000.00
</TABLE>
Management believes all of the foregoing persons were either "accredited
investors" as that term is defined under applicable federal and state securities
laws, rules and regulations, or were persons who were by virtue of background,
education and experience, either alone or through the aid and assistance of a
personal representative, could accurately evaluate the risks and merits
accordant to an investment of the securities of the Company. Further, all such
persons were provided with access to all material information regarding the
Company, prior to the offer or sale of these securities, and each had an
opportunity to ask of and receive answers from directors, executive officers,
attorneys and accountants for the Company. The offers and sales of the
foregoing securities are believed to be exempt from the registration
requirements of Section 5 of the 1933 Act pursuant to Section 4(2) thereof, and
pursuant to and in accordance with Regulation D, Rule 505 promulgated
thereunder, and from similar states' securities laws, rules and regulations
requiring the offer and sale of securities by available state exemptions from
such registration.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Company provides for elimination or
limitation of personal liability of directors to the Company or its shareholders
for money damages for conduct as a director, except that in accordance with
New York law, a director's liability cannot be eliminated or limited for conduct
which constitutes a breach of the director's duty of loyalty to the Company or
its shareholders, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, or for any unlawful
distribution or transaction involving improper personal benefit.
The Certificate of Incorporation of the Company further provides for
indemnification of officers and directors for expenses incurred in connection
with any proceeding to which a person is made a party by reason of the fact that
the person was serving as an officer or director of the Company or any of its
subsidiaries, or of any other entity at the request of the Company, provided
that such person acted in good faith, did not engage in intentional misconduct,
and, with respect to any criminal action, did not know the conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
PART F/S
<TABLE>
<CAPTION>I
Index to Financial Statements
Page
----
<S>Independent Auditors' Report <C>F-2
Financial Statements
Balance sheet as of December 31, 1997 F-3
Statements of operations for the year ended F-4
December 31, 1997 and for the periods from
September 25, 1996 (inception) through December
31, 1996 and September 25, 1996 (inception)
through December 31, 1997
Statements of changes in stockholders' equity for F-5
the year ended December 31, 1997 and for the
period from September 25, 1996 (inception)
through December 31, 1996
Statements of cash flows for the year ended F-6
December 31, 1997 and for the periods from
September 25, 1996 (inception) through December
31, 1996 and September 25, 1996 (inception)
through December 31, 1997
Notes to financial statements F-7
</TABLE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Torvec, Inc.
We have audited the accompanying balance sheet of Torvec, Inc., (a
development stage company), as of December 31, 1997, and the related
statements of operations and cash flows for the year ended
December 31, 1997 and for the periods from September 25, 1996
(inception) through December 31, 1996 and September 25, 1996
(inception) through December 31, 1997 and changes in stockholders'
equity for the year ended December 31, 1997 and the period from
September 25, 1996 (inception) through December 31, 1996. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the financial position of Torvec,
Inc. as of December 31, 1997 and the results of its operations and its
cash flows for the year ended December 31, 1997 and for the periods
from September 25, 1996 through December 31, 1996 and from
September 25, 1996 through December 31, 1997 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note A
to the financial statements, the Company has incurred net losses and
is not generating cash flows from operating activities to sustain its
operations which raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these
matters are described in Note A. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
As described in Note G(3), the principal stockholders are involved in
an arbitration proceeding relating to certain technology which they
contributed to the Company at its formation.
/S RICHARD A. EISNER & COMPANY, LLP
------------------------------------
Richard A. Eisner & Company, LLP
New York, New York
March 4, 1998
TORVEC, INC.
(a development stage company)
<TABLE>
<CAPTION>
Balance Sheet
December 31, 1997
<S>ASSETS <C>
Current assets:
Cash $147,000
Other current assets (Note G(1)) 53,000
Subscriptions receivable (Note F(4)) 180,000
--------
Total current assets 380,000
--------
Equipment (Note B(1)):
Office equipment 5,000
Transportation equipment 24,000
--------
29,000
Less accumulated depreciation (3,000)
--------
Net equipment 26,000
--------
Other Assets:
Deposits (Note G(1)) 111,000
Deferred offering costs (Note F(3)) 60,000
--------
171,000
--------
$577,000
========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses (Note E) $73,000
-------
Commitments and other matter (Note G)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 40,000,000 shares
authorized, 20,672,496 issued and
outstanding 207,000
Additional paid-in capital 2,991,000
Unearned compensatory stock options (1,283,000)
Deficit accumulated during the development stage (1,411,000)
----------
Total stockholders' equity 504,000
----------
$577,000
==========
</TABLE>
See notes to financial statements
TORVEC, INC.
(a development stage company)
<TABLE>
<CAPTION>
Statements of Operations
<S> <C> <C>September <C>September
25, 1996 25, 1996
(Inception) (Inception)
Year Ended Through Through
December December December
31, 1997 31, 1996 31, 1997
Cost and expenses:
Research and development $201,000 $22,000 $223,000
General and administrative 721,000 467,000 1,188,000
Net loss $(922,000) $(489,000) $(1,411,000)
Basic and diluted loss per $(0.05) $(0.03)
common share
Weighted average number of
shares of common
stock - basic and diluted 20,320,000 18,668,000
(Note B(4))
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>Deficit <C>
Unearned Accumulated
Additional Compensatory During the Total
Common Stock Paid-in Stock and Development Stockholders'
Shares Amount Capital Options Stage Equity
Issuance of shares
to founders 16,464,400 $165,000 $(165,000) $0
Issuance of stock
for services 2,535,600 25,000 381,000 406,000
Sale of common stock - 64,600 1,000 96,000 97,000
November
($1.50 per share)
Sale of common stock - 156,201 1,000 233,000 234,000
December
($1.50 per share)
Distribution to founders (27,000) (27,000)
(Note A)
Net loss $(489,000) (489,000)
--------- --------
Balance - December 31, 1996 19,220,801 192,000 518,000 (489,000) 221,000
Issuance of compensatory stock 1,000,000 10,000 1,490,000 $(1,500,000 0
(Note C(1)) )
Issuance of stock for services 12,000 18,000 18,000
Sale of common stock - January 58,266 1,000 86,000 87,000
($1.50 per share)
Sale of common stock - February 75,361 1,000 112,000 113,000
($1.50 per share)
Sale of common stock - May 30,000 45,000 45,000
($1.50 per share)
Issuance of stock for services 2,000 6,000 6,000
Sale of common stock - June 73,166 1,000 219,000 220,000
($3.00 per share)
Sale of common stock - July 13,335 40,000 40,000
($3.00 per share)
Sale of common stock - August 60,567 1,000 181,000 182,000
($3.00 per share)
Sale of common stock -September 10,000 30,000 30,000
($3.00 per share)
Sale of common stock - October 7,000 21,000 21,000
($3.00 per share)
Sale of common stock - November 10,000 30,000 30,000
($3.00 per share)
Sale of common stock - December 100,000 1,000 299,000 300,000
($3.00 per share)
Issuance of compensatory 234,000 (234,000) 0
options to consultants (Note F(2))
Compensatory stock and options 451,000 451,000
earned
Distributions to founders (338,000) (338,000)
(Note A)
Net loss (922,000) (922,000)
-------- --------
Balance - December 31, 1997 20,672,496 $207,000 $2,991,000 $(1,283,000) $(1,411,000) $504,000
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows
TORVEC, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1997
<S> <C> <C>September <C>September
25, 1996 25, 1996
(Inception) (Inception)
Year Ended Through Through
December 31, December 31, December 31,
1997 1996 1997
Cash flows from operating
activities:
Net loss $(922,000) $(489,000) $(1,411,000)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Depreciation and amortization 3,000 3,000
Common stock issued for services 406,000 406,000
Contribution of services 24,000 24,000
Compensation expense attributable
to common
stock options 451,000 451,000
Changes in:
Other assets (164,000) (164,000)
Accounts payable and accrued 59,000 59,000
expenses
Net cash used in operating (549,000) (83,000) (632,000)
activities -------- ------- --------
Cash flows from investing
activities:
Purchase of equipment (29,000) (29,000)
------- -------
Cash flows from financing
activities:
Net proceeds from sales of common 888,000 331,000 1,219,000
stock
Distributions (338,000) (27,000) (365,000)
Offering cost expenditures (46,000) (46,000)
------- -------
Net cash provided by financing 504,000 304,000 808,000
activities
Net increase (decrease) in cash (74,000) 221,000 147,000
Cash at beginning of period 221,000
Cash at end of period $147,000 $221,000 $147,000
Supplemental disclosure of noncash
investing and
financing activities:
Accrued offering costs $14,000 $14,000
</TABLE>
TORVEC, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1997
NOTE A - THE COMPANY
TORVEC, INC. (THE "COMPANY") WAS INCORPORATED IN NEW YORK ON
SEPTEMBER 25, 1996. THE COMPANY WHICH IS IN THE DEVELOPMENT STAGE,
SPECIALIZES IN AUTOMOTIVE TECHNOLOGY. IN SEPTEMBER 1996, THE COMPANY
ACQUIRED NUMEROUS PATENTS, INVENTIONS AND KNOW-HOW (THE "TECHNOLOGY")
CONTRIBUTED BY VERNON E. GLEASMAN AND MEMBERS OF HIS FAMILY (THE
"GLEASMANS") (SEE NOTE G(3)). THE COMPANY INTENDS TO DEVELOP AND
DESIGN SPECIFIC APPLICATIONS FOR THIS TECHNOLOGY RELATING TO STEERING
DRIVES FOR TRACKER VEHICLES, INFINITELY VARIABLE TRANSMISSIONS,
HYDRAULIC PUMPS AND MOTORS AND CONSTANT VELOCITY JOINTS AND SPHERICAL
GEARINGS. AS CONSIDERATION FOR THIS CONTRIBUTED TECHNOLOGY, THE
COMPANY ISSUED 16,464,400 SHARES OF COMMON STOCK AND $365,000 TO THE
GLEASMANS. IN SEPTEMBER 1996, THE COMPANY ISSUED 2,535,600 SHARES OF
COMMON STOCK (VALUED AT $406,000) TO INDIVIDUALS AS CONSIDERATION FOR
THE COST OF SERVICES AND FACILITIES PROVIDED IN ASSISTING WITH THE
DEVELOPMENT OF THIS TECHNOLOGY.
For the period from inception through December 31, 1997, the Company
has accumulated a deficit of $1,411,000, and has been dependent upon
equity financing to meet its obligations and sustain operations.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. In order to continue its operations, the
Company is seeking additional financing by means of an offering of
securities (see Note F(3)). However, there is no assurance that the
Company will complete its proposed securities offering or that it can
obtain adequate additional financing from other sources or that
products will be developed which will be commercially successful, or
that profitable operations can be attained. The financial statements
do not include any adjustments relating to the recoverability or
classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary as a result of
the above uncertainty.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Equipment:
Equipment is stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets which range from five to seven
years.
(2) Research and development and patents:
Research and development costs and patent expenses are charged to
operations as incurred.
(3) Use of estimates:
TORVEC, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 1997
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.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(1) Loss per share of common stock:
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," in the year ended December 31,
1997 and has retroactively applied the effects thereof for all periods
presented. Accordingly, the presentation of per share information
includes calculations of basic and dilutive loss per share.
Additionally, pursuant to the Securities and Exchange Commission's
Staff Accounting Bulletin No. 98, issuances of common shares and
potential common shares issued for nominal consideration during the
periods covered by statements of operations that are included in the
registration statement and in subsequent filings with the SEC are
reflected in the computation of loss per share in a manner similar to
a stock split or stock dividend.
(2) Fair value of financial instruments:
The carrying value of cash and accrued expenses approximates their
fair value due to the short maturity of those instruments.
(3) Stock-based compensation:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") encourages, but does not
require, companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has elected to
account for its employee stock-based compensation plans using the
intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No.
25"). Under the provisions of APB No. 25, compensation cost for stock
options is measured as the excess, if any, of the quoted market price
of the Company's common stock at the date of the grant over the amount
an employee must pay to acquire the stock. Stock options granted to
nonemployees for goods or services are measured using the fair value
of these options and such costs are included in operating results as
an expense.
(4) Recently issued accounting pronouncements:
TORVEC, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1997
In June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure"; No. 130, "Reporting
Comprehensive Income" and No. 131, "Disclosures about Segments of an
Enterprise and Related Information". The Company has not yet
determined if the above pronouncements will have a significant effect
on the information presented in the financial statements.
NOTE C - RELATED PARTY TRANSACTIONS
(1) In February 1997, the Company entered into a three year consulting
agreement with LT Lawrence (the "Consultant") whereby the Consultant
will provide financial consulting services and assistance in obtaining
financing as well as other services. In consideration thereof,
members of the Consultant received an aggregate of 1,000,000 shares of
common stock for $50 and warrants to purchase an additional 500,000
shares of common stock (see Note F(1)). The Company valued the shares
of common stock at $1.50 per share.
TORVEC, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1997
NOTE C - RELATED PARTY TRANSACTIONS (CONTINUED)
(1) (continued)
In the event the Consultant provides the Company with interested
parties who effect debt or equity financing, the Agreement provides
for compensation based on a percentage of the consideration received
as defined in the Agreement.
(2) On December 1, 1997, the Company entered into three year
consulting agreements with three members of the Gleasman family
whereby each will provide technical services to the Company in
exchange for compensation of $12,500 each per month. In addition, the
Company granted them options to purchase a total of 75,000 shares of
common stock at an exercise price of $5.00 per share (Note F(2)). For
the year ended December 31, 1997, the Company incurred expenses
amounting to approximately $45,000 in connection with these
agreements. Prior to December 1997, one member of the Gleasman family
provided consulting services to the Company. Amounts charged to
operations for the year ended December 31, 1997 and for the period
ended December 31, 1996 were approximately $55,000 and $18,000,
respectively.
(3) For the period September 25, 1996 (inception) through December 31,
1996 and for the year ended December 31, 1997 approximately $4,000 and
$116,000, respectively, were charged to operations for services
provided by two law firms, each of which has a partner who is a
stockholder of the Company. At December 31, 1997, the Company owed
$14,000 to one of these firms which is included in accounts payable.
NOTE D - INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
At December 31, 1997, the Company has available $223,000 of net
operating loss carryforwards to offset future taxable income tax
expiring through 2012.
At December 31, 1997, the Company has a deferred tax asset of
approximately $88,000 representing the benefits of its net operating
loss carryforward and a deferred tax asset of $466,000 from temporary
differences, principally compensatory stock and stock options not
currently deductible and certain operating expenses which have been
capitalized as start-up costs for federal income tax purposes. The
total of these deferred tax assets has been fully reserved by a
valuation allowance since realization of their benefit is uncertain.
TORVEC, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1997
A reconciliation between the actual income tax benefit and income
taxes computed by applying the federal income tax rate of 34% to the
net loss is as follows:
<TABLE>
TORVEC, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1997
<S> <C> <C>
Period
from
September 26,
1996
(Inception)
Year Ended Through
December 31, December 31,
1997 1996
Computed federal income tax $(313,000) $(166,000)
(benefit) at 34% rate
State tax (benefit), net of federal (49,000) (26,000)
tax benefit
Valuation allowance 362,000 192,000
$0 $0
TORVEC, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1997
</TABLE>
TORVEC, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1997
NOTE D - INCOME TAXES (CONTINUED)
THE INTERNAL REVENUE CODE CONTAINS PROVISIONS WHICH MAY LIMIT THE
UTILIZATION OF THE NET OPERATING LOSS CARRYFORWARD AVAILABLE IN ANY
GIVEN YEAR IF SIGNIFICANT CHANGES OCCUR IN STOCKHOLDER OWNERSHIP
INTERESTS. IF THE PROPOSED OFFERING DISCUSSED IN NOTE F(3) TO THE
FINANCIAL STATEMENTS IS CONSUMMATED, THE AMOUNT OF CARRYFORWARD
AVAILABLE IN ANY GIVEN YEAR COULD BE LIMITED.
Note E - Accounts Payable and Accrued Expenses
At December 31, 1997, accounts payable and accrued expenses consist of
the following:
<TABLE>
<S>Professional fees (Note C(3)) <C>$14,00
0
Trade payables 21,000
Consulting (Note C(2)) 38,000
-------
$73,000
=======
</TABLE>
NOTE F - STOCKHOLDERS' EQUITY
(1) Warrants:
In April 1997, the Company granted an aggregate of 500,000 warrants to
five employees of the Consultant (see Note C(1)). The warrants are
exercisable into common stock at the initial public offering
(the "IPO") price and are exercisable for five years from the
date the Company's IPO is declared effective ("warrant term").
However, if fifty percent or more of either the Company's assets
or its common stock is acquired by another entity or group
during the warrant term, the exercise price shall be $1.50.
The Company will record a charge to operations representing the
fair value of the warrants when the IPO is declared effective.
(2) Stock options:
In December 1997, the Board of Directors of the Company, subject to
stockholder approval approved a Stock Option Plan (the "Plan") which
provides for the granting of up to 2,000,000 shares of common stock,
pursuant to which officers, directors, key employees and key
consultants/advisors are eligible to receive incentive, nonstatutory
or reload stock options. Options granted under the Plan are
TORVEC, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1997
exercisable for a period of up to 10 years from date of grant at an
exercise price which is not less than the fair value on date of grant,
except that the exercise period of options granted to a stockholder
owning more than 10% of the outstanding capital stock may not exceed
five years and their exercise price may not be less than 110% of the
fair value of the common stock at date of grant. Options generally
vest over five years.
In connection with certain consulting agreements (see Note C(2)) the
Company granted an aggregate of 75,000 nonqualified options to
purchase common stock under the Plan at an exercise price of $5.00 per
share. The options vest 20% per annum and are exercisable through
November 30, 2007. The Company valued these options at $234,000 using
the Black-Scholes Option pricing model with the following weighted
average assumptions for the year ended December 31, 1997: risk-free
interest rate of 5.91%, dividend yield 0%, volatility 40% and expected
life for options granted for 10 years. The options are being
amortized over the term of the consulting agreements. At December 31,
1997 these options had a remaining life of 121 months.
NOTE F - STOCKHOLDERS' EQUITY (CONTINUED)
(2) Stock options: (continued)
In connection with employment agreements which commence upon the date
the IPO is declared effective, (Note G(2)) the
Company granted 380,000 options under the Plan at an exercise
price of $5.00 per share. The options are exercisable for a period
of ten years from January 1, 1998 and vest 20% per annum.
At December 31, 1997, 1,545,000 options are available under the Plan.
(3) Proposed offering:
The Company anticipates offering its securities in a private placement.
There is no assurance that such offering will be consummated. In
connection therewith the Company anticipates incurring substantial
expenses which, if the offering is not consummated, will be charged
to expense.
(4) Subscriptions receivable:
At December 31, 1997, the Company had subscriptions receivable for
70,000 shares of common stock which was subsequently collected.
(5) Noncash transaction:
During 1997, the Company granted 12,000 and 2,000 shares of common
stock for services provided. The Company valued the shares at their
fair value of $1.50 and $3.00 per share, respectively.
TORVEC, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1997
Note G - Commitments and Other Matter
(1) Lease:
In January 1998 the Company entered into an agreement with a
stockholder/landlord, which is effective upon the date that the
proceeds of an IPO are received to lease
land and a building for one year at $52,500 per month. The
agreement provides for four one year renewal periods at
the Company's option. In addition, pursuant to this agreement
the landlord will provide labor, utilities and equipment
under the terms of the lease. The Agreement also provides
for the purchase of land adjacent to the leased premises
for one year after the effective date of the lease for
$350,000.
The Company paid approximately $53,000 representing the first month's
rent, which is reflected as a current asset at December 31, 1997, and
approximately $111,000 representing the last month's rent and two-
twelfths of the purchase price of the land which is reflected as
noncurrent assets at December 31, 1997.
Note G - Commitments and Other Matter (continued)
(2) Employment agreements:
The Company has entered into three employment agreements for a period of three
years, commencing on the first day of the month in which the Company receives
the proceeds from an IPO.
Two agreements each provide for salaries of $150,000 per year. One agreement
provides for a salary of $240,000 in the first year, $252,000 in the second
year and $264,000 in the third year and provides for a minimum bonus of $15,000
per quarter for the duration of the agreement.
(3) Arbitration:
During 1997 certain members of the Gleasman family were named in a lawsuit
seeking monetary damages relating to the development of certain technology and
related matters. The court stayed all aspects of the litigation and directed
that the parties arbitrate such matters in dispute. The Company has not been
named as a defendant in this action. In the event the claimants prevail, it
could adversely affect the Company's exclusive ownership of certain technology.
The Gleasmans believe that the claims are without merit
PART III
ITEM 1. INDEX TO EXHIBITS.
The following exhibits are filed as a part of this Registration Statement:
EXHIBIT
SEQUENTIAL
NUMBER EXHIBIT PAGE
NUMBER
2.1 Certificate of Incorporation of Torvec, Inc.
2.2 Bylaws of Torvec, Inc.
3 Specimen Stock Certificate
6.1 Employment Agreement with Herbert H. Dobbs
6.2 Employment Agreement with Lee E. Sawyer
6.3 Employment Agreement with Morton A. Polster
6.4 Consulting Agreement with Keith E. Gleasman
6.5 Consulting Agreement with James A. Gleasman
6.6 Consulting Agreement with Vernon E. Gleasman
6.7 Torvec, Inc. Stock Option Plan
6.8 Specimen Stock Option Agreement
6.9 Assignments of Patents, Patent Properties, Technology and
Know-How to Company
6.10 Neri Service and Space Agreement
6.11 Ford Motor Company Agreement and Extension of Term
12.1 Power of Attorney
12.2 October 24, 1997 Letter from Yogendra B. Jonchhe , Alfred
State University Depart. of Mechanical Engineering Technology
12.3 March 12, 1998 Letter from J.U. Koo, Kia Motors Corp.
SIGNATURES
In accordance with Section of the Securities Exchange Act of 1934, the
Registrant caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
TORVEC, INC.
Date: _______, 1998 By: /S HERBERT H. DOBBS
------------------------------
Herbert H. Dobbs, Chairman of the
Board of Directors
Date:_________, 1998 By: /S KEITH E. GLEASMAN
-----------------------------
Keith E. Gleasman, Director and
President
Date:__________, 1998 By: /S LEE E. SAWYER
----------------------------
Lee E. Sawyer, Director
Date:__________, 1998 By: /S MORTON A. POLSTER
----------------------------
Morton A. Polster, Director; Secretary
of Torvec, Inc.
Date:__________, 1998 By: /S JAMES A. GLEASMAN
---------------------------
James A. Gleasman, Director;
Consultant to Torvec, Inc.
Date: _________, 1998 By: /S SAMUEL M. BRONSKY
--------------------------
Samuel M. Bronsky,
Chief Financial Officer
EXHIBIT NUMBER 2.2
BY-LAWS OF
TORVEC, INC.
ARTICLE I
OFFICES
The principal office of the corporation shall be
in the County of Monroe, State of New York. The
corporation may also have offices at such other
places within or without the State of New York as the
board may from time to time determine or the business
of the corporation may require.
ARTICLE II
SHAREHOLDERS
1. PLACE OF MEETINGS
Meetings of shareholders shall be held at the
principal office of the corporation or at such place
within or without the State of New York as the board
shall authorize.
2. ANNUAL MEETING
The annual meeting of the shareholders shall be
held at a time and place determined by the directors
during the month of May in each year, when the
shareholders shall elect a board and transact such
other business as may properly come before the
meeting. The date of the annual meeting may be
changed by the Board or by the President by giving at
least 10 days notice to each shareholder.
3. SPECIAL MEETINGS
Special meetings of the shareholders may be
called by the board or by the president and shall be
called by the president or the secretary at the
request in writing of a majority of the board or at
the request in writing by shareholders owning a
majority in amount of the shares issued and
outstanding. Such request shall state the purpose or
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purposes of the proposed meeting. Business
transacted at a special meeting shall be confined to
the purposes stated in the notice.
4. FIXING RECORD DATE
For the purpose of determining the shareholders
entitled to notice of, or to vote at, any meeting of
shareholders or any adjournment thereof, or to
express consent to, or dissent from, any proposal
without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any
dividend or the allotment of any rights, or for the
purpose of any other action, the board shall fix, in
advance, a date as the record date for any such
determination of shareholders. Such date shall not
be more than fifty nor less than ten days before the
date of such meeting, nor more than fifty days prior
to any other action. If no record date is fixed it
shall be determined in accordance with the provisions
of law.
5. NOTICE OF MEETINGS OF SHAREHOLDERS
Written notice of each meeting of shareholders
shall state the purpose or purposes for which the
meeting is called, the place, date and hour of the
meeting and unless it is the annual meeting, shall
indicate that it is being issued by or at the
direction of the person or persons calling the
meeting. Notice shall be given either personally or
by mail to each shareholder entitled to vote at such
meeting, not less than ten nor more than fifty days
before the date of the meeting. If action is
proposed to be taken that might entitle shareholders
to payment for their shares, the notice shall include
a statement of that purpose and to that effect. If
mailed, the notice is given when deposited in the
United States mail, with postage thereon prepaid,
directed to the shareholder at his address as it
appears on the record of shareholders, or, if he
shall have filed with the secretary a written request
that notices to him be mailed to some other address,
then directed to him at such other address.
6. WAIVERS
Notice of meeting need not be given to any
shareholder who signs a waiver of notice, in person
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or by proxy, whether before or after the meeting.
The attendance of any shareholder at a meeting, in
person without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall
constitute a waiver of notice by him.
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7. QUORUM OF SHAREHOLDERS
Unless the certificate of incorporation provides
otherwise, the holders of one-third of the shares
entitled to vote thereat shall constitute a quorum at
a meeting of shareholders for the transaction of any
business, provided that when a specified item of
business is required to be voted on by a class or
classes, the holders of a majority of the shares of
such class or classes shall constitute a quorum for
the transaction of such specified item of business.
When a quorum is once present to organize a
meeting, it is not broken by the subsequent
withdrawal of any shareholders.
The shareholders present may adjourn the meeting
despite the absence of a quorum.
8. PROXIES
Every shareholder entitled to vote at a meeting
of shareholders or to express consent or dissent
without a meeting may authorize another person or
persons to act for him by proxy.
Every proxy must be signed by the shareholder or
his attorney-in-fact. No proxy shall be valid after
expiration of eleven months from the date thereof
unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the shareholder
executing it, except as otherwise provided by law.
9. QUALIFICATION OF VOTERS
Every shareholder of record shall be entitled at
every meeting of shareholders to one vote for every
share standing in his name on the record of
shareholders, unless otherwise provided in the
certificate of incorporation.
10. VOTE OF SHAREHOLDERS
Except as otherwise required by statute or by
the certificate of incorporation or by the by-laws:
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(a) directors shall be elected by a
plurality of the votes cast at a
meeting of shareholders by the holders
of shares entitled to vote in the
election.
(b) all other corporate action shall be
authorized by a majority of the votes
cast.
11. WRITTEN CONSENT OF SHAREHOLDERS
Any action that may be taken by vote may be
taken without a meeting on written consent, setting
forth the action so taken, signed by the holders of
all the outstanding shares entitled to vote thereon
or signed by such lesser number of holders as may be
provided for in the certificate of incorporation, and
such consent may be executed on one or more copies
which shall collectively constitute a single
document.
ARTICLE III
DIRECTORS
1. BOARD OF DIRECTORS
Subject to any provision in the certificate of
incorporation the business of the corporation shall
be managed by its board of directors, each of whom
shall be at least 18 years of age.
2. NUMBER OF DIRECTORS
The number of directors shall be one if there is
only one shareholder, and two if there are two
shareholders. If there are three or more
shareholders there shall be at least three and a
maximum of fifteen directors, with the number to be
determined by the Board of Directors.
3. ELECTION AND TERM OF DIRECTORS
At each annual meeting of shareholders, the
shareholders shall elect directors to hold office
until the next annual meeting. Each director shall
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hold office until the expiration of the term for
which he is elected and until his successor has been
elected and qualified, or until his prior resignation
or removal.
4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Newly created directorships resulting from an
increase in the number of directors and vacancies
occurring in the board for any reason except the
removal of directors without cause may be filled by a
vote of a majority of the directors then in office,
although less than a quorum exists, unless otherwise
provided in the certificate of incorporation.
Vacancies occurring by reason of the removal of
directors without cause shall be filled by vote of
the shareholders unless otherwise provided in the
certificate of incorporation. A director elected to
fill a vacancy caused by resignation, death or
removal shall be elected to hold office for the
unexpired term of his predecessor.
5. REMOVAL OF DIRECTORS
Any or all of the directors may be removed for
cause by vote of the shareholders or by action of the
board. Directors may be removed without cause only
by vote of the shareholders.
6. RESIGNATION
A director may resign at any time by giving
written notice to the board, the president or the
secretary of the corporation. Unless otherwise
specified in the notice, the resignation shall take
effect upon receipt thereof by the board or such
officer, and the acceptance of the resignation shall
not be necessary to make it effective.
7. QUORUM OF DIRECTORS
Unless otherwise provided in the certificate of
incorporation, a majority of the entire board shall
constitute a quorum for the transaction of business
or of any specified item of business.
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8. ACTION OF THE BOARD
Unless otherwise required by law, the vote of a
majority of the directors present at the time of the
vote, if a quorum is present at such time, shall be
the act of the board. Each director present shall
have one vote regardless of the number of shares, if
any, which he may hold. Any action that may be taken
by vote may be taken without a meeting on written
consent, setting forth the actions so taken, signed
by all directors entitled to vote thereon, and such
consent may be executed on one or more copies which
shall collectively constitute a single document.
9. TELEPHONE CONFERENCES
Unless otherwise restricted by the certificate
of incorporation or these by-laws, members of the
board of directors, or any committee designated by
the board of directors, may participate in a meeting
of the board of directors, or any committee, by means
of conference telephone or similar communications
equipment by means of which all persons participating
in the meeting can hear each other, and such
participation in a meeting shall constitute presence
in person at the meeting.
10. PLACE AND TIME OF BOARD MEETINGS
The board may hold its meetings at the office of
the corporation or at such other places, either
within or without the State of New York, as it may
from time to time determine.
11. REGULAR ANNUAL MEETING
A regular annual meeting of the board shall be
held immediately following the annual meeting of
shareholders at the place of such annual meeting of
shareholders.
12. NOTICE OF MEETINGS OF THE BOARD; ADJOURNMENT
(a)Regular meetings of the board may be held
without notice at such time and place as it shall
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from time to time determine. Special meetings of the
board shall be held upon notice to the directors and
may be called by the president upon three days notice
to each director either personally or by mail or by
wire; special meetings shall be called by the
president or by the secretary in a like manner on
written request of two directors. Notice of a
meeting need not be given to any director who submits
a waiver of notice whether before or after the
meeting or who attends the meeting without protesting
prior thereto or at its commencement, the lack of
notice to him.
(b)A majority of the directors present, whether or
not a quorum is present, may adjourn any meeting to
another time and place. Notice of the adjournment
shall be given all directors who were absent at the
time of the adjournment and, unless such time and
place are announced at the meeting, to the other
directors.
13. CHAIRMAN
At all meetings of the board the president, or
in his absence, a chairman chosen by the board shall
preside.
14. EXECUTIVE AND OTHER COMMITTEES
The board, by resolution adopted by a majority
of the entire board, may designate from among its
members an executive committee and other committees,
each consisting of three or more directors. Each
such committee shall serve at the pleasure of the
board.
15. COMPENSATION
No compensations shall be paid to directors, as
such, for their services, but by resolution of the
board a fixed sum established on an annual and/or per
meeting basis plus expenses for actual attendance, at
each regular or special meeting of the board may be
authorized. Nothing herein contained shall be
construed to preclude any director from serving the
corporation in any other capacity and receiving
compensation therefor.
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ARTICLE IV
OFFICERS
1. OFFICERS, ELECTION, TERM
(a)Unless otherwise provided for in the
certificate of incorporation, the board may elect or
appoint a president, one or more vice-presidents, a
secretary and a treasurer, and such other officers as
it may determine, who shall have such duties, powers
and functions as hereinafter provided.
(b)All officers shall be elected or appointed to
hold office until the meeting of the board following
the annual meeting of shareholders.
(c)Each officer shall hold office for the term
for which he is elected or appointed and until his
successor has been elected or appointed and
qualified.
2. REMOVAL, RESIGNATION, SALARY, ETC.
(a)Any officer elected or appointed by the board
may be removed by the board with or without cause.
(b)In the event of the death, resignation or
removal of an officer, the board in its discretion
may elect or appoint a successor to fill the
unexpired term.
(c)When all of the issued and outstanding stock
of the Corporation is owned by one person, such
person may hold all or any combination of offices,
otherwise, any two or more offices may be held by the
same person, except the offices of president and
secretary.
(d)The salaries of all officers shall be fixed
by the board.
(e)The directors may require any officer to give
security for the faithful performance of his duties.
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3. PRESIDENT
The president shall be the chief executive
officer of the corporation; he shall preside at all
meetings of the shareholders and of the board; he
shall have the management of the business of the
corporation and shall see that all orders and
resolutions of the board are carried into effect.
4. VICE PRESIDENTS
During the absence or disability of the
president, the vice president, or if there are more
than one, the executive vice president, shall have
all of the powers and functions of the president.
Each vice president shall perform such other duties
as the board shall prescribe.
5. SECRETARY
The secretary shall:
(a)attend all meetings of the board and of the
shareholders;
(b)record all votes and minutes of all
proceedings in a book to be kept for that purpose;
(c)give or cause to be given notice of all
meetings of shareholders and of special meetings of
the board;
(d)keep in safe custody the seal of the
corporation and affix it to any instrument when
authorized by the board;
(e)when required, prepare or cause to be
prepared and available at each meeting of
shareholders a certified list in alphabetical order
of the names of shareholders entitled to vote
thereat, indicating the number of shares of each
respective class held by each;
(f)keep all the documents and records of the
corporation as required by law or otherwise in a
proper and safe manner;
(g)perform such other duties as may be
prescribed by the board.
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6. ASSISTANT SECRETARIES
During the absence or disability of the
secretary, the assistant secretary, or if there are
more than one, the one so designated by the secretary
or by the board, shall have all the powers and
functions of the secretary.
