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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
NUCYCLE THERAPY, INC.
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(Name of Small Business Issuer in its Charter)
New Jersey 22-3239507
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1 Deer Park Drive, Suite M 08852
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Monmouth Junction, New Jersey (Zip Code)
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(Address of Principal Executive Offices)
(732) 438-0900
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, No Par Value
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(Title of Class)
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(Title of Class)
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EXPLANATORY NOTE
On May 19, 1999, Phytotech, Inc., the predecessor to NuCycle Therapy, Inc.,
a New Jersey corporation, filed a petition under Chapter 11 of Title 11, U.S.C.
in the United States Bankruptcy Court for the District of New Jersey. In June
1999, Phytotech changed its name to NuCycle Therapy, Inc. in connection with the
sale of its remediation business and corporate name. NuCycle filed a Plan of
Reorganization with the Bankruptcy Court on October 15, 1999. The Bankruptcy
Court confirmed the Plan of Reorganization on February 10, 2000 with an
effective date of February 21, 2000. The Plan of Reorganization and the
corresponding First Amended Disclosure Statement for the Plan of Reorganization
are filed as Exhibits to this Form 10-SB.
Unless otherwise indicated or the context otherwise requires, all
information in this Form 10-SB, including, without limitation, information
concerning outstanding shares of common stock, preferred stock and warrants to
purchase shares of common stock of NuCycle, assumes the completion of all
transactions contemplated by NuCycle's Plan of Reorganization, as summarized in
Part I, Item 1 ("Description of Business - Organization/Historical Background")
of this Form 10-SB.
All references in this Form 10-SB to NuCycle shall include its predecessor,
Phytotech, Inc., unless the context otherwise requires.
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PART I
In addition to historical information, this Registration Statement contains
statements relating to future events and our future results. These statements
are "forward-looking" and include, without limitation, statements that relate to
our products, strategies, future revenue and competitiveness.
Generally, words such as "may," "will," "should," "could," "anticipate,"
"expect," "intend," "estimate," "plan," "continue" and "believe," or the
negative of or other variation on these and similar expressions identify
forward-looking statements. These forward-looking statements are made only as of
the date of this filing. We do not undertake to update or revise the forward-
looking statements, whether as a result of new information, future events or
otherwise.
Forward-looking statements are based on current expectations and involve
risks and uncertainties and our future results could differ significantly from
those expressed or implied by our forward-looking statements. These risks and
uncertainties include, without limitation, those described under "Item 1.
Description of Business - Risk Factors" and those detailed from time to time in
our filings with the Securities and Exchange Commission.
ITEM 1. DESCRIPTION OF BUSINESS
ORGANIZATION/HISTORICAL BACKGROUND
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NuCycle's predecessor, Phytotech, Inc., was incorporated in New Jersey in
1993. Phytotech was founded by Dr. Burt D. Ensley and two members of the faculty
at Rutgers University. Phytotech specialized in commercializing technology
involving the use of metal hyperaccumulating plants to remove heavy metals from
contaminated soil and water. Phytotech first marketed this technology in 1997
for the remediation of lead and uranium contaminated soil. In 1998, Phytotech
had gross revenue of approximately $1 million and was negotiating contracts for
an additional $1 million by early 1999.
In late 1997, Phytotech discovered that its technology and cultivation
methods also could be used to grow plants containing extremely high
concentrations of nutritionally important minerals. Phytotech determined that
its select plant cultivars could be grown under specific conditions that result
in the accumulation of iron, zinc, selenium, chromium, manganese and other
minerals at such high levels that the dried plants can be used directly as a
natural source of concentrated mineral supplements. Phytotech reoriented its
resources during 1998 to develop and supply plant-based natural supplement
products to the nutraceutical industry.
Phytotech financed both its remediation and nutraceutical operations with
equity and debt financing. From inception through March 31, 1998, Phytotech
raised approximately $6.0 million in gross proceeds from private sales of equity
securities and approximately $2.2 million from the issuance of bridge notes. An
investment banking firm helped Phytotech raise over $5 million, including the
$2.2 million in bridge notes.
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Due to its significant operating and research and development costs,
Phytotech continued to require financing after March 31, 1998. Over the next
fifteen months, Phytotech tried unsuccessfully to raise capital by attempting an
initial public offering and two mergers.
By early 1999, Phytotech encountered severe cash shortages that prevented
it from fully performing on its contracts and from paying its employees for
three months. In April 1999, Phytotech began negotiating with Edenspace Systems
Corporation for the sale of Phytotech's remediation business. However, Phytotech
was unable to promptly consummate this transaction. Due to this development and
due to its continued inability to obtain financing, Phytotech filed a petition
for reorganization under Chapter 11 of the Bankruptcy Code on May 19, 1999. The
Chapter 11 proceeding was docketed to Case No. 99-55905/KCF in the United States
Bankruptcy Court for the District of New Jersey.
Following its Chapter 11 filing, Phytotech continued to operate as a
debtor-in-possession. In June 1999, with the Bankruptcy Court's permission,
Phytotech sold its remediation business, including the use of its corporate name
"Phytotech," to Edenspace Systems Corporation for $600,000. Phytotech then
changed its name to NuCycle Therapy, Inc.
NuCycle filed a Plan of Reorganization with the Bankruptcy Court on October
15, 1999. The Bankruptcy Court confirmed the Plan of Reorganization on February
10, 2000 with an effective date of February 21, 2000.
Set forth below are the principal terms of the Plan of Reorganization:
. NuCycle's secured creditors will receive one share of NuCycle's Series
A Convertible Preferred Stock for every $3.00 of debt in exchange for
the release of their claims, resulting in the issuance of a total of
805,266 shares of preferred stock.
. NuCycle's unsecured creditors will receive one share of NuCycle's
common stock for every $5.00 of debt in exchange for the release of
their claims, resulting in the issuance of a total of 424,831 shares
of common stock.
. NuCycle's existing preferred and common shareholders will receive one
share of NuCycle's common stock for every 10 shares of stock that they
owned, resulting in the issuance of a total of 1,578,828 shares of
common stock.
. NuCycle's outstanding warrants and options will be canceled and
replaced by warrants to purchase an aggregate of 446,335 shares of
NuCycle's common stock with an exercise price of $8.00 per share.
. NuCycle is required to pay certain of its current and former employees
an aggregate of $64,500, which represents the priority claims for
accrued salary. Of this amount, NuCycle paid $21,500 to the employees
on February 10, 2000, and is
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required to pay $21,500 by August 10, 2000 and the remaining $21,500
by February 10, 2001.
. NuCycle's founder, Dr. Burt D. Ensley, will continue as the President
and Chief Executive Officer of NuCycle.
. NuCycle was authorized to enter into a Letter Agreement with Paxton
Ventures Corp., a copy of which is attached as an Exhibit to this Form
10-SB, under which Paxton is to provide NuCycle with investment
banking services and assistance in preparing and financing the Plan of
Reorganization. Pursuant to the Letter Agreement with Paxton:
- The holders of NuCycle's common stock, Series A Convertible
Preferred Stock and warrants to purchase shares of common stock
will be restricted from transferring their securities for one
year after the effective date of this Form 10-SB.
- NuCycle will issue to Paxton 936,308 shares of NuCycle's common
stock, resulting in Paxton owning 25% of NuCycle's issued and
outstanding common and preferred stock.
- Paxton will lend NuCycle $500,000 in exchange for 8% subordinated
notes, which will be convertible into NuCycle common stock at a
price equal to the greater of $2.00 per share or 85% of the per
share market price for NuCycle common stock at the date of
conversion.
- NuCycle will issue to IK Capital, Inc., an affiliate of Paxton, a
warrant to purchase 150,000 shares of NuCycle's common stock with
an exercise price equal to the greater of $2.00 per share or 85%
of the per share market price for NuCycle common stock at the
date of conversion.
. NuCycle is required to pay Rutgers University $153,000 in cash or in
kind services acceptable to Rutgers over a three year period in
consideration for Rutgers providing NuCycle with licenses to use
certain nutritional supplement technology. NuCycle must fully repay
this obligation in cash when NuCycle reaches an aggregate of
$1,000,000 in gross revenue following the effective date of the Plan
of Reorganization.
. Concurrent with the confirmation of its Plan of Reorganization,
NuCycle sold the tax benefit of its state net operating loss
carryforwards of approximately $4.0 million for $342,267 under a New
Jersey Economic Development Authority program.
Further discussion of NuCycle's history leading to its bankruptcy and of
the terms of the Plan of Reorganization are contained in the Plan of
Reorganization and the First Amended Disclosure Statement for the Plan of
Reorganization filed in the United States Bankruptcy Court for the District of
New Jersey and filed as Exhibits to this Form 10-SB.
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NuCycle has elected to file this Form 10-SB on a voluntary basis to become
a reporting company under the Securities Exchange Act of 1934. The primary
purpose for this filing is to allow NuCycle to qualify for trading on the OTC
Electronic Bulletin Board. Current NASD rules require NuCycle to be a reporting
company under the Securities Exchange Act of 1934 for NuCycle to obtain a
Bulletin Board listing.
BUSINESS
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GENERAL
NuCycle Therapy, Inc., a New Jersey corporation, is a biotechnology company
engaged in the development and commercialization of products based on the
control of biochemical processes in selected plants. We have developed and are
beginning to market nutritionally important minerals that are absorbed by
certain plants. Our goal is to become a leader in the development and
commercialization of plant-related nutritional products and technologies by
developing proprietary and patentable technologies based on our knowledge of
plant physiology, soil science, agronomy, molecular biology and related areas
and to commercialize these technologies.
We believe that our technology represents a new approach in the development
of nutritional products from botanical sources. Unlike the traditional process
of identifying nutritionally important molecules from plants, we developed our
technologies based on observations that selected cultivars of edible crop plants
accumulate high levels of important dietary minerals under controlled
conditions. This process enables us to manufacture new, plant-based sources of
minerals such as selenium, chromium, iron, zinc and maganese, and to produce
dietary supplements having consistent batch-to-batch quantities and forms of
these nutrients.