7. TREASURER
The treasurer shall:
(a)have the custody of the corporate funds and
securities;
(b)keep full and accurate accounts of receipts
and disbursements in the corporate books;
(c)deposit all money and other valuables in the
name and to the credit of the corporation in such
depositories as may be designated by the board;
(d)disburse the funds of the corporation as may
be ordered or authorized by the board and preserve
proper vouchers for such disbursements;
(e)render to the president and board at the
regular meetings of the board, or whenever they
require it, an account of all his transactions as
treasurer and of the financial condition of the
corporation;
(f)render a full financial report at the annual
meeting of the shareholders if so requested;
(g)be furnished by all corporate officers and
agents at his request, with such reports and
statements as he may require as to all financial
transactions of the corporation;
(h)perform such other duties as are given to him
by these by-laws or as from time to time are assigned
to him by the board or the president.
8. ASSISTANT TREASURER
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During the absence or disability of the
treasurer, the assistant treasurer, or if there are
more than one, the one so designated by the secretary
or by the board, shall have all the powers and
functions of the treasurer.
9. SURETIES AND BONDS
In case the corporation shall so require, any
officer or agent of the corporation shall execute to
the corporation a bond in such sum and with such
surety or sureties as the corporation may direct,
conditioned upon the faithful performance of his
duties to the corporation and including
responsibility for negligence and for the accounting
for all property, funds or securities of the
corporation which may come into his hands.
ARTICLE V
CERTIFICATES FOR SHARES
1. CERTIFICATES
The shares of the corporation shall be
represented by certificates. They shall by numbered
and entered in the books of the corporation as they
are issued. They shall exhibit the holder's name and
the number of shares and shall be signed by the
president or a vice-president and the treasurer or
the secretary and shall bear the corporate seal.
2. LOST OR DESTROYED CERTIFICATES
The board may direct a new certificate or
certificates to be issued in place of any certificate
or certificates theretofore issued by the
corporation, alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the
person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new
certificate or certificates, the board may, in its
discretion and as a condition precedent to the
issuance thereof, require the owner of such lost or
destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner
as it shall require and/or give the corporation a
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bond in such sum and with such surety or sureties as
it may direct as indemnity against any claim that may
be made against the corporation with respect to the
certificate alleged to have been lost or destroyed.
3. TRANSFERS OF SHARES
(a)Upon surrender to the corporation or the
transfer agent of the corporation of a certificate
for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to
issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such
transfer shall be entered on the transfer book of the
corporation which shall be kept at its principal
office. No transfer shall be made within ten days
next preceding the annual meeting of shareholders.
(b)The corporation shall be entitled to treat
the holder of record of any share as the holder in
fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest
in such share on the part of any other person whether
or not it shall have express or other notice thereof,
except as expressly provided by the laws of New York.
4. CLOSING TRANSFER BOOKS
The board shall have the power to close the
share transfer books of the corporation for a period
of not more than ten days during the thirty day
period immediately preceding (1) any shareholders'
meeting, or (2) any date upon which shareholders
shall be called upon to or have a right to take
action without a meeting, or (3) any date fixed for
the payment of a dividend or any other form of
distribution, and only those shareholders of record
at the time the transfer books are closed, shall be
recognized as such for the purpose of (1) receiving
notice of or voting at such meeting, or (2) allowing
them to take appropriate action, or (3) entitling
them to receive any dividend or other form of
distribution.
ARTICLE VI
DIVIDENDS
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Subject to the provisions of the certificate of
incorporation and to applicable law, dividends on the
outstanding shares of the corporation may be declared
in such amounts and at such time or times as the
board may determine. Before payment of any dividend,
there may be set aside out of the net profits of the
corporation available for dividends such sum or sums
as the board from time to time in its absolute
discretion deems proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the
corporation, or for such other purpose as the board
shall think conducive to the interest of the
corporation, and the board may modify or abolish any
such reserve.
ARTICLE VII
CORPORATE SEAL
The seal of the corporation shall be circular in
form and bear the name of the corporation, the year
of its organization and the words "Corporate Seal,
New York." The seal may be used by causing it to be
impressed directly on the instrument or writing to be
sealed, or upon adhesive substance affixed thereto.
The seal on the certificate for shares or on any
corporate obligation for the payment of money may be
a facsimile, engraved or printed.
ARTICLE VIII
EXECUTION OF INSTRUMENTS
All corporate instruments and documents shall be
signed or countersigned, executed, verified or
acknowledged by such officer or officers or other
person or persons as the board may from time to time
designate.
ARTICLE IX
FISCAL YEAR
The fiscal year shall begin the first day of
January in each year.
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ARTICLE X
REFERENCES TO CERTIFICATE OF INCORPORATION
Reference to the certificate of incorporation in
these by-laws shall include all amendments thereto or
changes thereof unless specifically excepted.
ARTICLE XI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. GENERALLY
Each person who was or is made a party or is
threatened to be made a party to or is otherwise
involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact
that he or his testator or intestate (a) is or was a
director or officer of the Corporation or (b) is or
was a director or officer of the Corporation who
serves or served, in any capacity, any other
corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise at the
request of the Corporation (hereinafter an
"Indemnitee"), shall be indemnified and held harmless
by the Corporation against all expense, liability and
loss including ERISA excise taxes or penalties,
judgments, fines, penalties, amounts paid in
settlement (provided the Corporation shall have given
its prior consent to such settlement, which consent
shall not be unreasonably withheld by it) and
reasonable expenses, including attorneys' fees
suffered or incurred by such Indemnitee in connection
therewith and such indemnification shall continue as
to an Indemnitee who has ceased to be a director or
officer and shall inure to the benefit of the
Indemnitee's heirs and fiduciaries; provided,
however, that no indemnification may be made to or on
behalf of any director or officer if his acts were
committed in bad faith or were the result of active
and deliberate dishonesty and were material to the
cause of action so adjudicated or otherwise disposed
of, or he personally gained in fact a financial
profit or other advantage to which he was not legally
entitled. Notwithstanding the foregoing, except as
contemplated by Section 3 hereof, the Corporation
shall indemnify any such Indemnitee in connection
with a proceeding (or part thereof) initiated by such
Indemnitee only if such proceeding (or part thereof)
was authorized by the Board of Directors of the
Corporation.
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2. ADVANCEMENT OF EXPENSES
All expenses reasonably incurred by an
Indemnitee in connection with a threatened or actual
proceeding with respect to which any such Indemnitee
is or may be entitled to indemnification under this
Article shall be advanced to him or promptly
reimbursed by the Corporation in advance of the final
disposition of such proceeding, upon receipt of an
undertaking by him or on his behalf to repay the
amount of such advances, if any, as to which he is
ultimately found not to be entitled to
indemnification or, where indemnification is granted,
to the extent such advances exceed the
indemnification to which he is entitled. Such person
shall cooperate in good faith with any request by the
Corporation that common counsel be used by the
parties to an action or proceeding who are similarly
situated unless to do so would be inappropriate due
to an actual or potential conflict of interest.
3. PROCEDURE FOR INDEMNIFICATION
(a)Not later than thirty (30) days following
final disposition of a proceeding with respect to
which the Corporation has received written request by
an Indemnitee for indemnification pursuant to this
Article or with respect to which there has been an
advancement of expenses pursuant to Section 2 of this
Article, if such indemnification has not been ordered
by a court, the Board of Directors shall meet and
find whether the Indemnitee met the standard of
conduct set forth in Section 1 of this Article, and,
if it finds that he did, or to the extent it so
finds, shall authorize such indemnification.
(b)Such standard shall be found to have been met
unless (i) a judgment or other final adjudication
adverse to the Indemnitee established that the
standard of conduct set forth in Section 1 of this
Article was not met, or (ii) if the proceeding was
disposed of other than by judgment or other final
adjudication, the Board finds in good faith that, if
it had been disposed of by judgment or other final
adjudication, such judgment or other final
adjudication would have been adverse to the
Indemnitee and would have established that the
standard of conduct set forth in Section 1 of this
Article was not met.
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(c)If the Board fails or is unable to make the
determination called for by paragraph (a) of this
Section 3, or if indemnification is denied, in whole
or in part, because of an adverse finding by the
Board, or because the Board believes the expenses for
which indemnification is requested to be
unreasonable, such action, inaction or inability of
the Board shall in no way affect the right of the
Indemnitee to make application therefor in any court
having jurisdiction thereof. In such action or
proceeding, or in a suit brought by the Corporation
to recover an advancement of expenses pursuant to the
terms of an undertaking, the issue shall be whether
the Indemnitee met the standard of conduct set forth
in Section 1 of this Article, or whether the expenses
were reasonable, as the case may be (not whether the
finding of the Board with respect thereto was
correct.) If the judgment or other final
adjudication in such action or proceeding establishes
that the Indemnitee met the standard set forth in
Section 1 of this Article, or that the disallowed
expenses were reasonable, or to the extent that it
does, the Board shall then find such standard to have
been met or the expenses to be reasonable, and shall
grant such indemnification, and shall also grant to
the Indemnitee indemnification of the expenses
incurred by him in connection with the action or
proceeding resulting in the judgment or other final
adjudication that such standard of conduct was met,
or if pursuant to such court determination such
person is entitled to less than the full amount of
indemnification denied by the Corporation, the
portion of such expenses proportionate to the amount
of such indemnification so awarded. Neither the
failure of the Board to have made timely a
determination prior to the commencement of such suit
that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the
applicable standard of conduct set forth in Section
1, nor an actual determination by the Board that the
Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the
Indemnitee has not met the applicable standard of
conduct. In any suit brought by the Indemnitee to
enforce a right to indemnification, or by the
Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden
of proving that the Indemnitee is not entitled to
indemnification, under this Article or otherwise,
shall be on the Corporation.
(d)A finding by the Board pursuant to this
Section 3 that the standard of conduct set forth in
Section 1 of this Article has been met shall mean a
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finding of the Board or shareholders as provided by
law.
4. CONTRACTUAL ARTICLE
The rights conferred by this Article are
contract rights which shall not be abrogated by any
amendment or repeal of this Article with respect to
events occurring prior to such amendment or repeal
and shall, to the fullest extent permitted by law, be
retroactive to events occurring prior to the adoption
of this Article. No amendment of the Business
Corporation Law, insofar as it reduces the
permissible extent of the right of indemnification of
an indemnitee under this Article, shall be effective
as to such person with respect to any event, act or
omission occurring or allegedly occurring prior to
the effective date of such amendment irrespective of
the date of any claim or legal action in respect
thereto. This Article shall be binding on any
successor to the Corporation, including any
corporation or other entity which acquires all or
substantially all of the Corporation's assets.
5. NON-EXCLUSIVITY
The indemnification provided by this Article
shall not be deemed exclusive of any other rights to
which any person covered hereby may be entitled other
than pursuant to this Article. The Corporation is
authorized to enter into agreements with any such
person providing rights to indemnification or
advancement of expenses in addition to the provisions
therefor in this Article, and the Corporation's
shareholders and its Board of Directors are
authorized to adopt, in their discretion, resolutions
providing any such person with any such rights.
6. INSURANCE
The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer,
employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or
loss, whether or not the Corporation would have the
power to indemnify such person against such expense,
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liability or loss under this Article or applicable
law.
7.INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE
CORPORATION
The Corporation may, to the extent authorized
from time to time by the Board of Directors, grant
rights to indemnification and the advancement of
expenses to any employee or agent of the Corporation
with the same scope and effect as provided in this
Article to directors and officers of the Corporation.
ARTICLE XII
BY-LAW CHANGES
All bylaws of the company shall be subject to
alteration or repeal, and new bylaws may be made,
either by the affirmative vote of the holders of
record of a majority of the outstanding stock of the
company entitled to vote in respect thereof, given at
any annual meeting or at any special meeting,
provided notice of the proposed alteration or repeal
or of the proposed new bylaws be included in the
notice of such meeting, or by the affirmative vote of
a majority of the whole board of directors given at a
special meeting of the board of directors called for
the purpose, provided notice of the proposed
alteration or repeal or of the proposed new bylaws be
included in the notice of such meeting.
DATED: September 26, 1997
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EXHIBIT NUMBER 3
NO. SHARES
TORVEC, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
THE CORPORATION IS AUTHORIZED TO ISSUE 40,000,000 COMMON
SHARES WITH A PAR VALUE OF $.01 EACH
SEE LEGEND ON REVERSE
This Certifies that
_________________________________is the registered holder of
______________________ fully paid and non-assessable Shares
of the above Corporation transferable only on the books of
the Corporation by the holder hereof in person or by duly
authorized Attorney upon surrender of this Certificate
properly endorsed.
In Witness Whereof, the said Corporation has caused this
Certificate to be signed by its duly authorized officers and
to be sealed with the Seal of the Corporation.
This ______________ day of ______________A.D. 19__
__________________________ _____________________
SECRETARY PRESIDENT
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NO SALE, OFFER TO SELL, OR TRANSFER OF THE UNITS
REPRESENTED BY THIS CERTIFICATE SHALL BE MADE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND IN COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT THE PROPOSED TRANSFER IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND IS
IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.
CERTIFICATE
FOR
SHARES
of the
Common
Stock
__________________________
__________________________
ISSUED TO
___________________________
DATE
___________________________
For Value Received, ______ hereby sell, assign and
transfer unto
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____________________________________________________________
____________________________________________________________
_____________________________________ Shares
of the Common Stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint
____________________________________________________________
_____________ Attorney
to transfer the said Stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated______________, 19__
In presence of
__________________________________________________
____.
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EXHIBIT NO. 6.1
EMPLOYMENT AGREEMENT
1. AGREEMENT
This writing represents an agreement ("Agreement")
between Herbert H. Dobbs, 448 West Maryknoll Rd., Rochester
Hills, MI 48309 (the "Employee") and TORVEC Inc., 11 Pond
View Drive, Pittsford, NY, 14534 (the "Employer") and
defines the employment relationship between the Employee and
the Employer.
2. THE EMPLOYEE'S POSITION
The Employee shall hold the positions of Chairman and
Chief Executive Officer and so long as elected by the
stockholders a member of the Board of Directors of
Employer.. The Employee's duties shall be those usual to
the Employee's position in the Employer's industry;
provided, however, the Employer, at the Employer's sole
discretion, may increase, decrease or otherwise modify the
Employee's duties. The Employee shall at all times exercise
his best efforts for Employer and shall diligently and
proficiently perform his duties for the Employer.
3. EMPLOYEE COMPENSATION
A. Annual Salary:
The Employer shall pay the Employee, in equal monthly
installments, at the rate of $150,000.00 per year.
B. Stock Options:
Subject to the approval by its shareholders of the
Company's 1998 Stock Option Plan, there is hereby granted to
the Employee a non-qualified stock option to purchase up to
100,000 shares of the Company's $.01 par value Common Stock
at an exercise price of $5.00 per share. The option granted
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hereby shall be subject to the terms and conditions set
forth in the Stock Option Agreement attached hereto and made
a part hereof. The term of the option shall be for a period
of 10 years, shall vest on a cumulative basis at a rate of
20% per year, shall provide for immediate and full vesting
in the event the Company is acquired and shall provide that
the right to exercise the option in accordance with its
terms shall survive the Employee's termination of
employment.
4. EMPLOYEE BENEFITS
A. Vacation:
The Employee is entitled to three (3) weeks paid
vacation for each twelve (12) months of this Agreement.
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B. Additional Benefits:
1. The Employee will be included in such fringe
benefit programs as the Employer hereafter adopts for the
benefit of all employees.
2. Employer will provide suitable housing for
Employee during such periods as Employee physically conducts
his business from the Rochester, New York metropolitan area.
3. For a period of eighteen months after the
commencement of this Agreement, Employer will pay to
Employee as additional compensation an amount equal to the
amount actually expended by Employee to continue COBRA
insurance coverages with his present employer.
4. 12 paid holidays per year.
5. Sick pay days accrue at the same rate as
vacation days.
5. TERM OF AGREEMENT
This Agreement shall be for a period of three (3) years
commencing on the first day of the month in which Employer
receives the proceeds from its initial public offering of
securities and shall automatically renew for three (3)
years, unless the Employer informs the Employee of its
intention to allow such Agreement to expire by giving
written notice to the Employee at least six (6) months prior
to the termination date.
6. CHANGE OF OWNERSHIP
If TORVEC Inc. is bought out by another company, this
Agreement may also be bought out at the prorated lump sum of
base pay and bonus for lesser of twelve months or the
remaining months on this Agreement.
7. TERMINATION OF THE CONTRACT
A. Cause of Termination:
1. Termination by the Employee
The Employee may terminate this Agreement, for any
reason, upon written notice to the Employer not fewer than
twelve (12) months before the date of the intended
termination.
2. Termination by Employer
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The Employer may at any time terminate this Agreement
without cause, by a notice to that effect to the Employee.
As severance compensation, the Employer shall continue to
pay the Employee his base pay and bonus for a period of
twelve (12) months, subject to the limitations in Paragraph
7B2(b) below.
The Employer may terminate this Agreement without
notice for just cause, including but not limited to,
habitual neglect of or failure to perform duties after
written warning from Employer to correct such failure, theft
or misappropriation, or the Employee's continued incapacity
due to mental or physical illness to perform the Employee's
duties.
In the event of termination because of incapacity to
perform due to mental or physical illness only, the Employer
shall pay the Employee's monthly salary and minimum bonus
for twelve (12) months.
B. Effect of Termination of Agreement:
Except as otherwise provided herein, upon expiration
of the term of this Agreement, or by termination pursuant to
any provision of this Agreement, all obligations of the
Employee and the Employer shall terminate.
If the Employer gives notice to the Employee as
provided in Paragraph 7A2 herein:
1. The Employee agrees:
(a) To continue to devote his best efforts and
time to performance of his duties for the Employer and to
cooperate with the Employer in effecting an orderly transfer
of responsibilities and duties to a successor over a period
of time to be determined by the Employer in its sole
discretion, but not to exceed three (3) months.
(b) To consult with the Employer as may
reasonably be required.
2. The Employer agrees:
(a) To cooperate in the Employee's effort to
obtain new employment;
(b) To continue to pay the Employee, at the rate
required hereunder, including both salary and minimum bonus
until the Employee obtains new employment or until the
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conclusion of twelve (12) months; and, to the extent the
Employee's total compensation in his new employment is less
than his total compensation (salary and bonus) from the
Employer would have been, the Employer shall pay the
difference between the total compensation in the new
employment and the total compensation that the Employee
would have earned with the Employer until the conclusion of
the term of the twelve (12) months following termination;
(c) To provide the benefits provided by this
Agreement to the Employee until the Employee obtains new
employment or until expiration of twelve (12) months
whichever occurs first.
8. CONFIDENTIALITY AND TRANSFER OF INVENTIONS
A. Except as may be required by his employment
hereunder, Employee will not at any time or in any manner,
directly or indirectly, divulge, disclose or communicate to
any person, firm, corporation, organization or entity any
Trade Secrets of Employer. Trade Secrets include
information concerning matters affecting or relating to the
products, pricing, marketing and sales strategies, servicing
of products, processes, formulas, inventions, discoveries,
devices, finances or business of Employer or of its
customers. Employee will at all times hold inviolate and
keep secret all knowledge or information and Trade Secrets
acquired by him concerning the names of the Employer's
customers, their addresses, the prices Employer obtains or
has obtained from them for its goods or services, all
knowledge or information acquired by him concerning the
products, formulas, processes, marketing and sales
methodology and training and all other trade secrets of
Employer's customers. In addition, Employee shall make no
disclosure, directly or indirectly, of any financial
information, contractual relationships, policies, past or
contemplated future actions of policies of Employer,
personnel matters, marketing or sales strategies or data,
pricing information, technical data or specifications and
written or oral communications of any sort of Employer or
any of its customers which have not previously been
disclosed to the general public with Employer's consent or
without first obtaining the consent of Employer for such
disclosure. Upon any termination of this Agreement or
Employee's employment, Employee or his representatives shall
immediately deliver to Employer all notes, notebooks,
letters, papers, drawings, memos, communications, blueprints
or other writings or data relating to the business of
Employer or its customers.
B. Employee shall promptly disclose to Employer all
ideas, discoveries, designs, improvements, innovations and
inventions (collectively referred to herein as
"inventions"), whether patentable or not, either relating to
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the existing business, products, plans, processes, or
procedures of Employer, or any parent or subsidiary of
Employer, or suggested by or resulting from Employee's work
at Employer, or resulting wholly or in part from the use of
Employer's time, material, facilities or ideas, which
Employee makes or conceives, in whole or in part, whether or
not during working hours, alone or with others, at any time
during the term of his employment pursuant to this Agreement
or during the first six-month period immediately following
termination of his employment for any reason, and Employee
agrees that all such inventions shall be the exclusive
property of Employer.
C. Employee hereby assigns to Employer all his rights
and interests in and to all such inventions and all patents
which may be obtained on them, in this or any foreign
country. At Employer's expense, but without charge to it,
Employee agrees to execute, acknowledge and deliver to
Employer any specific assignments to any such inventions or
other relevant documents and take any such further action as
may be considered necessary by Employer at any time to
obtain or defend letters patent in any and all countries or
to obtain documents relating to registration, ownership or
transfer of copyrights, or to vest title in such inventions
in Employer or its assigns or to obtain for Employer any
other legal protection for such inventions.
D. Because Employee shall acquire by reason of his
employment and association with Employer an extensive
knowledge of Employer's Trade Secrets, customers,
procedures, and other confidential information, the parties
hereto recognize that in the event of a breach or threat of
breach by Employee of the terms and provisions contained in
this Paragraph 8, compensation alone to Employer would not
be an adequate remedy for a breach of those terms and
provisions. Therefore, it is agreed that in the event of a
breach or threat of a breach of the provisions of this
Paragraph 8 by Employee, Employer shall be entitled to an
immediate injunction from any court of competent
jurisdiction restraining Employee from committing or
continuing to commit a breach of such provisions without the
showing or proving of actual damages. Any preliminary
injunction or restraining order shall continue in full force
and effect until any and all disputes between the parties
regarding this Agreement have been finally resolved on the
merits by settlement or by a court of law. Employee hereby
waives any right he may have to require Employer to post a
bond or other security with respect to obtaining or
continuing any such injunction or temporary restraining
order and, further, hereby releases Employer, its officers,
directors, employees and agents from and waives any claim
for damages against them which he might have with respect to
Employer's obtaining in good faith any injunction or
restraining order pursuant to this Agreement.
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Employee agrees that any action for injunction brought
pursuant to this Paragraph 8 may be brought in the New York
State Supreme Court in the County of Monroe and hereby
submits to the jurisdiction of that court and waives any
objection as to venue.
9. CONSTRUCTION OF THIS AGREEMENT
A. Choice of Law:
This Agreement is to be construed pursuant to the laws
of the State of New York, including New York law regarding
choice of law.
B. Invalid Agreement Provisions:
Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be
affected, and the Agreement shall continue as if the
Agreement had been executed absent the unenforceable
provision.
C. No Other Agreements:
This Agreement represents the entire Agreement between
the Employee and the Employer, and supersedes any and all
negotiations and other agreements, oral, implied or written,
in any way related to the employment relationship between
the Employee and the Employer. No agreements,
representations, or understandings (oral, written, or
implied) other than those expressly set forth herein have
been made or entered into by either party with respect to
any aspect of the Employee's employment or any of the
matters dealt with herein. In executing this Agreement,
neither the Employer nor the Employee relies upon any
promise, representation, or other inducement that is not
expressed in this Agreement. This Agreement may be modified
only by a written Agreement signed by both the Employee and
the Employer and may not be modified in any oral agreement
or representation.
D. Practices Inconsistent With This Agreement:
No provision of this Agreement shall be modified or
construed by any practice or policy that is inconsistent
with such provision, and failure by either the Employee or
the Employer to comply with any provision, shall not affect
the rights of either to thereafter comply or require the
other to comply.
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10. ARBITRATION
Any dispute between Employer and the Employee in any way
arising out of this Agreement, other than an action for an
injunction brought pursuant to Paragraph 8 of this
Agreement, including the termination of employees employment
and/or this Agreement, shall be submitted to arbitration by
an arbitrator selected by the American Arbitration
Association. The arbitrator's decision with respect to any
such dispute shall be final and binding. Any such disputes
must be submitted to arbitration within six (6) months of
termination, cancellation, or expiration of this Agreement.
Any party who, in violation of this paragraph, initiates a
lawsuit against the other party, shall pay the other party's
reasonable attorney's fees and costs incurred in such
lawsuit. Except as otherwise provided herein, such
arbitration shall take place in accordance with the Rules of
Commercial Arbitration of the American Arbitration
Association, and shall be held in Monroe County, New York.
TORVEC Inc.
Date: ______________ By: ____________________________
President
Employer
Date: ______________ ________________________________
Herbert H. Dobbs
Employee
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STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT MADE as of this 1st day of
January, 1998 between TORVEC, INC., a New York business
corporation (herein referred to as the "Company"), and
HERBERT H. DOBBS (herein referred to as the "Optionee");
WITNESSETH:
1. The Company hereby grants to the Optionee an Option
(hereinafter referred to as "Option") to purchase an
aggregate of 100,000 shares of the $.01 par value Common
Stock of the Company (herein referred to as the "Shares") at
an exercise price of $5.00 per Share to be paid by the
Optionee with cash, a certified check or a bank cashier's
check made payable to the order of the Company.
Alternatively, provided the Board of Directors shall approve
the specific transfer, the Optionee may pay for the Shares,
either in whole or in part, by the delivery of Common Stock
of the Company already owned by him which will be accepted
as payment for the Shares, based upon such Common Stock's
fair market value on the date of exercise. In addition,
provided the Board of Directors shall approve the specific
transfer, payment for the Shares, either in whole or in
part, may be made by delivery of Common Stock acquired by
the Optionee under any of the Company's stock option plans,
provided, however, that if this Option is exercised in part,
Shares acquired by such partial exercise may not be used as
payment for additional Shares to be acquired under this
Agreement. In order for the Optionee to so use shares of
Common Stock previously acquired under any of the Company's
stock option plans as payment for the Shares either in whole
or in part, the transfer of such previously acquired Common
Stock as payment for all or a portion of the exercise price
under this Agreement must occur more than two years from the
date of the grant and one year from the date of exercise of
the prior option pursuant to which the Optionee acquired
such Common Stock.
2. The term during which the Option shall be
exercisable shall commence on January 1, 1998 and expire on
the close of business December 31, 2007, subject to earlier
termination as provided in the Torvec, Inc. 1998 Stock
Option Plan (herein referred to as the "Plan"). The Option
to purchase the number of Shares granted under this
Agreement shall vest on the 1st day of each of the first
five years of the Option Term on a cumulative basis, in
accordance with the following schedule:
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VESTED NON-VESTED
1/1/98 - 12/31/98 20% 80%
1/1/99 - 12/31/99 40% 60%
1/1/2000 - 12/31/2000 60% 40%
1/1/01 - 12/31/2001 80% 20%
1/1/02 - 12/31/2002 100% 0%
provided however, that to the extent the Optionee shall fail
to exercise or, due to the above limitation, be prohibited
from exercising his Option in any year during the Option
period, such annual right to exercise this Option shall not
expire, but shall be cumulative, and carry over into and be
exercisable in any subsequent year during which the Option
is outstanding.
This Option may be exercised by the Optionee in
accordance with its terms during the Option Term even
though, at the time of such exercise, whether in whole or in
part, the Optionee is no longer an employee of the Company.
3. Notwithstanding the vesting schedule set forth in
Section 2 hereof, the Optionee's right to exercise this
Option in full shall immediately vest upon the occurrence of
a change in control of the Company. For this purpose, the
term "change in control of the Company" shall generally
include a change in the ownership or effective control of
the Company or in the ownership of a substantial portion of
the assets of the Company. Specifically, the term shall
include (i) the purchase or other acquisition by any person,
entity or group of persons, within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, or
any comparable successor provisions, of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Act) of more than 50% of either the outstanding
shares of common stock or the combined voting power of the
Company's then outstanding voting securities entitled to
vote generally, or (ii) the approval by the shareholders of
the Company of a reorganization, merger, or consolidation
with respect to which, in such case, persons who were
shareholders of the Company immediately prior to such
reorganization, merger, or consolidation do not immediately
thereafter, own more than 50% of either the outstanding
shares of common stock or the combined voting power of the
reorganized, merged or consolidated Company's then
outstanding voting securities entitled to vote generally or
(iii) the liquidation and/or dissolution of the Company.
4. The Option is not transferable by the Optionee
other than by Will or the laws of descent and distribution
and is exercisable, during his lifetime, only by the
Optionee. In the event that the right to exercise the
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Option passes to the Optionee's estate, or to a person to
whom such right devolves by reason of the Optionee's death,
then the Option shall be non transferable in the hands of
the Optionee's Executor or Administrator or of such person,
except that the Option may be distributed by the Optionee's
Executor or Administrator to the distributees of the
Optionee's estate as a part thereof.
5. In order for the Option to be exercised, in whole or
in part, the notice by the Optionee to the Company in the
form attached hereto must be accompanied by payment in full
of the option price for the Shares being purchased. In
addition, the Optionee agrees to tender to the Company an
additional amount, in cash, certified check, cashier's check
or bank draft, equal to the amount of any taxes required to
be collected or withheld by the company in connection with
the exercise of his Option.
6. The Company agrees that it will use its best
efforts to register the sale of the Shares to be issued upon
the exercise of the Option with the Securities and Exchange
Commission under the Securities Act of 1933. Upon the
effectiveness of the Registration Statement covering the
Shares, the Optionee shall be able to sell the Shares in
"open market transactions" free of Federal Securities Law
restrictions, provided that at the time of sale, or within
the three month period immediately prior to such sale, he is
not nor has he been an "affiliate" of the Company. The
Optionee further understands that, in accordance with
applicable Commission rules governing controlling persons of
public companies, members of the board of directors of a
public company, such as the Company, are deemed to be
"affiliates" during their term of office. The Optionee,
therefore, agrees that he will consult with the Company's
counsel as to any Securities Law restrictions, including a
limitation on the number of Shares which may be sold at any
one time, on his ability to sell the Shares prior to any
sale thereof.
7. The Company agrees to provide the Optionee with a
copy of the Prospectus prepared by the Company in connection
with the Registration Statement filed to register the
Shares, together with its exhibits, and the Company hereby
acknowledges its obligation to provide the Optionee with all
proxy and other shareholder communications, including the
annual report to security holders, for the most recently
completed fiscal year of the Company and all updates
thereof. The Optionee agrees that prior to exercise, either
in whole or in part of the Option granted to him hereunder,
he shall have read such materials, including the most recent
annual and quarterly reports to shareholders, and shall have
received, if requested, and read all the documents
incorporated by reference in the Prospectus and Registration
Statement filed with the Securities and Exchange Commission.
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8. The Optionee understands that except as provided in
Paragraph 6 above, the Company has not agreed to register
either the issuance or the resale of the Shares in
accordance with the provisions of the Securities Act of 1933
or to register either the issuance or the resale of the
Shares under any applicable State Securities Laws. Hence,
the Optionee agrees that by virtue of the provision of
certain rules respecting "restricted securities" promulgated
under such Federal and/or State Laws, unless the resale of
the Shares is registered as provided in Paragraph 6 above,
and until the registration of such Shares in accordance with
Paragraph 6 above shall have been declared effective by
order of the Commission, the Shares which the Optionee shall
purchase upon the exercise of this Option must be held
indefinitely and may not be sold, transferred, pledged,
hypothecated, or otherwise encumbered for value, unless and
until a secondary distribution and/or resale of such Shares
is subsequently registered under such Federal and/or State
Securities Laws, or unless an exemption from registration is
available, in which case the Optionee still may be limited
as to the amount of the Shares that may be sold,
transferred, pledged and/or encumbered for value. The
Optionee therefore agrees that, until the registration of
such Shares shall have been declared effective by order of
the Commission, the Company may affix upon any certificate
representing the Shares, a legend that such Shares may not
be transferred in violation of Section 5 of the Securities
Act of 1933.
9. The Optionee understands and agrees that the Shares
to be acquired upon the exercise of the Option may not be
sold, transferred, exchanged, hypothecated, encumbered,
pledged or otherwise disposed of for value for a period of
six (6) months from the date of the grant of this Option.
10. The Optionee understands that the Company has
established certain policies and procedures governing trading
in the Company's securities, including the Shares to be
acquired upon the exercise of this Option, while in
possession of material, inside information regarding the
Company and/or any of its subsidiaries, receipt of which is
hereby acknowledged. The Optionee agrees that upon exercise
of this Option, either in whole or in part, he will comply
with all of the terms and conditions of such policy,
including the procedures and guidelines established for its
implementation. In particular, the Optionee agrees that
where required under such guidelines and procedures, he will
obtain permission of the Company's Clearinghouse Committee
composed of senior management prior to effectuating any sale
or other transfer for value of the Shares to be acquired by
virtue of the exercise of this Option.
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11. All the terms and provisions of the Plan, duly
adopted at a meeting of the Company's Board of Directors on
_______________ and approved by a majority vote of the
Company's shareholders either in person or by proxy at a duly
called meeting of such shareholders held on _______________
and as amended to date, are hereby expressly incorporated
into this Stock Option Agreement and made a part hereof as if
printed herein and the Optionee, by the Optionee's signature
hereon, acknowledges receipt of a certified copy of said
Plan. If there shall be any conflict between this Agreement
and the Plan, the provisions of the Plan shall control.
12. In accordance with certain terms and conditions of
the Plan, the aggregate number and kind of shares that may be
purchased pursuant to the grant of the Option under this
Agreement shall be proportionately adjusted for any increase,
decrease or change in the total number of the outstanding
shares of the Company resulting from a stock dividend,
stock-split or other corporate reorganization which would
result in or have the effect of the Optionee being treated
differently (but for the adjustment) than he would be treated
had he been the beneficial owner of the Shares subject to the
Option on the record date for such dividend, split or
reorganization, as the case may be.
13. The Optionee understands that the Option granted
hereunder constitutes a "nonqualified stock option" for
federal, and if applicable, state income tax purposes.
Consequently, the Optionee understands that under current
provisions of federal tax law, for regular as well as for
purposes to the federal alternative minimum income tax, no
gain or loss generally is recognized to the Optionee upon the
grant of the Option. In addition, the Company will receive
no business expense deduction as a result of the grant of the
Option.
For federal income tax purposes, upon the exercise of
the Option, the difference between the exercise price and the
fair market value of the Shares on the date of exercise
constitutes ordinary income to the Optionee and is taxed to
the Optionee at normal, ordinary tax rates, except to the
extent the Shares are not transferable and are subject to a
substantial risk of forfeiture. To the extent such
difference is required to be included as income by the
Optionee, the Company is entitled to a business expense
deduction. Upon the later sale of the Shares, long or short
term capital gain or loss will be recognized by the Optionee,
depending upon the holding period (eighteen months for long
term capital gain or loss) and the extent to which the
selling price exceeds or is less than the Optionee's basis in
the stock. The amount of gain will be taxed at normal,
ordinary tax rates, with a maximum rate of 20% if the Shares
are held for a period of at least eighteen months. If the
Shares are held for a period of at least twelve months, the
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maximum rate on any gain from their sale will be taxed at
28%.
The Optionee also understands that the provisions of
federal tax law described herein are subject to change and,
consequently, the Optionee agrees to consult with his or her
own tax advisor with respect to the tax treatment to be
accorded the grant of the Option herein, the exercise of such
Option, and the disposition of the Shares.
13. Consistent with the provisions of the Plan, this
Agreement shall be binding upon and inure to the benefit of
any successor or assignee of the Company and to any executor,
administrator, legal representative, legatee, or distributee
entitled by law to the Optionee's right hereunder.
14. Except insofar as an interpretation of federal
securities law otherwise is required, or is controlling, this
Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Agreement
to be executed on its behalf by its duly authorized officer
and the Optionee has hereunto set his hand, as of the day and
year first above written.
TORVEC, INC.
By:____________________________
____________________________
Herbert H. Dobbs,
Optionee
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NOTICE OF EXERCISE OF STOCK OPTION
AND
RECORD OF STOCK TRANSFER
Torvec, Inc.
3740 Route 104
Williamson, New York 14587
Gentlemen:
I hereby exercise my Stock Option granted to me by Torvec,
Inc. under a Stock Option Agreement dated _______________,
subject to all the terms and provisions thereof and of the
Torvec, Inc. 1998 Stock Option Plan referred to therein and
notify you of my desire to purchase Shares of
the $.01 par value Common Stock of the Company which were
offered to me pursuant to the Stock Option Agreement.
Enclosed is my payment in the sum of in full
payment of such Shares.
I understand that a Registration Statement covering the
Shares to be issued to me pursuant to this exercise of the
Option granted to me was filed with the Securities and
Exchange Commission on _______________. The Registration
Statement became effective on _______________. Consequently,
I understand that unless I am an "affiliate" of the Company,
the Shares I am acquiring are freely tradeable and may be sold
by me in "open market" transactions. If I am an "affiliate"
of the Company, however, or have been one during the three
month period prior to sale, I recognize that I may not sell
freely on the open market and therefore agree that I will
consult the Company's counsel as to the securities law
restrictions on my ability to sell the Shares.
I also understand that under the Plan, and in accordance
with the terms of the Stock Option Agreement, I may not sell,
assign, alienate, pledge, encumber or otherwise transfer for
value the Shares unless a period of six (6) months has elapsed
from the date of the grant of the Option to me.
I acknowledge that I am aware that the Company has
established a policy with respect to trading in its securities
while in possession of material inside information regarding
the Company and/or its subsidiaries, and that, in accordance
with certain guidelines and procedures designed to implement
such policy, I may be required to obtain permission from a
Clearinghouse Committee, composed of Senior Management, prior
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to any sale or other transfer for value of the Shares hereby
acquired.
I also acknowledge that I have received and have read the
Prospectus dated _______________ prepared by the Company in
connection with the grant of the Option contained herein,
together with its exhibits, and all proxy and other
shareholder communications, including the annual report to
security holders, for the most recently completed fiscal year
and all quarterly and current updates thereof. I acknowledge
that I have received all documents incorporated by reference
in the Prospectus and the Registration Statement filed with
the Securities and Exchange Commission that I requested and
have read the same. I acknowledge that I have had the
opportunity to ask questions of and receive answers from the
Company's management concerning the information set forth in
such Prospectus, reports and updates and have been satisfied
with the answers provided regarding the same.
Finally, I acknowledge that there are significant federal
income tax consequences resulting from my exercise of this
Option, that I have consulted with and received advice from
qualified tax counsel both as to the nature of such tax
consequences and their impact upon my own personal income tax
situation as the result of such exercise, and that I fully
understand such impact and have planned accordingly.
DATED: ________________ __________________________
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-1.x2a
- 17 -
Receipt is hereby acknowledged of the delivery to me by Torvec,
Inc. on , 19 of stock certificates
for shares of $.01 par value common stock purchased by me
pursuant to the terms and conditions of the Torvec, Inc. 1998
Stock Option Plan referred to above.
DATED: ______________________________
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-1.x2a
EXHIBIT NO. 6.2
EMPLOYMENT AGREEMENT
1.AGREEMENT
This writing represents an agreement ("Agreement") between
Lee E. Sawyer, 16 Williamsburg Lane, Rolling Hills,
California, 90274 (the "Employee") and TORVEC Inc.. 11 Pond
View Drive, Pittsford, NY, 14534 (the "Employer") and
defines the employment relationship between the Employee and
the Employer.
2.THE EMPLOYEE'S POSITION
The Employee shall hold the positions of President and Chief
Operating Officer and so long as elected by the stockholders
a member of the Board of Directors of Employer.. The
Employee's duties shall be those usual to the Employee's
position in the Employer's industry; provided, however, the
Employer, at the Employer's sole discretion, may increase,
decrease or otherwise modify the Employee's duties. The
Employee shall at all times exercise his best efforts for
Employer and shall diligently and proficiently perform his
duties for the Employer.
3.EMPLOYEE COMPENSATION
A.Annual Salary:
The Employer shall pay the Employee, in equal monthly
installments, at the rate equivalent to the amounts listed
below:
<TABLE>
<S> <C>$240,000 <C>CY <C>1998
$252,000 CY 1999 (5%
increase)
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
$264,600 CY 2000 (5%
increase)
</TABLE>
Salary to be paid in equal monthly installments
reduced by withholding the usual payroll deductions.
B.Bonus:
At the end of each quarter for each quarter worked or
prorated portion of a quarter worked, the Employer shall pay
the Employee the minimum bonus listed below:
$15,000 per quarter for 1998
$15,000 per quarter for 1999
$15,000 per quarter for 2000
Bonus to be paid withholding the usual payroll
deductions. Any increase in bonus beyond the minimum will
be determined by the Board of Directors taking into account
Employee performance and the profitability and financial
conditions of Employer.
C.Stock Options:
Subject to the approval by its shareholders of the
Company's 1998 Stock Option Plan, there is hereby granted to
the Employee a non-qualified stock option to purchase up to
180,000 shares of the Company's $.01 par value Common Stock
at an exercise price of $5.00 per share. The option granted
hereby shall be subject to the terms and conditions set
forth in the Stock Option Agreement attached hereto and made
a part hereof. The term of the option shall be for a period
of 10 years, shall vest on a cumulative basis at a rate of
20% per year, shall provide for immediate and full vesting
in the event the Company is acquired and shall provide that
the right to exercise the option in accordance with its
terms shall survive the Employee's termination of
employment.
4.EMPLOYEE BENEFITS
A.Automobile(s):
The Employer shall provide a $700 per month lease car
allowance for securing automobile(s) for the Employee's use.
The Employee shall provide insurance (100/300), gasoline,
usual expenses and maintenance for the automobile(s). The
Employee shall be able to add to this lease car amount in
order to obtain a higher level of vehicle(s) if he desires.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
B.Vacation:
The Employee is entitled to three (3) weeks paid vacation
for each twelve (12) months of this Agreement.
C.Additional Benefits:
1. The Employee will be included in such fringe
benefit programs as the Employer hereafter adopts for the
benefit of all employees.
2. Employer will provide suitable housing for
Employee during such periods as Employee physically conducts
his business from the Rochester, New York metropolitan area.
3. For a period of eighteen months after the
commencement of this Agreement, Employer will pay to
Employee as additional compensation an amount equal to the
amount actually expended by Employee to continue COBRA
insurance coverages with his present employer.
4. 12 paid holidays per year.
5. Sick pay days accrue at the same rate as
vacation days.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
5.TERM OF AGREEMENT
This Agreement shall be for a period of three (3) years
commencing on the first day of the month in which Employer
receives the proceeds from its initial public offering of
securities and shall automatically renew for three (3)
years, unless the Employer informs the Employee of its
intention to allow such Agreement to expire by giving
written notice to the Employee at least six (6) months prior
to the termination date.
6.CHANGE OF OWNERSHIP
If TORVEC Inc. is bought out by another company, this
Agreement may also be bought out at the prorated lump sum of
base pay and bonus for lesser of twelve months or the
remaining months on this Agreement.
7.TERMINATION OF THE CONTRACT
A.Cause of Termination:
1.Termination by the Employee
The Employee may terminate this Agreement, for
any reason, upon written notice to the Employer not fewer
than twelve (12) months before the date of the intended
termination.
2.Termination by Employer
The Employer may at any time terminate this
Agreement without cause, by a notice to that effect to the
Employee. As severance compensation, the Employer shall
continue to pay the Employee his base pay and bonus for a
period of twelve (12) months, subject to the limitations in
Paragraph 7B2(b) below.
The Employer may terminate this Agreement without
notice for just cause, including but not limited to,
habitual neglect of or failure to perform duties after
written warning from Employer to correct such failure, theft
or misappropriation, or the Employee's continued incapacity
due to mental or physical illness to perform the Employee's
duties.
In the event of termination because of incapacity
to perform due to mental or physical illness only, the
Employer shall pay the Employee's monthly salary and minimum
bonus for twelve (12) months.
B.Effect of Termination of Agreement:
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
Except as otherwise provided herein, upon expiration of
the term of this Agreement, or by termination pursuant to
any provision of this Agreement, all obligations of the
Employee and the Employer shall terminate.
If the Employer gives notice to the Employee as
provided in Paragraph 7A2 herein:
1.The Employee agrees:
(a)To continue to devote his best efforts and
time to performance of his duties for the Employer and to
cooperate with the Employer in effecting an orderly transfer
of responsibilities and duties to a successor over a period
of time to be determined by the Employer in its sole
discretion, but not to exceed three (3) months.
(b)To consult with the Employer as may reasonably
be required.
2.The Employer agrees:
(a)To cooperate in the Employee's effort to
obtain new employment;
(b)To continue to pay the Employee, at the rate
required hereunder, including both salary and minimum bonus
until the Employee obtains new employment or until the
conclusion of twelve (12) months; and, to the extent the
Employee's total compensation in his new employment is less
than his total compensation (salary and bonus) from the
Employer would have been, the Employer shall pay the
difference between the total compensation in the new
employment and the total compensation that the Employee
would have earned with the Employer until the conclusion of
the term of the twelve (12) months following termination;
(c)To provide the benefits provided by this
Agreement to the Employee until the Employee obtains new
employment or until expiration of twelve (12) months
whichever occurs first.
8. CONFIDENTIALITY AND TRANSFER OF INVENTIONS
A. Except as may be required by his employment
hereunder, Employee will not at any time or in any manner,
directly or indirectly, divulge, disclose or communicate to
any person, firm, corporation, organization or entity any
Trade Secrets of Employer. Trade Secrets include
information concerning matters affecting or relating to the
products, pricing, marketing and sales strategies, servicing
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
of products, processes, formulas, inventions, discoveries,
devices, finances or business of Employer or of its
customers. Employee will at all times hold inviolate and
keep secret all knowledge or information and Trade Secrets
acquired by him concerning the names of the Employer's
customers, their addresses, the prices Employer obtains or
has obtained from them for its goods or services, all
knowledge or information acquired by him concerning the
products, formulas, processes, marketing and sales
methodology and training and all other trade secrets of
Employer's customers. In addition, Employee shall make no
disclosure, directly or indirectly, of any financial
information, contractual relationships, policies, past or
contemplated future actions of policies of Employer,
personnel matters, marketing or sales strategies or data,
pricing information, technical data or specifications and
written or oral communications of any sort of Employer or
any of its customers which have not previously been
disclosed to the general public with Employer's consent or
without first obtaining the consent of Employer for such
disclosure. Upon any termination of this Agreement or
Employee's employment, Employee or his representatives shall
immediately deliver to Employer all notes, notebooks,
letters, papers, drawings, memos, communications, blueprints
or other writings or data relating to the business of
Employer or its customers.
B. Employee shall promptly disclose to Employer all
ideas, discoveries, designs, improvements, innovations and
inventions (collectively referred to herein as
"inventions"), whether patentable or not, either relating to
the existing business, products, plans, processes, or
procedures of Employer, or any parent or subsidiary of
Employer, or suggested by or resulting from Employee's work
at Employer, or resulting wholly or in part from the use of
Employer's time, material, facilities or ideas, which
Employee makes or conceives, in whole or in part, whether or
not during working hours, alone or with others, at any time
during the term of his employment pursuant to this Agreement
or during the first six-month period immediately following
termination of his employment for any reason, and Employee
agrees that all such inventions shall be the exclusive
property of Employer.
C. Employee hereby assigns to Employer all his rights
and interests in and to all such inventions and all patents
which may be obtained on them, in this or any foreign
country. At Employer's expense, but without charge to it,
Employee agrees to execute, acknowledge and deliver to
Employer any specific assignments to any such inventions or
other relevant documents and take any such further action as
may be considered necessary by Employer at any time to
obtain or defend letters patent in any and all countries or
to obtain documents relating to registration, ownership or
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
transfer of copyrights, or to vest title in such inventions
in Employer or its assigns or to obtain for Employer any
other legal protection for such inventions.
D. Because Employee shall acquire by reason of his
employment and association with Employer an extensive
knowledge of Employer's Trade Secrets, customers,
procedures, and other confidential information, the parties
hereto recognize that in the event of a breach or threat of
breach by Employee of the terms and provisions contained in
this Paragraph 8, compensation alone to Employer would not
be an adequate remedy for a breach of those terms and
provisions. Therefore, it is agreed that in the event of a
breach or threat of a breach of the provisions of this
Paragraphs 8 by Employee, Employer shall be entitled to an
immediate injunction from any court of competent
jurisdiction restraining Employee from committing or
continuing to commit a breach of such provisions without the
showing or proving of actual damages. Any preliminary
injunction or restraining order shall continue in full force
and effect until any and all disputes between the parties
regarding this Agreement have been finally resolved on the
merits by settlement or by a court of law. Employee hereby
waives any right he may have to require Employer to post a
bond or other security with respect to obtaining or
continuing any such injunction or temporary restraining
order and, further, hereby releases Employer, its officers,
directors, employees and agents from and waives any claim
for damages against them which he might have with respect to
Employer's obtaining in good faith any injunction or
restraining order pursuant to this Agreement.
Employee agrees that any action for injunction brought
pursuant to this Paragraph 8 may be brought in the New York
State Supreme Court in the County of Monroe and hereby
submits to the jurisdiction of that court and waives any
objection as to venue.
9.CONSTRUCTION OF THIS AGREEMENT
A.Choice of Law:
This Agreement is to be construed pursuant to the laws
of the State of New York, including New York law regarding
choice of law.
B.Invalid Agreement Provisions:
Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be
affected, and the Agreement shall continue as if the
Agreement had been executed absent the unenforceable
provision.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
C.No Other Agreements:
This Agreement represents the entire Agreement between
the Employee and the Employer, and supersedes any and all
negotiations and other agreements, oral, implied or written,
in any way related to the employment relationship between
the Employee and the Employer. No agreements,
representations, or understandings (oral, written, or
implied) other than those expressly set forth herein have
been made or entered into by either party with respect to
any aspect of the Employee's employment or any of the
matters dealt with herein. In executing this Agreement,
neither the Employer nor the Employee relies upon any
promise, representation, or other inducement that is not
expressed in this Agreement. This Agreement may be modified
only by a written Agreement signed by both the Employee and
the Employer and may not be modified in any oral agreement
or representation.
D.Practices Inconsistent With This Agreement:
No provision of this Agreement shall be modified or
construed by any practice or policy that is inconsistent
with such provision, and failure by either the Employee or
the Employer to comply with any provision, shall not affect
the rights of either to thereafter comply or require the
other to comply.
10.ARBITRATION
Any dispute between Employer and the Employee in any way
arising out of this Agreement, other than an action for an
injunction brought pursuant to Paragraph 8 of this
Agreement, including the termination of employees employment
and/or this Agreement, shall be submitted to arbitration by
an arbitrator selected by the American Arbitration
Association. The arbitrator's decision with respect to any
such dispute shall be final and binding. Any such disputes
must be submitted to arbitration within six (6) months of
termination, cancellation, or expiration of this Agreement.
Any party who, in violation of this paragraph, initiates a
lawsuit against the other party, shall pay the other party's
reasonable attorney's fees and costs incurred in such
lawsuit. Except as otherwise provided herein, such
arbitration shall take place in accordance with the Rules of
Commercial Arbitration of the American Arbitration
Association, and shall be held in Monroe County, New York.
TORVEC Inc.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
Date:______________ By:______________________________
President
Employer
Date:______________ _________________________________
Lee E. Sawyer
Employee
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT MADE as of this 1st day of
January, 1998 between TORVEC, INC., a New York business
corporation (herein referred to as the "Company"), and LEE
E. SAWYER (herein referred to as the "Optionee");
WITNESSETH:
1. The Company hereby grants to the Optionee an Option
(hereinafter referred to as "Option") to purchase an
aggregate of 180,000 shares of the $.01 par value Common
Stock of the Company (herein referred to as the "Shares") at
an exercise price of $5.00 per Share to be paid by the
Optionee with cash, a certified check or a bank cashier's
check made payable to the order of the Company.
Alternatively, provided the Board of Directors shall approve
the specific transfer, the Optionee may pay for the Shares,
either in whole or in part, by the delivery of Common Stock
of the Company already owned by him which will be accepted
as payment for the Shares, based upon such Common Stock's
fair market value on the date of exercise. In addition,
provided the Board of Directors shall approve the specific
transfer, payment for the Shares, either in whole or in
part, may be made by delivery of Common Stock acquired by
the Optionee under any of the Company's stock option plans,
provided, however, that if this Option is exercised in part,
Shares acquired by such partial exercise may not be used as
payment for additional Shares to be acquired under this
Agreement. In order for the Optionee to so use shares of
Common Stock previously acquired under any of the Company's
stock option plans as payment for the Shares either in whole
or in part, the transfer of such previously acquired Common
Stock as payment for all or a portion of the exercise price
under this Agreement must occur more than two years from the
date of the grant and one year from the date of exercise of
the prior option pursuant to which the Optionee acquired
such Common Stock.
2. The term during which the Option shall be
exercisable shall commence on January 1, 1998 and expire on
the close of business December 31, 2007, subject to earlier
termination as provided in the Torvec, Inc. 1998 Stock
Option Plan (herein referred to as the "Plan"). The Option
to purchase the number of Shares granted under this
Agreement shall vest on the 1st day of each of the first
five years of the Option Term on a cumulative basis, in
accordance with the following schedule:
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
VESTED NON-
VESTED
1/1/98 - 12/31/98 20% 80%
1/1/99 - 12/31/99 40% 60%
1/1/2000 - 12/31/2000 60% 40%
1/1/01 - 12/31/200 180% 20%
1/1/02 - 12/31/2002 100% 0%
provided however, that to the extent the Optionee shall fail
to exercise or, due to the above limitation, be prohibited
from exercising his Option in any year during the Option
period, such annual right to exercise this Option shall not
expire, but shall be cumulative, and carry over into and be
exercisable in any subsequent year during which the Option
is outstanding.
This Option may be exercised by the Optionee in
accordance with its terms during the Option Term even
though, at the time of such exercise, whether in whole or in
part, the Optionee is no longer an employee of the Company.
3. Notwithstanding the vesting schedule set forth in
Section 2 hereof, the Optionee's right to exercise this
Option in full shall immediately vest upon the occurrence of
a change in control of the Company. For this purpose, the
term "change in control of the Company" shall generally
include a change in the ownership or effective control of
the Company or in the ownership of a substantial portion of
the assets of the Company. Specifically, the term shall
include (i) the purchase or other acquisition by any person,
entity or group of persons, within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, or
any comparable successor provisions, of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Act) of more than 50% of either the outstanding
shares of common stock or the combined voting power of the
Company's then outstanding voting securities entitled to
vote generally, or (ii) the approval by the shareholders of
the Company of a reorganization, merger, or consolidation
with respect to which, in such case, persons who were
shareholders of the Company immediately prior to such
reorganization, merger, or consolidation do not immediately
thereafter, own more than 50% of either the outstanding
shares of common stock or the combined voting power of the
reorganized, merged or consolidated Company's then
outstanding voting securities entitled to vote generally or
(iii) the liquidation and/or dissolution of the Company.
4. The Option is not transferable by the Optionee
other than by Will or the laws of descent and distribution
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
and is exercisable, during his lifetime, only by the
Optionee. In the event that the right to exercise the
Option passes to the Optionee's estate, or to a person to
whom such right devolves by reason of the Optionee's death,
then the Option shall be non transferable in the hands of
the Optionee's Executor or Administrator or of such person,
except that the Option may be distributed by the Optionee's
Executor or Administrator to the distributees of the
Optionee's estate as a part thereof.
5. In order for the Option to be exercised, in whole
or in part, the notice by the Optionee to the Company in the
form attached hereto must be accompanied by payment in full
of the option price for the Shares being purchased. In
addition, the Optionee agrees to tender to the Company an
additional amount, in cash, certified check, cashier's check
or bank draft, equal to the amount of any taxes required to
be collected or withheld by the company in connection with
the exercise of his Option.
6. The Company agrees that it will use its best
efforts to register the sale of the Shares to be issued upon
the exercise of the Option with the Securities and Exchange
Commission under the Securities Act of 1933. Upon the
effectiveness of the Registration Statement covering the
Shares, the Optionee shall be able to sell the Shares in
"open market transactions" free of Federal Securities Law
restrictions, provided that at the time of sale, or within
the three month period immediately prior to such sale, he is
not nor has he been an "affiliate" of the Company. The
Optionee further understands that, in accordance with
applicable Commission rules governing controlling persons of
public companies, members of the board of directors of a
public company, such as the Company, are deemed to be
"affiliates" during their term of office. The Optionee,
therefore, agrees that he will consult with the Company's
counsel as to any Securities Law restrictions, including a
limitation on the number of Shares which may be sold at any
one time, on his ability to sell the Shares prior to any
sale thereof.
7. The Company agrees to provide the Optionee with a
copy of the Prospectus prepared by the Company in connection
with the Registration Statement filed to register the
Shares, together with its exhibits, and the Company hereby
acknowledges its obligation to provide the Optionee with all
proxy and other shareholder communications, including the
annual report to security holders, for the most recently
completed fiscal year of the Company and all updates
thereof. The Optionee agrees that prior to exercise, either
in whole or in part of the Option granted to him hereunder,
he shall have read such materials, including the most recent
annual and quarterly reports to shareholders, and shall have
received, if requested, and read all the documents
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
incorporated by reference in the Prospectus and Registration
Statement filed with the Securities and Exchange Commission.
8. The Optionee understands that except as provided in
Paragraph 6 above, the Company has not agreed to register
either the issuance or the resale of the Shares in
accordance with the provisions of the Securities Act of 1933
or to register either the issuance or the resale of the
Shares under any applicable State Securities Laws. Hence,
the Optionee agrees that by virtue of the provision of
certain rules respecting "restricted securities" promulgated
under such Federal and/or State Laws, unless the resale of
the Shares is registered as provided in Paragraph 6 above,
and until the registration of such Shares in accordance with
Paragraph 6 above shall have been declared effective by
order of the Commission, the Shares which the Optionee shall
purchase upon the exercise of this Option must be held
indefinitely and may not be sold, transferred, pledged,
hypothecated, or otherwise encumbered for value, unless and
until a secondary distribution and/or resale of such Shares
is subsequently registered under such Federal and/or State
Securities Laws, or unless an exemption from registration is
available, in which case the Optionee still may be limited
as to the amount of the Shares that may be sold,
transferred, pledged and/or encumbered for value. The
Optionee therefore agrees that, until the registration of
such Shares shall have been declared effective by order of
the Commission, the Company may affix upon any certificate
representing the Shares, a legend that such Shares may not
be transferred in violation of Section 5 of the Securities
Act of 1933.
9. The Optionee understands and agrees that the Shares
to be acquired upon the exercise of the Option may not be
sold, transferred, exchanged, hypothecated, encumbered,
pledged or otherwise disposed of for value for a period of
six (6) months from the date of the grant of this Option.
10. The Optionee understands that the Company has
established certain policies and procedures governing trading
in the Company's securities, including the Shares to be
acquired upon the exercise of this Option, while in
possession of material, inside information regarding the
Company and/or any of its subsidiaries, receipt of which is
hereby acknowledged. The Optionee agrees that upon exercise
of this Option, either in whole or in part, he will comply
with all of the terms and conditions of such policy,
including the procedures and guidelines established for its
implementation. In particular, the Optionee agrees that
where required under such guidelines and procedures, he will
obtain permission of the Company's Clearinghouse Committee
composed of senior management prior to effectuating any sale
or other transfer for value of the Shares to be acquired by
virtue of the exercise of this Option.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
11. All the terms and provisions of the Plan, duly
adopted at a meeting of the Company's Board of Directors on
_______________ and approved by a majority vote of the
Company's shareholders either in person or by proxy at a duly
called meeting of such shareholders held on _______________
and as amended to date, are hereby expressly incorporated
into this Stock Option Agreement and made a part hereof as if
printed herein and the Optionee, by the Optionee's signature
hereon, acknowledges receipt of a certified copy of said
Plan. If there shall be any conflict between this Agreement
and the Plan, the provisions of the Plan shall control.
12. In accordance with certain terms and conditions of
the Plan, the aggregate number and kind of shares that may be
purchased pursuant to the grant of the Option under this
Agreement shall be proportionately adjusted for any increase,
decrease or change in the total number of the outstanding
shares of the Company resulting from a stock dividend,
stock-split or other corporate reorganization which would
result in or have the effect of the Optionee being treated
differently (but for the adjustment) than he would be treated
had he been the beneficial owner of the Shares subject to the
Option on the record date for such dividend, split or
reorganization, as the case may be.
13. The Optionee understands that the Option granted
hereunder constitutes a "nonqualified stock option" for
federal, and if applicable, state income tax purposes.
Consequently, the Optionee understands that under current
provisions of federal tax law, for regular as well as for
purposes to the federal alternative minimum income tax, no
gain or loss generally is recognized to the Optionee upon the
grant of the Option. In addition, the Company will receive
no business expense deduction as a result of the grant of the
Option.
For federal income tax purposes, upon the exercise
of the Option, the difference between the exercise price and
the fair market value of the Shares on the date of exercise
constitutes ordinary income to the Optionee and is taxed to
the Optionee at normal, ordinary tax rates, except to the
extent the Shares are not transferable and are subject to a
substantial risk of forfeiture. To the extent such
difference is required to be included as income by the
Optionee, the Company is entitled to a business expense
deduction. Upon the later sale of the Shares, long or short
term capital gain or loss will be recognized by the Optionee,
depending upon the holding period (eighteen months for long
term capital gain or loss) and the extent to which the
selling price exceeds or is less than the Optionee's basis in
the stock. The amount of gain will be taxed at normal,
ordinary tax rates, with a maximum rate of 20% if the Shares
are held for a period of at least eighteen months. If the
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
Shares are held for a period of at least twelve months, the
maximum rate on any gain from their sale will be taxed at
28%.
The Optionee also understands that the provisions of
federal tax law described herein are subject to change and,
consequently, the Optionee agrees to consult with his or her
own tax advisor with respect to the tax treatment to be
accorded the grant of the Option herein, the exercise of such
Option, and the disposition of the Shares.
13. Consistent with the provisions of the Plan, this
Agreement shall be binding upon and inure to the benefit of
any successor or assignee of the Company and to any executor,
administrator, legal representative, legatee, or distributee
entitled by law to the Optionee's right hereunder.
14. Except insofar as an interpretation of federal
securities law otherwise is required, or is controlling, this
Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this
Agreement to be executed on its behalf by its duly authorized
officer and the Optionee has hereunto set his hand, as of the
day and year first above written.
TORVEC, INC.
By:______________________
____________________________
Lee E. Sawyer, Optionee
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
NOTICE OF EXERCISE OF STOCK OPTION
AND
RECORD OF STOCK TRANSFER
Torvec, Inc.
3740 Route 104
Williamson, New York 14587
Gentlemen:
I hereby exercise my Stock Option granted to me by Torvec,
Inc. under a Stock Option Agreement dated _______________,
subject to all the terms and provisions thereof and of the
Torvec, Inc. 1998 Stock Option Plan referred to therein and
notify you of my desire to purchase Shares of
the $.01 par value Common Stock of the Company which were
offered to me pursuant to the Stock Option Agreement.
Enclosed is my payment in the sum of in full
payment of such Shares.
I understand that a Registration Statement covering the Shares
to be issued to me pursuant to this exercise of the Option
granted to me was filed with the Securities and Exchange
Commission on _______________. The Registration Statement
became effective on _______________. Consequently, I
understand that unless I am an "affiliate" of the Company, the
Shares I am acquiring are freely tradeable and may be sold by
me in "open market" transactions. If I am an "affiliate" of
the Company, however, or have been one during the three month
period prior to sale, I recognize that I may not sell freely
on the open market and therefore agree that I will consult the
Company's counsel as to the securities law restrictions on my
ability to sell the Shares.
I also understand that under the Plan, and in accordance with
the terms of the Stock Option Agreement, I may not sell,
assign, alienate, pledge, encumber or otherwise transfer for
value the Shares unless a period of six (6) months has elapsed
from the date of the grant of the Option to me.
I acknowledge that I am aware that the Company has established
a policy with respect to trading in its securities while in
possession of material inside information regarding the
Company and/or its subsidiaries, and that, in accordance with
certain guidelines and procedures designed to implement such
policy, I may be required to obtain permission from a
Clearinghouse Committee, composed of Senior Management, prior
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
to any sale or other transfer for value of the Shares hereby
acquired.
I also acknowledge that I have received and have read the
Prospectus dated _______________ prepared by the Company in
connection with the grant of the Option contained herein,
together with its exhibits, and all proxy and other
shareholder communications, including the annual report to
security holders, for the most recently completed fiscal year
and all quarterly and current updates thereof. I acknowledge
that I have received all documents incorporated by reference
in the Prospectus and the Registration Statement filed with
the Securities and Exchange Commission that I requested and
have read the same. I acknowledge that I have had the
opportunity to ask questions of and receive answers from the
Company's management concerning the information set forth in
such Prospectus, reports and updates and have been satisfied
with the answers provided regarding the same.
Finally, I acknowledge that there are significant federal
income tax consequences resulting from my exercise of this
Option, that I have consulted with and received advice from
qualified tax counsel both as to the nature of such tax
consequences and their impact upon my own personal income tax
situation as the result of such exercise, and that I fully
understand such impact and have planned accordingly.
DATED: ______________________________
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
Receipt is hereby acknowledged of the delivery to me by Torvec,
Inc. on , 19 of stock certificates
for shares of $.01 par value common stock purchased by me
pursuant to the terms and conditions of the Torvec, Inc. 1998
Stock Option Plan referred to above.
DATED:______________________________
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-2.x2a
EXHIBIT NUMBER 6.3
EMPLOYMENT AGREEMENT
1. AGREEMENT
This writing represents an agreement ("Agreement")
between Morton A. Polster, 64 Brunswick Street, Rochester,
NY 14607-2307 (the "Employee") and TORVEC Inc., 11 Pond View
Drive, Pittsford, NY, 14534 (the "Employer") and defines the
employment relationship between the Employee and the
Employer.
2. THE EMPLOYEE'S POSITION
The Employee shall hold the positions of Secretary and
Legal and Patent Counsel and so long as elected by the
stockholders a member of the Board of Directors of
Employer.. The Employee's duties shall be those usual to
the Employee's position in the Employer's industry;
provided, however, the Employer, at the Employer's sole
discretion, may increase, decrease or otherwise modify the
Employee's duties. The Employee shall at all times exercise
his best efforts for Employer and shall diligently and
proficiently perform his duties for the Employer.
3. EMPLOYEE COMPENSATION
A. Annual Salary:
The Employer shall pay the Employee, in equal monthly
installments, at the rate of $150,000.00 per year.
B. Stock Options:
Subject to the approval by its shareholders of the
Company's 1998 Stock Option Plan, there is hereby granted to
the Employee a non-qualified stock option to purchase up to
100,000 shares of the Company's $.01 par value Common Stock
at an exercise price of $5.00 per share. The option granted
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-3.x2a
hereby shall be subject to the terms and conditions set
forth in the Stock Option Agreement attached hereto and made
a part hereof. The term of the option shall be for a period
of 10 years, shall vest on a cumulative basis at a rate of
20% per year, shall provide for immediate and full vesting
in the event the Company is acquired and shall provide that
the right to exercise the option in accordance with its
terms shall survive the Employee's termination of
employment.
4. EMPLOYEE BENEFITS
A. Vacation:
The Employee is entitled to three (3) weeks paid
vacation for each twelve (12) months of this Agreement.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-3.x2a
B. Additional Benefits:
1. The Employee will be included in such fringe
benefit programs as the Employer hereafter adopts for the
benefit of all employees.
2. Employer will provide suitable housing for
Employee during such periods as Employee physically conducts
his business from the Rochester, New York metropolitan area.
3. For a period of eighteen months after the
commencement of this Agreement, Employer will pay to
Employee as additional compensation an amount equal to the
amount actually expended by Employee to continue COBRA
insurance coverages with his present employer.
4. 12 paid holidays per year.
5. Sick pay days accrue at the same rate as
vacation days.
5. TERM OF AGREEMENT
This Agreement shall be for a period of three (3) years
commencing on the first day of the month in which Employer
receives the proceeds from its initial public offering of
securities and shall automatically renew for three (3)
years, unless the Employer informs the Employee of its
intention to allow such Agreement to expire by giving
written notice to the Employee at least six (6) months prior
to the termination date.
6. CHANGE OF OWNERSHIP
If TORVEC Inc. is bought out by another company, this
Agreement may also be bought out at the prorated lump sum of
base pay and bonus for lesser of twelve months or the
remaining months on this Agreement.
7. TERMINATION OF THE CONTRACT
A. Cause of Termination:
1. Termination by the Employee
The Employee may terminate this Agreement, for any
reason, upon written notice to the Employer not fewer than
twelve (12) months before the date of the intended
termination.
2. Termination by Employer
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-3.x2a
The Employer may at any time terminate this
Agreement without cause, by a notice to that effect to the
Employee. As severance compensation, the Employer shall
continue to pay the Employee his base pay and bonus for a
period of twelve (12) months, subject to the limitations in
Paragraph 7B2(b) below.