Mineral supplements are presently available to the consumer as organic or
inorganic salts or metals synthesized by the chemical industry. Because minerals
are generally recovered by mining ores or as byproducts of other chemical
processes, Federal Trade Commission regulations prevent them from being
described by producers as "natural." Some metals such as selenium and chromium
are offered as a complex with yeast to give a more "organic" nature to the
products. The bioavailability, that is, the amount of mineral actually absorbed
into the body, of chemically-derived minerals in supplements has been a long-
standing concern of the nutritional supplement industry, and forms of the
minerals that are shown to be more bioavailable are preferred.
Nothing in this Form 10-SB is intended to constitute an express or implied
claim of the safety or effectiveness of any of our products.
PRODUCTS
NuCycle has chosen selenium, chromium, iron, zinc and manganese as its
first nutraceutical products. The characteristics of these five minerals make
them ideal candidates for a commercialization program based on a natural source
of minerals.
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Selenium
Selenium is present in all the tissues of the body. Selenium is an
activating component of the enzyme glutathione peroxidase, which has been shown
to protect cells from free radical damage, a health risk associated with damage
to cellular components, including DNA, which may lead to aging, cancer and
death. According to some health care professionals, selenium should not only be
considered as a preventive, but also as a therapeutic agent in cancer treatment,
acting in a synergistic fashion with chemotherapy and radiotherapy treatments.
The federal recommended daily allowance for selenium is 50 to 70 micrograms
per day. This small amount of selenium can be lacking in many diets. Recently,
selenium from yeast has been linked to a reduction in the incidence of cancers
of the lung, prostate and colon. In a randomized, placebo-controlled study at
the Arizona Cancer Center, supplements of 200 micrograms per day of selenium in
1,300 patients reduced the incidence of lung, prostate and colon cancer by 50%.
This amount of selenium is relatively high - multivitamins typically contain 50
micrograms per dose of selenium. NuCycle's crucifer cultivars accumulate over
3,000 micrograms per gram of selenium.
Chromium
Chromium is primarily involved in the metabolism of glucose and the
synthesis of proteins. Because of its role in insulin production and glucose
regulation, chromium depletion has been implicated in hypercholesterolemia.
Chromium picolinate is widely promoted as an important part of several weight-
loss products, and a "premium" source of bioavailable chromium. Some studies
support the use of dietary chromium as a weight loss aid. Chromium picolinate
has been shown to lower serum lipids. NuCycle's crucifers accumulate naturally
chelated chromium in quantities sufficient to contain up to 200 micrograms of
chromium per serving.
Iron
Every cell in the body contains and requires iron, a mineral that is needed
for all body functions. Iron stores are carefully guarded by the body, and
depletion of these stores cause diverse symptoms and disorders. Iron is required
in relatively high doses to maintain proper nutrition. Of all the nutrient
allowances, the allowance for iron is the most difficult to obtain from dietary
sources, which is why iron is the most common single micronutrient deficiency in
the world. NuCycle has in vitro (in an artificial environment) data indicating
that the iron in its hyperaccumulating crucifers is primarily bioavailable, and
is conducting testing in collaboration with the United States Department of
Agriculture to demonstrate in vivo (in animals and humans) the benefits of this
form of natural iron. NuCycle's plants accumulate 100% of the recommended daily
allowance of iron in a small dose of dried plants.
Zinc
Zinc is another micronutrient that is required in relatively high doses,
and is among the best selling individual trace minerals in the health food
industry. Zinc is an essential component of over twenty enzymes for various
metabolic processes, and is present in highest concentrations
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in the eyes, liver, prostate, bones and semen. Daily intake of zinc lozenges
containing 13 milligrams of zinc has also been reported to ameliorate the
symptoms of the common cold. Despite the essential nature of zinc, there are no
true storage deposits for this mineral and the body is dependent upon a
continual external supply and the small pool of biologically available zinc is
used rapidly. NuCycle's crucifers contain at least 20 milligrams of zinc per
gram dry weight of plants, which provides 100% of the recommended daily
allowance.
MANGANESE
Manganese is best known as a component in various enzymes, including those
involved in the metabolism of protein, lipids and carbohydrates. Manganese is
poorly absorbed and is severely lacking in refined foods. Manganese does not
have a recommended daily allowance, but is included in a number of mineral
supplement products. Manganese is promoted as having a role as an anti-oxidant
and in maintaining healthy bones. The high manganese content in NuCycle's
crucifers provides up to 100% of the recommended daily allowance.
SALES AND MARKETING
We are substantially dependent on a single customer, Technical Sourcing
International ("TSI"), to purchase and resell our bulk mineral products. TSI is
a nutritional supplement distributor that purchases our mineral products in bulk
form for redistribution to distributors and manufacturers of nutritional
supplements that serve the international nutritional supplement industry. TSI's
customers include private label wholesalers such as General Nutrition
Corporation, Nature's Sunshine Products, Weider Nutrition, Twinlabs, Nature's
Bounty, Rexall Sundown, and fitness centers, health practitioners, and
dispensing nutritionists. NuCycle has begun manufacturing and selling, through
TSI, small quantities of a series of natural mineral products, including
selenium and chromium containing plants for sale under NuCycle's Phytosel(TM)
and Phytochrome(TM) brands.
To lessen our dependence on Technical Sourcing International, we are
negotiating with additional bulk product suppliers. In addition, we have formed
a joint venture known as BioScience, L.L.C. with Manhattan Drug Company, Inc. to
develop, market and sell various vitamins and nutritional supplements derived
from plants. BioScience will sell tablets and capsules as finished products in
wholesale and retail markets under a private label to be known as Biomins.
NuCycle has entered into a Production Agreement with BioScience whereby NuCycle
will be the exclusive producer for BioScience of the raw materials to be used in
the Biomins. NuCycle is directly contacting other nutraceutical manufacturers in
collaboration with TSI in appropriate market segments, including the diet,
sports and health segments, with the concept of natural, plant-based mineral
supplements.
We intend to expand our marketing efforts in the future to include consumer
markets such as:
. Mail Order Customers. Mail order customers are reached through print
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and electronic advertising and through Internet web sites. Several
companies
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specialize in direct sales to consumers through mail order
advertising. Our materials will be distributed through mail order and
e-commerce.
. Multilevel Marketing Organizations. Multilevel marketing
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organizations, such as Amway, Shaklee, Celltech NuSkin, and Herbalife,
sell products that generally cannot be obtained in stores.
. Independent Retailers of Nutritional Supplements. Retailers include
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privately owned health food stores, of which approximately 7,000 exist
in the U.S. today according to a survey by the National Nutritional
Foods Association. In addition, nutritional supplements are sold
widely in pharmacies, wholesale outlets and clubs, and supermarkets.
COMPETITION
The nutritional supplement industry is fragmented and includes several
large manufacturers and many smaller producers and distributors. While a few
companies are vertically integrated, most companies contract for finished
products. The largest manufacturers typically generate revenues more than $200
million. Several of these companies are publicly traded and represent a growth
sector in the stock market. Plant-based supplements, such as herbs, essential
fatty acids, and fibers are experiencing the highest growth in the health food
industry. Large pharmaceutical companies are entering the market by using their
in-house capabilities as well as by entering strategic alliances with existing
nutritional supplement companies, or by acquiring existing companies.
A large number of manufacturers offer mineral-based micronutrient
supplements through all relevant marketing outlets. Generally, mineral-based
micronutrient products are recovered by mining ores or as byproducts of other
chemical processes. These micronutrient products are inexpensive to manufacture,
but this type of product is associated with bioavailability and tolerance
problems. Advanced formulas containing chelated or organically complexed mineral
supplements are appearing on the market. For example, Nutrition 21, a
nutritional supplement supplier, offers yeast containing selenium and chromium
as organic mineral supplements, and chromium picolinate is also manufactured as
an organic source of this mineral. We believe that NuCycle is the only company
that offers plant-based nutritional supplements as a source of dietary minerals
because plants do not naturally contain sufficient quantities of minerals to be
effective supplements and no other company has a technology that causes
hyperaccumulation of minerals in plants.
MANUFACTURING PROCESS
NuCycle has established that its Indian mustard plants can be grown under
controlled conditions so that they accumulate individually iron, zinc, selenium,
manganese and chromium at concentrations sufficient to supply 100% of the
recommended daily intake of these minerals in 100 to 500 milligrams of dried
plant material. NuCycle has recently developed and successfully tested the
manufacturing capacity of a process for growing plants in water without soil.
Present growth facilities have the capacity to produce 2,000 kilograms of
mineral supplements per
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month. If necessary, we will expand the capacity of outside plant growth
facilities to meet demand.
NuCycle uses a contract grower, Greenlane of South Jersey, Inc., to
cultivate the Indian mustard plants from seed supplied by NuCycle. Greenlane
then treats the resulting biomass with solutions of nutritional minerals. We
lease storage and greenhouse space from Greenlane to facilitate the cultivation
and subsequent drying process of the mineral-based plants. The mineral-enriched
plant material is then shipped to Premium Processing in Happauge, New York for
grinding and blending. We do not have a contract with Premium Processing.
When the processing is complete, the bulk powdered material is delivered to
us. We then subject it to our quality control and analysis, which includes
checking dryness, pH, nutritional mineral content, homogeneity, heavy metal
content, tapped density, sieve size, and microbial plate counts. We then prepare
a certificate of analysis for each batch of product. Upon receipt of a purchase
order from a customer, we transfer the appropriate weight of material into a
fiber drum and ship it with a shipping label, packing list, and certificate of
analysis.
The loss of the services of Greenlane or Premium Processing would disrupt
the processing of our products and could interfere with our ability to
consistently supply products to our customers. We expect that we could resume
manufacturing with another supplier of growing or processing services after a
delay of one to three months. The mineral salts used to enrich the plants are
supplied by one or more of several highly competitive suppliers.
INTELLECTUAL PROPERTY
NuCycle has established a program to protect its technology and
intellectual property by seeking patent and trademark protection. NuCycle has
exclusive commercial rights, by assignment or by license, to eight issued United
States patents and two pending patent applications. The United States government
retains certain rights to those issued patents in which the work was supported
by federal funding. These rights include a royalty-free, non-exclusive license
for the United States government to use the inventions for its own purposes.
NuCycle does not expect the retention of these rights to impact materially on
its patent protection or exclusivity in commercialization.