The Employer may terminate this Agreement without
notice for just cause, including but not limited to,
habitual neglect of or failure to perform duties after
written warning from Employer to correct such failure, theft
or misappropriation, or the Employee's continued incapacity
due to mental or physical illness to perform the Employee's
duties.
In the event of termination because of incapacity
to perform due to mental or physical illness only, the
Employer shall pay the Employee's monthly salary and minimum
bonus for twelve (12) months.
B. Effect of Termination of Agreement:
Except as otherwise provided herein, upon
expiration of the term of this Agreement, or by termination
pursuant to any provision of this Agreement, all obligations
of the Employee and the Employer shall terminate.
If the Employer gives notice to the Employee as
provided in Paragraph 7A2 herein:
1. The Employee agrees:
(a) To continue to devote his best efforts
and time to performance of his duties for the Employer and
to cooperate with the Employer in effecting an orderly
transfer of responsibilities and duties to a successor over
a period of time to be determined by the Employer in its
sole discretion, but not to exceed three (3) months.
(b) To consult with the Employer as may
reasonably be required.
2. The Employer agrees:
(a) To cooperate in the Employee's effort to
obtain new employment;
(b) To continue to pay the Employee, at the
rate required hereunder, including both salary and minimum
bonus until the Employee obtains new employment or until the
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conclusion of twelve (12) months; and, to the extent the
Employee's total compensation in his new employment is less
than his total compensation (salary and bonus) from the
Employer would have been, the Employer shall pay the
difference between the total compensation in the new
employment and the total compensation that the Employee
would have earned with the Employer until the conclusion of
the term of the twelve (12) months following termination;
(c) To provide the benefits provided by this
Agreement to the Employee until the Employee obtains new
employment or until expiration of twelve (12) months
whichever occurs first.
8. CONFIDENTIALITY AND TRANSFER OF INVENTIONS
A. Except as may be required by his employment
hereunder, Employee will not at any time or in any manner,
directly or indirectly, divulge, disclose or communicate to
any person, firm, corporation, organization or entity any
Trade Secrets of Employer. Trade Secrets include
information concerning matters affecting or relating to the
products, pricing, marketing and sales strategies, servicing
of products, processes, formulas, inventions, discoveries,
devices, finances or business of Employer or of its
customers. Employee will at all times hold inviolate and
keep secret all knowledge or information and Trade Secrets
acquired by him concerning the names of the Employer's
customers, their addresses, the prices Employer obtains or
has obtained from them for its goods or services, all
knowledge or information acquired by him concerning the
products, formulas, processes, marketing and sales
methodology and training and all other trade secrets of
Employer's customers. In addition, Employee shall make no
disclosure, directly or indirectly, of any financial
information, contractual relationships, policies, past or
contemplated future actions of policies of Employer,
personnel matters, marketing or sales strategies or data,
pricing information, technical data or specifications and
written or oral communications of any sort of Employer or
any of its customers which have not previously been
disclosed to the general public with Employer's consent or
without first obtaining the consent of Employer for such
disclosure. Upon any termination of this Agreement or
Employee's employment, Employee or his representatives shall
immediately deliver to Employer all notes, notebooks,
letters, papers, drawings, memos, communications, blueprints
or other writings or data relating to the business of
Employer or its customers.
B. Employee shall promptly disclose to Employer all
ideas, discoveries, designs, improvements, innovations and
inventions (collectively referred to herein as
"inventions"), whether patentable or not, either relating to
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-3.x2a
the existing business, products, plans, processes, or
procedures of Employer, or any parent or subsidiary of
Employer, or suggested by or resulting from Employee's work
at Employer, or resulting wholly or in part from the use of
Employer's time, material, facilities or ideas, which
Employee makes or conceives, in whole or in part, whether or
not during working hours, alone or with others, at any time
during the term of his employment pursuant to this Agreement
or during the first six-month period immediately following
termination of his employment for any reason, and Employee
agrees that all such inventions shall be the exclusive
property of Employer.
C. Employee hereby assigns to Employer all his rights
and interests in and to all such inventions and all patents
which may be obtained on them, in this or any foreign
country. At Employer's expense, but without charge to it,
Employee agrees to execute, acknowledge and deliver to
Employer any specific assignments to any such inventions or
other relevant documents and take any such further action as
may be considered necessary by Employer at any time to
obtain or defend letters patent in any and all countries or
to obtain documents relating to registration, ownership or
transfer of copyrights, or to vest title in such inventions
in Employer or its assigns or to obtain for Employer any
other legal protection for such inventions.
D. Because Employee shall acquire by reason of his
employment and association with Employer an extensive
knowledge of Employer's Trade Secrets, customers,
procedures, and other confidential information, the parties
hereto recognize that in the event of a breach or threat of
breach by Employee of the terms and provisions contained in
this Paragraph 8, compensation alone to Employer would not
be an adequate remedy for a breach of those terms and
provisions. Therefore, it is agreed that in the event of a
breach or threat of a breach of the provisions of this
Paragraph 8 by Employee, Employer shall be entitled to an
immediate injunction from any court of competent
jurisdiction restraining Employee from committing or
continuing to commit a breach of such provisions without the
showing or proving of actual damages. Any preliminary
injunction or restraining order shall continue in full force
and effect until any and all disputes between the parties
regarding this Agreement have been finally resolved on the
merits by settlement or by a court of law. Employee hereby
waives any right he may have to require Employer to post a
bond or other security with respect to obtaining or
continuing any such injunction or temporary restraining
order and, further, hereby releases Employer, its officers,
directors, employees and agents from and waives any claim
for damages against them which he might have with respect to
Employer's obtaining in good faith any injunction or
restraining order pursuant to this Agreement.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-3.x2a
Employee agrees that any action for injunction brought
pursuant to this Paragraph 8 may be brought in the New York
State Supreme Court in the County of Monroe and hereby
submits to the jurisdiction of that court and waives any
objection as to venue.
9. CONSTRUCTION OF THIS AGREEMENT
A. Choice of Law:
This Agreement is to be construed pursuant to the
laws of the State of New York, including New York law
regarding choice of law.
B. Invalid Agreement Provisions:
Should any provision of this Agreement become
legally unenforceable, no other provision of this Agreement
shall be affected, and the Agreement shall continue as if
the Agreement had been executed absent the unenforceable
provision.
C. No Other Agreements:
This Agreement represents the entire Agreement
between the Employee and the Employer, and supersedes any
and all negotiations and other agreements, oral, implied or
written, in any way related to the employment relationship
between the Employee and the Employer. No agreements,
representations, or understandings (oral, written, or
implied) other than those expressly set forth herein have
been made or entered into by either party with respect to
any aspect of the Employee's employment or any of the
matters dealt with herein. In executing this Agreement,
neither the Employer nor the Employee relies upon any
promise, representation, or other inducement that is not
expressed in this Agreement. This Agreement may be modified
only by a written Agreement signed by both the Employee and
the Employer and may not be modified in any oral agreement
or representation.
D. Practices Inconsistent With This Agreement:
No provision of this Agreement shall be modified
or construed by any practice or policy that is inconsistent
with such provision, and failure by either the Employee or
the Employer to comply with any provision, shall not affect
the rights of either to thereafter comply or require the
other to comply.
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10. ARBITRATION
Any dispute between Employer and the Employee in any
way arising out of this Agreement, other than an action for
an injunction brought pursuant to Paragraph 8 of this
Agreement, including the termination of employees employment
and/or this Agreement, shall be submitted to arbitration by
an arbitrator selected by the American Arbitration
Association. The arbitrator's decision with respect to any
such dispute shall be final and binding. Any such disputes
must be submitted to arbitration within six (6) months of
termination, cancellation, or expiration of this Agreement.
Any party who, in violation of this paragraph, initiates a
lawsuit against the other party, shall pay the other party's
reasonable attorney's fees and costs incurred in such
lawsuit. Except as otherwise provided herein, such
arbitration shall take place in accordance with the Rules of
Commercial Arbitration of the American Arbitration
Association, and shall be held in Monroe County, New York.
TORVEC Inc.
Date: ______________ By:_____________________________
President
Employer
Date:______________ ____________________________________
Morton A. Polster
Employee
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-3.x2a
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT MADE as of this 1st day of
January, 1998 between TORVEC, INC., a New York business
corporation (herein referred to as the "Company"), and
MORTON A. POLSTER (herein referred to as the "Optionee");
WITNESSETH:
1. The Company hereby grants to the Optionee an
Option (hereinafter referred to as "Option") to purchase an
aggregate of 100,000 shares of the $.01 par value Common
Stock of the Company (herein referred to as the "Shares") at
an exercise price of $5.00 per Share to be paid by the
Optionee with cash, a certified check or a bank cashier's
check made payable to the order of the Company.
Alternatively, provided the Board of Directors shall approve
the specific transfer, the Optionee may pay for the Shares,
either in whole or in part, by the delivery of Common Stock
of the Company already owned by him which will be accepted
as payment for the Shares, based upon such Common Stock's
fair market value on the date of exercise. In addition,
provided the Board of Directors shall approve the specific
transfer, payment for the Shares, either in whole or in
part, may be made by delivery of Common Stock acquired by
the Optionee under any of the Company's stock option plans,
provided, however, that if this Option is exercised in part,
Shares acquired by such partial exercise may not be used as
payment for additional Shares to be acquired under this
Agreement. In order for the Optionee to so use shares of
Common Stock previously acquired under any of the Company's
stock option plans as payment for the Shares either in whole
or in part, the transfer of such previously acquired Common
Stock as payment for all or a portion of the exercise price
under this Agreement must occur more than two years from the
date of the grant and one year from the date of exercise of
the prior option pursuant to which the Optionee acquired
such Common Stock.
2. The term during which the Option shall be
exercisable shall commence on January 1, 1998 and expire on
the close of business December 31, 2007, subject to earlier
termination as provided in the Torvec, Inc. 1998 Stock
Option Plan (herein referred to as the "Plan"). The Option
to purchase the number of Shares granted under this
Agreement shall vest on the 1st day of each of the first
five years of the Option Term on a cumulative basis, in
accordance with the following schedule:
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-3.x2a
VESTED NON-
VESTED
1/1/98 - 12/31/98 20% 80%
1/1/99 - 12/31/99 40% 60%
1/1/2000 - 12/31/2000 60% 40%
1/1/01 - 12/31/2001 80% 20%
1/1/02 - 12/31/2002 100% 0%
provided however, that to the extent the Optionee shall fail
to exercise or, due to the above limitation, be prohibited
from exercising his Option in any year during the Option
period, such annual right to exercise this Option shall not
expire, but shall be cumulative, and carry over into and be
exercisable in any subsequent year during which the Option
is outstanding.
This Option may be exercised by the Optionee in
accordance with its terms during the Option Term even
though, at the time of such exercise, whether in whole or in
part, the Optionee is no longer an employee of the Company.
3. Notwithstanding the vesting schedule set forth in
Section 2 hereof, the Optionee's right to exercise this
Option in full shall immediately vest upon the occurrence of
a change in control of the Company. For this purpose, the
term "change in control of the Company" shall generally
include a change in the ownership or effective control of
the Company or in the ownership of a substantial portion of
the assets of the Company. Specifically, the term shall
include (i) the purchase or other acquisition by any person,
entity or group of persons, within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, or
any comparable successor provisions, of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Act) of more than 50% of either the outstanding
shares of common stock or the combined voting power of the
Company's then outstanding voting securities entitled to
vote generally, or (ii) the approval by the shareholders of
the Company of a reorganization, merger, or consolidation
with respect to which, in such case, persons who were
shareholders of the Company immediately prior to such
reorganization, merger, or consolidation do not immediately
thereafter, own more than 50% of either the outstanding
shares of common stock or the combined voting power of the
reorganized, merged or consolidated Company's then
outstanding voting securities entitled to vote generally or
(iii) the liquidation and/or dissolution of the Company.
4. The Option is not transferable by the Optionee
other than by Will or the laws of descent and distribution
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-3.x2a
and is exercisable, during his lifetime, only by the
Optionee. In the event that the right to exercise the
Option passes to the Optionee's estate, or to a person to
whom such right devolves by reason of the Optionee's death,
then the Option shall be non transferable in the hands of
the Optionee's Executor or Administrator or of such person,
except that the Option may be distributed by the Optionee's
Executor or Administrator to the distributees of the
Optionee's estate as a part thereof.
5. In order for the Option to be exercised, in whole
or in part, the notice by the Optionee to the Company in the
form attached hereto must be accompanied by payment in full
of the option price for the Shares being purchased. In
addition, the Optionee agrees to tender to the Company an
additional amount, in cash, certified check, cashier's check
or bank draft, equal to the amount of any taxes required to
be collected or withheld by the company in connection with
the exercise of his Option.
6. The Company agrees that it will use its best
efforts to register the sale of the Shares to be issued upon
the exercise of the Option with the Securities and Exchange
Commission under the Securities Act of 1933. Upon the
effectiveness of the Registration Statement covering the
Shares, the Optionee shall be able to sell the Shares in
"open market transactions" free of Federal Securities Law
restrictions, provided that at the time of sale, or within
the three month period immediately prior to such sale, he is
not nor has he been an "affiliate" of the Company. The
Optionee further understands that, in accordance with
applicable Commission rules governing controlling persons of
public companies, members of the board of directors of a
public company, such as the Company, are deemed to be
"affiliates" during their term of office. The Optionee,
therefore, agrees that he will consult with the Company's
counsel as to any Securities Law restrictions, including a
limitation on the number of Shares which may be sold at any
one time, on his ability to sell the Shares prior to any
sale thereof.
7. The Company agrees to provide the Optionee with a
copy of the Prospectus prepared by the Company in connection
with the Registration Statement filed to register the
Shares, together with its exhibits, and the Company hereby
acknowledges its obligation to provide the Optionee with all
proxy and other shareholder communications, including the
annual report to security holders, for the most recently
completed fiscal year of the Company and all updates
thereof. The Optionee agrees that prior to exercise, either
in whole or in part of the Option granted to him hereunder,
he shall have read such materials, including the most recent
annual and quarterly reports to shareholders, and shall have
received, if requested, and read all the documents
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-3.x2a
incorporated by reference in the Prospectus and Registration
Statement filed with the Securities and Exchange Commission.
8. The Optionee understands that except as provided
in Paragraph 6 above, the Company has not agreed to register
either the issuance or the resale of the Shares in
accordance with the provisions of the Securities Act of 1933
or to register either the issuance or the resale of the
Shares under any applicable State Securities Laws. Hence,
the Optionee agrees that by virtue of the provision of
certain rules respecting "restricted securities" promulgated
under such Federal and/or State Laws, unless the resale of
the Shares is registered as provided in Paragraph 6 above,
and until the registration of such Shares in accordance with
Paragraph 6 above shall have been declared effective by
order of the Commission, the Shares which the Optionee shall
purchase upon the exercise of this Option must be held
indefinitely and may not be sold, transferred, pledged,
hypothecated, or otherwise encumbered for value, unless and
until a secondary distribution and/or resale of such Shares
is subsequently registered under such Federal and/or State
Securities Laws, or unless an exemption from registration is
available, in which case the Optionee still may be limited
as to the amount of the Shares that may be sold,
transferred, pledged and/or encumbered for value. The
Optionee therefore agrees that, until the registration of
such Shares shall have been declared effective by order of
the Commission, the Company may affix upon any certificate
representing the Shares, a legend that such Shares may not
be transferred in violation of Section 5 of the Securities
Act of 1933.
9. The Optionee understands and agrees that the
Shares to be acquired upon the exercise of the Option may
not be sold, transferred, exchanged, hypothecated,
encumbered, pledged or otherwise disposed of for value for a
period of six (6) months from the date of the grant of this
Option.
10. The Optionee understands that the Company has
established certain policies and procedures governing trading
in the Company's securities, including the Shares to be
acquired upon the exercise of this Option, while in
possession of material, inside information regarding the
Company and/or any of its subsidiaries, receipt of which is
hereby acknowledged. The Optionee agrees that upon exercise
of this Option, either in whole or in part, he will comply
with all of the terms and conditions of such policy,
including the procedures and guidelines established for its
implementation. In particular, the Optionee agrees that
where required under such guidelines and procedures, he will
obtain permission of the Company's Clearinghouse Committee
composed of senior management prior to effectuating any sale
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-3.x2a
or other transfer for value of the Shares to be acquired by
virtue of the exercise of this Option.
11. All the terms and provisions of the Plan, duly
adopted at a meeting of the Company's Board of Directors on
_______________ and approved by a majority vote of the
Company's shareholders either in person or by proxy at a duly
called meeting of such shareholders held on _______________
and as amended to date, are hereby expressly incorporated
into this Stock Option Agreement and made a part hereof as if
printed herein and the Optionee, by the Optionee's signature
hereon, acknowledges receipt of a certified copy of said
Plan. If there shall be any conflict between this Agreement
and the Plan, the provisions of the Plan shall control.
12. In accordance with certain terms and conditions of
the Plan, the aggregate number and kind of shares that may be
purchased pursuant to the grant of the Option under this
Agreement shall be proportionately adjusted for any increase,
decrease or change in the total number of the outstanding
shares of the Company resulting from a stock dividend,
stock-split or other corporate reorganization which would
result in or have the effect of the Optionee being treated
differently (but for the adjustment) than he would be treated
had he been the beneficial owner of the Shares subject to the
Option on the record date for such dividend, split or
reorganization, as the case may be.
13. The Optionee understands that the Option granted
hereunder constitutes a "nonqualified stock option" for
federal, and if applicable, state income tax purposes.
Consequently, the Optionee understands that under current
provisions of federal tax law, for regular as well as for
purposes to the federal alternative minimum income tax, no
gain or loss generally is recognized to the Optionee upon the
grant of the Option. In addition, the Company will receive
no business expense deduction as a result of the grant of the
Option.
For federal income tax purposes, upon the exercise
of the Option, the difference between the exercise price and
the fair market value of the Shares on the date of exercise
constitutes ordinary income to the Optionee and is taxed to
the Optionee at normal, ordinary tax rates, except to the
extent the Shares are not transferable and are subject to a
substantial risk of forfeiture. To the extent such
difference is required to be included as income by the
Optionee, the Company is entitled to a business expense
deduction. Upon the later sale of the Shares, long or short
term capital gain or loss will be recognized by the Optionee,
depending upon the holding period (eighteen months for long
term capital gain or loss) and the extent to which the
selling price exceeds or is less than the Optionee's basis in
the stock. The amount of gain will be taxed at normal,
ordinary tax rates, with a maximum rate of 20% if the Shares
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are held for a period of at least eighteen months. If the
Shares are held for a period of at least twelve months, the
maximum rate on any gain from their sale will be taxed at
28%.
The Optionee also understands that the provisions
of federal tax law described herein are subject to change
and, consequently, the Optionee agrees to consult with his or
her own tax advisor with respect to the tax treatment to be
accorded the grant of the Option herein, the exercise of such
Option, and the disposition of the Shares.
13. Consistent with the provisions of the Plan, this
Agreement shall be binding upon and inure to the benefit of
any successor or assignee of the Company and to any executor,
administrator, legal representative, legatee, or distributee
entitled by law to the Optionee's right hereunder.
14. Except insofar as an interpretation of federal
securities law otherwise is required, or is controlling, this
Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this
Agreement to be executed on its behalf by its duly authorized
officer and the Optionee has hereunto set his hand, as of the
day and year first above written.
TORVEC, INC.
By: ____________________________
____________________________
Morton A. Polster, Optionee
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NOTICE OF EXERCISE OF STOCK OPTION
AND
RECORD OF STOCK TRANSFER
Torvec, Inc.
3740 Route 104
Williamson, New York 14587
Gentlemen:
I hereby exercise my Stock Option granted to me by
Torvec, Inc. under a Stock Option Agreement dated
_______________, subject to all the terms and provisions
thereof and of the Torvec, Inc. 1998 Stock Option Plan
referred to therein and notify you of my desire to purchase
Shares of the $.01 par value Common Stock of the Company which
were offered to me pursuant to the Stock Option Agreement.
Enclosed is my payment in the sum of in full
payment of such Shares.
I understand that a Registration Statement covering the
Shares to be issued to me pursuant to this exercise of the
Option granted to me was filed with the Securities and
Exchange Commission on _______________. The Registration
Statement became effective on _______________. Consequently,
I understand that unless I am an "affiliate" of the Company,
the Shares I am acquiring are freely tradeable and may be sold
by me in "open market" transactions. If I am an "affiliate"
of the Company, however, or have been one during the three
month period prior to sale, I recognize that I may not sell
freely on the open market and therefore agree that I will
consult the Company's counsel as to the securities law
restrictions on my ability to sell the Shares.
I also understand that under the Plan, and in accordance
with the terms of the Stock Option Agreement, I may not sell,
assign, alienate, pledge, encumber or otherwise transfer for
value the Shares unless a period of six (6) months has elapsed
from the date of the grant of the Option to me.
I acknowledge that I am aware that the Company has
established a policy with respect to trading in its securities
while in possession of material inside information regarding
the Company and/or its subsidiaries, and that, in accordance
with certain guidelines and procedures designed to implement
such policy, I may be required to obtain permission from a
Clearinghouse Committee, composed of Senior Management, prior
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-3.x2a
to any sale or other transfer for value of the Shares hereby
acquired.
I also acknowledge that I have received and have read the
Prospectus dated _______________ prepared by the Company in
connection with the grant of the Option contained herein,
together with its exhibits, and all proxy and other
shareholder communications, including the annual report to
security holders, for the most recently completed fiscal year
and all quarterly and current updates thereof. I acknowledge
that I have received all documents incorporated by reference
in the Prospectus and the Registration Statement filed with
the Securities and Exchange Commission that I requested and
have read the same. I acknowledge that I have had the
opportunity to ask questions of and receive answers from the
Company's management concerning the information set forth in
such Prospectus, reports and updates and have been satisfied
with the answers provided regarding the same.
Finally, I acknowledge that there are significant federal
income tax consequences resulting from my exercise of this
Option, that I have consulted with and received advice from
qualified tax counsel both as to the nature of such tax
consequences and their impact upon my own personal income tax
situation as the result of such exercise, and that I fully
understand such impact and have planned accordingly.
DATED:
______________________________
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-3.x2a
Receipt is hereby acknowledged of the delivery to me by
Torvec, Inc. on , 19 of stock
certificates for shares of $.01 par value common stock
purchased by me pursuant to the terms and conditions of the
Torvec, Inc. 1998 Stock Option Plan referred to above.
DATED:
______________________________
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-3.x2a
EXHIBIT NUMBER 6.4
CONSULTING AGREEMENT
THIS AGREEMENT made and entered into the 6th day of
February, 1998, effective as of December 1, 1997, by and
between Torvec, Inc., a New York corporation having a
principal place of business at 11 Pondview Drive, Pittsford,
New York, 14534 (hereinafter "TORVEC") and Keith E.
Gleasman, an individual having a principal place of business
at 11 McCoord Woods Drive, Fairport, New York, 14450
(hereinafter "Consultant").
WITNESSETH
WHEREAS, Consultant has experience in the design,
development, and manufacture of gears, clutches, couplings,
and other mechanical elements , for all purposes including,
but not limited to use in automotive components and motor
vehicles and is willing to design, develop, and manufacture
such products for TORVEC; and
WHEREAS, TORVEC desires to have Consultant design,
develop, and assist in the manufacturing of such products
for TORVEC under the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
and promises set forth herein, the parties hereto agree as
follows.
1. Definitions. The following definitions shall apply
for all purposes of this Agreement:
(a) "Work Product" shall mean all data, designs,
documentation, inventions, soft-
ware and information, in whatever form, first produced
created or emanating from, by or for Consultant in the
performance of work or the rendition of services under this
Agreement.
(b) "Background Rights" shall mean all data,
designs, documentation, inventions, software and
information, in whatever form, not first produced created or
emanating from, by or for Consultant as a result of or
related to the performance of work or the rendition of
services under this Agreement, but included in or necessary
for use in or with the Work Product or any other product or
any portion thereof which is produced or contemplated by
Torvec.
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(c) "TORVEC Representative" shall mean the Chief
Operating Officer of Torvec or his alternate as designated
in writing by him.
2. Work to be performed and services to be rendered.
(a) Consultant agrees, during the term of this
Agreement, the Consultant shall devote his full time and
effort to the design, development, and manufacture of
inventions and products for Torvec, and the training of
others performing such work.
(b) The work to be performed and the services to be
rendered hereunder shall be performed by the Consultant, and
such work or services may not be subcontracted or otherwise
performed by third parties on behalf of Consultant without
the prior written permission of TORVEC, which permission
shall not be unreasonably withheld; provided, however, that
Consultant shall be responsible therefor pursuant to this
Agreement.
3. Rights in the Work Product and Background Rights.
(a) Consultant hereby grants to TORVEC, and TORVEC
hereby accepts, the entire, right title and interest of
Consultant in and to the Work Product and in and to all
patents, copyrights, trade secrets, trademarks, and other
proprietary rights in or based on the Work Product.
(b) Consultant hereby grants to TORVEC, and TORVEC
hereby accepts, an unlimited, unrestricted, royalty-free,
fully paid-up, worldwide exclusive right and license, with
the right to grant licenses and sublicenses to others
without accounting to Consultant, under the Background
Rights and the entire right, title, and interest of
Consultant to the Background Rights and all proprietary
rights therein or based thereon.
(c) Consultant and TORVEC agree that if the Work
Product or any portion thereof is copyrightable, it shall be
deemed to be a "work made for hire," as such term is defined
in the Copyright Laws of the United States.
(d) Consultant shall cooperate with TORVEC or its
designees and execute all documents of assignment, oaths,
declaration and other documents, as may be prepared by
TORVEC, to effect the foregoing or to perfect or enforce any
proprietary rights resulting from or related to this
Agreement. Such cooperation and execution shall be at no
additional compensation to Consultant; provided, however,
that TORVEC shall reimburse Consultant for reasonable out-of
pocket expenses incurred.
4. Compensation..
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-4doc.x2a
(a) As compensation in full for the successful
performance of all work and services to be performed
hereunder, including the grant of rights and licenses in and
to Work Product and Background Rights, TORVEC shall pay
Consultant a fixed fee of $12,500.00 per month.
(b) TORVEC shall reimburse Consultant for expenses
incurred by Consultant in the performance of work and the
rendition of services under this Agreement, provided that
reimbursement of travel and related expenses shall be in
accordance with TORVEC's then current policies applicable to
TORVEC employees for the reimbursement of such expenses.
Consultant shall obtain receipts for all expenses in excess
of $25 and shall submit them to TORVEC.
(c) Subject to the approval by its shareholders of
the Company's 1998 Stock Option Plan, there is hereby
granted to the Consultant a non-qualified stock option to
purchase up to 25,000 shares of the Company's $.01 par value
Common Stock at an exercise price of $5.00 per share. The
option granted hereby shall be subject to the terms and
conditions set forth in the Stock Option Agreement attached
hereto and made a part hereof. The term of the option shall
be for a period of 10 years, shall vest on a cumulative
basis at a rate of 20% per year, shall provide for immediate
and full vesting in the event the Company is acquired and
shall provide that the right to exercise the option in
accordance with its terms shall survive the Consultant's
termination of services.
5. Confidentiality.
(a) Consultant agrees that the Work Product and
Background Rights are the sole and exclusive property of
TORVEC, and Consultant shall treat the Work Product and
Background Rights on a confidential basis and not disclose
it to any third party or use it for the benefit of other
than TORVEC; provided, however, that Consultant shall be
relieved of such obligation if and when TORVEC discloses the
Work Product and Background Rights without any restriction
on use or further disclosure.
(b) Consultant shall keep confidential and not
disclose or use for the benefit of other than TORVEC any and
all written or tangible information stamped "confidential,"
"proprietary" or with a similar legend which is made
available or disclosed to Consultant as a result of or in
any way related to this Agreement; provided, however, that
Consultant shall have no obligation hereunder for that
portion of such information which is disclosed by TORVEC to
others without any restriction on use and disclosure.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-4doc.x2a
(c) Consultant acknowledges that his promised
services hereunder are of special, unique, unusual and
extraordinary character which gives them peculiar value,
the loss of which cannot adequately be compensated in
damages in an action at law, and Consultant further
acknowledges that in his consultative capacity hereunder he
will be making use of, acquiring and adding to confidential
information of special and unique value relating to the
affairs of the TORVEC, its subsidiaries and affiliates,
including but not limited to its financial affairs, new
products, marketing plans, and costs of providing the
products. In addition to and not in limitation of any other
restrictive covenants which may be binding upon Consultant,
Consultant agrees that he will not (except for the benefit
of or with the written consent of the TORVEC, its
successors or assigns);
(1) During or after the Term of Consultation,
disclose any of said information to any
person, firm or corporation for any purpose
whatsoever; and
(2) During the Term of Consultation or within
two (2) years thereafter, in any area in
which duties have at any time been assigned
to him hereunder during the Term of
Consultation, engage (as an individual or
as a stockholder, partner, member, agent,
employee or representative of any person,
firm, corporation limited liability company
or partnership, or association), or have
any interest, direct or indirect, in any
entity developing or producing products or
related business in competition with the
business of the TORVEC; provided that this
paragraph shall not prevent the Consultant
from acquiring and holding shares of stock
of TORVEC and not to exceed two (2%)
percent of the outstanding shares of stock
of any other corporation which engages in a
related business if such shares are
available to the general public on a
national securities exchange or NASDAQ..
6. Term of agreement.
(a) This Agreement shall be for a period of three
years commencing on December 1, 1997 unless terminated or
canceled as provided herein.
(b) The term of any right or licenses under
proprietary rights granted to TORVEC as a result of or
related to this Agreement shall be for the full term of such
proprietary rights.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-4doc.x2a
7. Warranties and representations. Consultant warrants
and represents that:
(a) The Work Product is original work developed
pursuant to this Agreement;
(b) The Work Product was created by the Consultant;
(c) The Work Product, in whole or in part, does not,
upon information and belief, infringe any patents,
copyrights, trade secrets or other proprietary rights of
third parties and Consultant has received no claims or
charges of such infringement by the Work Product or any
portion thereof, and Consultant has no reason to believe
that the Work Product, in whole or in part, may infringe the
patents, copyrights, trade secrets or other proprietary
rights of third parties;
(d) Consultant has the authority to enter into this
Agreement and to perform all obligations, hereunder,
including, but not limited to, the grant of rights and
licenses to the Work Product and Background Rights and all
proprietary rights therein or based thereon; and
(e) Consultant has not granted any rights or
licenses to third parties under Work Product or any portion
thereof.
8. Indemnities. Consultant shall indemnify and hold
TORVEC harmless against any loss or liability to person or
property arising out of the performance of Consultant under
this Agreement
9. Disability waiver. TORVEC recognizes that
Consultant's past association with TORVEC has created unique
goodwill to TORVEC. TORVEC desires to retain Consultant's
services and prevent them from being used by its
competitors, even though Consultant may become disabled or
incapacitated. Accordingly, it is expressly understood that
Consultant's inability to render Services to TORVEC because
of absences, or temporary or permanent illness, disability,
or incapacity, or for any other reasonable cause, shall not
constitute a failure to perform his obligations hereunder
and shall not be deemed a breach or default by him.
10. Death benefit. Should Consultant die during the
term of this Agreement, the Agreement shall terminate as of
the last day of the month of his death. TORVEC shall, for a
period of twelve (12) months after Consultant's death, pay
to his legal representatives, or to his surviving widow
(provided that Consultant has so instructed TORVEC in
writing prior to his death) the sum of $12,500.00, monthly
to be paid on the last day of each month during the twelve
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-4doc.x2a
(12) month period. If Consultant dies during the last year
of this Agreement, however, the $12,500.00 monthly payments
to his legal representatives or widow, as the case may be,
shall not in any case be made after the termination date set
forth in this Agreement.
11. Termination/Cancellation.
(a) This Agreement may be terminated or canceled by
either party upon the occurrence of any of the following
events, and neither party shall have any liability to the
other party for the exercise of such right.
(1) By either party, if the other party has
breached a covenant, obligation or warranty under this
Agreement and such breach remains uncured for a period of 30
days after notice thereof is sent to such other party;
(2) By either party, if the other party ceases
to conduct business.
(b) In the event either party terminates or cancels
this Agreement pursuant to this Paragraph 11, TORVEC shall
have no further liability to Consultant, except to pay
Consultant a pro-rata share of the compensation of Paragraph
4 for that portion of the Work Product performed through the
date of termination/cancellation.
12. Arbitration. Any controversy or claim arising out
of or relating to this Agreement shall be settled by
arbitration in accordance with the Rules of Commercial
Arbitration of the American Arbitration Association. Any
judgment upon the award rendered in such arbitration may be
entered in any court of competent jurisdiction.
Notwithstanding the provisions of this paragraph, TORVEC
shall have the right to seek enforcement of the provisions
of paragraph 5 above by a court proceeding for an
injunction.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-4doc.x2a
13. General.
(a) This Agreement is the sole and entire agreement
between the parties relating to the subject matter hereof
and the Work Product and the Background Rights, and
supersedes all prior understandings, agreements, and
documentation relating to the subject matter hereof other
than prior assignments and transfers of ownership by
Consultant to Torvec which assignments and transfers remain
in full force and effect. This Agreement may be amended
only by an instrument executed by the authorized
representatives of both parties.
(b) Any termination, cancellation or expiration of
this Agreement notwithstanding, provisions which are
intended to survive and continue shall so survive and
continue, including, but not limited to, the provisions of
Paragraphs 3, 5, 7, 8, 9,10 11 and 12.
(c) This Agreement shall be interpreted in
accordance with the substantive law of the State of New
York.
IN WITNESS WHEREOF the parties hereto have caused this
Agreement to be executed by their duly authorized
representatives and to be effective as of the date first
above written.
TORVEC, INC.
By:______________________ _______________________
Title: Keith E. Gleasman
Date: ___________________ Date:_________________
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-4doc.x2a
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT MADE as of this 1st day of
December, 1997 between TORVEC, INC., a New York business
corporation (herein referred to as the "Company"), and KEITH
E. GLEASMAN (herein referred to as the "Optionee");
WITNESSETH:
1. The Company hereby grants to the Optionee an Option
(hereinafter referred to as "Option") to purchase an
aggregate of 25,000 shares of the $.01 par value Common
Stock of the Company (herein referred to as the "Shares") at
an exercise price of $5.00 per Share to be paid by the
Optionee with cash, a certified check or a bank cashier's
check made payable to the order of the Company.