Several of NuCycle's United States patents and applications have
counterparts that have been filed in certain foreign countries. In each case,
NuCycle has the exclusive rights in and to the foreign patents and applications.
Furthermore, NuCycle continues to protect the inventions developed in its
ongoing research projects, and also maintains a funding relationship with
Rutgers University through which NuCycle is granted exclusive rights to
improvements developed at Rutgers. NuCycle expects that patent applications will
continue to be filed on new developments.
NuCycle also pursues trademark protection for its products and services.
NuCycle currently owns one registered trademark, one approved trademark
application and several pending trademark applications.
RESEARCH AND DEVELOPMENT
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Research grant funding
Some of NuCycle's research and development activity is partially or fully
underwritten by outside competitive grant funding. This support validates the
quality of research and development efforts, and helps defray the costs of
conducting research and development. NuCycle anticipates that federal and state
grants will continue to defray a portion of the development and
commercialization costs. Recently, NuCycle was awarded a $100,000 Small Business
Technology Transfer Program grant from the National Cancer Institute to
demonstrate the chemopreventative characteristics of its plants.
Bioavailability
NuCycle has conducted bioavailability testing which has indicated that its
plant-based sources of minerals are among the most bioavailable forms of
commercially available supplements. In addition, NuCycle is negotiating for a
Cooperative Research and Development Agreement with the United States Department
of Agriculture laboratory at Cornell University, pursuant to which the
laboratory will measure the micronutrient bioavailability in these plants. These
measurements involve the uptake of iron and selenium in NuCycle's supplements by
human intestinal monolayer cells. These tests will generate data on
bioavailability in human cells and the results will be published in the
scientific literature by the United States Department of Agriculture.
Speciation
NuCycle believes that to establish a solid scientific basis for the
nutritional value of its plant-based supplements, it is important to identify
the speciation in the plants, that is, the chemical form of the minerals in the
plants. Dr. David Salt, one of NuCycle's collaborators, has used the Stanford
Linear Accelerator to characterize the speciation of selenium and chromium in
the plants by high energy X-ray spectroscopy. His work on selenium has been
submitted for publication and shows that the selenium is partially metabolized
by the plants to L-selenomethionine. The rest of the selenium is present as
organically coordinated forms of selenate. All of these types of selenium are
considered to be high quality by the nutritional supplement industry, and
synthesized L-selenomethionine is sold by Nutrition 21 as yeast-free Selenomax.
NuCycle now offers a natural source of L-selenomethionine.
Future development of NuCycle's nutraceutical products is aimed toward
establishing the safety and efficacy in tests with mammals, primarily rats, and
human volunteers via nutritional studies. We believe that these tests will
confirm the in vitro data indicating that the minerals in NuCycle's plants are
more bioavailable than the minerals contained in other micronutrient products.
The human tests are of relatively short duration (three to four months) and
inexpensive ($100,000 to $200,000) when compared to clinical trials for drugs.
The results of these studies will be independently published in scientific
literature and can be used to promote NuCycle's products to the popular press.
NuCycle is also evaluating the manufacturing, selling and production of multiple
minerals in a single plant, and combinations of plant-based mineral and vitamin
supplements.
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Limit test
NuCycle has a contract with Huntingdon Life Sciences Inc. to perform acute
oral toxicity studies in rats based on the consumption of NuCycle's plants that
contain selenium and chromium. These studies are complete for chromium and
selenium, and show no acute toxicity of the supplements in mammals.
Chromium and selenium uptake and metabolism in rodents
Through a contract with the Department of Functional Biochemistry at the
Russian Academy of Sciences, a rodent study over three months on one, three and
five times the recommended daily intake of selenium and chromium were conducted
using our plants as the nutritional source. These studies measured both
bioavailability in mammals and also evaluated any chronic toxicity
characteristics of these forms of selenium and chromium. These studies were
completed in November 1998, will be published in an international scientific
journal, and are definitive for both bioavailability in mammals and safety.
These trials are necessary as a precursor to any human nutritional studies.
Human nutritional studies of selenium, chromium and iron
The Robert Wood Johnson Medical School in New Brunswick, New Jersey has
proposed performing human nutritional studies to establish the performance of
our selenium product in human volunteers. An additional human nutritional study
on the oxidative stress of iron in NuCycle's plants has been proposed by the
nutrition laboratory of Dr. Janet King at the University of California,
Berkeley.
Selenium as an antioxidant and chemopreventive
NuCycle is also furthering the scientific development of selenium-
containing plants by preparing and submitting grant proposals to the United
States Department of Agriculture, the National Science Foundation and the
National Institute of Health. Selenium accumulation by plants in the crucifer
family, of which broccoli and several of NuCycle's plants are members, combines
the antioxidant and anticarcinogenic aspects of selenium and organoselenium
compounds with natural organic antioxidants found in cruciferous plants.
Cruciferous plants and plant extracts are currently sold as nutritional
supplements containing particular compounds that have been linked to improved
immune functions. NuCycle believes that organic antioxidants are also present in
its plants and is developing the capability to identify and measure these
compounds.
NuCycle is measuring the antioxidative effect of organoselenium enriched
supplements and has received funding from the National Cancer Institute for a
proposal for further study. There is interest in anticarcinogenic activities of
selenium compounds, and the anticarcinogenic activity in rats of selenium has
been extensively demonstrated. This concept of phytoselenium could become a
major selling point for our product. Approval of funding for this proposal
validates the quality of the science being carried out by NuCycle and leverages
internal research funding.
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ENVIRONMENTAL LAWS
The manufacturing of the plant-based products produces a small amount of
material that is treated and disposed of as hazardous waste. The treatment and
disposal of the waste adds approximately $1.00 per kilogram to our manufacturing
costs. The bulk nutritional supplements are stored, transported and treated as
food, and, as such, are minimally impacted by environmental regulations.
GOVERNMENT REGULATION
In the United States and in any foreign markets in which NuCycle may sell
its products, NuCycle is and will remain subject to regulations regarding the
formulation, manufacture, packaging, labeling, advertising, distribution,
importation, storage, sale and product claims of NuCycle's products.
In the United States, the formulation, manufacture, packaging, labeling,
advertising, distribution, storage and sale of our products are subject to
extensive and rigorous regulation by federal agencies, including the Food and
Drug Administration, the Federal Trade Commission, the United States Department
of Agriculture, the Environmental Protection Agency, the United States Postal
Service and the United States Customs Service. The Food and Drug Administration,
in particular, regulates the formulation, manufacture and labeling of dietary
supplements, such as those expected to be manufactured and sold by NuCycle. Food
and Drug Administration regulations require us and our suppliers to meet
relevant regulatory standards for, among other things, the preparation,
packaging and storage of these products. In February 1997, the Food and Drug
Administration published an Advance Notice of Proposed Rulemaking for
establishing current good manufacturing practice in manufacturing, packing or
holding dietary supplements. A final rule has yet to be promulgated, but the
Food and Drug Administration is expected to issue a proposed rule in the future.
A portion of NuCycle's planned sales will come from products that are
classified as dietary supplements under the Food, Drug and Cosmetic Act.
Pursuant to the Dietary Supplement Health and Education Act of 1994, the Food
and Drug Administration has issued regulations governing the labeling of dietary
supplements, including specific requirements and guidelines for nutrition
labeling, nutrient content claims and health claims, as well as statements that
can be made concerning the effect of a dietary supplement on the structure or
function of the body. The Food and Drug Administration's regulation of this area
is ongoing, and the agency will likely publish additional regulations and
guidelines concerning dietary supplements in the future. As a manufacturer of
products that are ingested by consumers, we are subject to the risk that one or
more of the ingredients in our products may become the subject of adverse
regulatory action.
Our activities are also regulated by various agencies of the states,
localities and foreign countries in which NuCycle's products may be
manufactured, distributed and sold. In foreign markets, before commencing
operations and before making or permitting sales of our products, we may be
required to obtain an approval, license or certification from the country's
ministry of health or comparable agency. Before entering a new market in which a
formal approval, license or certificate is required, we will be required to work
extensively with local authorities to obtain
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the requisite approvals. The approval process generally requires us to present
each product and product ingredient to appropriate regulators and, in some
instances, arrange for testing of products by local technicians for ingredient
analysis. These approvals may be conditioned on reformulation of our products or
may be unavailable with respect to certain products or ingredients.
The Federal Trade Commission and certain states regulate advertising,
product and promotional claims, and other consumer matters, including
advertising of NuCycle's products. All advertising, promotional and solicitation
materials used by distributors must be approved by us before use. The Federal
Trade Commission has in the past several years instituted enforcement actions
against several dietary supplement companies for alleged or actual false or
misleading advertising of certain products. We also are subject to the risk of
claims by distributors and customers who may file actions on their own behalf,
as a class or otherwise, and may file complaints with federal agencies such as
the Federal Trade Commission or the Food and Drug Administration or with state
or local consumer affairs offices. Proceedings resulting from these complaints
may result in significant defense costs, settlement payments or judgments and
could have a material adverse effect on NuCycle.
EMPLOYEES
We currently have five employees and one non-employee consultant. None of
our employees has an employment agreement or is covered by a collective
bargaining agreement. We regard our relationships with our employees as
excellent. We plan to hire a sales executive with experience and contacts in the
nutraceuticals market, and will augment this effort with additional marketing
staff as needed.
RISK FACTORS
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Investors should consider carefully the risks described below before
investing in our common stock. Investors also should consider all of the other
information in this Registration Statement. The risks described below could
affect our financial condition and results of operations. Investors may lose
part or all of their investments.
OUR ABILITY TO CONTINUE AS A GOING CONCERN IS DEPENDENT UPON OBTAINING
FINANCING; WE HAVE A HISTORY OF LOSSES AND EXPECT LOSSES TO CONTINUE.
The report of our independent auditors on our financial statements
expressed uncertainty in our ability to continue as a going concern by noting
that we have suffered recurring losses from operations, have insufficient
working capital and previously filed for bankruptcy protection. Our financial
statements were prepared on a going concern basis, which contemplates the
continuation of operations, realization of assets and liquidation of liabilities
in the ordinary course of business. Although we have emerged from bankruptcy,
our ability to continue as a going concern is dependent upon generating
sufficient cash flow from operations or obtaining additional financing. Because
we have incurred losses since our inception and expect to continue to incur
losses at least through the end of fiscal year 2000, we will need to raise
capital to finance our operations. We are currently negotiating with Paxton
Ventures Corp. to borrow $500,000 in exchange for an 8% subordinated convertible
note. We believe that the $500,000 would provide the capital necessary for us to
continue as a going concern for at least 12 months, although there can be no
assurance that even with these proceeds our operations will be profitable in the
future. Our ability to continue as a going concern is dependent upon our
financing efforts being successful.
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WE MAY NOT BE ABLE TO OBTAIN ADEQUATE FINANCING TO IMPLEMENT OUR BUSINESS PLAN.
In addition to requiring financing to continue as a going concern, we will
need additional financing to implement our business plan. No assurances can be
given that we will be able to obtain the needed financing or that any financing
will be on favorable terms. In the alternative, this additional financing may
come from investors who would require us to relinquish our marketing,
distribution, development or other rights to our products and services. If we
are unable to obtain additional funds when required, our research and
development programs may be materially adversely affected, which would limit our
ability to bring products to the market.
WE HAVE LIMITED EXPERIENCE IN SELLING OUR PRODUCTS.
Since our inception in 1993, we have specialized primarily in
commercializing technology involving metal hyperaccumulating plants to remove
heavy metals from contaminated soil and water. We reoriented our focus toward
producing nutritional supplements from plants in 1998 and sold the assets
related to our remediation business in 1999. Although we have generated some
revenue from our nutritional supplements since 1998, we are essentially a start-
up operation. Businesses that are in their initial stages of development present
substantial business and financial risks and may suffer significant losses.
Because our nutritional supplement business is in the early stage of operation
and will require significant investment in research and development, we
anticipate that we will record operating losses for a number of years. There can
be no assurance that we will ever reach profitability or, if we achieve
profitability, that it will be sustained.
OUR SHAREHOLDERS MAY BE DILUTED BY FUTURE FINANCINGS.
We expect that to sustain our future operations we may need to raise funds
through the sale of equity securities. These financings would dilute our
shareholders' interest in NuCycle, perhaps substantially. Similarly, in
connection with obtaining needed financings, we may grant to holders of
securities preferred rights superior to those of holders of our Series A
Convertible Preferred Stock and common stock or provide other rights that may
otherwise adversely affect the holders of preferred and common stock. We also
anticipate that to attract additional personnel, we may need to offer stock
ownership opportunities or use equity-based compensation. This stock ownership
or equity-based compensation will be dilutive to our shareholders.
WE MAY NOT BE ABLE TO PERFECT OUR NEW TECHNOLOGIES OR DEVELOP MARKETABLE
PRODUCTS.
We have not completed testing of the mineral products that result from our
plant-absorption technology. We are not certain that our technology creates, or
can be made to create, products that will be commercially viable. If we cannot
perfect our technology to create commercially viable products, we will fail.
THERE IS LIMITED DATA ON THE NUTRITIONAL QUALITIES OF OUR PRODUCTS; OUR NEW
TECHNOLOGIES MAY NOT GAIN MARKET ACCEPTANCE.
Our products contain innovative ingredients and combinations of
ingredients, and there is limited data regarding the effect of these innovative
ingredients and combinations of ingredients
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on consumers. The novelty of our technologies creates significant uncertainty as
to market acceptance. To gain market acceptance, our alternatives to existing
technologies must overcome initial market skepticism and resistance.
Furthermore, our potential customers do not currently recognize us as an
established supplier. We can offer no assurance that our target market will
accept any products we offer now or will offer in the future. If we are unable
to develop products that are accepted by the market, it is highly likely that we
will fail.
WE MAY BE LIABLE FOR CLAIMS THAT OUR PRODUCTS ARE HARMFUL OR INEFFECTIVE.
We may incur liability to consumers based on claims that our nutritional
supplements are harmful or ineffective. Such claims, even if unfounded, could
cause damage to our reputation, result in expensive product recalls, or result
in high litigation expense. We intend to maintain liability insurance when and
to the extent such insurance is available on a cost effective basis. However, we
can offer no assurance that insurance will continue to be available to us, or
that it will continue to be available on a cost effective basis.
OUR PRODUCTS ARE SUBJECT TO GOVERNMENTAL REGULATIONS.
Our products will require federal and possibly state regulatory
notification and may require federal and state regulatory approval before we can
begin marketing those products. This regulation will include regulation by the
Food and Drug Administration as to formulation, manufacture and labeling of our
products. We can offer no assurance that we will be able to obtain necessary
approvals. We may be unable to market our products until all approvals are
obtained, and marketing may be delayed for a considerable or indefinite period
of time. Regulatory agencies may impose costly procedures upon us to gain
approval for our products. Even if we obtain approval for our products,
regulatory agencies may withdraw, suspend or limit our approval or marketing
rights following post-marketing evaluation of or experience with our products.
To the extent that our competitors' products are not regulated in the same way
as our innovative products, our competitors would have an advantage. We can
offer no assurance that any regulatory approval for our products will be granted
on a timely basis, if at all. Any delay or failure in obtaining, or failure to
maintain, such approvals could materially and adversely affect the marketing of
our products and our ability to generate revenue and earnings.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN EXISTING AND OBTAIN NEW
INTELLECTUAL PROPERTY RIGHTS AND TO PROTECT OUR INTELLECTUAL PROPERTY.
Our intellectual property rights. To market products and generate revenue,
--------------------------------
we must obtain patents on our products, retain existing and obtain new licenses
to use third-party technologies, protect our trade secrets and operate without
infringing on the proprietary rights of others. There is no assurance that our
pending patent applications will issue as patents, that any issued or pending
patent will provide us with significant competitive advantages, or that
successful challenges will not be instituted against the validity or
enforceability of any patents we obtain. Our competitors may independently
develop similar technologies, duplicate our technology, design around the
patented aspects of our technology, or claim that our technology infringes
patents or proprietary rights that they own. We may unintentionally infringe the
patent rights of competitors developing similar technology. If we are forced to
defend the validity and enforceability of our patents or defend against claims
of patent infringement, we will face high
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litigation costs, which will adversely affect our earnings. If we are found to
infringe on the intellectual property rights of others, we could be enjoined
from continuing to manufacture, market or use the affected product, or be
required to obtain a license to continue manufacturing or using the affected
product. A license could be very expensive to obtain or may not be available at
all. Similarly, changing our products or processes to avoid infringing on the
rights of others may be costly or impracticable.
Our competitors' intellectual property rights. Our competitors may own
---------------------------------------------
patents for products or processes that are necessary for or useful to the
development, use or manufacture of our products. We may be required to obtain
licenses from competitors to develop, manufacture or market our products. We can
offer no assurance that we will be able to obtain such licenses on commercially
reasonable terms or that the patents underlying the licenses will be valid and
enforceable.
Our unpatented proprietary technology. We also rely on unpatented
-------------------------------------
proprietary technology. We can offer no assurance that we can adequately protect
our rights in our unpatented proprietary technology, that competitors will not
independently develop substantially equivalent proprietary information or
techniques, gain access to our proprietary technology, or disclose our
technology. If we are unable to protect our proprietary technology, our ability
to generate revenues from sales of our products and services would suffer from
increased competition.
WE WILL BE CONTROLLED BY PAXTON VENTURES CORP.
Pursuant to our Plan of Reorganization, Paxton Ventures Corp. will own 25%
of the outstanding shares of our common stock and preferred stock. Furthermore,
Paxton will beneficially own an additional 7.2% of the outstanding shares of our
common and preferred stock through a right to acquire 250,000 additional shares
of common stock upon the conversion of a $500,000 promissory note and through a
right of IK Capital, Inc., an affiliate of Paxton, to acquire shares of common
stock issuable upon the conversion of a warrant. Although Paxton will not own a
majority of our outstanding stock, it will own substantially more than any other
shareholder. In addition, Lorenzo A. DeLuca, the owner and President of Paxton,
is a member of our Board of Directors. As a result, Paxton will be able to
influence significantly the election of other individuals to our Board of
Directors, the outcome of other matters submitted for shareholder consideration
and our operations.
WE ARE DEPENDENT SUBSTANTIALLY ON THE SERVICES OF DR. BURT D. ENSLEY.
We are dependent substantially in the implementation of our business
strategy on Burt D. Ensley, Ph.D., our President and Chief Executive Officer,
and founder. Dr. Ensley provides us with research and management expertise. If
we lose Dr. Ensley's services, the loss could have a material adverse effect on
our business and results of operations. Furthermore, there can be no assurance
that we would be successful in attracting and retaining a replacement for Dr.
Ensley.
WE MUST ATTRACT AND RETAIN SKILLED MANAGEMENT AND SCIENTIFIC PERSONNEL.
Because of the specialized nature of our technology, we are highly
dependent upon existing management and our ability to attract and retain
qualified executive officers and
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scientific personnel for research and development activities. We are currently
seeking to recruit additional qualified senior operating, marketing, scientific
and technical personnel. We face intense competition for qualified personnel,
and there is no assurance that we will be able to continue to attract and retain
the qualified personnel necessary for the development and commercialization of
our products.
WE ARE DEPENDENT ON THIRD PARTIES TO MANUFACTURE OUR PRODUCTS.
We depend substantially on two manufacturers to manufacture our products.
The loss of the services of either or both of these two manufacturers would
seriously disrupt our product manufacturing and substantially interfere with our
ability to deliver consistently our products to our customers. We could resume
manufacturing with another supplier of growing or processing services after a
delay of one to three months. There can be no assurance that we will be able to
obtain other manufacturing contracts, or that we will be able to obtain other
manufacturing contracts on favorable terms. If we are unable to obtain other
manufacturing contracts on favorable terms, we would have to spend significant
time, expense and management resources to develop internal manufacturing
capacity. This would adversely affect our ability to develop and market products
in a timely manner.
WE ARE SUBSTANTIALLY DEPENDENT ON A SINGLE CUSTOMER.
The success of our business strategy and our future ability to generate
revenues and profits depends on expanding our customer base. We are
substantially dependent on a single customer, Technical Sourcing International,
to purchase and resell our bulk material products. The loss of this customer
would materially adversely affect our ability to generate revenues. Although we
are currently negotiating with several bulk product suppliers, there is no
assurance that we will be able to attract enough customers to sustain our
business strategy and generate profits.