Alternatively, provided the Board of Directors shall approve
the specific transfer, the Optionee may pay for the Shares,
either in whole or in part, by the delivery of Common Stock
of the Company already owned by him which will be accepted
as payment for the Shares, based upon such Common Stock's
fair market value on the date of exercise. In addition,
provided the Board of Directors shall approve the specific
transfer, payment for the Shares, either in whole or in
part, may be made by delivery of Common Stock acquired by
the Optionee under any of the Company's stock option plans,
provided, however, that if this Option is exercised in part,
Shares acquired by such partial exercise may not be used as
payment for additional Shares to be acquired under this
Agreement. In order for the Optionee to so use shares of
Common Stock previously acquired under any of the Company's
stock option plans as payment for the Shares either in whole
or in part, the transfer of such previously acquired Common
Stock as payment for all or a portion of the exercise price
under this Agreement must occur more than two years from the
date of the grant and one year from the date of exercise of
the prior option pursuant to which the Optionee acquired
such Common Stock.
2. The term during which the Option shall be
exercisable shall commence on December 1, 1997 and expire on
the close of business November 30, 2007, subject to earlier
termination as provided in the Torvec, Inc. 1998 Stock
Option Plan (herein referred to as the "Plan"). The Option
to purchase the number of Shares granted under this
Agreement vest on the 1st day of each of the five years of
the Option Term on a cumulative basis, in accordance with
the following schedule:
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-4doc.x2a
VESTED NON-VESTED
12/1/97 - 11/30/98 20% 80%
12/1/98 - 11/30/99 40% 60%
12/1/99 - 11/30/2000 60% 40%
12/1/2000 - 11/30/2001 80% 20%
12/1/2001 - 11/30/2002 100% 0%
provided however, that to the extent the Optionee shall fail
to exercise or, due to the above limitation, be prohibited
from exercising his Option in any year during the Option
period, such annual right to exercise this Option shall not
expire, but shall be cumulative and carry over into and be
exercisable in any subsequent year during which the Option
is outstanding.
This Option may be exercised by the Optionee in
accordance with its terms during the Option Term even
though, at the time of such exercise, whether in whole or in
part, the Optionee is no longer an consultant of the
Company.
3. Notwithstanding the limitation upon immediate
exercise set forth in Section 2 hereof, this Option shall be
exercisable in full immediately upon the occurrence of a
change in control of the Company. For this purpose, the
term "change in control of the Company" shall generally
include a change in the ownership or effective control of
the Company or in the ownership of a substantial portion of
the assets of the Company. Specifically, the term shall
include (i) the purchase or other acquisition by any person,
entity or group of persons, within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, or
any comparable successor provisions, of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Act) of more than 50% of either the outstanding
shares of common stock or the combined voting power of the
Company's then outstanding voting securities entitled to
vote generally, or (ii) the approval by the shareholders of
the Company of a reorganization, merger, or consolidation
with respect to which, in such case, persons who were
shareholders of the Company immediately prior to such
reorganization, merger, or consolidation do not immediately
thereafter, own more than 50% of either the outstanding
shares of common stock or the combined voting power of the
reorganized, merged or consolidated Company's then
outstanding voting securities entitled to vote generally or
(iii) the liquidation and/or dissolution of the Company.
4. The Option is not transferable by the Optionee
other than by Will or the laws of descent and distribution
and is exercisable, during his lifetime, only by the
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Optionee. In the event that the right to exercise the
Option passes to the Optionee's estate, or to a person to
whom such right devolves by reason of the Optionee's death,
then the Option shall be non transferable in the hands of
the Optionee's Executor or Administrator or of such person,
except that the Option may be distributed by the Optionee's
Executor or Administrator to the distributees of the
Optionee's estate as a part thereof.
5. In order for the Option to be exercised, in whole or
in part, the notice by the Optionee to the Company in the
form attached hereto must be accompanied by payment in full
of the option price for the Shares being purchased. In
addition, the Optionee agrees to tender to the Company an
additional amount, in cash, certified check, cashier's check
or bank draft, equal to the amount of any taxes required to
be collected or withheld by the company in connection with
the exercise of his Option.
6. The Company agrees that it will use its best
efforts to register the sale of the Shares to be issued upon
the exercise of the Option with the Securities and Exchange
Commission under the Securities Act of 1933. Upon the
effectiveness of the Registration Statement covering the
Shares, the Optionee shall be able to sell the Shares in
"open market transactions" free of Federal Securities Law
restrictions, provided that at the time of sale, or within
the three month period immediately prior to such sale, he is
not nor has he been an "affiliate" of the Company. The
Optionee further understands that, in accordance with
applicable Commission rules governing controlling persons of
public companies, members of the board of directors of a
public company, and/or persons who hold significant
policy-making positions with a public company, such as the
Company, are deemed to be "affiliates" during their term of
office. The Optionee, therefore, agrees that he will
consult with the Company's counsel as to any Securities Law
restrictions, including a limitation on the number of Shares
which may be sold at any one time, on his ability to sell
the Shares prior to any sale thereof.
7. The Company agrees to provide the Optionee with a
copy of the Prospectus prepared by the Company in connection
with the Registration Statement filed to register the
Shares, together with its exhibits, and the Company hereby
acknowledges its obligation to provide the Optionee with all
proxy and other shareholder communications, including the
annual report to security holders, for the most recently
completed fiscal year of the Company and all updates
thereof. The Optionee agrees that prior to exercise, either
in whole or in part of the Option granted to him hereunder,
he shall have read such materials, including the most recent
annual and quarterly reports to shareholders, and shall have
received, if requested, and read all the documents
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incorporated by reference in the Prospectus and Registration
Statement filed with the Securities and Exchange Commission.
8. The Optionee understands that except as provided in
Paragraph 6 above, the Company has not agreed to register
either the issuance or the resale of the Shares in
accordance with the provisions of the Securities Act of 1933
or to register either the issuance or the resale of the
Shares under any applicable State Securities Laws. Hence,
the Optionee agrees that by virtue of the provision of
certain rules respecting "restricted securities" promulgated
under such Federal and/or State Laws, unless the resale of
the Shares is registered as provided in Paragraph 6 above,
and until the registration of such Shares in accordance with
Paragraph 6 above shall have been declared effective by
order of the Commission, the Shares which the Optionee shall
purchase upon the exercise of this Option must be held
indefinitely and may not be sold, transferred, pledged,
hypothecated, or otherwise encumbered for value, unless and
until a secondary distribution and/or resale of such Shares
is subsequently registered under such Federal and/or State
Securities Laws, or unless an exemption from registration is
available, in which case the Optionee still may be limited
as to the amount of the Shares that may be sold,
transferred, pledged and/or encumbered for value. The
Optionee therefore agrees that, until the registration of
such Shares shall have been declared effective by order of
the Commission, the Company may affix upon any certificate
representing the Shares, a legend that such Shares may not
be transferred in violation of Section 5 of the Securities
Act of 1933.
9. The Optionee understands and agrees that the Shares
to be acquired upon the exercise of the Option may not be
sold, transferred, exchanged, hypothecated, encumbered,
pledged or otherwise disposed of for value for a period of
six (6) months from the date of the grant of this Option.
10. The Optionee understands that the Company has
established certain policies and procedures governing trading
in the Company's securities, including the Shares to be
acquired upon the exercise of this Option, while in
possession of material, inside information regarding the
Company and/or any of its subsidiaries, receipt of which is
hereby acknowledged. The Optionee agrees that upon exercise
of this Option, either in whole or in part, he will comply
with all of the terms and conditions of such policy,
including the procedures and guidelines established for its
implementation. In particular, the Optionee agrees that
where required under such guidelines and procedures, he will
obtain permission of the Company's Clearinghouse Committee
composed of senior management prior to effectuating any sale
or other transfer for value of the Shares to be acquired by
virtue of the exercise of this Option.
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11. All the terms and provisions of the Plan, duly
adopted at a meeting of the Company's Board of Directors on
_______________ and approved by a majority vote of the
Company's shareholders either in person or by proxy at a duly
called meeting of such shareholders held on _______________
and as amended to date, are hereby expressly incorporated
into this Stock Option Agreement and made a part hereof as if
printed herein and the Optionee, by the Optionee's signature
hereon, acknowledges receipt of a certified copy of said
Plan. If there shall be any conflict between this Agreement
and the Plan, the provisions of the Plan shall control.
12. In accordance with certain terms and conditions of
the Plan, the aggregate number and kind of shares that may be
purchased pursuant to the grant of the Option under this
Agreement shall be proportionately adjusted for any increase,
decrease or change in the total number of the outstanding
shares of the Company resulting from a stock dividend,
stock-split or other corporate reorganization which would
result in or have the effect of the Optionee being treated
differently (but for the adjustment) than he would be treated
had he been the beneficial owner of the Shares subject to the
Option on the record date for such dividend, split or
reorganization, as the case may be.
13. The Optionee understands that the Option granted
hereunder constitutes a "nonqualified stock option" for
federal, and if applicable, state income tax purposes.
Consequently, the Optionee understands that under current
provisions of federal tax law, for
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regular as well as for purposes to the federal alternative
minimum income tax, no gain or loss generally is recognized
to the Optionee upon the grant of the Option. In addition,
the Company will receive no business expense deduction as a
result of the grant of the Option.
For federal income tax purposes, upon the exercise of
the Option, the difference between the exercise price and the
fair market value of the Shares on the date of exercise
constitutes ordinary income to the Optionee and is taxed to
the Optionee at normal, ordinary tax rates, except to the
extent the Shares are not transferable and are subject to a
substantial risk of forfeiture. To the extent such
difference is required to be included as income by the
Optionee, the Company is entitled to a business expense
deduction. Upon the later sale of the Shares, long or short
term capital gain or loss will be recognized by the Optionee,
depending upon the holding period (eighteen months for long
term capital gain or loss) and the extent to which the
selling price exceeds or is less than the Optionee's basis in
the stock. The amount of gain will be taxed at normal,
ordinary tax rates, with a maximum rate of 20% if the Shares
are held for a period of at least eighteen months. If the
Shares are held for a period of at least twelve months, the
maximum rate on any gain from their sale will be taxed at
28%.
The Optionee also understands that the provisions of
federal tax law described herein are subject to change and,
consequently, the Optionee agrees to consult with his or her
own tax advisor with respect to the tax treatment to be
accorded the grant of the Option herein, the exercise of such
Option, and the disposition of the Shares.
14. Consistent with the provisions of the Plan, this
Agreement shall be binding upon and inure to the benefit of
any successor or assignee of the Company and to any executor,
administrator, legal representative, legatee, or distributee
entitled by law to the Optionee's right hereunder.
15. Except insofar as an interpretation of federal
securities law otherwise is required, or is controlling, this
Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Agreement
to be executed on its behalf by its duly authorized officer
and the Optionee has hereunto set his hand, as of the day and
year first above written.
TORVEC, INC.
By: ____________________________
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____________________________
Keith E. Gleasman, Optionee
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-4doc.x2a
NOTICE OF EXERCISE OF STOCK OPTION
AND
RECORD OF STOCK TRANSFER
Torvec, Inc.
3740 Route 104
Williamson, New York 14587
Gentlemen:
I hereby exercise my Stock Option granted to me by Torvec,
Inc. under a Stock Option Agreement dated _______________,
subject to all the terms and provisions thereof and of the
Torvec, Inc. 1998 Stock Option Plan referred to therein and
notify you of my desire to purchase Shares of
the $.01 par value Common Stock of the Company which were
offered to me pursuant to the Stock Option Agreement.
Enclosed is my payment in the sum of in full
payment of such Shares.
I understand that a Registration Statement covering the
Shares to be issued to me pursuant to this exercise of the
Option granted to me was filed with the Securities and
Exchange Commission on _______________. The Registration
Statement became effective on _______________. Consequently,
I understand that unless I am an "affiliate" of the Company,
the Shares I am acquiring are freely tradeable and may be sold
by me in "open market" transactions. If I am an "affiliate"
of the Company, however, or have been one during the three
month period prior to sale, I recognize that I may not sell
freely on the open market and therefore agree that I will
consult the Company's counsel as to the securities law
restrictions on my ability to sell the Shares.
I also understand that under the Plan, and in accordance
with the terms of the Stock Option Agreement, I may not sell,
assign, alienate, pledge, encumber or otherwise transfer for
value the Shares unless a period of six (6) months has elapsed
from the date of the grant of the Option to me.
I acknowledge that I am aware that the Company has
established a policy with respect to trading in its securities
while in possession of material inside information regarding
the Company and/or its subsidiaries, and that, in accordance
with certain guidelines and procedures designed to implement
such policy, I may be required to obtain permission from a
Clearinghouse Committee, composed of Senior Management, prior
to any sale or other transfer for value of the Shares hereby
acquired.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-4doc.x2a
I also acknowledge that I have received and have read the
Prospectus dated _______________ prepared by the Company in
connection with the grant of the Option contained herein,
together with its exhibits, and all proxy and other
shareholder communications, including the annual report to
security holders, for the most recently completed fiscal year
and all quarterly and current updates thereof. I acknowledge
that I have received all documents incorporated by reference
in the Prospectus and the Registration Statement filed with
the Securities and Exchange Commission that I requested and
have read the same. I acknowledge that I have had the
opportunity to ask questions of and receive answers from the
Company's management concerning the information set forth in
such Prospectus, reports and updates and have been satisfied
with the answers provided regarding the same.
Finally, I acknowledge that there are significant federal
income tax consequences resulting from my exercise of this
Option, that I have consulted with and received advice from
qualified tax counsel both as to the nature of such tax
consequences and their impact upon my own personal income tax
situation as the result of such exercise, and that I fully
understand such impact and have planned accordingly.
DATED: __________ _____________________________
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Receipt is hereby acknowledged of the delivery to me by Torvec,
Inc. on , 19 of stock certificates
for shares of $.01 par value common stock purchased by me
pursuant to the terms and conditions of the Torvec, Inc. 1998
Stock Option Plan referred to above.
DATED: __________ _____________________________
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-4doc.x2a
EXHIBIT NUMBER 6.5
CONSULTING AGREEMENT
THIS AGREEMENT made and entered into the 6th day of
February, 1998, effective December 1, 1997, by and between
Torvec, Inc., a New York corporation having a principal
place of business at 11 Pondview Drive, Pittsford, New York,
14534 (hereinafter "TORVEC") and James Gleasman, an
individual having a principal place of business at 166
Brittany Lane, Pittsford, New York, (hereinafter
"Consultant").
WITNESSETH
WHEREAS, Consultant has experience in the design,
development, and manufacture of gears, clutches, couplings,
and other mechanical elements , for all purposes including,
but not limited to use in automotive components and motor
vehicles and is willing to design, develop, and manufacture
such products for TORVEC; and
WHEREAS, TORVEC desires to have Consultant design,
develop, and assist in the manufacturing of such products
for TORVEC under the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
and promises set forth herein, the parties hereto agree as
follows.
1. Definitions. The following definitions shall apply
for all purposes of this Agreement:
(a) "Work Product" shall mean all data, designs,
documentation, inventions, soft-
ware and information, in whatever form, first produced
created or emanating from, by or for Consultant in the
performance of work or the rendition of services under this
Agreement.
(b) "Background Rights" shall mean all data,
designs, documentation, inventions, software, marketing,
joint venture, business plans and information, in whatever
form, not first produced created or emanating from, by or
for Consultant as a result of or related to the performance
of work or the rendition of services under this Agreement,
but included in or necessary for use in or with the Work
Product or any other product or any portion thereof which is
produced or contemplated by Torvec.
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(c) "TORVEC Representative" shall mean the Chief
Operating Officer of Torvec or his alternate as designated
in writing by him.
2. Work to be performed and services to be rendered.
(a) Consultant agrees, during the term of this
Agreement, the Consultant shall devote his full time and
effort to the design, development, and manufacture of
inventions and products for Torvec, the training of others
performing such work, and the development of marketing
strategies and joint venture opportunities for TORVEC.
(b) The work to be performed and the services to be
rendered hereunder shall be performed by the Consultant, and
such work or services may not be subcontracted or otherwise
performed by third parties on behalf of Consultant without
the prior written permission of TORVEC, which permission
shall not be unreasonably withheld; provided, however, that
Consultant shall be responsible therefor pursuant to this
Agreement.
3. Rights in the Work Product and Background Rights.
(a) Consultant hereby grants to TORVEC, and TORVEC
hereby accepts, the entire, right title and interest of
Consultant in and to the Work Product and in and to all
patents, copyrights, trade secrets, trademarks, business
plans, marketing and joint venture concepts, and other
proprietary rights in or based on the Work Product.
(b) Consultant hereby grants to TORVEC, and TORVEC
hereby accepts, an unlimited, unrestricted, royalty-free,
fully paid-up, worldwide exclusive right and license, with
the right to grant licenses and sublicenses to others
without accounting to Consultant, under the Background
Rights and the entire right, title, and interest of
Consultant to the Background Rights and all proprietary
rights therein or based thereon.
(c) Consultant and TORVEC agree that if the Work
Product or any portion thereof is copyrightable, it shall be
deemed to be a "work made for hire," as such term is defined
in the Copyright Laws of the United States.
(d) Consultant shall cooperate with TORVEC or its
designees and execute all documents of assignment, oaths,
declaration and other documents, as may be prepared by
TORVEC, to effect the foregoing or to perfect or enforce any
proprietary rights resulting from or related to this
Agreement. Such cooperation and execution shall be at no
additional compensation to Consultant; provided, however,
that TORVEC shall reimburse Consultant for reasonable out-of
pocket expenses incurred.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-5.x2a
4. Compensation.
(a) As compensation in full for the successful
performance of all work and services to be performed
hereunder, including the grant of rights and licenses in and
to Work Product and Background Rights, TORVEC shall pay
Consultant a fixed fee of $12,500.00 per month.
(b) TORVEC shall reimburse Consultant for expenses
incurred by Consultant in the performance of work and the
rendition of services under this Agreement, provided that
reimbursement of travel and related expenses shall be in
accordance with TORVEC's then current policies applicable to
TORVEC employees for the reimbursement of such expenses.
Consultant shall obtain receipts for all expenses in excess
of $25 and shall submit them to TORVEC.
(c) Subject to the approval by its shareholders of
the Company's 1998 Stock Option Plan, there is hereby
granted to the Consultant a non-qualified stock option to
purchase up to 25,000 shares of the Company's $.01 par value
Common Stock at an exercise price of $5.00 per share. The
option granted hereby shall be subject to the terms and
conditions set forth in the Stock Option Agreement attached
hereto and made a part hereof. The term of the option shall
be for a period of 10 years, shall vest on a cumulative
basis at a rate of 20% per year, shall provide for immediate
and full vesting in the event the Company is acquired and
shall provide that the right to exercise the option in
accordance with its terms shall survive the Consultant's
termination of services.
5. Confidentiality.
(a) Consultant agrees that the Work Product and
Background Rights are the sole and exclusive property of
TORVEC, and Consultant shall treat the Work Product and
Background Rights on a confidential basis and not disclose
it to any third party or use it for the benefit of other
than TORVEC; provided, however, that Consultant shall be
relieved of such obligation if and when TORVEC discloses the
Work Product and Background Rights without any restriction
on use or further disclosure.
(b) Consultant shall keep confidential and not
disclose or use for the benefit of other than TORVEC any and
all written or tangible information stamped "confidential,"
"proprietary" or with a similar legend which is made
available or disclosed to Consultant as a result of or in
any way related to this Agreement; provided, however, that
Consultant shall have no obligation hereunder for that
portion of such information which is disclosed by TORVEC to
others without any restriction on use and disclosure.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-5.x2a
(c) Consultant acknowledges that his promised
services hereunder are of special, unique, unusual and
extraordinary character which gives them peculiar value,
the loss of which cannot adequately be compensated in
damages in an action at law, and Consultant further
acknowledges that in his consultative capacity hereunder he
will be making use of, acquiring and adding to confidential
information of special and unique value relating to the
affairs of the TORVEC, its subsidiaries and affiliates,
including but not limited to its financial affairs, new
products, marketing plans, and costs of providing the
products. In addition to and not in limitation of any other
restrictive covenants which may be binding upon Consultant,
Consultant agrees that he will not (except for the benefit
of or with the written consent of the TORVEC, its
successors or assigns);
(1) During or after the Term of Consultation,
disclose any of said information to any
person, firm or corporation for any purpose
whatsoever; and
(2) During the Term of Consultation or within
two (2) years thereafter, in any area in
which duties have at any time been assigned
to him hereunder during the Term of
Consultation, engage (as an individual or
as a stockholder, partner, member, agent,
employee or representative of any person,
firm, corporation limited liability company
or partnership, or association), or have
any interest, direct or indirect, in any
entity developing or producing products or
related business in competition with the
business of the TORVEC; provided that this
paragraph shall not prevent the Consultant
from acquiring and holding shares of stock
of TORVEC and not to exceed two (2%)
percent of the outstanding shares of stock
of any other corporation which engages in a
related business if such shares are
available to the general public on a
national securities exchange or NASDAQ..
6. Term of agreement.
(a) This Agreement shall be for a period of three
years commencing on December 1, 1997 unless terminated or
canceled as provided herein.
(b) The term of any right or licenses under
proprietary rights granted to TORVEC as a result of or
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-5.x2a
related to this Agreement shall be for the full term of such
proprietary rights.
7. Warranties and representations. Consultant warrants
and represents that:
(a) The Work Product is original work developed
pursuant to this Agreement;
(b) The Work Product was created by the Consultant;
(c) The Work Product, in whole or in part, does not,
upon information and belief, infringe any patents,
copyrights, trade secrets or other proprietary rights of
third parties and Consultant has received no claims or
charges of such infringement by the Work Product or any
portion thereof, and Consultant has no reason to believe
that the Work Product, in whole or in part, may infringe the
patents, copyrights, trade secrets or other proprietary
rights of third parties;
(d) Consultant has the authority to enter into this
Agreement and to perform all obligations, hereunder,
including, but not limited to, the grant of rights and
licenses to the Work Product and Background Rights and all
proprietary rights therein or based thereon; and
(e) Consultant has not granted any rights or
licenses to third parties under Work Product or any portion
thereof.
8. Indemnities. Consultant shall indemnify and hold
TORVEC harmless against any loss or liability to person or
property arising out of the performance of Consultant under
this Agreement
9. Disability waiver. TORVEC recognizes that
Consultant's past association with TORVEC has created unique
goodwill to TORVEC. TORVEC desires to retain Consultant's
services and prevent them from being used by its
competitors, even though Consultant may become disabled or
incapacitated. Accordingly, it is expressly understood that
Consultant's inability to render Services to TORVEC because
of absences, or temporary or permanent illness, disability,
or incapacity, or for any other reasonable cause, shall not
constitute a failure to perform his obligations hereunder
and shall not be deemed a breach or default by him.
10. Death benefit. Should Consultant die during the
term of this Agreement, the Agreement shall terminate as of
the last day of the month of his death. TORVEC shall, for a
period of twelve (12) months after Consultant's death, pay
to his legal representatives, or to his surviving widow
(provided that Consultant has so instructed TORVEC in
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-5.x2a
writing prior to his death) the sum of $12,500.00, monthly
to be paid on the last day of each month during the twelve
(12) month period. If Consultant dies during the last year
of this Agreement, however, the $12,500.00 monthly payments
to his legal representatives or widow, as the case may be,
shall not in any case be made after the termination date set
forth in this Agreement.
11. Termination/Cancellation.
(a) This Agreement may be terminated or canceled by
either party upon the occurrence of any of the following
events, and neither party shall have any liability to the
other party for the exercise of such right.
(1) By either party, if the other party has breached
a covenant, obligation or warranty under this Agreement and
such breach remains uncured for a period of 30 days after
notice thereof is sent to such other party;
(2) By either party, if the other party ceases to
conduct business.
(b) In the event either party terminates or cancels
this Agreement pursuant to this Paragraph 11, TORVEC shall
have no further liability to Consultant, except to pay
Consultant a pro-rata share of the compensation of Paragraph
4 for that portion of the Work Product performed through the
date of termination/cancellation.
12. Arbitration. Any controversy or claim arising out
of or relating to this Agreement shall be settled by
arbitration in accordance with the Rules of Commercial
Arbitration of the American Arbitration Association. Any
judgment upon the award rendered in such arbitration may be
entered in any court of competent jurisdiction.
Notwithstanding the provisions of this paragraph, TORVEC
shall have the right to seek enforcement of the provisions
of paragraph 5 above by a court proceeding for an
injunction.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-5.x2a
13. General.
(a) This Agreement is the sole and entire agreement
between the parties relating to the subject matter hereof
and the Work Product and the Background Rights, and
supersedes all prior understandings, agreements, and
documentation relating to the subject matter hereof other
than prior assignments and transfers of ownership by
Consultant to Torvec which assignments and transfers remain
in full force and effect. This Agreement may be amended
only by an instrument executed by the authorized
representatives of both parties.
(b) Any termination, cancellation or expiration of
this Agreement notwithstanding, provisions which are
intended to survive and continue shall so survive and
continue, including, but not limited to, the provisions of
Paragraphs 3, 5, 7, 8, 9,10 11 and 12.
(c) This Agreement shall be interpreted in
accordance with the substantive law of the State of New
York.
IN WITNESS WHEREOF the parties hereto have caused this
Agreement to be executed by their duly authorized
representatives and to be effective as of the date first
above written.
TORVEC, INC.
By:_____________________ ___________________________
Title: James Gleasman
Date: __________________ Date:______________________
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-5.x2a
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT MADE as of this 1st day of
December, 1997 between TORVEC, INC., a New York business
corporation (herein referred to as the "Company"), and JAMES
A.GLEASMAN (herein referred to as the "Optionee");
WITNESSETH:
1. The Company hereby grants to the Optionee an Option
(hereinafter referred to as "Option") to purchase an
aggregate of 25,000 shares of the $.01 par value Common
Stock of the Company (herein referred to as the "Shares") at
an exercise price of $5.00 per Share to be paid by the
Optionee with cash, a certified check or a bank cashier's
check made payable to the order of the Company.
Alternatively, provided the Board of Directors shall approve
the specific transfer, the Optionee may pay for the Shares,
either in whole or in part, by the delivery of Common Stock
of the Company already owned by him which will be accepted
as payment for the Shares, based upon such Common Stock's
fair market value on the date of exercise. In addition,
provided the Board of Directors shall approve the specific
transfer, payment for the Shares, either in whole or in
part, may be made by delivery of Common Stock acquired by
the Optionee under any of the Company's stock option plans,
provided, however, that if this Option is exercised in part,
Shares acquired by such partial exercise may not be used as
payment for additional Shares to be acquired under this
Agreement. In order for the Optionee to so use shares of
Common Stock previously acquired under any of the Company's
stock option plans as payment for the Shares either in whole
or in part, the transfer of such previously acquired Common
Stock as payment for all or a portion of the exercise price
under this Agreement must occur more than two years from the
date of the grant and one year from the date of exercise of
the prior option pursuant to which the Optionee acquired
such Common Stock.
2. The term during which the Option shall be
exercisable shall commence on December 1, 1997 and expire on
the close of business November 30, 2007, subject to earlier
termination as provided in the Torvec, Inc. 1998 Stock
Option Plan (herein referred to as the "Plan"). The Option
to purchase the number of Shares granted under this
Agreement vest on the 1st day of each of the five years of
the Option Term on a cumulative basis, in accordance with
the following schedule:
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-5.x2a
VESTED NON-VESTED
12/1/97 - 11/30/98 20% 80%
12/1/98 - 11/30/99 40% 60%
12/1/99 - 11/30/2000 60% 40%
12/1/2000 - 11/30/2001 80% 20%
12/1/2001 - 11/30/2002 100% 0%
provided however, that to the extent the Optionee shall fail
to exercise or, due to the above limitation, be prohibited
from exercising his Option in any year during the Option
period, such annual right to exercise this Option shall not
expire, but shall be cumulative and carry over into and be
exercisable in any subsequent year during which the Option
is outstanding.
This Option may be exercised by the Optionee in
accordance with its terms during the Option Term even
though, at the time of such exercise, whether in whole or in
part, the Optionee is no longer an consultant of the
Company.
3. Notwithstanding the limitation upon immediate
exercise set forth in Section 2 hereof, this Option shall be
exercisable in full immediately upon the occurrence of a
change in control of the Company. For this purpose, the
term "change in control of the Company" shall generally
include a change in the ownership or effective control of
the Company or in the ownership of a substantial portion of
the assets of the Company. Specifically, the term shall
include (i) the purchase or other acquisition by any person,
entity or group of persons, within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, or
any comparable successor provisions, of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Act) of more than 50% of either the outstanding
shares of common stock or the combined voting power of the
Company's then outstanding voting securities entitled to
vote generally, or (ii) the approval by the shareholders of
the Company of a reorganization, merger, or consolidation
with respect to which, in such case, persons who were
shareholders of the Company immediately prior to such
reorganization, merger, or consolidation do not immediately
thereafter, own more than 50% of either the outstanding
shares of common stock or the combined voting power of the
reorganized, merged or consolidated Company's then
outstanding voting securities entitled to vote generally or
(iii) the liquidation and/or dissolution of the Company.
4. The Option is not transferable by the Optionee
other than by Will or the laws of descent and distribution
and is exercisable, during his lifetime, only by the
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Optionee. In the event that the right to exercise the
Option passes to the Optionee's estate, or to a person to
whom such right devolves by reason of the Optionee's death,
then the Option shall be non transferable in the hands of
the Optionee's Executor or Administrator or of such person,
except that the Option may be distributed by the Optionee's
Executor or Administrator to the distributees of the
Optionee's estate as a part thereof.
5. In order for the Option to be exercised, in whole or
in part, the notice by the Optionee to the Company in the
form attached hereto must be accompanied by payment in full
of the option price for the Shares being purchased. In
addition, the Optionee agrees to tender to the Company an
additional amount, in cash, certified check, cashier's check
or bank draft, equal to the amount of any taxes required to
be collected or withheld by the company in connection with
the exercise of his Option.
6. The Company agrees that it will use its best
efforts to register the sale of the Shares to be issued upon
the exercise of the Option with the Securities and Exchange
Commission under the Securities Act of 1933. Upon the
effectiveness of the Registration Statement covering the
Shares, the Optionee shall be able to sell the Shares in
"open market transactions" free of Federal Securities Law
restrictions, provided that at the time of sale, or within
the three month period immediately prior to such sale, he is
not nor has he been an "affiliate" of the Company. The
Optionee further understands that, in accordance with
applicable Commission rules governing controlling persons of
public companies, members of the board of directors of a
public company, and/or persons who hold significant
policy-making positions with a public company, such as the
Company, are deemed to be "affiliates" during their term of
office. The Optionee, therefore, agrees that he will
consult with the Company's counsel as to any Securities Law
restrictions, including a limitation on the number of Shares
which may be sold at any one time, on his ability to sell
the Shares prior to any sale thereof.
7. The Company agrees to provide the Optionee with a
copy of the Prospectus prepared by the Company in connection
with the Registration Statement filed to register the
Shares, together with its exhibits, and the Company hereby
acknowledges its obligation to provide the Optionee with all
proxy and other shareholder communications, including the
annual report to security holders, for the most recently
completed fiscal year of the Company and all updates
thereof. The Optionee agrees that prior to exercise, either
in whole or in part of the Option granted to him hereunder,
he shall have read such materials, including the most recent
annual and quarterly reports to shareholders, and shall have
received, if requested, and read all the documents
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-5.x2a
incorporated by reference in the Prospectus and Registration
Statement filed with the Securities and Exchange Commission.
8. The Optionee understands that except as provided in
Paragraph 6 above, the Company has not agreed to register
either the issuance or the resale of the Shares in
accordance with the provisions of the Securities Act of 1933
or to register either the issuance or the resale of the
Shares under any applicable State Securities Laws. Hence,
the Optionee agrees that by virtue of the provision of
certain rules respecting "restricted securities" promulgated
under such Federal and/or State Laws, unless the resale of
the Shares is registered as provided in Paragraph 6 above,
and until the registration of such Shares in accordance with
Paragraph 6 above shall have been declared effective by
order of the Commission, the Shares which the Optionee shall
purchase upon the exercise of this Option must be held
indefinitely and may not be sold, transferred, pledged,
hypothecated, or otherwise encumbered for value, unless and
until a secondary distribution and/or resale of such Shares
is subsequently registered under such Federal and/or State
Securities Laws, or unless an exemption from registration is
available, in which case the Optionee still may be limited
as to the amount of the Shares that may be sold,
transferred, pledged and/or encumbered for value. The
Optionee therefore agrees that, until the registration of
such Shares shall have been declared effective by order of
the Commission, the Company may affix upon any certificate
representing the Shares, a legend that such Shares may not
be transferred in violation of Section 5 of the Securities
Act of 1933.
9. The Optionee understands and agrees that the Shares
to be acquired upon the exercise of the Option may not be
sold, transferred, exchanged, hypothecated, encumbered,
pledged or otherwise disposed of for value for a period of
six (6) months from the date of the grant of this Option.
10. The Optionee understands that the Company has
established certain policies and procedures governing trading
in the Company's securities, including the Shares to be
acquired upon the exercise of this Option, while in
possession of material, inside information regarding the
Company and/or any of its subsidiaries, receipt of which is
hereby acknowledged. The Optionee agrees that upon exercise
of this Option, either in whole or in part, he will comply
with all of the terms and conditions of such policy,
including the procedures and guidelines established for its
implementation. In particular, the Optionee agrees that
where required under such guidelines and procedures, he will
obtain permission of the Company's Clearinghouse Committee
composed of senior management prior to effectuating any sale
or other transfer for value of the Shares to be acquired by
virtue of the exercise of this Option.
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11. All the terms and provisions of the Plan, duly
adopted at a meeting of the Company's Board of Directors on
_______________ and approved by a majority vote of the
Company's shareholders either in person or by proxy at a duly
called meeting of such shareholders held on _______________
and as amended to date, are hereby expressly incorporated
into this Stock Option Agreement and made a part hereof as if
printed herein and the Optionee, by the Optionee's signature
hereon, acknowledges receipt of a certified copy of said
Plan. If there shall be any conflict between this Agreement
and the Plan, the provisions of the Plan shall control.
12. In accordance with certain terms and conditions of
the Plan, the aggregate number and kind of shares that may be
purchased pursuant to the grant of the Option under this
Agreement shall be proportionately adjusted for any increase,
decrease or change in the total number of the outstanding
shares of the Company resulting from a stock dividend,
stock-split or other corporate reorganization which would
result in or have the effect of the Optionee being treated
differently (but for the adjustment) than he would be treated
had he been the beneficial owner of the Shares subject to the
Option on the record date for such dividend, split or
reorganization, as the case may be.