WE FACE COMPETITION FROM ESTABLISHED AND WELL-FINANCED COMPANIES.
Our future ability to generate revenues and profits will depend in part on
our ability to maintain a competitive position with respect to evolving
technologies. There is no assurance that technologies and procedures under
development or developed in the future by competitors will not render our
products and services noncompetitive. Moreover, traditional products offered by
competitors can be expected to have continuing market appeal and, accordingly,
present a serious competitive challenge to our innovative products. We compete
against numerous companies that have substantially greater financial, research
and development, testing, marketing and production resources than we do. Many of
our competitors have established better name recognition in our target markets
than we have. If these factors prevent us from attaining significant market
share in our target markets, our ability to generate revenue would suffer.
AN ACTIVE TRADING MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP; THE PENNY STOCK
RULES OF THE SECURITIES EXCHANGE ACT OF 1934 MAY LIMIT THE LIQUIDITY OF OUR
COMMON STOCK.
There is no public market for our common stock, and there is no assurance
that any trading market for our common stock will develop or be sustained. If a
market for our common
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stock does develop, the "penny stock" rules promulgated under the Securities
Exchange Act of 1934 may apply to transactions involving our common stock. If
the market price of our common stock is below $5 per share and we are not traded
on a national exchange or listed with Nasdaq, a broker-dealer will be required
to review and approve any transaction involving our common stock. The broker-
dealer must gather the prospective investor's financial information, determine
the suitability of the investment for the prospective investor, and provide the
prospective investor with additional disclosure. The additional burdens imposed
upon broker-dealers by these requirements could discourage broker-dealers from
effecting transactions in our common stock, which could severely limit the
market liquidity of our common stock and the ability of our shareholders to
trade their common stock.
THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
If a market for our common stock does develop, there may be significant
volatility in the market price of our common stock due to factors that may or
may not relate to our performance, including economic forecasts, financial
market conditions, variations in demand for nutritional supplements, changes in
the mix of products sold, price changes in response to competition, increases in
the cost of raw materials, supply shortages, reorganizations, acquisitions and
quarterly variations in our results of operations. In particular, the market
price of our common stock could be adversely affected by official or unofficial
reports regarding the potential health benefits or detriments of our products or
of similar products distributed by other companies, as well as by consumer
perceptions regarding the safety and efficacy of our nutritional supplements.
ITEM 2. MANAGEMENT'S DISCUSSION, ANALYSIS AND PLAN OF OPERATION
OVERVIEW
On May 19, 1999, we filed for protection under Chapter 11 of the Bankruptcy
Code. Before entering bankruptcy, we specialized in commercializing technology
involving metal hyperaccumulating plants to remove heavy metals from
contaminated soil and water. We also developed technology to produce nutritional
supplements from plants.
While in bankruptcy, we sold our remediation assets and reoriented our
focus to our nutritional supplement business. We believe that our technology
represents a new approach in the development of nutritional products from
botanical sources. Unlike the traditional process of identifying nutritionally
important molecules from plants, we developed our technologies based on
observations that selected cultivars of edible crop plants accumulate high
levels of important dietary minerals under controlled conditions. This
proprietary process enables us to manufacture new, plant-based sources of
minerals such as selenium, chromium, iron, zinc and manganese, and to produce
dietary supplements having consistent batch-to-batch quantities and forms of
these nutrients.
Our revenue from our nutritional supplement operations has been minimal to
date. In 1998, our sales of nutritional supplements were $13,152, or 1.3% of our
total revenue. In 1999, our sales of nutritional supplements dropped to $10,270
but increased to 5.5% of our total
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revenue due primarily to the sale of our remediation business. Therefore, we are
essentially a start-up operation. Accordingly, we expect our results of
operations for the year ending December 31, 2000 to differ significantly from
prior years. Because our nutritional supplement business is in the early stage
of operation and will require significant investment in research and
development, we anticipate that we will record operating losses for a number of
years.
As part of our reorganization under Chapter 11, we sold our remediation
business to Edenspace Systems Corporation on June 28, 1999. The sale resulted in
gross proceeds of $600,000 plus quarterly royalty payments until 2002 equal to
5% of Edenspace's net sales resulting from our remediation technology. In the
first quarter of 2000, NuCycle received a royalty payment of $9,300 from
Edenspace. Edenspace projects that its net sales resulting from our remediation
technology will be approximately $800,000 for the year ending December 31, 2000.
We operated as a debtor-in-possession until the confirmation of our Plan of
Reorganization on February 10, 2000.
For risks and uncertainties relating to our business, see "Item 1.
Description of Business - Risk Factors."
RESULTS OF OPERATIONS
1999 versus 1998
We entered bankruptcy on May 19, 1999, which severely affected our results
of operations. Revenues for the year ended December 31, 1999 were $185,821
compared to $1,015,804 for the year ended December 31, 1998, a decrease of
$829,982, or 82%. Our sales of nutritional supplements were $10,270 for the year
ended December 31, 1999 compared to $13,152 for the year ended December 31,
1998, a decrease of $2,882, or 21.9%. Our revenue also declined because we sold
our remediation assets in June 1999. Our nutritional supplements sales declined
because our lack of capital and subsequent bankruptcy inhibited our ability to
develop new business.
Cost of sales for the year ended December 31, 1999 was $74,218 compared to
$311,231 for the year ended December 31, 1998, a decrease of $237,013 or 76%.
The decrease was due to the sale of our remediation business, of which our cost
of sales was $300,885 for the year ended December 31, 1998. Cost of sales as a
percentage of revenues for the year ended December 31, 1999 was 39.9% compared
to 30.6% for the year ended December 31, 1998.
Our general and administrative expenses for the year ended December 31,
1999 were $1,413,000 compared to $3,134,120 for the year ended December 31,
1998, a decrease of $1,721,120, or 54.9%. Our general and administrative
expenses as a percentage of revenues for the year ended December 31, 1999 were
761.6% compared to 308.5% for the year ended December 31, 1998. The increase as
a percentage of revenue was primarily due to our significantly reduced revenue
for the year ended December 31, 1999. The decrease in these costs was due to the
transfer of our employees and related overhead in connection with the sale of
our remediation business and our subsequent restructuring.
Our general and administrative expenses comprise facilities, marketing,
salary and other operating expenses. Our facilities expenses for the year ended
December 31, 1999 were $165,146 compared to $259,996 for the year ended December
31, 1998, a
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decrease of $94,850, or 36.5%. Our facilities expenses declined primarily due to
the loss of our lease at our Monmouth Junction, New Jersey facility, which
resulted from our inability to pay rent in early 1999, and our subsequent move
to a smaller, less costly facility in the same building complex.
Our marketing expenses for the year ended December 31, 1999 were $21,655
compared to $115,479 for the year ended December 31, 1998 a decrease of $93,824,
or 81.2%. The decrease was primarily due to a significant reduction in sales
personnel, the sale of our remediation business, insufficient working capital,
and our Chapter 11 reorganization. We expect to increase our sales and marketing
staff in 2000. In that connection, we expect to increase expenditures for sales
and marketing, website development and advertising.
Our other operating expenses for the year ended December 31, 1999 were
$613,640 compared to $1,654,025 for the year ended December 31, 1998, a decrease
of $1,040,385, or 62.9%. The decrease was primarily due to reduction in
personnel, consulting expenses, professional fees, supplies and travel- related
expenses. In 1998, we also incurred approximately $624,000 in costs relating to
a withdrawn initial public offering.
Our salary expenses and related costs for the year ended December 31, 1999
were $671,559 compared to $1,104,620 for the year ended December 31, 1998, a
decrease of $433,060, or 39.2%. The decrease was due primarily to the
significant reduction in personnel resulting from the sale of our remediation
business.
Our research and development expenses for the year ended December 31, 1999
were $28,000 compared to $37,606 for the year ended December 31, 1998, a
decrease of $9,606, or 25.5%. The decrease was primarily due to a decline in our
remediation research as the technology was brought to full-scale
commercialization, and a lack for working capital to maintain research and
development for our nutritional products. We expect to increase our research and
development for our nutritional products in 2000 if we generate sufficient
working capital.
Our interest expense for the year ended December 31, 1999 was $243,992
compared to $301,934 for the year ended December 31, 1998, a decrease of
$57,942, or 19.2%. This decline resulted from our Chapter 11 bankruptcy filing
and the reduced interest accrual on certain promissory notes that were extended
beyond their maturity dates.
We also had nonrecurring expenses of $59,000 related to our Chapter 11
reorganization. These expenses comprised legal and accounting fees for services
rendered during the bankruptcy proceeding.
Our net loss for the year ended December 31, 1999 was $817,413, which
included an income tax benefit of $253,000 and the gain on the sale of our
remediation assets of $555,802, compared to a net loss for the year ended
December 31, 1998 of $2,427,803, which included an income tax benefit of
$342,000, a decrease of $1,610,389, or 66.3%. This change was primarily due to
our decrease in operating costs in connection with our Chapter 11 bankruptcy
filing.
1998 versus 1997
Revenues for the year ended December 31, 1998 were $1,015,804 compared to
$461,452 for the year ended December 31, 1997, an increase of $554,352, or
120.1%. Our sales of nutritional supplements were $13,152 for the year ended
December 31, 1998 compared to $0 for the year ended December 31, 1997. Our
revenue increased primarily due to growth in our remediation business. Fiscal
1998 was our first year of nutritional supplement sales.
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Cost of sales for the year ended December 31, 1998 was $311,231 compared to
$69,172 for the year ended December 31, 1997, an increase of $242,059 or 349.9%.
Cost of revenues as a percentage of revenues for the year ended December 31,
1998 was 30.6% compared to 15.0% for the year ended December 31, 1997. Costs of
sales as a percentage of revenues increased primarily due to costs associated
with the full commercialization of our technology.
Our general and administrative expenses for the year ended December 31,
1998 were $3,134,120 compared to $2,554,495 for the year ended December 31,
1997, a decrease of $582,625, or 22.8%. This increase was primarily due to costs
related to a withdrawn public offering. Our general and administrative expenses
as a percentage of revenues for the year ended December 31, 1998 were 308.5%
compared to 552.9% for the year ended December 31, 1997. This decrease was
primarily due to our increased revenue for the year ended December 31, 1998.
Our general and administrative expenses comprise facilities, marketing,
salary and other operating expenses. Our facilities expenses for the year ended
December 31, 1998 were $259,996 compared to $277,674 for the year ended December
31, 1997, a decrease of $17,679, or 6.4%. The decrease was primarily due to
lower utilities expenses and annual lease obligations.
Our marketing expenses for the year ended December 31, 1998 were $115,479
compared to $15,856 for the year ended December 31, 1997, an increase of
$99,623, or 628.3%. The increase was primarily a result of an increase in sales-
related activities.
Our other operating expenses for the year ended December 31, 1998 were
$1,654,026 compared to $1,182,798 for the year ended December 31,1997, an
increase of $471,228, or 39.8%. This increase was primarily due to costs
relating to a withdrawn initial public offering. Excluding the initial public
offering costs, our other operating expenses for the year ended December 31,
1998 were $1,030,026, compared to $1,182,798 for the year ended December 31,
1997, a decrease of $152,772, or 12.9%. This decline was due to a reduction in
travel, lab supplies, placement and depreciation expenses.
Our salary expenses and related costs for the year ended December 31, 1998
were $1,104,620 compared to $1,074,589, for the year ended December 31, 1997, an
increase of $30,031, or 2.8%. This increase was primarily due to the hiring of
additional executive, sales, laboratory and operations personnel.
Our research and development expenses for the year ended December 31, 1998
were $37,606 compared to $768,483 for the year ended December 31, 1997, a
decrease of $730,877, or 95.1%. This reduction was primarily due to a decease in
our remediation research as the technology was brought to full-scale
commercialization.
Our interest expense for the year ended December 31, 1998 was $301,934
compared to $33,990 for the year ended December 31, 1997, an increase of
$267,944 or 788.3%. We incurred additional interest in 1998 due to the issuance
of bridge notes totaling approximately $2.2 million in March 1998.
Our net loss for the year ended December 31, 1998 was $2,427,803, which
included an income tax benefit of $342,000, compared to a net loss for the year
ended December 31, 1997 of $2,955,142, a decrease of $527,339, or 17.8%. This
change was primarily due to a 123% increase in revenue from our remediation
business.
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LIQUIDITY AND CAPITAL RESOURCES
General
NuCycle has funded its operations primarily through private placements of
preferred stock and the issuance of bridge notes. NuCycle expects to continue to
require funding for operating working capital and research and development.
NuCycle plans to meet these capital needs from various financing sources,
including borrowings, internally generated funds, the issuance of equity
securities, the sale of net operating loss carryovers and by entering joint
ventures.
We expect net operating losses in the near term due to our research,
development and marketing efforts. We will incur net operating losses until we
can generate sufficient revenue from product sales, royalties, development,
license and other fees to fund continuing operations. As our internally
generated cash is insufficient to meet our working capital requirements, we will
require outside sources of funding.
Sources of Capital
We have obtained and expect to obtain outside funding from the sale of net
operating losses, from borrowings and by entering joint ventures. We applied for
and are participating in a program administered by the New Jersey Economic
Development Authority to sell the tax benefit of our state net operating losses.
In December 1999, we received approval from the Bankruptcy Court to sell our net
operating losses and entered into a contract with PSE&G. The transaction
comprising the first year of our program was completed in early January 2000 and
resulted in net proceeds of $342,267, which we must disperse in accordance with
the spending plan submitted to the New Jersey Economic Development Authority and
the Bankruptcy Court. We expect that we will use the net proceeds for expansion
of our manufacturing capacity, development of our informational and e-commerce
web sites, public relations, seed production, iron and zinc safety trials,
selenium and chromium bioavailability studies and general working capital.
We are approved to participate in the sale of additional net operating
losses of approximately $253,000 in the second year of the program, which begins
on July 1, 2000. We plan to use the proceeds for development of additional
products and hiring personnel. We expect to apply with the New Jersey Economic
Development Authority for approval to sell additional state income tax benefits
during the year ending December 31, 2000. We can give no assurance, however,
that we will be able to obtain the approval from the New Jersey Economic
Development Authority or obtain the certification of the New Jersey Division of
Taxation.
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Furthermore, we plan to borrow $500,000 from Paxton Ventures Corp. in
exchange for an 8% subordinated convertible note. During the term of the loan,
Paxton will be able to convert the note to NuCycle's common stock at a price
equal to the greater of $2.00 per share or 85% of the per share market price for
NuCycle common stock at the date of conversion.
We have also formed a joint venture known as BioScience, L.L.C. with
Manhattan Drug Company, Inc. to develop, market and sell various vitamins and
nutritional supplements derived from plants. This joint venture should provide
us with additional capital for operations.
Although the sale of our net operating losses and the proposed loan from
Paxton will assist us with our current and planned operations, we anticipate
that we will need additional capital to implement our business plan. We can give
no assurance, however, that we will be able to obtain the funding necessary to
sustain our operations or research and development.
Cash Requirements
We have several obligations requiring the outlay of cash. We have a month
to month lease with Princeton Corporate Plaza, L.L.C. for our Monmouth Junction,
New Jersey facility, which requires a $5,900 monthly payment, including
utilities and other operating expenses. We are currently negotiating with
Princeton Corporate Plaza, L.L.C. for a long-term lease, which may require a
higher monthly rent. In addition, we lease our production facility from
Eisenhart Real Estate L.L.C. for a rent of $48,000 in 2000, which includes
utilities. The Eisenhart lease requires annual rent of $50,400 in 2001 and
$52,920 in 2002 and expires in February 2003.
Under our Plan of Reorganization, we are required to pay Rutgers University
$153,000 in cash or in kind services acceptable to Rutgers over a three year
period in consideration for Rutgers providing us with licenses to use certain
nutritional supplement technology. We are required to fully repay this
obligation in cash when we reach an aggregate of $1,000,000 in gross revenue
following the effective date of the Plan of Reorganization.
We are also obligated under our Plan of Reorganization to pay certain of
our current and former employees the remaining two-thirds of their priority
claims. We paid our former employees $21,500 on February 10, 2000, which
represented the first third of our obligation. Our next payment of $21,500 is
due on August 10, 2000. Our final payment of $21,500 is due on February 10,
2001. We expect to be able to pay for this obligation from either the proposed
loan from Paxton or the sale of out net operating losses.
ITEM 3. DESCRIPTION OF PROPERTY
NuCycle does not own any real property, but leases two properties. We have
a month to month lease for 3,600 square feet of laboratory, office and warehouse
space in Monmouth Junction, New Jersey at a monthly rental of $5,900. In
addition, we lease our production facility in Richwood, New Jersey at an annual
rental of $48,000. Management believes that these facilities are adequate for
its present needs.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our common stock
as of March 31, 2000, after giving effect to the Plan of Reorganization, by: (i)
each person or entity known to us to own beneficially 5% or more of the
outstanding shares of our common stock; (ii) each of our directors and the
executive officer named in Item 6 of this Form 10-SB; and (iii) all of our
directors and executive officers as a group. Except as otherwise indicated, each
person has sole voting power and investment power with respect to all shares
beneficially owned by such person.
<TABLE>
<CAPTION>
Number Percentage
Name of Beneficial Owner of Shares Ownership /(1)/
- ------------------------ --------- ----------
<S> <C> <C>
Paxton Ventures Corp. 1,336,308/(2)/ 32.2%
Lorenzo A. DeLuca 1,336,308/(3)/ 32.2%
Burt D. Ensley 313,089/(4)/ 8.2%
Environmental Private Equity Fund II, L.P. 301,389/(5)/ 7.9%
Philip J. Whitcome 72,312/(6)/ 1.9%
Abraham H. Nechemie 19,755/(7)/ *
Schneur Z. Genack 2,157/(8)/ *
John R. Benemann -- --
Amy Diamond -- --
Harcharan S. Gill -- --
Peter Nalen -- --
Louis Padulo -- --
All directors and executive officers as a group (11 persons) 1,760,115/(9)/ 41.6%
</TABLE>
_______________________
(1) The percentage ownership is based on a like number of shares of common
stock issued and outstanding as of March 31, 2000, including 805,266 shares
issuable upon the conversion of NuCycle's issued and outstanding Series A
Convertible Preferred Stock.
(2) Includes 936,308 shares of common stock to be issued pursuant to NuCycle's
Plan of Reorganization, 150,000 shares of common stock issuable upon the
exercise of a warrant to be issued to IK Capital, Inc., an affiliate of
Paxton, and 250,000 shares of common stock issuable upon the conversion of
a $500,000 promissory note to be issued by NuCycle to Paxton in connection
with NuCycle's Plan of Reorganization. The $500,000 promissory note will be
convertible into common stock at a price equal to the greater of $2.00 per
share or 85% of the per share market price of the common stock at the date
of conversion. For purposes of the Table, we have assumed a $2.00 per share
conversion rate. Paxton's address is 372 Fifth Avenue, Apartment 10B, New
York, New York 10018.
(3) Represents the shares that will be beneficially owned by Paxton Ventures
Corp. Mr. DeLuca is the owner and President of Paxton Ventures Corp. As
such, Mr. DeLuca may be deemed to beneficially own the shares that will be
held by Paxton. Mr. DeLuca's address is 372 Fifth Avenue, Apartment 10B,
New York, New York 10018.
(4) Includes 34,667 shares of common stock issuable upon the conversion of
Series A Convertible Preferred Stock and 67,179 shares of common stock
issuable upon the exercise of warrants. Dr. Ensley's address is 1 Deer Park
Drive, Suite M, Monmouth Junction, New Jersey 08852.
(5) Includes 138,889 shares of common stock issuable upon the exercise of
warrants. The address of Environmental Private Equity Fund II, L.P. is 233
S. Wacker Drive, Suite 9600, Chicago, Illinois 60606-6306.
(6) Includes 33,333 shares of common stock issuable upon the conversion of
Series A Convertible Preferred Stock and 4,843 shares of common stock
issuable upon the exercise of warrants.
(7) Includes 8,333 shares of common stock issuable upon the conversion of
Series A Convertible Preferred Stock and 2,422 shares of common stock
issuable upon the exercise of warrants.
(8) Includes 2,066 shares of common stock issuable upon the exercise of
warrants.