13. The Optionee understands that the Option granted
hereunder constitutes a "nonqualified stock option" for
federal, and if applicable, state income tax purposes.
Consequently, the Optionee understands that under current
provisions of federal tax law, for
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regular as well as for purposes to the federal alternative
minimum income tax, no gain or loss generally is recognized
to the Optionee upon the grant of the Option. In addition,
the Company will receive no business expense deduction as a
result of the grant of the Option.
For federal income tax purposes, upon the exercise of
the Option, the difference between the exercise price and the
fair market value of the Shares on the date of exercise
constitutes ordinary income to the Optionee and is taxed to
the Optionee at normal, ordinary tax rates, except to the
extent the Shares are not transferable and are subject to a
substantial risk of forfeiture. To the extent such
difference is required to be included as income by the
Optionee, the Company is entitled to a business expense
deduction. Upon the later sale of the Shares, long or short
term capital gain or loss will be recognized by the Optionee,
depending upon the holding period (eighteen months for long
term capital gain or loss) and the extent to which the
selling price exceeds or is less than the Optionee's basis in
the stock. The amount of gain will be taxed at normal,
ordinary tax rates, with a maximum rate of 20% if the Shares
are held for a period of at least eighteen months. If the
Shares are held for a period of at least twelve months, the
maximum rate on any gain from their sale will be taxed at
28%.
The Optionee also understands that the provisions of
federal tax law described herein are subject to change and,
consequently, the Optionee agrees to consult with his or her
own tax advisor with respect to the tax treatment to be
accorded the grant of the Option herein, the exercise of such
Option, and the disposition of the Shares.
14. Consistent with the provisions of the Plan, this
Agreement shall be binding upon and inure to the benefit of
any successor or assignee of the Company and to any executor,
administrator, legal representative, legatee, or distributee
entitled by law to the Optionee's right hereunder.
15. Except insofar as an interpretation of federal
securities law otherwise is required, or is controlling, this
Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Agreement
to be executed on its behalf by its duly authorized officer
and the Optionee has hereunto set his hand, as of the day and
year first above written.
TORVEC, INC.
By: ____________________________
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____________________________
James A. Gleasman, Optionee
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NOTICE OF EXERCISE OF STOCK OPTION
AND
RECORD OF STOCK TRANSFER
Torvec, Inc.
3740 Route 104
Williamson, New York 14587
Gentlemen:
I hereby exercise my Stock Option granted to me by Torvec,
Inc. under a Stock Option Agreement dated _______________,
subject to all the terms and provisions thereof and of the
Torvec, Inc. 1998 Stock Option Plan referred to therein and
notify you of my desire to purchase Shares of
the $.01 par value Common Stock of the Company which were
offered to me pursuant to the Stock Option Agreement.
Enclosed is my payment in the sum of in full
payment of such Shares.
I understand that a Registration Statement covering the
Shares to be issued to me pursuant to this exercise of the
Option granted to me was filed with the Securities and
Exchange Commission on _______________. The Registration
Statement became effective on _______________. Consequently,
I understand that unless I am an "affiliate" of the Company,
the Shares I am acquiring are freely tradeable and may be sold
by me in "open market" transactions. If I am an "affiliate"
of the Company, however, or have been one during the three
month period prior to sale, I recognize that I may not sell
freely on the open market and therefore agree that I will
consult the Company's counsel as to the securities law
restrictions on my ability to sell the Shares.
I also understand that under the Plan, and in accordance
with the terms of the Stock Option Agreement, I may not sell,
assign, alienate, pledge, encumber or otherwise transfer for
value the Shares unless a period of six (6) months has elapsed
from the date of the grant of the Option to me.
I acknowledge that I am aware that the Company has
established a policy with respect to trading in its securities
while in possession of material inside information regarding
the Company and/or its subsidiaries, and that, in accordance
with certain guidelines and procedures designed to implement
such policy, I may be required to obtain permission from a
Clearinghouse Committee, composed of Senior Management, prior
to any sale or other transfer for value of the Shares hereby
acquired.
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I also acknowledge that I have received and have read the
Prospectus dated _______________ prepared by the Company in
connection with the grant of the Option contained herein,
together with its exhibits, and all proxy and other
shareholder communications, including the annual report to
security holders, for the most recently completed fiscal year
and all quarterly and current updates thereof. I acknowledge
that I have received all documents incorporated by reference
in the Prospectus and the Registration Statement filed with
the Securities and Exchange Commission that I requested and
have read the same. I acknowledge that I have had the
opportunity to ask questions of and receive answers from the
Company's management concerning the information set forth in
such Prospectus, reports and updates and have been satisfied
with the answers provided regarding the same.
Finally, I acknowledge that there are significant federal
income tax consequences resulting from my exercise of this
Option, that I have consulted with and received advice from
qualified tax counsel both as to the nature of such tax
consequences and their impact upon my own personal income tax
situation as the result of such exercise, and that I fully
understand such impact and have planned accordingly.
DATED: ____________ ____________________________
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Receipt is hereby acknowledged of the delivery to me by Torvec,
Inc. on , 19 of stock certificates
for shares of $.01 par value common stock purchased by me
pursuant to the terms and conditions of the Torvec, Inc. 1998
Stock Option Plan referred to above.
DATED: ____________ ____________________________
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EXHIBIT NUMBER 6.6
CONSULTING AGREEMENT
THIS AGREEMENT made and entered into the 6th day of
February, 1998, effective December 1, 1997, by and between
Torvec, Inc., a New York corporation having a principal
place of business at 11 Pondview Drive, Pittsford, New York,
14534 (hereinafter "TORVEC") and Vernon Gleasman, an
individual having a principal place of business at 11
Pondview Drive, Pittsford, New York, 14534 (hereinafter
"Consultant").
WITNESSETH
WHEREAS, Consultant has experience in the design,
development, and manufacture of gears, clutches, couplings,
and other mechanical elements , for all purposes including,
but not limited to use in automotive components and motor
vehicles and is willing to design, develop, and manufacture
such products for TORVEC; and
WHEREAS, TORVEC desires to have Consultant design,
develop, and assist in the manufacturing of such products
for TORVEC under the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
and promises set forth herein, the parties hereto agree as
follows.
1. Definitions. The following definitions shall apply
for all purposes of this Agreement:
(a) "Work Product" shall mean all data, designs,
documentation, inventions, soft-
ware and information, in whatever form, first produced
created or emanating from, by or for Consultant in the
performance of work or the rendition of services under this
Agreement.
(b) "Background Rights" shall mean all data, designs,
documentation, inventions, software and information, in
whatever form, not first produced created or emanating from,
by or for Consultant as a result of or related to the
performance of work or the rendition of services under this
Agreement, but included in or necessary for use in or with
the Work Product or any other product or any portion thereof
which is produced or contemplated by Torvec.
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(c) "TORVEC Representative" shall mean the Chief
Operating Officer of Torvec or his alternate as designated
in writing by him.
2. Work to be performed and services to be rendered.
(a) Consultant agrees, during the term of this
Agreement, the Consultant shall devote his full time and
effort to the design, development, and manufacture of
inventions and products for Torvec, and the training of
others performing such work.
(b) The work to be performed and the services to be
rendered hereunder shall be performed by the Consultant, and
such work or services may not be subcontracted or otherwise
performed by third parties on behalf of Consultant without
the prior written permission of TORVEC, which permission
shall not be unreasonably withheld; provided, however, that
Consultant shall be responsible therefor pursuant to this
Agreement.
3. Rights in the Work Product and Background Rights.
(a) Consultant hereby grants to TORVEC, and TORVEC
hereby accepts, the entire, right title and interest of
Consultant in and to the Work Product and in and to all
patents, copyrights, trade secrets, trademarks, and other
proprietary rights in or based on the Work Product.
(b) Consultant hereby grants to TORVEC, and TORVEC
hereby accepts, an unlimited, unrestricted, royalty-free,
fully paid-up, worldwide exclusive right and license, with
the right to grant licenses and sublicenses to others
without accounting to Consultant, under the Background
Rights and the entire right, title, and interest of
Consultant to the Background Rights and all proprietary
rights therein or based thereon.
(c) Consultant and TORVEC agree that if the Work
Product or any portion thereof is copyrightable, it shall be
deemed to be a "work made for hire," as such term is defined
in the Copyright Laws of the United States.
(d) Consultant shall cooperate with TORVEC or its
designees and execute all documents of assignment, oaths,
declaration and other documents, as may be prepared by
TORVEC, to effect the foregoing or to perfect or enforce any
proprietary rights resulting from or related to this
Agreement. Such cooperation and execution shall be at no
additional compensation to Consultant; provided, however,
that TORVEC shall reimburse Consultant for reasonable out-of
pocket expenses incurred.
4. Compensation..
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(a) As compensation in full for the successful
performance of all work and services to be performed
hereunder, including the grant of rights and licenses in and
to Work Product and Background Rights, TORVEC shall pay
Consultant a fixed fee of $12,500.00 per month.
(b) TORVEC shall reimburse Consultant for expenses
incurred by Consultant in the performance of work and the
rendition of services under this Agreement, provided that
reimbursement of travel and related expenses shall be in
accordance with TORVEC's then current policies applicable to
TORVEC employees for the reimbursement of such expenses.
Consultant shall obtain receipts for all expenses in excess
of $25 and shall submit them to TORVEC.
(c) Subject to the approval by its shareholders of the
Company's 1998 Stock Option Plan, there is hereby granted to
the Consultant a non-qualified stock option to purchase up
to 25,000 shares of the Company's $.01 par value Common
Stock at an exercise price of $5.00 per share. The option
granted hereby shall be subject to the terms and conditions
set forth in the Stock Option Agreement attached hereto and
made a part hereof. The term of the option shall be for a
period of 10 years, shall vest on a cumulative basis at a
rate of 20% per year, shall provide for immediate and full
vesting in the event the Company is acquired and shall
provide that the right to exercise the option in accordance
with its terms shall survive the Consultant's termination of
services.
5. Confidentiality.
(a) Consultant agrees that the Work Product and
Background Rights are the sole and exclusive property of
TORVEC, and Consultant shall treat the Work Product and
Background Rights on a confidential basis and not disclose
it to any third party or use it for the benefit of other
than TORVEC; provided, however, that Consultant shall be
relieved of such obligation if and when TORVEC discloses the
Work Product and Background Rights without any restriction
on use or further disclosure.
(b) Consultant shall keep confidential and not disclose
or use for the benefit of other than TORVEC any and all
written or tangible information stamped "confidential,"
"proprietary" or with a similar legend which is made
available or disclosed to Consultant as a result of or in
any way related to this Agreement; provided, however, that
Consultant shall have no obligation hereunder for that
portion of such information which is disclosed by TORVEC to
others without any restriction on use and disclosure.
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(c) Consultant acknowledges that his promised services
hereunder are of special, unique, unusual and extraordinary
character which gives them peculiar value, the loss of
which cannot adequately be compensated in damages in an
action at law, and Consultant further acknowledges that in
his consultative capacity hereunder he will be making use
of, acquiring and adding to confidential information of
special and unique value relating to the affairs of the
TORVEC, its subsidiaries and affiliates, including but not
limited to its financial affairs, new products, marketing
plans, and costs of providing the products. In addition to
and not in limitation of any other restrictive covenants
which may be binding upon Consultant, Consultant agrees
that he will not (except for the benefit of or with the
written consent of the TORVEC, its successors or assigns);
(1) During or after the Term of Consultation,
disclose any of said information to any
person, firm or corporation for any purpose
whatsoever; and
(2) During the Term of Consultation or within
two (2) years thereafter, in any area in
which duties have at any time been assigned
to him hereunder during the Term of
Consultation, engage (as an individual or
as a stockholder, partner, member, agent,
employee or representative of any person,
firm, corporation limited liability company
or partnership, or association), or have
any interest, direct or indirect, in any
entity developing or producing products or
related business in competition with the
business of the TORVEC; provided that this
paragraph shall not prevent the Consultant
from acquiring and holding shares of stock
of TORVEC and not to exceed two (2%)
percent of the outstanding shares of stock
of any other corporation which engages in a
related business if such shares are
available to the general public on a
national securities exchange or NASDAQ..
6. Term of agreement.
(a) This Agreement shall be for a period of three years
commencing on December 1, 1997 unless terminated or canceled
as provided herein.
(b) The term of any right or licenses under proprietary
rights granted to TORVEC as a result of or related to this
Agreement shall be for the full term of such proprietary
rights.
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7. Warranties and representations. Consultant warrants
and represents that:
(a) The Work Product is original work developed
pursuant to this Agreement;
(b) The Work Product was created by the Consultant;
(c) The Work Product, in whole or in part, does not,
upon information and belief, infringe any patents,
copyrights, trade secrets or other proprietary rights of
third parties and Consultant has received no claims or
charges of such infringement by the Work Product or any
portion thereof, and Consultant has no reason to believe
that the Work Product, in whole or in part, may infringe the
patents, copyrights, trade secrets or other proprietary
rights of third parties;
(d) Consultant has the authority to enter into this
Agreement and to perform all obligations, hereunder,
including, but not limited to, the grant of rights and
licenses to the Work Product and Background Rights and all
proprietary rights therein or based thereon; and
(e) Consultant has not granted any rights or licenses
to third parties under Work Product or any portion thereof.
8. Indemnities. Consultant shall indemnify and hold
TORVEC harmless against any loss or liability to person or
property arising out of the performance of Consultant under
this Agreement
9. Disability waiver. TORVEC recognizes that
Consultant's past association with TORVEC has created unique
goodwill to TORVEC. TORVEC desires to retain Consultant's
services and prevent them from being used by its
competitors, even though Consultant may become disabled or
incapacitated. Accordingly, it is expressly understood that
Consultant's inability to render Services to TORVEC because
of absences, or temporary or permanent illness, disability,
or incapacity, or for any other reasonable cause, shall not
constitute a failure to perform his obligations hereunder
and shall not be deemed a breach or default by him.
10. Death benefit. Should Consultant die during the
term of this Agreement, the Agreement shall terminate as of
the last day of the month of his death. TORVEC shall, for a
period of twelve (12) months after Consultant's death, pay
to his legal representatives, or to his surviving widow
(provided that Consultant has so instructed TORVEC in
writing prior to his death) the sum of $12,500.00, monthly
to be paid on the last day of each month during the twelve
(12) month period. If Consultant dies during the last year
of this Agreement, however, the $12,500.00 monthly payments
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to his legal representatives or widow, as the case may be,
shall not in any case be made after the termination date set
forth in this Agreement.
11. Termination/Cancellation.
(a) This Agreement may be terminated or canceled by
either party upon the occurrence of any of the following
events, and neither party shall have any liability to the
other party for the exercise of such right.
(1) By either party, if the other party has breached
a covenant, obligation or warranty under this Agreement and
such breach remains uncured for a period of 30 days after
notice thereof is sent to such other party;
(2) By either party, if the other party ceases to
conduct business.
(b) In the event either party terminates or cancels
this Agreement pursuant to this Paragraph 11, TORVEC shall
have no further liability to Consultant, except to pay
Consultant a pro-rata share of the compensation of Paragraph
4 for that portion of the Work Product performed through the
date of termination/cancellation.
12. Arbitration. Any controversy or claim arising out
of or relating to this Agreement shall be settled by
arbitration in accordance with the Rules of Commercial
Arbitration of the American Arbitration Association. Any
judgment upon the award rendered in such arbitration may be
entered in any court of competent jurisdiction.
Notwithstanding the provisions of this paragraph, TORVEC
shall have the right to seek enforcement of the provisions
of paragraph 5 above by a court proceeding for an
injunction.
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13. General.
(a) This Agreement is the sole and entire agreement
between the parties relating to the subject matter hereof
and the Work Product and the Background Rights, and
supersedes all prior understandings, agreements, and
documentation relating to the subject matter hereof other
than prior assignments and transfers of ownership by
Consultant to Torvec which assignments and transfers remain
in full force and effect. This Agreement may be amended
only by an instrument executed by the authorized
representatives of both parties.
(b) Any termination, cancellation or expiration of this
Agreement notwithstanding, provisions which are intended to
survive and continue shall so survive and continue,
including, but not limited to, the provisions of Paragraphs
3, 5, 7, 8, 9,10 11 and 12.
(c) This Agreement shall be interpreted in accordance
with the substantive law of the State of New York.
IN WITNESS WHEREOF the parties hereto have caused this
Agreement to be executed by their duly authorized
representatives and to be effective as of the date first
above written.
TORVEC, INC.
By:____________________ ____________________________________
Title: Vernon Gleasman
Date: ___________________ Date:_______________________________
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STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT MADE as of this 1st day of
December, 1997 between TORVEC, INC., a New York business
corporation (herein referred to as the "Company"), and
VERNON E.GLEASMAN (herein referred to as the "Optionee");
WITNESSETH:
1. The Company hereby grants to the Optionee an Option
(hereinafter referred to as "Option") to purchase an
aggregate of 25,000 shares of the $.01 par value Common
Stock of the Company (herein referred to as the "Shares") at
an exercise price of $5.00 per Share to be paid by the
Optionee with cash, a certified check or a bank cashier's
check made payable to the order of the Company.
Alternatively, provided the Board of Directors shall approve
the specific transfer, the Optionee may pay for the Shares,
either in whole or in part, by the delivery of Common Stock
of the Company already owned by him which will be accepted
as payment for the Shares, based upon such Common Stock's
fair market value on the date of exercise. In addition,
provided the Board of Directors shall approve the specific
transfer, payment for the Shares, either in whole or in
part, may be made by delivery of Common Stock acquired by
the Optionee under any of the Company's stock option plans,
provided, however, that if this Option is exercised in part,
Shares acquired by such partial exercise may not be used as
payment for additional Shares to be acquired under this
Agreement. In order for the Optionee to so use shares of
Common Stock previously acquired under any of the Company's
stock option plans as payment for the Shares either in whole
or in part, the transfer of such previously acquired Common
Stock as payment for all or a portion of the exercise price
under this Agreement must occur more than two years from the
date of the grant and one year from the date of exercise of
the prior option pursuant to which the Optionee acquired
such Common Stock.
2. The term during which the Option shall be
exercisable shall commence on December 1, 1997 and expire on
the close of business November 30, 2007, subject to earlier
termination as provided in the Torvec, Inc. 1998 Stock
Option Plan (herein referred to as the "Plan"). The Option
to purchase the number of Shares granted under this
Agreement vest on the 1st day of each of the five years of
the Option Term on a cumulative basis, in accordance with
the following schedule:
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VESTED NON-VESTED
12/1/97 - 11/30/98 20% 80%
12/1/98 - 11/30/99 40% 60%
12/1/99 - 11/30/2000 60% 40%
12/1/2000 - 11/30/2001 80% 20%
12/1/2001 - 11/30/2002 100% 0%
provided however, that to the extent the Optionee shall fail
to exercise or, due to the above limitation, be prohibited
from exercising his Option in any year during the Option
period, such annual right to exercise this Option shall not
expire, but shall be cumulative and carry over into and be
exercisable in any subsequent year during which the Option
is outstanding.
This Option may be exercised by the Optionee in
accordance with its terms during the Option Term even
though, at the time of such exercise, whether in whole or in
part, the Optionee is no longer an consultant of the
Company.
3. Notwithstanding the limitation upon immediate
exercise set forth in Section 2 hereof, this Option shall be
exercisable in full immediately upon the occurrence of a
change in control of the Company. For this purpose, the
term "change in control of the Company" shall generally
include a change in the ownership or effective control of
the Company or in the ownership of a substantial portion of
the assets of the Company. Specifically, the term shall
include (i) the purchase or other acquisition by any person,
entity or group of persons, within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, or
any comparable successor provisions, of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Act) of more than 50% of either the outstanding
shares of common stock or the combined voting power of the
Company's then outstanding voting securities entitled to
vote generally, or (ii) the approval by the shareholders of
the Company of a reorganization, merger, or consolidation
with respect to which, in such case, persons who were
shareholders of the Company immediately prior to such
reorganization, merger, or consolidation do not immediately
thereafter, own more than 50% of either the outstanding
shares of common stock or the combined voting power of the
reorganized, merged or consolidated Company's then
outstanding voting securities entitled to vote generally or
(iii) the liquidation and/or dissolution of the Company.
4. The Option is not transferable by the Optionee
other than by Will or the laws of descent and distribution
and is exercisable, during his lifetime, only by the
Optionee. In the event that the right to exercise the
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Option passes to the Optionee's estate, or to a person to
whom such right devolves by reason of the Optionee's death,
then the Option shall be non transferable in the hands of
the Optionee's Executor or Administrator or of such person,
except that the Option may be distributed by the Optionee's
Executor or Administrator to the distributees of the
Optionee's estate as a part thereof.
5. In order for the Option to be exercised, in whole or
in part, the notice by the Optionee to the Company in the
form attached hereto must be accompanied by payment in full
of the option price for the Shares being purchased. In
addition, the Optionee agrees to tender to the Company an
additional amount, in cash, certified check, cashier's check
or bank draft, equal to the amount of any taxes required to
be collected or withheld by the company in connection with
the exercise of his Option.
6. The Company agrees that it will use its best
efforts to register the sale of the Shares to be issued upon
the exercise of the Option with the Securities and Exchange
Commission under the Securities Act of 1933. Upon the
effectiveness of the Registration Statement covering the
Shares, the Optionee shall be able to sell the Shares in
"open market transactions" free of Federal Securities Law
restrictions, provided that at the time of sale, or within
the three month period immediately prior to such sale, he is
not nor has he been an "affiliate" of the Company. The
Optionee further understands that, in accordance with
applicable Commission rules governing controlling persons of
public companies, members of the board of directors of a
public company, and/or persons who hold significant
policy-making positions with a public company, such as the
Company, are deemed to be "affiliates" during their term of
office. The Optionee, therefore, agrees that he will
consult with the Company's counsel as to any Securities Law
restrictions, including a limitation on the number of Shares
which may be sold at any one time, on his ability to sell
the Shares prior to any sale thereof.
7. The Company agrees to provide the Optionee with a
copy of the Prospectus prepared by the Company in connection
with the Registration Statement filed to register the
Shares, together with its exhibits, and the Company hereby
acknowledges its obligation to provide the Optionee with all
proxy and other shareholder communications, including the
annual report to security holders, for the most recently
completed fiscal year of the Company and all updates
thereof. The Optionee agrees that prior to exercise, either
in whole or in part of the Option granted to him hereunder,
he shall have read such materials, including the most recent
annual and quarterly reports to shareholders, and shall have
received, if requested, and read all the documents
incorporated by reference in the Prospectus and Registration
Statement filed with the Securities and Exchange Commission.
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8. The Optionee understands that except as provided in
Paragraph 6 above, the Company has not agreed to register
either the issuance or the resale of the Shares in
accordance with the provisions of the Securities Act of 1933
or to register either the issuance or the resale of the
Shares under any applicable State Securities Laws. Hence,
the Optionee agrees that by virtue of the provision of
certain rules respecting "restricted securities" promulgated
under such Federal and/or State Laws, unless the resale of
the Shares is registered as provided in Paragraph 6 above,
and until the registration of such Shares in accordance with
Paragraph 6 above shall have been declared effective by
order of the Commission, the Shares which the Optionee shall
purchase upon the exercise of this Option must be held
indefinitely and may not be sold, transferred, pledged,
hypothecated, or otherwise encumbered for value, unless and
until a secondary distribution and/or resale of such Shares
is subsequently registered under such Federal and/or State
Securities Laws, or unless an exemption from registration is
available, in which case the Optionee still may be limited
as to the amount of the Shares that may be sold,
transferred, pledged and/or encumbered for value. The
Optionee therefore agrees that, until the registration of
such Shares shall have been declared effective by order of
the Commission, the Company may affix upon any certificate
representing the Shares, a legend that such Shares may not
be transferred in violation of Section 5 of the Securities
Act of 1933.
9. The Optionee understands and agrees that the Shares
to be acquired upon the exercise of the Option may not be
sold, transferred, exchanged, hypothecated, encumbered,
pledged or otherwise disposed of for value for a period of
six (6) months from the date of the grant of this Option.
10. The Optionee understands that the Company has
established certain policies and procedures governing trading
in the Company's securities, including the Shares to be
acquired upon the exercise of this Option, while in
possession of material, inside information regarding the
Company and/or any of its subsidiaries, receipt of which is
hereby acknowledged. The Optionee agrees that upon exercise
of this Option, either in whole or in part, he will comply
with all of the terms and conditions of such policy,
including the procedures and guidelines established for its
implementation. In particular, the Optionee agrees that
where required under such guidelines and procedures, he will
obtain permission of the Company's Clearinghouse Committee
composed of senior management prior to effectuating any sale
or other transfer for value of the Shares to be acquired by
virtue of the exercise of this Option.
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11. All the terms and provisions of the Plan, duly
adopted at a meeting of the Company's Board of Directors on
_______________ and approved by a majority vote of the
Company's shareholders either in person or by proxy at a duly
called meeting of such shareholders held on _______________
and as amended to date, are hereby expressly incorporated
into this Stock Option Agreement and made a part hereof as if
printed herein and the Optionee, by the Optionee's signature
hereon, acknowledges receipt of a certified copy of said
Plan. If there shall be any conflict between this Agreement
and the Plan, the provisions of the Plan shall control.
12. In accordance with certain terms and conditions of
the Plan, the aggregate number and kind of shares that may be
purchased pursuant to the grant of the Option under this
Agreement shall be proportionately adjusted for any increase,
decrease or change in the total number of the outstanding
shares of the Company resulting from a stock dividend,
stock-split or other corporate reorganization which would
result in or have the effect of the Optionee being treated
differently (but for the adjustment) than he would be treated
had he been the beneficial owner of the Shares subject to the
Option on the record date for such dividend, split or
reorganization, as the case may be.
13. The Optionee understands that the Option granted
hereunder constitutes a "nonqualified stock option" for
federal, and if applicable, state income tax purposes.
Consequently, the Optionee understands that under current
provisions of federal tax law, for
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regular as well as for purposes to the federal alternative
minimum income tax, no gain or loss generally is recognized
to the Optionee upon the grant of the Option. In addition,
the Company will receive no business expense deduction as a
result of the grant of the Option.
For federal income tax purposes, upon the exercise of
the Option, the difference between the exercise price and the
fair market value of the Shares on the date of exercise
constitutes ordinary income to the Optionee and is taxed to
the Optionee at normal, ordinary tax rates, except to the
extent the Shares are not transferable and are subject to a
substantial risk of forfeiture. To the extent such
difference is required to be included as income by the
Optionee, the Company is entitled to a business expense
deduction. Upon the later sale of the Shares, long or short
term capital gain or loss will be recognized by the Optionee,
depending upon the holding period (eighteen months for long
term capital gain or loss) and the extent to which the
selling price exceeds or is less than the Optionee's basis in
the stock. The amount of gain will be taxed at normal,
ordinary tax rates, with a maximum rate of 20% if the Shares
are held for a period of at least eighteen months. If the
Shares are held for a period of at least twelve months, the
maximum rate on any gain from their sale will be taxed at
28%.
The Optionee also understands that the provisions of
federal tax law described herein are subject to change and,
consequently, the Optionee agrees to consult with his or her
own tax advisor with respect to the tax treatment to be
accorded the grant of the Option herein, the exercise of such
Option, and the disposition of the Shares.
14. Consistent with the provisions of the Plan, this
Agreement shall be binding upon and inure to the benefit of
any successor or assignee of the Company and to any executor,
administrator, legal representative, legatee, or distributee
entitled by law to the Optionee's right hereunder.
15. Except insofar as an interpretation of federal
securities law otherwise is required, or is controlling, this
Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Agreement
to be executed on its behalf by its duly authorized officer
and the Optionee has hereunto set his hand, as of the day and
year first above written.
TORVEC, INC.
By: ____________________________
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____________________________
Vernon E. Gleasman, Optionee
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NOTICE OF EXERCISE OF STOCK OPTION
AND
RECORD OF STOCK TRANSFER
Torvec, Inc.
3740 Route 104
Williamson, New York 14587
Gentlemen:
I hereby exercise my Stock Option granted to me by Torvec,
Inc. under a Stock Option Agreement dated _______________,
subject to all the terms and provisions thereof and of the
Torvec, Inc. 1998 Stock Option Plan referred to therein and
notify you of my desire to purchase Shares of
the $.01 par value Common Stock of the Company which were
offered to me pursuant to the Stock Option Agreement.
Enclosed is my payment in the sum of in full
payment of such Shares.
I understand that a Registration Statement covering the
Shares to be issued to me pursuant to this exercise of the
Option granted to me was filed with the Securities and
Exchange Commission on _______________. The Registration
Statement became effective on _______________. Consequently,
I understand that unless I am an "affiliate" of the Company,
the Shares I am acquiring are freely tradeable and may be sold
by me in "open market" transactions. If I am an "affiliate"
of the Company, however, or have been one during the three
month period prior to sale, I recognize that I may not sell
freely on the open market and therefore agree that I will
consult the Company's counsel as to the securities law
restrictions on my ability to sell the Shares.
I also understand that under the Plan, and in accordance
with the terms of the Stock Option Agreement, I may not sell,
assign, alienate, pledge, encumber or otherwise transfer for
value the Shares unless a period of six (6) months has elapsed
from the date of the grant of the Option to me.
I acknowledge that I am aware that the Company has
established a policy with respect to trading in its securities
while in possession of material inside information regarding
the Company and/or its subsidiaries, and that, in accordance
with certain guidelines and procedures designed to implement
such policy, I may be required to obtain permission from a
Clearinghouse Committee, composed of Senior Management, prior
to any sale or other transfer for value of the Shares hereby
acquired.
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I also acknowledge that I have received and have read the
Prospectus dated _______________ prepared by the Company in
connection with the grant of the Option contained herein,
together with its exhibits, and all proxy and other
shareholder communications, including the annual report to
security holders, for the most recently completed fiscal year
and all quarterly and current updates thereof. I acknowledge
that I have received all documents incorporated by reference
in the Prospectus and the Registration Statement filed with
the Securities and Exchange Commission that I requested and
have read the same. I acknowledge that I have had the
opportunity to ask questions of and receive answers from the
Company's management concerning the information set forth in
such Prospectus, reports and updates and have been satisfied
with the answers provided regarding the same.
Finally, I acknowledge that there are significant federal
income tax consequences resulting from my exercise of this
Option, that I have consulted with and received advice from
qualified tax counsel both as to the nature of such tax
consequences and their impact upon my own personal income tax
situation as the result of such exercise, and that I fully
understand such impact and have planned accordingly.
DATED: ____________________________
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Receipt is hereby acknowledged of the delivery to me by Torvec,
Inc. on , 19 of stock certificates
for shares of $.01 par value common stock purchased by me
pursuant to the terms and conditions of the Torvec, Inc. 1998
Stock Option Plan referred to above.
DATED: ______________________________
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EXHIBIT NUMBER 6.7
TORVEC, INC.
1998 Stock Option Plan
ARTICLE I - GENERAL
1.01. Purpose
The purposes of the 1998 Stock Option Plan (the "Plan")
are to: (1) closely associate the interests of the
management of Torvec, Inc. (the "Company") with the
shareholders by reinforcing the relationship between
participants' rewards and shareholder gains; (2) provide
management with an equity ownership in the Company
commensurate with Company performance, as reflected in
increased shareholder value; (3) maintain competitive
compensation levels; (4) provide an incentive to management
for continuous employment with the Company; and (5) provide
key consultants and/or advisors of the Company with an
equity interest commensurate with Company performance, as
reflected in increased shareholder value.
1.02. Administration
(a) The Plan shall be administered by The Board of
Directors.
(b) The Board shall have the authority, in its sole
discretion and from time to time to:
(i) designate the employees and/or
consultants and advisors or classes
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of the same eligible to participate
in the Plan;
(ii) grant Options provided in the
Plan in such form and number as the
Board shall determine;
(iii) impose such limitations,
restrictions and conditions upon
any such Option as the Board shall
deem appropriate, consistent with
the purposes of the Plan; and
(iv) interpret the Plan, adopt, amend
and rescind rules and regulations
relating to the Plan, and make all
other determinations and take all
other action necessary or advisable
for the implementation and
administration of the Plan.
(c) Decisions and determinations of the Board on all
matters relating to the Plan shall be in its sole discretion
and shall be conclusive. No member of the Board shall be
liable for any action taken or decision made in good faith
relating to the Plan or any Option granted hereunder.
1.03. Eligibility for Participation
Participants in the Plan shall be selected by the Board
from the executive officers, key employees, and consultants
and advisors of the Company who occupy responsible
managerial or professional positions and who have the
capability of making a substantial contribution to the
success of the Company. In making this selection and in
determining the form and amount of Options, the Board shall
consider any factors deemed relevant, including the
individual's functions, responsibilities, value of services
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to the Company and past and potential contributions to the
Company's profitability and sound growth.
1.04. Types of Options Under the Plan
Options under the Plan may be in the form of any one or
more of the following:
(i) Stock Options, as described in
Article II;
(ii) Incentive Stock Options, as
described in Article III; and
(iii) Reload Options, as described in
Article IV.
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1.05. Aggregate Limitation on Options
Shares of stock which may be issued under the Plan shall,
in the discretion of the Board of Directors of the Company,
consist either in whole or in part of authorized but
unissued shares or treasury shares of the $.01 par value
common stock of the Company ("Shares"). The maximum number
of Shares which may be issued under the Plan shall be
2,000,000. Any Shares subject to a Stock Option, Incentive
Stock Option, or Reload Option which for any reason is
terminated unexercised or expires shall again be available
for issuance under the Plan.
1.06. Effective Date and Term of Plan
(a) The Plan's Effective Date is January ______, 1998,
the date on which it was adopted by the Board of Directors
of the Company, subject to the authorization and approval by
a majority vote of the outstanding number of shares of the
Company present in person or by proxy at a special meeting
of the shareholders of the Company duly called and held on
January ______, 1998.
(b) No Options shall be granted under the Plan after
the last day of the Company's fiscal year ended January
______, 2008 provided, however, that the Plan and all
Options made under the Plan prior to such date shall remain
in effect until such Options have been exercised or lapsed
in accordance with the Plan and the terms of such Options.