(9) See footnotes 3, 4 and 6 through 8 above. Also includes 11,366 shares on
common stock and 5,128 shares of common stock issuable upon the exercise of
warrants held by one executive officer who is not listed in the table.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names and ages of NuCycle's current
directors and executive officers. Officers are elected to serve until the
meeting of the Board of Directors following the next Annual Meeting of
Shareholders or until their successors have been elected and have qualified.
Name Age Position
- ---- --- --------
Philip J. Whitcome, Ph.D. 50 Chairman of the Board, Director
Burt D. Ensley, Ph.D. 51 President and Chief Executive
Officer; Director
Alexander Baltovski 41 Chief Financial Officer
John R. Benemann, Ph.D. 57 Vice President; Director
Lorenzo A. DeLuca 50 Director
Amy Diamond 43 Director
Schneur Z. Genack 58 Director
Harcharan S. Gill, Ph.D. 59 Director
Peter Nalen 38 Director
Abraham H. Nechemie 75 Director
Louis Padulo 58 Director
PHILIP J. WHITCOME, PH.D. has served as Chairman of the Board of Directors
of NuCycle since May 1994 and as a Director of NuCycle since October 1993. Dr.
Whitcome devotes only a portion of his time to the business of NuCycle. Dr.
Whitcome has served on the Board of Directors of Avigen, Inc. since December
1992 and has served as its Chairman since April 1995. From July 1988 to December
1993, he served as President and Chief Executive Officer of Neurogen
Corporation, a biotechnology company involved in the field of neuroscience. Dr.
Whitcome holds a Ph.D. in Molecular Biology from the University of California at
Los Angeles, an MBA from the Wharton School of the University of Pennsylvania
and a B.S. degree in Physics from Providence College. Dr. Whitcome also
currently serves on the Board of Directors of Premier Research Worldwide, a
contract research organization.
BURT D. ENSLEY, PH.D. has served as President and Chief Executive Officer
and a Director of NuCycle since its inception in April 1993. From 1989 through
1992, Dr. Ensley served as Director of Advanced Technology at Envirogen, Inc., a
microbial-based bioremediation company. From 1981 to 1989, Dr. Ensley was the
head of the Specialty Chemicals Group at Amgen, Inc. Dr. Ensley received B.S.
and M.S. degrees in Biology from the University of New Mexico in 1974 and 1976,
respectively, and a Ph.D. in Microbiology from the University of Georgia in
1979. Dr. Ensley has been elected to Fellowship in the American Academy of
Microbiology. Since 1996, Dr. Ensley has served on the National Science
Foundation's Biology Directorate Advisory Board.
ALEXANDER BALTOVSKI has served as the Chief Financial Officer of NuCycle
since November 1997. Mr. Baltovski has nine years accounting experience. From
1993 to 1997, Mr. Baltovski served as a Financial Operations Principal and Chief
Financial Officer of several
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NASD member securities firms, most recently Joseph, Dillon and Company, Inc.,
where he was responsible for regulatory reporting, operations, accounting, and
various underwriting and market making activities. Mr. Baltovski received a B.S.
degree in Economics from Wagner College in 1981.
JOHN R. BENEMANN, PH.D. has served as a Vice President and Director of
NuCycle since April 2000. Dr. Benemann is a recognized expert in the areas of
microalgae and aquatic plant biotechnology, and production processes including
metal uptake. He has served as a consultant on heavy metal bioremediation to the
U.S. Department of Energy since 1988. Since 1995, he has conducted research at
the University of California at Berkeley on photosynthesis and hydrogen
production and markets microalgae nutraceuticals in North America for a major
foreign-based company. From 1983 to 1988, Dr. Benemann was an Associate
Professor at the Georgia Institute of Technology. From 1980 to 1983, he was
President of EnBio Inc. in Fairfield, California. Dr. Benemann serves as
Chairman of the Board of SeaAg, Inc., an aquaculture company. Dr. Benemann
received a B.S. degree in Chemistry and Ph.D. in Biochemistry from the
University of California at Berkeley.
LORENZO A. DELUCA has served as a Director of NuCycle since April 2000. Mr.
DeLuca is the owner and President of Paxton Ventures Corp., a venture capital
and consulting firm specializing in emerging growth companies and an owner of
25% of NuCycle's preferred and common stock. In connection with Paxton's
portfolio investments, Mr. DeLuca has served as officer or director of Action
Industries Inc., General Vision Services, Inc., Bio-Reference Laboratories and
Merchants Advantage.com. Mr. DeLuca is an attorney admitted to practice in the
State of New York and was a founding member of Zervas & DeLuca. Mr. DeLuca
received a BA degree from Rutgers College and a J.D. degree from New York Law
School.
AMY DIAMOND has served as a Director of NuCycle since April 2000. Ms.
Diamond has been a managing director of Chatsworth Securities since October
1998. From 1996 to 1998, Ms. Diamond was employed as an investment banker at
Nolan Securities. As an investment banker, she has closed a variety of financing
transactions in the Internet, technology, healthcare and energy industries. Her
career also includes corporate finance experience with Lazard Freres and
Cornerstone Asset Management, and media experience as an associate producer and
production assistant for ABC News and ABC sports. Ms. Diamond serves on the
Boards of Shakespeare & Co. and dbusiness.com, a local business news web site.
Ms. Diamond has a BA degree in Psychology from New York University and an MBA
degree in Finance from New York University's Graduate School of Business.
SCHNEUR Z. GENACK has served as a Director of NuCycle since August 1996.
Since 1987, Mr. Genack has been a member of the General Partnership of the
Environmental Venture Fund, L.P., and since 1992 has been a member of the
General Partner of Environmental Private Equity Fund II, L.P. Mr. Genack holds a
B.S. degree from Yeshiva University and a J.D. degree from New York University
School of Law.
HARCHARAN S. GILL, PH.D. has served as a Director of NuCycle since April
2000. Dr. Gill has extensive executive experience in management, mergers and
acquisitions, strategic planning, marketing and sales and corporate
restructuring. Since 1997, Dr. Gill has served as the President and CEO of PARS
Environmental Inc., a full-service environmental company. From 1994 to 1997, Dr.
Gill was Director, President and CEO of Envirogen, Inc., an environmental
technology
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company. From 1971 to 1994, Dr. Gill served in several positions including Vice
President, Corporate Development at Dames & Moore, an international civil and
environmental engineering company. Dr. Gill serves on the Board of Directors of
several private companies. Dr. Gill received a Ph.D. in Civil Engineering from
Cornell University.
PETER NALEN has served as a Director of NuCycle since April 2000. Since
July 1999, Mr. Nalen has been a Vice President of the Sawtooth Group, a
marketing consulting organization, where he has worked on projects involving
managed health care, nutritional supplements and dietary supplements. From 1998
to 1999, Mr. Nalen was Vice President of Marketing at PacificHealth
Laboratories, a marketer and distributor of herbal supplements, where he
repositioned the marketing of the base brand of PacificHealth's supplements and
launched the sales of a new sports drink. From 1996 to 1997, Mr. Nalen was Vice
President of Marketing for Burton Snow Boards, where he developed and
implemented a global marketing strategy for this industry leader. Mr. Nalen has
a BA from Middlebury College and an MBA degree in marketing and management from
Northwestern University's J. L. Kellogg Graduate School of Management.
ABRAHAM H. NECHEMIE has served as a Director of NuCycle since April 2000.
Mr. Nechemie has over 50 years of experience in the financial services and
management business. In 1968, Mr. Nechemie became a founding partner of Wiss &
Company, Certified Public Accountants. He also serves on the Board of Directors
of Electro-Catheter Corporation. Mr. Nechemie received a B.S. degree in
Accounting from Rutgers University in 1951 and is a Certified Public Accountant
(retired) in New Jersey and New York.
LOUIS PADULO has served as a Director of NuCycle since April 2000. Dr.
Padulo is a strategic consultant for several organizations. From 1991 to 1997,
Dr. Padulo was President and Chief Executive Officer of the University City
Science Center, a business incubator, where he mentored dozens of high
technology companies developing innovative new products and services. From 1988
to 1990, Dr. Padulo served as President of the University of Alabama in
Huntsville. From 1975 to 1987, he served as Dean of Engineering and later
Associate Vice President at Boston University, where he supervised and developed
research programs in biomedical engineering and medicine and manufacturing. Dr.
Padulo has also been a faculty member in engineering and mathematics at such
institutions as Stanford University, the University of Tokyo and the
Massachusetts Institute of Technology. Dr. Padulo is a director of several
private companies. Dr. Padulo received a Ph.D. in electrical engineering from
Georgia Tech University.
ITEM 6. EXECUTIVE COMPENSATION
The following summary compensation table sets forth all cash compensation
that NuCycle paid, distributed or accrued for services rendered in all
capacities by the President and Chief Executive Officer of NuCycle during the
1999, 1998 and 1997 fiscal years. We have omitted all other required tables
because there has been no other compensation awarded to, earned by or paid to
any of NuCycle's executive officers that is required to be reported.
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<PAGE>
Fiscal
Name and Principal Position Year Salary
--------------------------- ---- ------
Burt D. Ensley 1999 $100,000
President and Chief Executive Officer 1998 $120,000
1997 $120,000
None of our executive officers has an employment agreement. Burt D. Ensley
currently has an annual salary of $100,000.
STOCK OPTION PLAN
NuCycle has a stock option plan, the NuCycle Therapy, Inc. 2000 Stock
Option Plan (the "Plan") to provide a means whereby NuCycle Therapy, Inc. may,
through the grant of incentive and nonqualified stock options, attract and
retain employees, consultants and non-employee directors and motivate them to
exercise their best efforts on behalf of NuCycle. There are currently no options
outstanding under the Plan and no shares of common stock of NuCycle Stock have
been issued pursuant to the Plan.
The following is a summary of certain provisions of the Plan.
General
Pursuant to the Plan, NuCycle may issue options to purchase a total of
400,000 shares of common stock to employees, consultants and non-employee
directors of NuCycle. The Plan provides that employees, consultants and non-
employee directors are eligible to receive nonqualified stock options, while
only employees are eligible to receive incentive stock options. The incentive
stock options offer employees certain tax advantages discussed below which are
not available under nonqualified stock options.