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1.07. Amendment and Termination of Plan
The Board of Directors of the Company, without further
approval of the shareholders of the Company, may at any time
suspend or terminate the Plan or may amend it from time to
time in any manner; provided, however, that no amendment
shall be effective without prior approval of the
shareholders of the Company which would (i) except as
provided by the anti-dilution provisions of this Plan,
increase the maximum number of Shares which may be issued
under the Plan, (ii) change the eligibility requirements for
individuals entitled to receive awards under the Plan, (iii)
cause Incentive Stock Options issued under the Plan to fail
to meet the requirements of incentive stock Options as
defined in Section 422 of the Internal Revenue Code of 1986
("Code"), (iv) require prior approval of a majority vote of
shareholders of the Company under the applicable provisions
of the Business Corporation Law of New York State, or (v)
materially increase the benefits accruing to participants
under the Plan within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended.
1.08. Reservation of Shares
The Company shall be under no obligation to reserve
shares of its $.01 par value common stock to meet its
obligations under the Plan but it may do so. The grant of
Options or the issuance of Shares to employees hereunder
shall not be construed to constitute
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the establishment of a trust with respect to such Options or
Shares. The Company shall be deemed to have complied with
the terms of the Plan if, at the time of issuance and
delivery of Shares pursuant to the Plan, it has a sufficient
number of shares of its $.01 par value common stock
authorized and unissued or in its treasury which may then be
appropriated and issued for purposes of the Plan,
irrespective of the date when such shares were authorized.
1.09. Application of Proceeds
The proceeds of the issuance of Shares by the Company
under the Plan will constitute general funds of the Company
and may be used by the Company for any business purpose.
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1.10. General Restrictions
Each Option granted under the Plan shall be subject to
the requirement that, if at any time the Board shall
determine that (i) the consent or approval of any
governmental regulatory body, or (ii) an agreement by the
Optionee of an Option with respect to the disposition of the
Shares is necessary or desirable as a condition of, or in
connection with, the granting of such Option or the issue or
purchase of Shares thereunder, such Option may not be
exercised in whole or in part unless such consent, approval
or agreement shall have been effected or obtained free of
any conditions not acceptable to the Board.
1.11. Withholding Taxes
Whenever the Company proposes or is required to issue or
transfer Shares under the Plan, the Company shall have the
right to require the Optionee with respect to an exercised
Option to remit to the Company an amount sufficient to
satisfy any Federal, state and/or local withholding tax
requirements prior to the delivery of any certificate or
certificates for such Shares. Alternatively, the Company
may issue or transfer such Shares net of the number of
shares sufficient to satisfy the withholding tax
requirements. For withholding tax purposes, the Shares
shall be valued on the date the withholding obligation is
incurred.
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1.12. Right to Terminate Employment
Nothing in the Plan or in any agreement entered into
pursuant to the Plan shall confer upon any employee the
right to continue in the employment of the Company or effect
any right which the Company may have to terminate the
employment of such employee.
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1.13. Non-Uniform Determinations
The Board's determinations under the Plan (including
without limitation determinations of the persons to receive
Options, the form, amount and timing of such Options, the
terms and conditions of such Options and the agreements
evidencing the same) need not be uniform and may be made by
it selectively among persons who receive, or are eligible to
receive, Options under the Plan, whether or not such persons
are similarly situated.
1.14. Leaves of Absence
The Board shall be entitled to make such rules,
regulations and determinations as it deems appropriate under
the Plan in respect of any leave of absence taken by the
recipient of any Option. Without limiting the generality of
the foregoing, the Board shall be entitled to determine (i)
whether or not any such leave of absence shall constitute a
termination of employment within the meaning of the Plan and
(ii) the impact, if any, of any such leave of absence on
Options under the Plan theretofore made to any recipient who
takes such leave of absence.
1.15. Anti-Dilution Provision
(a) The Exercise Price and the number and character of
the Shares which are the subject of Stock Options granted
under this Plan shall be subject to adjustment, as follows:
1. In case the Company shall at any time pay a
dividend in shares of its common stock or subdivide its
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outstanding shares of common stock into a greater number of
shares, the Shares purchasable upon exercise of outstanding
Stock Options immediately prior to the record date
established for such dividend or subdivision shall be
proportionately increased, and conversely, in case the
outstanding shares of common stock of the Company shall be
combined into a smaller number of shares, the Shares
purchasable upon exercise immediately prior to the record
date established for such combination shall be
proportionately reduced.
2. In case of any reclassification, capital
reorganization or other organic change of outstanding shares
of common stock of the Company, or in case of any
consolidation or merger of the Company into another
corporation (other than a merger with a wholly owned
subsidiary in which merger the Company is the continuing
corporation and which does not result in any
reclassification, capital reorganization or other change of
outstanding shares of common stock of the class issuable
upon exercise of outstanding Stock Options) or in case of
any sale or transfer to another corporation of the property
of the Company as an entirety or substantially as an
entirety, the Company shall, as a condition precedent to
such transaction cause effective provision to be made that
the Optionee shall have the right thereafter, by exercising
his Stock Option, to purchase the kind and amount of shares
of stock (and other securities and property, as the case may
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be) receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale
or transfer by the Optionee as if he had been a shareholder
owning a beneficial interest in the number of Shares
immediately prior to the record date, or other similar date
established for such reclassification, capital
reorganization or other change, consolidation, merger, sale
or transfer. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for with respect to
outstanding Stock Options. This subparagraph (a)2 shall
similarly apply to any successive reclassification, capital
reorganization and other organic change of shares of Common
Stock and to successive consolidations, mergers, sales or
transfers. In the event that at any time, as a result of an
adjustment made pursuant to this subparagraph (a)2, the
Optionee shall become entitled to purchase upon exercise of
his Stock Option, shares of stock, evidences of
indebtedness, or other securities or assets (other than
shares of Common Stock) then, wherever appropriate, all
references herein to shares of Common Stock shall be deemed
to refer to and include such shares of stock, evidences of
indebtedness, other securities or assets; and thereafter the
number of such shares of stock, evidences of indebtedness,
or other securities or assets shall be subject to adjustment
from time to time in a manner and upon terms as nearly
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equivalent as practicable to the provisions contained in
this subparagraph 2.
3. In case the Company shall declare a dividend upon
shares of common stock payable otherwise than out of
earnings, retained earnings, or earned surplus or otherwise
than in shares of common stock, the Optionee shall, upon
exercise of his Stock Option in whole or in part, be
entitled to purchase, in addition to the number of Shares
deliverable upon such exercise against payment of the
Exercise Price therefor, but without further consideration,
the cash, stock or other securities or property which the
Optionee would have received as dividends (otherwise than
out of such earnings, retained earnings, or earned surplus
and otherwise than in shares of common stock) if he had been
a shareholder owning a beneficial interest in the number of
Shares of common stock immediately prior to the record date
established for such declaration. For purposes of this
subparagraph (a)3, a dividend payable otherwise than in cash
or otherwise than in shares of common stock shall be
considered to be payable out of earnings, retained earnings,
or earned surplus only to the extent that such earnings,
retained earnings, or earned surplus shall be charged in an
amount equal to the fair value of such dividends as
determined by the Board of Directors.
4. Upon each adjustment of the number of Shares
purchasable, the Optionee shall thereafter (until another
such adjustment) be entitled to purchase, at a new Exercise
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Price, up to such number of Shares, calculated to the
nearest full share. Such new Exercise Price shall be
calculated by multiplying the number of Shares immediately
prior to such adjustment by the Exercise Price in effect
immediately prior to such adjustment and dividing the
product so obtained by the new number of Shares.
(b) Whenever the Exercise Price shall be adjusted as
required by the provisions of the foregoing paragraph (a)4,
the Company shall forthwith file in the custody of its
Secretary or an Assistant Secretary at its principal office,
and with its transfer agent, if any, a certificate from its
independent certified public accountants showing the new
exercise price, determined as there provided, setting forth
in reasonable detail the facts requiring the adjustment of
such price, including a statement of the number of
additional shares of common stock, if any, and such other
facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such accountants'
certificate shall be made available at all reasonable times
for inspection by the Optionee and the Company shall,
forthwith after each such adjustment mail a copy of such
certificate to the Optionee.
(c) So long as Stock Options granted under the Plan
shall be outstanding,
(i) if the Company shall pay any
dividend or make any distribution
upon its Common Stock; or
(ii) if the Company shall offer to the
beneficial owners of its Common
Stock for subscription or purchase
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by them any shares of stock of any
class or any other rights; or
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(iii) if any capital reorganization of
the Company, reclassification of
the Common Stock of the Company,
consolidation or merger of the
Company into another corporation,
sale or transfer of all or
substantially all of the property
and assets of the Company to
another corporation, or any
voluntary or involuntary
dissolution, liquidation or winding
up of the Company shall be
effected;
then, in any such case, the Company shall cause to be mailed
to the Optionee at least ten (10) days prior to the earliest
date hereinafter specified, a notice containing a brief
description of the proposed action and stating the
anticipated date on which (1) a record is to be taken for
the purpose of such dividend, distribution or rights, or (2)
such reclassification, reorganization, consolidation,
merger, sale or transfer, dissolution, liquidation or
winding up is to take place and the anticipated date, if
any, that is to be fixed, as of which the beneficial owners
of the common stock shall be entitled to exchange their
shares of common stock for securities or other property
deliverable upon such reclassification, reorganization,
consolidation, merger, sale or transfer, dissolution,
liquidation or winding up. After any such notice shall be
given, the Company shall give the Optionee copies of all
future notices sent to the Company's stockholders with
respect to the same transaction.
1.16. Rights as a Shareholder
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The Optionee shall have no rights as a Shareholder with
respect to the Shares purchased by him pursuant to the
exercise of a Stock Option under this Plan until the Company
has received full payment therefor and has issued a Stock
Certificate(s) to him representing such Shares. Except as
provided in paragraph 1.15 above, no adjustment shall be
made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), for distributions or
for rights of
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any other kind with respect to Shares for which the record
date for such dividends or distributions or rights is prior
to the date of the issuance to the Optionee of a
Certificate(s) for the Shares.
1.17. Registration
The Company shall use its best efforts to register the
Shares issuable under this Plan with the Securities and
Exchange Commission under the provisions of the Securities
Act of 1933 in order to facilitate the resale of the Shares
acquired by non-affiliates of the Company under the Plan
without federal securities law restrictions.
1.18. Acceleration of Options in Certain Events
Notwithstanding any provisions to the contrary in this
Plan or in any Stock Option Agreement evidencing Stock
Options granted hereunder, all Stock Options then currently
outstanding shall become immediately exercisable in full and
remain exercisable until their expiration in accordance with
their respective terms upon the occurrence of either of the
following events:
(i) the first purchase of the
Company's common stock pursuant to
a tender or exchange offer (other
than a tender or exchange offer
made by the Company) or
(ii) approval by the Company's
Shareholders of a (A) merger or
consolidation of the Company with
or into another corporation (other
than a merger or consolidation in
which the Company is the surviving
corporation and which does not
result in any reclassification or
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-7.x2a
reorganization of the Company's
then outstanding common stock), (B)
sale or disposition of all or
substantially all of the Company's
assets, or (C) plan of liquidation
and/or dissolution of the Company.
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ARTICLE II - STOCK OPTIONS
2.01. Award of Stock Options
The Board may from time to time, and subject to the
provisions of the Plan and such other terms and conditions
as the Board may prescribe, grant to any eligible employee,
consultant and/or advisor one or more Options to purchase
for cash or shares the number of Shares ("Stock Options")
allotted by the Board. The date a Stock Option is granted
shall mean the date selected by the Board as of which the
Board allots a specific number of Shares to an employee
pursuant to the Plan.
2.02. Stock Option Agreements
The grant of a Stock Option shall be evidenced by a
written Stock Option Agreement, executed by the Company and
the holder of a Stock Option (the "Optionee"), stating the
number of Shares subject to the Stock Option evidenced
thereby, and such Stock Option Agreement shall be in such
form as the Board may from time to time determine. Each
Agreement shall contain provisions consistent with this
Plan, including a provision prohibiting the sale,
assignment, exchange, alienation, pledge, encumbrance or
other similar form of transfer for value of any Shares
acquired pursuant to the exercise of any Stock Option
granted under this Plan until after the date that is six (6)
months from the date of grant of the Stock Option and
including, in the discretion of the Board, a waiting period
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following the grant of any Stock Option during which all or
any part thereof may not be exercised.
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2.03. Terms and Conditions of Options
Each Stock Option granted by the Board shall be subject
to the following terms and conditions:
(a) Price. Each Stock Option shall state the number of
Shares subject to the Stock Option and the Stock Option
price, which, unless the Board, in its absolute discretion,
otherwise determines, shall be not less than the fair market
value of the Shares with respect to which the Option is
granted at the time of the granting of the Stock Option
("Exercise Price"). The Board is explicitly authorized
under this Plan to grant Stock Options the Exercise Price
per Share of which is less than the fair market value of the
Shares at the time of grant, but said Exercise Price per
Share shall in no event be less than the par value thereof.
For purposes of this paragraph 2.03(a), the fair market
value per Share shall be the closing price for the common
stock of the Company as quoted by the National Association
of Securities Dealers, Inc. on the business day immediately
preceding the day the Stock Option is granted.
(b) Term. The term of each Stock Option shall be
determined by the Board. The Board and an Optionee may at
any time by mutual agreement terminate or modify the term of
any Stock Option granted to such Optionee under this Plan.
(c) Exercise. Each Stock Option, or any installment
thereof, shall be exercised, whether in whole or in part,
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by giving written notice to the Company at its principal
office, specifying the number of Shares purchased, the
purchase price being paid, and accompanied by the payment of
the purchase price. An Optionee may pay for the Shares
subject to the Stock Option with cash, a certified check or
a bank cashier's check payable to the order of the Company.
Alternatively, provided the Board of Directors shall approve
the specific transfer, he may pay for the Shares, in whole
or in part, by the delivery of common stock of the Company
already owned by him which will be accepted in payment for
Shares at the fair market value of such common stock on the
date of exercise. For this purpose, fair market value per
share of common stock shall be the closing price for the
common stock of the Company as quoted by the National
Association of Securities Dealers, Inc. on the business day
immediately preceding the day the common stock is mailed or
otherwise delivered to the Company. Certificates
representing the Shares purchased by the Optionee shall be
issued by the Company as soon as reasonably practicable
after the Optionee has complied with these provisions.
(d) Restriction Upon Exercise. Notwithstanding any
other provision of this Plan, and subject to the following
limitations, Shares obtained upon the exercise of any Stock
Option or Incentive Stock Option (within the meaning of
Section 422 of the Code) under this or any other stock
Option plan of the Company, may be used in satisfaction of
any part of the Exercise Price for Shares subject to Stock
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Options granted under this Plan. However, Shares obtained
upon the exercise of a given Stock Option may not be used to
acquire additional Shares under that same Stock Option. In
addition, shares acquired through the exercise of an
Incentive Stock Option may be used only if the transfer of
such previously acquired shares takes place two years from
the date of the grant of the prior Incentive Stock Option
and one year from the date of exercise of the prior
Incentive Stock Option.
The Board may, from time to time, impose such
restrictions and/or conditions upon the vesting and/or the
subsequent transferability of any Shares to be issued or
transferred by the Company upon the exercise of any Stock
Options granted pursuant to this Plan as it may deem
advisable for the orderly, secondary transfer of such
Shares.
The Stock Option Agreements utilized in connection with
the grant and exercise of Stock Options granted under this
Plan shall alert the Optionee as to the existence of the
Company's policy regarding trading in the Company's
securities while in possession of material, inside
information regarding the Company as well as the guidelines
and procedures designed to implement such policy. In
particular, such documents shall state that the Optionee may
be required, under the Company's policy and procedures, to
obtain permission of the Company's Clearinghouse Committee
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prior to any sale or transfer for value of the Shares to be
acquired under Stock Options granted under the Plan.
2.04. Non-Assignment/Non-Transferability
Unless the Board, in its discretion shall otherwise
determine with respect to the grant of a specific Option(s)
during the lifetime of the Optionee, Stock Options issued
pursuant to this Plan shall be exercisable only by him and
shall not be assignable or transferable by him, whether
voluntarily or by operation of law or otherwise, and no
other person shall acquire any rights therein.
2.05. Death of the Optionee
In the event that an Optionee shall die while he is an
employee of the Company and prior to his complete exercise
of Stock Options granted to him under this Plan, any such
remaining Stock Option may be exercised in whole or in part
only: (i) by the Optionee's estate or by or on behalf of
such person or persons to whom the Optionee's rights pass
under his Will or by the laws of descent and distribution,
(ii) to the extent that the Optionee was entitled to
exercise the Stock Option at the date of his death, and
subject to all of the conditions and restrictions contained
in this Plan, and (iii) prior to the expiration of the term
of the Stock Option.
2.06. Termination of Employment
Unless the Board in its discretion shall otherwise
determine with respect to the grant of a specific Option, a
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Stock Option shall be exercisable, during the lifetime of
the employee to whom it is granted, only while he is an
employee of the Company and has been an employee
continuously since the date the Stock Option was granted.
In addition, no Stock Option shall be exercisable after the
expiration of the term thereof.
ARTICLE III - INCENTIVE STOCK OPTIONS
3.01. Award of Incentive Stock Options
The Board may, from time to time and subject to the
provisions of the Plan and such other terms and conditions
as the Board may prescribe, grant to any eligible employee
one or more "incentive stock options", intended to qualify
as such under the provisions of Section 422 of the Code
("Incentive Stock Options") to purchase for cash or shares
the number of shares of Common Stock allotted by the Board.
The date an Incentive Stock Option is granted shall mean the
date selected by the Board as of which the Board allots a
specific number of Shares pursuant to the Plan.
3.02. Annual Limitation
The aggregate fair market value (determined as of the
time the Incentive Stock Option is granted) of the Shares
with respect to which Incentive Stock Options are
exercisable for the first time by any individual during any
calendar year (under this Plan and all other incentive stock
Option plans of the Company, any parent of the Company and
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-7.x2a
any of its subsidiaries) shall not exceed $100,000.00. For
purposes of the application of this rule, Incentive Stock
Options shall be taken into account in the order in which
they were granted.
3.03. Incentive Stock Option Agreements
The grant of an Incentive Stock Option shall be evidenced
by a written Incentive Stock Option Agreement, executed by
the Company and the holder of an Incentive Stock Option (the
"Optionee"), stating the number of Shares subject to the
Incentive Stock Option evidenced thereby, and such Incentive
Stock Option Agreement shall be in such form as the Board
may from time to time determine. Each Agreement shall
contain provisions consistent with this Plan, including a
provision prohibiting the sale, assignment, exchange,
alienation, pledge, encumbrance or other similar form of
transfer for value of any Shares acquired pursuant to the
exercise of any Incentive Stock Option granted under this
Plan until after the date that is six (6) months from the
date of grant of the Incentive Stock Option and including,
in the discretion of the Board, a waiting period following
the grant of any Incentive Stock Option during which all or
any part thereof may not be exercised.
3.04. Terms and Conditions of Options
Each Incentive Stock Option granted by the Board pursuant
to this Plan shall be subject to the following terms and
conditions:
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(a) Price. Each Incentive Stock Option shall state the
number of Shares subject to the Incentive Stock Option and
the Incentive Stock Option price, which shall be not less
than the fair market value of the Shares with respect to
which the Incentive Stock Option is granted at the time of
the granting of the Incentive Stock Option. If an Incentive
Stock Option is granted to any person who, at the time the
Incentive Stock Option is granted, owns stock possessing
more than ten (10) percent of the total combined voting
power of all classes of stock of the Company and/or its
subsidiaries (hereinafter referred to as a "Ten Percent
Shareholder"), the Incentive Stock Option price shall be not
less than one hundred ten (110) percent of the fair market
value of the Shares with respect to which the Incentive
Stock Option is granted at the time of the granting of the
Incentive Stock Option to the Ten Percent Shareholder. For
purposes of the foregoing limitation, the rules of Section
424(d) of the Code (relating to attribution of stock
ownership) shall apply in determining share ownership,
provided, however, Shares that an Optionee may purchase
under outstanding Incentive Stock and/or Stock Options shall
not be treated as stock owned by the individual.
For purposes of this paragraph 3.04(a), the fair market
value per Share shall be the closing price for the common
stock of the Company as quoted by the National Association
of Securities Dealers, Inc. on the day the Incentive Stock
Option is granted.
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(b) Term. The term of each Incentive Stock Option
shall be determined by the Board, but in no event shall an
Incentive Stock Option be exercisable either in whole or in
part after the expiration of ten (10) years from the date on
which it is granted. In no event shall an Incentive Stock
Option granted to a Ten Percent Shareholder be exercisable
either in whole or in part after the expiration of five (5)
years from the date on which it is granted. The Board and
an Optionee may at any time by mutual agreement terminate or
modify the term of any Incentive Stock Option granted to
such Optionee under this Plan provided that any modification
of the term of any Incentive Stock Option granted under this
Plan shall meet the requirements of this paragraph.
(c) Exercise. Each Incentive Stock Option, or any
installment thereof, shall be exercised, whether in whole
or in part, by giving written notice to the Company at its
principal office, specifying the number of Shares purchased
and the purchase price being paid, and accompanied by the
payment of the purchase price. An Optionee may pay for the
Shares subject to the Incentive Stock Option with cash, a
certified check or a bank cashier's check payable to the
order of the Company. Alternatively, provided the Board of
Directors shall approve the specific transfer, he may pay
for the Shares, in whole or in part, by the delivery of
common stock of the Company already owned by him which will
be accepted in payment for such Shares at the fair market
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-7.x2a
value of such common stock on the date of exercise. For
this purpose, fair market value per share of common stock
shall be the closing price for the common stock of the
Company as quoted on the National Association of Securities
Dealers, Inc. on the business day immediately preceding the
day the stock is mailed or otherwise delivered to the
Company. Certificates representing the Shares purchased by
the Optionee shall be issued by the Company as soon as
reasonably practicable after the Optionee has complied with
these provisions.
(d) Restriction Upon Exercise. Notwithstanding any
other provision of this Plan, and subject to the following
limitations, Shares obtained upon the exercise of any Stock
Option or Incentive Stock Option (within the meaning of
Section 422 of the Code) under this or any other stock
Option plan of the Company, may be used in satisfaction of
any part of the Exercise Price for Shares subject to
Incentive Stock Options granted under this Plan. However,
Shares obtained upon the exercise of a given Incentive Stock
Option may not be used to acquire additional Shares under
that same Incentive Stock Option. In addition, Shares
acquired through the exercise of an
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-7.x2a
Incentive Stock Option may be used only if the transfer of
such previously acquired shares takes place two years from
the date of the grant of the prior Incentive Stock Option
and one year from the date of exercising the prior Incentive
Stock Option.
The Board may, from time to time, impose such
restrictions and/or conditions upon the vesting and/or the
subsequent transferability of any Shares to be issued or
transferred by the Company upon the exercise of any
Incentive Stock Options granted pursuant to this Plan as it
may deem advisable for the orderly, secondary transfer of
such shares.
The Incentive Stock Option Agreements utilized in
connection with the grant and exercise of Options granted
under this Plan shall alert the Optionee as to the existence
of the Company's policy regarding trading in the Company's
securities while in possession of material, inside
information regarding the Company and/or its subsidiaries,
as well as the guidelines and procedures designed to
implement such policy. In particular, such documents shall
state that the Optionee may be required, under the Company's
policy and procedures, to obtain permission of the Company's
Clearinghouse Committee prior to any sale or transfer for
value of the Shares to be acquired under Incentive Stock
Options granted under the Plan.
3.05. Non-Assignment/Non-Transferability
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Unless the Board in its discretion shall otherwise
determine with respect to the grant of a specific Option,
during the lifetime of the Optionee, Incentive Stock Options
issued pursuant to this Plan shall be exercisable only by
him and shall not be assignable or transferable by him,
whether voluntarily or by operation of law or otherwise, and
no other person shall acquire any rights therein.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-7.x2a
3.06. Death of the Optionee
In the event that an Optionee shall die while he is an
employee of the Company and prior to his complete exercise
of Incentive Stock Options granted to him under this Plan,
any such remaining Incentive Stock Option may be exercised
in whole or in part only: (i) by the Optionee's estate or
by or on behalf of such person or persons to whom the
Optionee's rights pass under his Will or by the laws of
descent and distribution, (ii) to the extent that the
Optionee was entitled to exercise the Incentive Stock Option
at the date of his death, and subject to all of the
conditions and restrictions contained in this Plan, and
(iii) prior to the expiration of the term of the Incentive
Stock Option.
3.07. Termination of Employment
Unless the Board in its discretion shall otherwise
determine with respect to the grant of a specific Option, an
Incentive Stock Option shall be exercisable, during the
lifetime of the employee to whom it is granted, only while
he is an employee of the Company and has been an employee
continuously since the date the Incentive Stock Option was
granted. In addition, no Incentive Stock Option shall be
exercisable after the expiration of the term thereof.
ARTICLE IV - RELOAD OPTIONS
4.01. Authorization of Reload Options
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Concurrently with the award of Stock Options and/or the
award of Incentive Stock Options, the Board may authorize
reload Options ("Reload Options") to purchase for cash or
shares a number of shares of common stock. The grant of a
Reload Option will become effective upon the exercise of the
underlying Stock Option or Incentive Stock Option if the
Optionee uses shares of common stock of the Company to
purchase, either in whole or part, the underlying Stock or
Incentive Stock Option. The number of Reload Options shall
equal the number of shares of common stock used to exercise
the respective underlying Option.
4.02. Reload Option Agreement
Each Stock Option Agreement and Incentive Stock Option
Agreement shall state whether the Board has authorized
Reload Options with respect to the underlying Stock Options
and/or Incentive Stock Options. Upon the exercise of the
underlying Stock Option or the underlying Incentive Stock
Option, the Reload Option will be evidenced by an amendment
to the underlying Stock Option Agreement or Incentive Stock
Option Agreement, which amendment shall set forth the number
of Reload Options, the Reload Option Price and such other
terms and conditions governing the Reload Option.
4.03. Reload Option Price
The Option price per share of Shares deliverable upon the
exercise of a Reload Option generally shall be the fair
market value of a share of common stock on the date the
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-7.x2a
grant of the Reload Option becomes effective, that is, the
date on which the underlying Stock Option and/or Incentive
Stock Option shall have been exercised. For this purpose,
the fair market value per Share shall be the closing price
for the common stock of the Company as quoted by the
National Association of Securities Dealers, Inc. on the
business day immediately preceding such date.
Notwithstanding the general rule regarding fair market
value, in the case of a Reload Option granted where the
Exercise Price of the underlying Stock Option constituted a
given percentage of the then fair market value, in the
Board's discretion, the Reload Option Price with respect to
such Reload Option, may be at the same percentage of the
fair market value on the date of the Reload Option's
effectiveness.
4.04. Terms and Conditions
Each Reload Option granted by the Board pursuant to this
Plan shall constitute a Stock Option if authorized with
respect to underlying Stock Options or an Incentive Stock
Option if authorized with respect to underlying Incentive
Stock Options and consequently, each such Reload Option
shall be governed generally by the same terms and
conditions, set forth in Article II or III of this Plan
respectively, as govern the underlying Stock Options or
Incentive Stock Options, as the case may be. The Board may
impose additional terms and conditions and/or restrictions
on the exercise of Reload Options that, in its absolute
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-7.x2a
discretion, it deems advisable to carry out the purpose of
the Reload Option feature of this Plan. To this end, the
Board may expressly limit the consideration payable upon the
exercise of a Reload Option to cash, or may permit such
consideration to consist of shares of common stock of the
Company which the Optionee has held for at least 12 months.
Further, the Board may, in its discretion, grant successive
Reload Options if the granting of such successive Reload
Options is, in the Board's judgment, in accordance with and
in furtherance of the purposes of this Plan.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-7.x2a
EXHIBIT NUMBER 6.8
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT MADE as of this
______ day of ___________, 19__ between TORVEC, INC., a New
York business corporation (herein referred to as the
"Company"), and ______________________________ (herein
referred to as the "Optionee");
WITNESSETH:
1. The Company hereby grants to the Optionee an Option
(hereinafter referred to as "Option") to purchase an
aggregate of ____________ shares of the $.01 par value
Common Stock of the Company (herein referred to as the
"Shares") at a price of $___________ per Share to be paid by
the Optionee with cash, a certified check or a bank
cashier's check made payable to the order of the Company.
Alternatively, provided the Board of Directors shall approve
the specific transfer, the Optionee may pay for the Shares,
either in whole or in part, by the delivery of Common Stock
of the Company already owned by him which will be accepted
as payment for the Shares, based upon such Common Stock's
fair market value on the date of exercise. In addition,
provided the Board of Directors shall approve the specific
transfer, payment for the Shares, either in whole or in
part, may be made by delivery of Common Stock acquired by
the Optionee under any of the Company's stock option plans,
provided, however, that if this Option is exercised in part,
Shares acquired by such partial exercise may not be used as
payment for additional Shares to be acquired under this
Agreement. In order for the Optionee to so use shares of
Common Stock previously acquired under any of the Company's
stock option plans as payment for the Shares either in whole
or in part, the transfer of such previously acquired Common
Stock as payment for all or a portion of the exercise price
under this Agreement must occur more than two years from the
date of the grant and one year from the date of exercise of
the prior option pursuant to which the Optionee acquired
such Common Stock.
2. The term during which the Option shall be
exercisable shall commence on _______________ and expire on
the close of business _______________, subject to earlier
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-8.x2a
termination as provided in the Torvec, Inc. 1998 Stock
Option Plan (herein referred to as the "Plan"). The Option
to purchase the number of Shares granted under this
Agreement may not be exercised by the Optionee for a period
of one year immediately following the date of grant (that
is, until _______________) and then may be exercised each
year during the Option term after such initial one year
period only to the extent of the greater of 2,500 Shares or
25% of the number of Shares subject to this Option,
provided, however, that to the extent the Optionee shall
fail to exercise or, due to the above limitation, be
prohibited from exercising his Option in any year during the
Option period, such annual right to exercise this Option
shall not expire, but shall be cumulative, and carry over
into and be exercisable in any subsequent year during which
the Option is outstanding.
However, this Option may be exercised only if the
Optionee is and has been continuously an employee of the
Company or its subsidiaries for a period beginning on the
date of grant and ending on the day three months before the
date of exercise. If the Optionee terminates employment due
to permanent and total disability, the three month period
referred to in the preceding sentence shall be one year.
3. The Option is not transferable by the Optionee
other than by Will or the laws of descent and
distribution and is exercisable, during his lifetime,
only by the Optionee. In the event that the right to
exercise the Option passes to the Optionee's estate, or
to a person to whom such right devolves by reason of the
Optionee's death, then the Option shall be non
transferable in the hands of the Optionee's Executor or
Administrator or of such person, except that the Option
may be distributed by the Optionee's Executor or
Administrator to the distributees of the Optionee's
estate as a part thereof.
4. In order for the Option to be exercised, in
whole or in part, the notice by the Optionee to the
Company in the form attached hereto must be accompanied
by payment in full of the option price for the Shares
being purchased.
5. The Company agrees that it will use its best
efforts to register the sale of the Shares to be issued upon
the exercise of the Option with the Securities and Exchange
Commission under the Securities Act of 1933. Upon the
effectiveness of the Registration Statement covering the
Shares, the Optionee shall be able to sell the Shares in
"open market transactions" free of Federal Securities Law
restrictions, provided that at the time of sale, or within
the three month period immediately prior to such sale, he is
not nor has he been an "affiliate" of the Company. The
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Optionee further understands that, in accordance with
applicable Commission rules governing controlling persons of
public companies, members of the board of directors of a
public company, such as the Company, are deemed to be
"affiliates" during their term of office. The Optionee,
therefore, agrees that he will consult with the Company's
counsel as to any Securities Law restrictions, including a
limitation on the number of Shares which may be sold at any
one time, on his ability to sell the Shares prior to any
sale thereof.
6. The Company agrees to provide the Optionee with a
copy of the Prospectus prepared by the Company in connection
with the Registration Statement filed to register the
Shares, together with its exhibits, and the Company hereby
acknowledges its obligation to provide the Optionee with all
proxy and other shareholder communications, including the
annual report to security holders, for the most recently
completed fiscal year of the Company and all updates
thereof. The Optionee agrees that prior to exercise, either
in whole or in part of the Option granted to him hereunder,
he shall have read such materials, including the most recent
annual and quarterly reports to shareholders, and shall have
received, if requested, and read all the documents
incorporated by reference in the Prospectus and Registration
Statement filed with the Securities and Exchange Commission.
7. The Optionee understands that except as provided in
Paragraph 5 above, the Company has not agreed to register
either the issuance or the resale of the Shares in
accordance with the provisions of the Securities Act of 1933
or to register either the issuance or the resale of the
Shares under any applicable State Securities Laws. Hence,
the Optionee agrees that by virtue of the provision of
certain rules respecting "restricted securities" promulgated
under such Federal and/or State Laws, unless the resale of
the Shares is registered as provided in Paragraph 5 above,
and until the registration of such Shares in accordance with
Paragraph 5 above shall have been declared effective by
order of the Commission, the Shares which the Optionee shall
purchase upon the exercise of this Option must be held
indefinitely and may not be sold, transferred, pledged,
hypothecated, or otherwise encumbered for value, unless and
until a secondary distribution and/or resale of such Shares
is subsequently registered under such Federal and/or State
Securities Laws, or unless an exemption from registration is
available, in which case the Optionee still may be limited
as to the amount of the Shares that may be sold,
transferred, pledged and/or encumbered for value. The
Optionee therefore agrees that, until the registration of
such Shares shall have been declared effective by order of
the Commission, the Company may affix upon any certificate
representing the Shares, a legend that such Shares may not
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be transferred in violation of Section 5 of the Securities
Act of 1933.
8. The Optionee understands and agrees that the
Shares to be acquired upon the exercise of the Option
may not be sold, transferred, exchanged, hypothecated,
encumbered, pledged or otherwise disposed of for value
for a period of six (6) months from the date of the
grant of this Option.
9. The Optionee understands that the Company has
established certain policies and procedures governing
trading in the Company's securities, including the
Shares to be acquired upon the exercise of this Option,
while in possession of material, inside information
regarding the Company and/or any of its subsidiaries.
The Optionee agrees that upon exercise of this Option,
either in whole or in part, he will comply with all of
the terms and conditions of such policy, including the
procedures and guidelines established for its
implementation. In particular, the Optionee agrees that
where required under such guidelines and procedures, he
will obtain permission of the Company's Clearinghouse
Committee composed of senior management prior to
effectuating any sale or other transfer for value of the
Shares to be acquired by virtue of the exercise of this
Option.
10. All the terms and provisions of the Plan, duly
adopted at a meeting of the Company's Board of Directors
on _______________, 1998 and approved by a majority vote
of the Company's shareholders either in person or by
proxy at a duly called meeting of such shareholders held
on _______________, 1998 and as amended to date, are
hereby expressly incorporated into this Agreement and
made a part hereof as if printed herein and the
Optionee, by the Optionee's signature hereon,
acknowledges receipt of a certified copy of said Plan.
If there shall be any conflict between this agreement
and the Plan, the provisions of the Plan shall control.
11. In accordance with certain terms and conditions
of the Plan, the aggregate number and kind of Shares
that may be purchased pursuant to the grant of the
Option under this Agreement shall be proportionately
adjusted for any increase, decrease or change in the
total number of the outstanding shares of the Company
resulting from a stock dividend, stock-split or other
corporate reorganization which would result in or have
the effect of the Optionee being treated differently
(but for the adjustment) than he would be treated had he
been the beneficial owner of the Shares subject to the
Option on the record date for such dividend, split or
reorganization, as the case may be.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-8.x2a
12. The Optionee understands that the Option
granted hereunder constitutes an "incentive stock
option" within the meaning of Section 422 of the
Internal Revenue Code. Consequently, under current
provisions of federal tax law, if the holding periods
set forth in this paragraph are observed, no income or
gain shall be recognized for regular income tax purposes
to the Optionee upon either the grant of the Option or
upon his exercise of all or a portion of the Option
granted hereunder. Upon the disposition of the Shares
of the Company acquired pursuant to exercise, long or
short term capital gain or loss will be recognized by
the Optionee, depending uon the holding period (eighteen
months for long term capital gain or loss) and the
extent to which the seling price exceeds or is less than
the Optionee's basis in the Shares.
The amount of gain will be taxed at normal,
ordinary tax rates, with a maximum rate of 20% if the
Shares are held for a period of at least eighteen
months. If the Shares are held for a period of at least
twelve months, the maximum rate on any gain from their
sale will be taxed at 28%.
To achieve this favorable income tax treatment,
the Optionee understands that he cannot dispose of any
Shares acquired pursuant to the exercise of the Option
granted hereunder for a period of two (2) years from the
date of the grant of this Option and for a period of one
(1) year from the date of exercise.
The Optionee also understands that for purposes of
the federal alternative minimum income tax calculation,
the difference between the exercise price and the fair
market value of the Shares on the date of exercise shall
be includible as an item of gross income for the taxable
year of exercise except to the extent that such Shares
are not transferable and are subject to a substantial
risk of forfeiture.
The Optionee also understands that the provisions
of federal tax law described herein are subject to
change and, consequently, the Optionee agrees to consult
with his or her own tax advisor with respect to the tax
treatment to be accorded the grant of the Option herein,
the exercise of such Option, and the disposition of the
Shares.
13. Consistent with the provisions of the Plan,
this Agreement shall be binding upon and inure to the
benefit of any successor or assignee of the Company and
to any executor, administrator, legal representative,
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-8.x2a
legatee, or distributee entitled by law to the
Optionee's right hereunder.
14. Except insofar as an interpretation of federal
securities law otherwise is required, or is controlling,
this Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this
Agreement to be executed on its behalf by its duly
authorized officer and the Optionee has hereunto set his
hand, as of the day and year first above written.
TORVEC, INC.
By:____________________
____________________,
,Optionee
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NOTICE OF EXERCISE OF STOCK OPTION
AND
RECORD OF STOCK TRANSFER
Torvec, Inc.
3740 Route 104
Williamson, New York 14587
Gentlemen:
I hereby exercise my Incentive Stock Option granted to
me by Torvec, Inc. under an Incentive Stock Option
Agreement dated _______________, subject to all the terms
and provisions thereof and of the Torvec, Inc. 1998 Stock
Option Plan referred to therein and notify you of my
desire to purchase Shares of the $.01 par
value Common Stock of the Company which were offered to
me pursuant to the Incentive Stock Option Agreement.
Enclosed is my payment in the sum of in
full payment of such Shares.
I understand that a Registration Statement covering
the Shares to be issued to me pursuant to this exercise
of the Option granted to me was filed with the Securities
and Exchange Commission on _______________. The
Registration Statement became effective on
_______________. Consequently, I understand that unless
I am an "affiliate" of the Company, the Shares I am
acquiring are freely tradeable and may be sold by me in
"open market" transactions. If I am an "affiliate" of
the Company, however, or have been one during the three
month period prior to sale, I recognize that I may not
sell freely on the open market and therefore agree that I
will consult the Company's counsel as to the securities
law restrictions on my ability to sell the Shares.
I also understand that under the Plan, and in
accordance with the terms of the Incentive Stock Option
Agreement, I may not sell, assign, alienate, pledge,
encumber or otherwise transfer for value the Shares
unless a period of six (6) months has elapsed from the
date of the grant of the Option to me.
I acknowledge that I am aware that the Company has
established a policy with respect to trading in its
securities while in possession of material inside
information regarding the Company and/or its
subsidiaries, and that, in accordance with certain
guidelines and procedures designed to implement such
policy, I may be required to obtain permission from a
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-8.x2a
Clearinghouse Committee, composed of Senior Management,
prior to any sale or other transfer for value of the
Shares hereby acquired.
I also acknowledge that I have received and have read
the Prospectus dated _______________ prepared by the
Company in connection with the grant of the Option
contained herein, together with its exhibits, and all
proxy and other shareholder communications, including the
annual report to security holders, for the most recently
completed fiscal year and all quarterly and current
updates thereof. I acknowledge that I have received all
documents incorporated by reference in the Prospectus and
the Registration Statement filed with the Securities and
Exchange Commission that I requested and have read the
same. I acknowledge that I have had the opportunity to
ask questions of and receive answers from the Company's
management concerning the information set forth in such
Prospectus, reports and updates and have been satisfied
with the answers provided regarding the same.
Finally, I acknowledge that there are significant
federal income tax consequences resulting from my
exercise of this Option, that I have consulted with and
received advice from qualified tax counsel both as to the
nature of such tax consequences and their impact upon my
own personal income tax situation as the result of such
exercise, and that I fully understand such impact and
have planned accordingly.
DATED: __________________________
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-8.x2a
Receipt is hereby acknowledged of the delivery to me by
Torvec, Inc. on , 19 of stock
certificates for shares of $.01 par value common
stock purchased by me pursuant to the terms and conditions of
the Torvec, Inc. 1998 Stock Option Plan referred to above.
DATED: ______________________
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-8.x2a
EXHIBIT NUMBER
6.9
-AFFIDAVIT-
Re: Assignment of Gleasman Patents to Torvec, Inc.
5
State of New York )
) Ss.
County of Monroe )
10 Morton A. Polster, being duly sworn deposes and says:
1. I am an attorney registered to practice before the
United States Patent and Trademark Office ("USPTO"); and
I have been acting as patent attorney for Vernon, Keith,
and James Gleasman (the
15 Gleasmans") since 1989 and am presently an Officer and
Director of Torvec, Inc.
2. Attached hereto are Assignments (both of which have
been recorded at the USPTO) transferring all right and
title to listed
20 patent properties from the Gleasmans to Torvec, Inc.
3. 1 have personal knowledge that each of the listed U.S.
Patents was issued to the Gleasmans; that the two listed
U.S. Patent Applications have both matured into U.S.
Patents and have since issued to the
25 Gleasmans; that all of these U.S. Patents are now owned
by Torvec, Inc.; that the two International Patent
Applications have each been filed in the European Patent
Office as well as in seven other countries; and that all
of those non-U.S. filings have been made in the name of
Torvec, Inc.
30
s/Morton A. Polster
35
Sworn to before me this 29th day of January, 1988.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-9.x2a
S/Pamela J. Knapp
Notary Public
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-9.x2a
UNITED STATES DEPARTMENT
OF COMMERCE
Patent and Trademark
Office
Assistant Secretary and
Commissioner
of Patents and Trademarks
Washington, D.C. 20231
FEBRUARY 24, 1997
PTAS
EUGENE STEPHENS & ASSOCIATES
MORTON A. POLSTER
56 WINDSOR STREET
ROCHESTER, NY 14605
UNITED STATES PATENT AND TRADEMARK OFFICE
NOTICE OF ACCREDATION OF ASSIGNMENT DOCUMENT
THE ENCLOSED DOCUMENT HAS BEEN RECORDED BY THE ASSIGNMENT
DIVISION OF THE U.S. PATENT AND TRADEMARK OFFICE. A
COMPLETE MICROFILM COPY IS AVAILABLE AT THE ASSIGNMENT
SEARCH ROOM ON THE REEL AND FRAME NUMBER REFERENCED BELOW.
PLEASE REVIEW ALL INFORMATION CONTAINED ON THIS NOTICE. THE
INFORMATION CONTAINED ON THIS RECORDATION NOTICE REFLECTS
THE DATA PRESENT IN THE PATENT AND TRADEMARK ASSIGNMENT
SYSTEM. IF YOU SHOULD FIND ANY ERRORS OR HAVE QUESTIONS
CONCERNING THIS NOTICE, YOU MAY CONTACT THE EMPLOYEE WHOSE
NAME APPEARS ON THIS NOTICE AT 703-308-9723. PLEASE SEND
REQUEST FOR CORRECTION TO: U.S. PATENT AND TRADEMARK OFFICE,
ASSIGNMENT DIVISION, BOX ASSIGNMENTS, NORTH TOWER BUILDING,
SUITE 1OC35, WASHINGTON, D.C. 20231.
RECORDATION DATE: 11/22/1996 REEL/FRAME: 8268/0844
NUMBER OF PAGES: 5
BRIEF: ASSIGNMENT OF ASSIGNOR'S INTEREST (SEE DOCUMENT FOR
DETAILS).
ASSIGNOR:
GLEASMAN, VERNON E. DOC DATE: 09/30/1996
ASSIGNOR:
GLEASMAN, KEITH E. DOC DATE: 09/30/1996
ASSIGNOR:
GLEASMAN, JAMES A. DOC DATE: 09/30/1996
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-9.x2a
ASSIGNEE:
TORVEC, INC.
11 PONDVIEW DRIVE
PITTSFORD, NEW YORK 14534
SERIAL NUMBER: 08252743 FILING DATE: 06/02/1994
PATENT NUMBER: ISSUE DATE:
SERIAL NUMBER: 08410235 FILING DATE: 03/241995
PATENT NUMBER: 5613914 ISSUE DATE: 03/25/1997
8268/0844 PAGE 2
SERIAL NUMBER: 06668313 FILING DATE: 11/05/1984
PATENT NUMBER: 4732053 ISSUE DATE: 03/22/1988
SERIAL NUMBER: 07027748 FILING DATE: 03/19/1987
PATENT NUMBER: 4776235 ISSUE DATE: 10/11/1988
SERIAL NUMBER: 07027741 FILING DATE: 03/19/1987
PATENT NUMBER: 4776236 ISSUE DATE: 10/11/1988
SERIAL NUMBER: 07255663 FILING DATE: 10/11/1988
PATENT NUMBER: 4895052 ISSUE DATE: 01/23/1990
SERIAL NUMBER: 07768399 FILING DATE: 09/12/1991
PATENTNUMBER: 5186692 ISSUE DATE: 02/16/1993
SERIAL NUMBER: 07936842 FILING DATE: 08/27/1992
PATENT NUMBER: 5440878 ISSUE DATE: 08/15/1995
SERIAL NUMBER: 08274220 FILING DATE: 07/13/1994
PATENT NUMBER: 5513553 ISSUE DATE: 05/07/1996
SERIAL NUMBER: FILING DATE:
PATENT NUMBER: ISSUE DATE:
PCT NUMBER: US9506538
SERIAL NUMBER: FILING DATE:
PATENT NUMBER: ISSUE DATE:
PCT NUMBER: US9508732
SHARMALLA SIMPSON, EXAMINER
ASSIGNMENT DIVISION
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-9.x2a
OFFICE OF PUBLIC RECORDS
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-9.x2a
EXHIBIT NUMBER 6.10
SERVICE AND SPACE AGREEMENT
THIS AGREEMENT, made the _____ day of _________________,
1997 by and JOSEPH L. NERI, SR., 3740 Rte. 104, Williamson,
New York 14589 (the _Owner_), JOSEPH NERI CHEVROLET-
OLSMOBILE-PONTIAC, INC., a New York Corporation with offices
at 3740 Rte. 104, Williamson, New York 14589 (the
_Provider_) and TORVEC, INC., a New York Corporation with
offices at 11 Pondview Drive, Pittsford, New York 14534
(_Torvec_).
W I T N E S S E T H :
WHEREAS, Owner is the owner of Premises located at 3740 Rte.
104, Williamson, New York consisting of eight acres of land
on which there is located a building of approximately 17,000
square feet (the _Premises_), and
WHEREAS, the Provider occupies the Premises as an automobile
dealership and fully equipped repair department and body
shop (the _Facility_), and
WHEREAS, Torvec is a development company engaged in the
development of patented products which will be utilized as
components of motor vehicles and as a new type of vehicle,
and in multiple other applications, and
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-10.x2a
WHEREAS, the Parties desire that the Provider make the
Facility available to Torvec and utilize Provider's
personnel to construct, assemble and install Torvec's
products into vehicles,
NOW THEREFORE, it is agreed as follows:
1. The Owner and the Provider warrant and represent
that they are the sole owners of the Facility as it is above
described and agree that Torvec shall have the use of so
much of the Facility as is required by Torvec from time to
time to store goods of Torvec and to permit the Provider to
construct, assemble and install Torvec's products into
vehicles, including but not limited to the FasTrack.
2.Provider warrants and represents that equipment at
the Facility includes a computer system, service department,
specialized equipment and tools with above-ground lifts
(D.E.C. approved), one of which has a 28,000 pound capacity
for trucks and buses, and an eight bay body shop complete
with paint room and Kansas Jack straightening machine and a
two floor parts department. Provider further warrants and
represents that its staff consists of thirty members,
including sales managers, office staff, mechanics and a
computer programmer, all of whose services will be employed
by Provider in fulfilling its obligations under this
Agreement.
3.Provider agrees:
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-10.x2a
(A)To provide office space as needed to Torvec,
not to exceed ____________ square feet.
(B)To provide all utilities, including a telephone
system with an after-hour answering service.
(C)To construct, assemble and install the
Company's products into various vehicles, including the
FasTrack, and to devote so much of the space at the Facility
and as many of its personnel as are required to promptly
meet the reasonable needs of Torvec.
(D)To maintain the Facility and keep it in good
repair.
(E)To designate Torvec as an additional insured on
Provider's general liability insurance.
(F)To take all reasonable actions to secure the
Facility against theft of Torvec's products or technology.
4.Torvec agrees:
(A)To provide the designs for all products being
constructed or installed by Provider.
(B)To provide the inventory for all products,
which inventory shall, at all stages of assembly or
production remain the property of Torvec.
(C)To provide the training required by Provider's
personnel to properly render the services which Provider is
obligated to render under this Agreement, it being
understood that initially Mr. Keith Gleasman will provide
such training but Torvec shall have the right to designate
one or more additional individuals to provide.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-10.x2a
5.The parties agree that Provider is an independent
contractor and neither Provider nor his employees shall be
an employee, agent, servant or representative of Torvec.
Provider shall have no authority to transact business,
enter into agreements or otherwise make commitments on
behalf of Torvec. Provider shall be responsible for the
payment of all taxes, worker's compensation benefits and
other fringe benefits of the employees of Provider who are
engaged in fulfilling Provider's obligations under this
Agreement.
6.Provider and Owner have been advised that Torvec is
a development company engaged in the development of
commercial applications of new patented products. Provider
and owner have agreed that all patents, designs and
technology relating to the Products, as well as all
marketing plans, customer and supplier lists are
confidential proprietary information of Torvec (Confidential
Information). Neither Owner nor Provider will claim any
ownership interest in any such proprietary and Confidential
Information and agree to use such Information as is provided
to them for the sole purpose of performing their obligations
under this Agreement. They will limit dissemination of this
Confidential Information to only those employees who have a
need to know to perform the limited tasks assigned to them.
Such Confidential Information will not be copied and will be
returned to Torvec upon expiration of this Agreement. The
parties have agreed that Torvec would be irreparably harmed
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-10.x2a
by a violation of this paragraph of this Agreement and that
an action for damages may not be an adequate remedy and that
Torvec may seek an injunction in addition to any other
remedies available at law to enforce this Article 6 of this
Agreement.
7.Owner represents and warrants that he has a binding
and irrevocable option to purchase 80 acres of land adjacent
to the Premises and fronting on Rte. 104, which acreage
contains ponds, swamps and woods suitable for testing
vehicles containing products of Torvec. One year from the
effective date of this Agreement, Owner will transfer and
convey said 80 acre parcel to Torvec free of liens and
encumbrances for the sum of $350,000.00 which Torvec agrees
to pay. Owner warrants and represents that use of said 80
acre parcel to test Torvec's vehicles will not violate any
zoning law or restriction running with the land.
8.For services and space to be provided by Provider and
Owner pursuant to this agreement, Torvec agrees to pay
Provider the sum of $630,000.00 in twelve equal monthly
installments. The first and last monthly payments have been
paid and Owner and Provider acknowledge that fact by
executing this Agreement. Owner and Provider acknowledge
that they have been advised that pursuant to the Securities
Act of 1933 Torvec is seeking to complete an initial public
offering of its stock and this Agreement shall become
effective on the date on which the proceeds of such public
offering are distributed to Torvec. The initial term of
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-10.x2a
this Agreement shall be one (1) year. Torvec shall have the
option on four separate occasions to extend this Agreement
on the same terms for additional periods of one year each,
provided that Provider is given notice in writing of the
exercise of this option no less than ninety (90) days prior
to the date on which the original term of this Agreement or
any extension thereof would terminate.
9.Any dispute arising out of or relating to this
Agreement other than disputes pursuant to Article 6 above
shall be settled by arbitration. Such arbitration shall be
governed by the rules of commercial Arbitration of the
American Arbitration Association and shall be conducted at
Rochester, New York. Any award granted in such arbitration
shall be final and binding upon the parties and may be
enforced in accordance with Article 75 of the Civil Practice
Law and Rules of the State of New York.
10.This Agreement has been entered into in the State of
New York and its validity and interpretation shall be
governed by and in accordance with the laws of that State.
11.This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their successors but
neither party shall have the right to assign or transfer any
right or obligation under this agreement to any third party
without the prior written consent of the others. A
combination of Torvec with another entity shall not be
deemed an assignment.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-10.x2a
IN WITNESS WHEREOF, the parties hereto have entered
into this Agreement on the date first above written.
_____________________
Joseph L. Neri, Sr., Owner
JOSEPH NERI
CHEVROLET-OLDSMOBILE-
PONTIAC, INC.
By:____________________________
Provider
TORVEC, INC.
By:____________________________
Torvec
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-10.x2a
EXHIBIT NUMBER
6.11
INFINITELY VARIABLE TRANSMISSION
The term of this Agreement will begin on its Effective
Date, January 24, 1997, and will expire on January 23,
1998, unless extended by mutual consent of the parties,
This Agreement is between Ford Motor Company, a Delaware
corporation, having a place of business at The American
Road, Dearborn, Michigan, (hereinafter "Ford"), and Torvec
Inc., having a place of business at 11 Pondview Drive,
Pittsford, New York, 14534 (hereinafter "Torvec").
Torvec has developed an Infinitely Variable Transmission
(IVT) and desires to install the IVT in a motor vehicle and
demonstrate the performance and operation of the IVT in the
motor vehicle.
To protect certain Confidential Information to be disclosed
for the purposes set forth in this Agreement, the parties
agree as follows:
1. The parties', representatives for disclosing or
receiving Confidential Information are:
<TABLE>
<S> <C> <C> <C>
FORD Mr. E. J. DeVincent TORVEC: Mr. James Gleasman:
Ford Motor Company Torvec Inc.
6800 Plymouth Road 11 Pondview Drive
Livonia, Michigan 48150 Pittsford, New York
14534
</TABLE>
2. Confidential Information means proprietary information,
data, sketches and drawings of Ford, and includes (but is
not limited to) Ford production drawings of AX4N automatic
transmission, drawings of the AX4N transmission case, an
outline or package drawing, and a torque converter layout.
3. Ford shall disclose Confidential Information to Torvec,
as deemed necessary in the sole judgment of Ford, for Torvec
to adapt the IVT for installation into a Taurus vehicle.
4. Torvec shall use Confidential Information only for the
purpose of developing an IVT adapted for use in a Taurus
vehicle, installing such IVT into a Taurus vehicle, and
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-11.x2a
demonstrating performance of the Taurus vehicle with the IVT
installed.
5. Torvec's duty to protect Confidential Information
disclosed under this Agreement extends for a period of ten
years from the date of each first disclosure of confidential
information.
6. Torvec shall protect Confidential Information by using
the same degree of care as Torvec uses to protect its own
confidential information of a like nature, but no less than
a reasonable degree of care, to prevent publication and
dissemination of Confidential Information to third parties,
and to prevent use of Confidential Information for any
purpose other than the purpose of Article 4 hereof.
7. This Agreement imposes no obligation upon Torvec with
respect to Confidential Information which (a) was in
Torvec's possession before receipt from Ford, (b) is or
becomes a matter of public knowledge through no fault of
Torvec, (c) is rightfully received by Torvec from a
rightfully possessing third party without a duty of
confidentiality, or (d) is required to be disclosed by court
order or other lawful governmental action, but only to the
extend so ordered, and provided that if Torvec is so ordered
Torvec shall notify Ford so that Ford may attempt to obtain
a protective order.
8. Torvec shall make no copies of the Confidential
Information. All materials bearing, containing, disclosing
or relating to Confidential Information shall remain the
property of Ford. Upon receipt of written request from
Ford, Torvec shall return all writings and other materials
in its possession or control that contain Confidential
Information received from Ford under this Agreement.
9. Torvec shall adhere to the U.S. Export Administration
Laws and Regulations and shall not export or re-export any
technical data or products received from Ford or the direct
product of such technical data to any proscribed country
listed in the U.S. Export Administration Regulations unless
properly authorized by the U.S. Government.
10. If a dispute arises between the parties relating to
this Agreement, the following procedure shall be implemented
before either party pursues other available remedies except
that each party may seek injunctive relief from a court
where appropriate in order to maintain the status quo while
this procedure is being followed:
a. The parties shall hold a meeting promptly,
attended by persons with decision making authority
regarding the dispute, to attempt in good faith to
negotiate a resolution of the dispute; provided,
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-11.x2a
however, that no such meeting shall be deemed to
vitiate or reduce the obligations and liabilities
of the parties hereunder or be deemed a waiver by
a party hereto of any remedies to which such party
would otherwise be entitled hereunder, and further
provided that all such statements made at such
meeting shall be strictly off the record and shall
not be admissible in any court or arbitration
proceeding.
b. If, within 30 days after such meeting, the parties
have not succeeded in negotiating a resolution of
the dispute, they agree to submit the dispute to
mediation in accordance with the then current
Model Procedure for Mediation of Trademark and
Unfair Competition Disputes of the CPR Institute
for Dispute Resolution and to bear equally the
costs of the mediation.
c. The parties will jointly appoint a mutually
acceptable mediator, seeking assistance in such
regard from the CPR Institute for Dispute
Resolution if they have been unable to agree upon
such appointment within 20 days from the
conclusion of the negotiation period.
d. The parties agree to participate in good faith in
the mediation and negotiations related thereto for
a period of 30 days. If the parties are not
successful in resolving the dispute through the
mediation, then the parties agree to submit the
matter to binding arbitration or a private
adjudicator, or either party may seek an
adjudicated resolution through the appropriate
court.
e. Mediation or arbitration shall take place at a
mutually convenient site in the State of Michigan
to be agreed to by the parties. The substantive
and procedural law of the State of Michigan shall
apply to the proceedings. Equitable and
compensatory remedies shall he available in any
arbitration. Punitive damages, costs and
attorneys fees shall not be awarded. This Article
of this Agreement is to be governed by the Federal
Arbitration Act, 9 U.S.C.A.'1 et seq. Judgment
upon the award rendered by an Arbitrator, if any,
may be entered by any court having jurisdiction
thereof.
11. Torvec warrants and represents that as of the date of
this Agreement, it has not granted to any party a license or
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-11.x2a
rights to a license that would preclude Torvec from granting
Ford a license to make, have made, use and sell IVTs.
12. Torvec shall demonstrate the Taurus vehicle having the
IVT installed to Ford before Torvec demonstrates the vehicle
to any third party.
13. Torvec shall provide to Ford, at no cost or obligation
to Ford, any performance data and analysis developed during
operation of the IVT in the Taurus vehicle or derived from
information pertaining to such operation.
14. Upon successful demonstration of the IVT, Ford shall
determine its interest in obtaining for itself and/or its
associated companies a license under Torvec technology and
patents related to the IVT.
15. For a period of one year after the effective date of
this Agreement, Torvec shall provide Ford an opportunity to
enter with Torvec a license agreement, pursuant to which
Torvec would grant to Ford under Torvec property rights in
the IVT a right to make, have made, use, sell and lease
IVTs.
16. In the event that a license is not concluded by the
parties on or before one year after the effective date of
this Agreement, or Ford determines in its sole judgment not
to incorporate the IVT into its vehicles, and either party
is unwilling to extend this Agreement, this Agreement will
terminate and neither party will have any further obligation
or liability to the other party except as specified in this
Agreement. This Agreement does not impose on Ford any
obligation to enter into any agreement or business
relationship with Torvec.
17. Neither party has an obligation under this Agreement
to purchase any service or item from the other party.
18. No agency or partnership relationship is created
between the parties by this Agreement.
19, All modifications to this Agreement must be made in
writing and must be signed by representatives of both
parties.
20. This Agreement is made under and shall be construed
according to the laws of the State of Michigan without
giving effect to principles of conflict of laws.
21. Under the terms of this Agreement, the obligations
accruing to Torvec shall also accrue to Torvec affiliates
and subsidiaries, if any. This Agreement shall not be
assignable.
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-11.x2a
<TABLE>
<S> <C>
FORD MOTOR COMPANY
TORVEC Inc.
By:____________________________ By:___________________________
(Authorized Signature) (Authorized Signature)
______________________________ Ernest J. DeVincent
(Printed Signatory's Name)
______________________________ Advanced and Pre-Program
(Printed Signatory's Title) Auto. Trans. Engrg. Manager
</TABLE>
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-11.x2a
FIRST AMENDMENT OF
CONFIDENTIAL DISCLOSURE AGREEMENT
This FIRST AMENDMENT is effective January 23, 1998
between Torvec Inc. (hereafter "Torvec"), and FORD (defined
as Ford Motor Company and its affiliated companies,
hereinafter referred to as 'FORD").
WHEREAS, Torvec and FORD have entered into a CONFIDENTIAL
DISCLOSURE AGREEMENT effective January 24, 1997 (hereinafter
"AGREEMENT") and wish to amend that AGREEMENT to revise its
expiration date. Accordingly, the parties agree as follows:
1. The parties modify the first paragraph in the
preamble of such AGREEMENT to read:
"The term of this Agreement will begin
on its Effective Date, January 24, 1997, and will
expire on January 23, 1999, unless extended by mutual
consent of the parties."
2. The AGREEMENT, as amended by this FIRST AMENDMENT,
remains in full force and effect.
<TABLE>
<C>
<S> FORD MOTOR COMPANY TORVEC INC-
11 Pondview Drive
Pittsford, NY 14534
By By
s/Ernest J. DeVincent s/Keith E. Gleasman
(Authorized Signature) (Authorized Signature)
Ernest DeVincent Keith E. Gleasman
(Printed Signatory's Name) (Printed Signatory's Name)
Dept. Mgr., Ford Advanced Trans.President
(Printed Signatory's Title) (Printed Signatory's Title)
</TABLE>
\\cdog1\sys\depts\adm\wpfiles\sec\ex6-11.x2a
EXHIBIT 12.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below hereby severally constitutes and
appoints Robert Oppenheimer, Esq. and Richard B. Sullivan,
Esq. and each of them, his true and lawful attorneys-in-fact
and agents, each acting alone, with full power of
substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this
Registration Statement and all documents relating thereto,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys -in-fact
and agents, each acting alone full power and authority to do
and perform each and every act and thing necessary or
advisable to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys -in-
fact and agents, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange
Act of 1934, this Registration Statement and power of
attorney have been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s HERBERT H. DOBBS Chairman of the Board 4 May 1998
------------------- of Directors ------------
Herbert H. Dobbs
/s KEITH E. GLEASMAN Director; President and 5-1-98
------------------- Consultant to Torvec, Inc. -----------
Keith E. Gleasman
/s LEE E. SAWYER Director 5-1-98
------------------- -----------
Lee E. Sawyer
/s MORTON A. POLSTER Director; 4/30/98
------------------- Secretary of Torvec, Inc. -----------
Morton A. Polster
\\cdog1\sys\depts\adm\wpfiles\sec\ex12-1.x2a
EXHIBIT 12.1
/s JAMES A. GLEASMAN Director, Consultant 5/1/98
------------------- of Torvec, Inc. ----------
James A. Gleasman
/s SAMUEL M. BRONSKY Chief Financial Officer 4/30/98
------------------- ----------
Samuel M. Bronsky
\\cdog1\sys\depts\adm\wpfiles\sec\ex12-1.x2a
EXHIBIT NUMBER
12.2
ALFRED STATE
SUNY College of Technology
Associate in Applied Science Department of Mechanical
Engineering Technology
Bachelor of Science Alfred, New York 14802
Office (607) 587-4617
FAX: (607) 587-4615
October 24, 1997
Ms. Judy Greenwald
White House Climate Change Task Force
734 Jackson Place Northwest
Washington, D.C. 20503
Dear Ms. Greenwald:
Mr. James Gleasman, of TORVEC, Inc., has asked me if I could
update you regarding the first phase of testing of the
TORVEC IVT (Infinitely Variable Transmission). In this
connection, it is our great pleasure to report our
observations and the results thus far.
The tests were conducted at our Internal Combustion
Engineering (ICE) laboratory using a 3-liter, 145 HP, 168
ft. lb. torque, V-6 gasoline engine as a power source. A
250 HP Eddy Current Dynamometer was used to provide torque
resistance along with a Lebow Torque Sensor and Daytronic
Data Acquisition System 10 to measure and record the data.
In general, we were very impressed with tile function and
operation of this IVT. Duriil(, the tests, we observed tile
transmission consistently changed its torque output and
speed ratios very smoothly and quickly. Numerous
demonstrations showed that the engine RPM ran at what would
be defined as "steady-state." The transmission was much
lighter than the production A4LD transmission by almost 40
lbs., in addition to being smaller (17 /" in comparison to
the A4LD, which measures 35" in length). These tests were
designed to provide data on the operation, function, torque
flow, practicality and the performance of IVT.
We are very pleased to learn that TORVEC Inc. intends to
proceed with the next phase of testing also in our
laboratory. According to TORVEC, the second phase of
testing will be to produce two new transmissions that are
design-specific. The first one will be for a 200 HP,
gasoline automobile transaxle (FWD) and the second will be
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for a 6.5 liter, V-8 diesel from a HMMWV (Hummer). Both
will be tested for performance, fuel economy and emissions.
We are presently working with TORVEC, Inc. to outline this
phase of the program and its cost.
I assure you, all of us at SIJNY, College of Technology at
Alfred including our President William D. Rezak , faculty
and students are extremely excited about being involved with
this project because of the promising results from the first
phase of testing. We believe that this transmission has the
potential for a major positive impact on vehicle fuel
economy and emission levels. This is achieved because of
its ability to run a power source at a "steady-state" with a
variable load demand.
Further, if we can be of any assistance, please feel free to
contact us.
Thank you very much.
Yours Sincerely,
s/Yogendra B. Jonchhe, Professor
Department of Mechanical Engineering Technology
CC: Mr. James Gleasman, TORVEC Inc.
Dr. William D. Rezak, President, SUNY College of
Technology at Alfred
Mr. Craig R. Clark, Acting Dean, School of Engineering
Technology
Mr. Robert E. Rees, Chair, Mechanical Engineering
Technology Dept.
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EXHIBIT NUMBER
12.3
KIA MOTORS
Date: March 12,1998
To: Mr. Keith Gleasman
President, TORVEC Inc.
11 Pond View Drive
Pittsford, NY 14534
cc: Mr. Min Dokko -Kia Motors America
Mr. Lee Sawyer -Kia Motors America
Subject: TORVEC FasTrack/K2700 Program
We are glad to provide you with our products, code name
K2700, for the feasibility study of TORVEC FasTrack program.
Regarding the 2 units of prototype vehicle for TORVEC, KMC
will build those units with following specifications;
-Standard Cab with K/Cab box
-V-Belt type PTO
Full Option (i. e. Tilting Cab., A/C. P/S, Power
door lock & window. Audio.
Tachometer, Heater, box brim cover etc.)
The prototype vehicles will be produced by the end of April
and shipped to Newark port where we have used for our Sephia
and Sporrage, We will update you on the detailed schedule.
As K2700 annual production capacity is 80,000 units a year,
we are able to supply sufficient volume.
Please let us know if you have any question.
Best Regards,
s/J.U.Koo
Manager, Overseas Sales Dept. 1
Kia Motors Corp.
Tel: 82-2-788-1826
Fax: 82-2-788-1841
EXHIBIT NUMBER
12.3
KIA MOTORS
\\cdog1\sys\depts\adm\wpfiles\sec\ex12-3.x2a
Date: March 12,1998
To: Mr. Keith Gleasman
President, TORVEC Inc.
11 Pond View Drive
Pittsford, NY 14534
cc: Mr. Min Dokko -Kia Motors America
Mr. Lee Sawyer -Kia Motors America
Subject: TORVEC FasTrack/K2700 Program
We are glad to provide you with our products, code name
K2700, for the feasibility study of TORVEC FasTrack program.
Regarding the 2 units of prototype vehicle for TORVEC, KMC
will build those units with following specifications;
-Standard Cab with K/Cab box
-V-Belt type PTO
Full Option (i. e. Tilting Cab., A/C. P/S, Power
door lock & window. Audio.
Tachometer, Heater, box brim cover etc.)
The prototype vehicles will be produced by the end of April
and shipped to Newark port where we have used for our Sephia
and Sporrage, We will update you on the detailed schedule.
As K2700 annual production capacity is 80,000 units a year,
we are able to supply sufficient volume.
Please let us know if you have any question.
Best Regards,
s/J.U.Koo
Manager, Overseas Sales Dept. 1
Kia Motors Corp.
Tel: 82-2-788-1826
Fax: 82-2-788-1841
\\cdog1\sys\depts\adm\wpfiles\sec\ex12-3.x2a