The Board of Directors of NuCycle or the Compensation Committee whose
members are appointed by the Board administers the Plan. The Board and the
Compensation Committee are referred to as the Committee. The Committee has
discretion in setting the terms of options granted to employees, consultants and
non-employee directors.
Exercise Terms and Price.
The Committee determines certain terms of the options, including the number
of shares of common stock subject to the option. The exercise price of incentive
stock options will be 100 percent of the fair market value of a share of common
stock on the date the option is granted and the option term may not exceed ten
years. The exercise price of non-qualified stock options will be at least 75
percent of the fair market value of a share of Common Stock on the date the
Option is granted and the option term may not exceed ten years.
Options become exercisable in installments as the Committee may determine
for each individual option grant. The vesting schedule for each option is set
forth in the option agreement for such option. The Committee may, in its
discretion, accelerate the date on which options may
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<PAGE>
be exercised if it determines that to do so would be in the best interests of
NuCycle and the participants in the Plan.
An employee, non-employee director or consultant may pay the exercise price
of an option in cash or its equivalent. The Committee may also permit an
optionee to pay the exercise price through a so-called broker-financed
transaction, through a loan from NuCycle or in any combination of such methods.
The Committee may permit an employee to pay the tax withholding obligation with
common stock issuable upon the exercise of the nonqualified stock option or
previously acquired common stock.
Termination of Options
When an employee, non-employee director or consultant terminates service,
his or her option may expire before the end of the option term. For example, if
an employee, non-employee director or consultant's service terminates for a
reason other than cause, death or disability, his or her options generally
remain exercisable for up to thirty days after termination of service, unless
the Committee provides for a longer period. If the employee, non-employee
director or consultant's service is terminated for cause, his or her options
generally terminate on the date of termination, unless the Committee provides
for a longer period. If the employee, non-employee director or consultant's
service terminates due to death or disability, his or her options generally
remain exercisable for up to one year after termination of service, unless the
Committee provides for a longer period. All options, however, expire no later
than the expiration date specified in the option agreement.
Transferability
Options generally are not transferable, except by will or under the laws of
descent and distribution. Nonqualified stock options, however, may be
transferred if, and to the extent, the Committee so provides in the option
agreement.
Certain Corporate Transactions.
If there is a change in NuCycle's capitalization that affects its
outstanding common stock, the aggregate number of shares of common stock subject
to options, together with the option exercise price, will be adjusted by the
Committee, as described in the Plan. The Plan also provides that, in the event
of a merger, consolidation or other specified corporate transaction, outstanding
options will be assumed by the surviving or successor corporation, if any.
However, the Plan also authorizes the Committee to terminate the options in the
event of such a corporate transaction, after giving advance notice.
Effective Date.
The Plan became effective on April 17, 2000, the date it was adopted by the
Board, provided that requisite shareholder approval is obtained within one year
of such date.
Amendment/Termination.
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The Board may amend or suspend the Plan. However, shareholder approval is
required for certain amendments, such as an increase in the number of shares of
common stock authorized for issuance of incentive stock options, and a change to
the class of employees who may receive incentive stock options under the Plan.
Requisite shareholder approval is also required for any amendment that would
require shareholder approval under Section 162(m) of the Internal Revenue Code,
or under the rules of the market on which common stock is listed.
The Board may terminate the Plan at any time and for any reason.
Federal Income Tax Consequences.
The federal income tax consequences of granting and exercising options
under the Plan are as follows (based on January 1, 2000 federal tax laws and
regulations). The grant of an option does not result in federal income tax
consequences for the optionee or a deduction for NuCycle.
When an option is exercised, the federal income tax consequences depend on
whether the option is an incentive stock option or a nonqualified stock option.
An optionee exercising a nonqualified stock option will recognize ordinary
income equal to the difference between the fair market value of the stock
exercised (on the date of exercise) and the option price. An employee will not
recognize taxable income as a result of acquiring stock by exercising an
incentive stock option. The difference between the fair market value of the
exercised stock on the date of exercise and the exercise price will, however,
generally be treated as an item of adjustment for purposes of alternative
minimum taxable income. If the employee holds the stock he receives on exercise
of an incentive stock option for the required period of time, the employee will
have a capital gain (or loss) when the stock is later sold. If the employee does
not hold the stock for the required period of time, the employee will generally
have ordinary income when the stock is sold.
When an optionee recognizes ordinary income on the exercise of an
nonqualified stock option or the sale of stock acquired on exercise of an
incentive stock option, NuCycle is generally entitled to a deduction in the same
amount. Certain requirements, such as reporting the income to the IRS, must be
met for the deduction to be allowable.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1997, NuCycle issued secured promissory notes for an aggregate of
$229,000 to Abraham H. Nechemie and Philip J. Whitcome, each a director of
NuCycle, and to Burt D. Ensley, a beneficial owner of 8.2% of NuCycle's common
and preferred stock, and a director and the President and Chief Executive
Officer of NuCycle. The entire balance of the notes remained outstanding as of
December 31, 1999 and the notes continued to accrue interest at annual rates of
either 5% or 10%. Under the Plan of Reorganization, the noteholders will be
issued an aggregate of 76,333 shares of Series A Preferred Stock in exchange for
the cancellation and termination of their notes.
Between May 1998 and June 1999, NuCycle issued unsecured promissory notes
to Dr. Ensley for an aggregate of $174,000. The entire balance of the unsecured
notes remained outstanding as of December 31, 1999 and the notes continued to
accrue interest at a 6% annual rate. Under the Plan of Reorganization, Dr.
Ensley will be issued 34,800 shares of common stock in exchange for the
cancellation and termination of the notes.
In August 1998, NuCycle completed an offering of 2,600,000 shares of Series
B Preferred Stock and warrants to purchase a total of 2,600,000 shares of Common
Stock, which raised an aggregate of $650,000. In the offering, Dr. Ensley
purchased 600,000 shares of Series B Preferred Stock and warrants to purchase
600,000 shares of Common Stock of NuCycle for an aggregate purchase price of
$150,000. Under the Plan of Reorganization, the Series B Preferred Stock
purchased by Dr. Ensley will be converted into common stock and the warrants
issued as part of the purchase will be canceled and replaced by new warrants.
See "Item 1. Description of Business - Organizational/Historical Background."
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In August 1999, NuCycle entered into a Letter Agreement with Paxton
Ventures Corp., under which Paxton is to provide NuCycle with investment banking
services and assistance in preparing and financing NuCycle's Plan of
Reorganization. Lorenzo A. DeLuca, a director of NuCycle, is the owner and
President of Paxton. In exchange for its services under the Letter Agreement,
Paxton will be issued 936,308 shares of NuCycle's common stock, Paxton will lend
NuCycle $500,000 in exchange for an 8% subordinated convertible note, and
Paxton's affiliate, IK Capital, Inc., will be issued a warrant to purchase
150,000 shares of NuCycle's common stock. See "Item 1. Description of Business -
Organization/Historical Background."
In March 2000, NuCycle entered into a Sales and Marketing Agreement with
John R. Benemann, Ph.D., a Vice President and director of NuCycle. Under the
Agreement, Dr. Benemann will assist NuCycle in selling and marketing NuCycle's
products. In exchange for such services, NuCycle will pay Dr. Benemann a 10%
commission on net sales to customers secured by Dr. Benemann.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of NuCycle consists of 8,000,000 shares of
common stock, no par value, and 2,000,000 shares of preferred stock, no par
value, which includes 1,000,000 shares of Series A Convertible Preferred Stock.
Upon implementation of NuCycle's Plan of Reorganization, there will be 2,939,967
shares of common stock outstanding and 805,266 shares of Series A Convertible
Preferred Stock outstanding. In addition, upon implementation of the Plan of
Reorganization, there will be outstanding warrants for the purchase of 446,335
shares of common stock. NuCycle also will issue a warrant to purchase 150,000
shares of common stock to IK Capital, Inc. There were no outstanding stock
options. The following description of NuCycle's capital stock is a summary,
which is not complete and is subject in all respects to NuCycle's Amended and
Restated Certificate of Incorporation, NuCycle's By-laws and New Jersey law.
NuCycle's Board of Directors has the power to divide the authorized and
unissued shares of NuCycle's capital stock into classes and into series within
any class or classes, to determine the designation and the number of shares of
any class or series, to determine the relative rights, preferences, and
limitations of the shares of any class or series, including without limitation,
the convertibility of any shares of one class or series into shares of another
class or series, and to change the designation or number of shares, or the
relative rights, preferences or limitations of the shares, or any established
series or class, of which no shares have been issued, all to the fullest extent
and in the manner provided by the New Jersey Business Corporation Act. The
number of shares of authorized common stock may be increased or decreased (but
not below the number then outstanding) by the affirmative vote of a majority of
NuCycle's shareholders, voting together as a single class.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of the NuCycle shareholders, including the election
of directors. The common shareholders do not have cumulative voting rights in
an election of directors.
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Subject to the participation rights of the outstanding preferred stock, the
holders of common stock are entitled to receive dividends in the amounts and at
the time when declared by NuCycle's board of directors out of funds legally
available. In the event of the liquidation, dissolution or winding up of
NuCycle, subject to the preferential rights of the outstanding preferred stock,
holders of common stock are entitled to receive, on a pro rata basis, all assets
of NuCycle available for distribution to the common shareholders.
Other than the rights described above, the common shareholders have no
preemptive, subscription, redemption, or conversion rights, nor are they
entitled to the benefit of any sinking fund. The rights of common shareholders
are subject to the rights of the existing holders of Series A Convertible
Preferred Stock and will be subject to the rights of any series of preferred
stock that NuCycle may issue in the future.
PREFERRED STOCK
NuCycle's board of directors has designated 1,000,000 shares of preferred
stock as Series A Convertible Preferred Stock.
Series A Convertible Preferred Stock
The holders of Series A Convertible Preferred Stock have the right to one
vote for each share of common stock into which their shares of Series A
Preferred Stock could then be converted. The Series A Convertible Preferred
shareholders have equivalent voting rights to the common shareholders and
therefore are entitled to vote on all matters submitted to a vote of the
shareholders of NuCycle, including the election of directors. The Series A
Convertible Preferred shareholders do not have cumulative voting rights in an
election of directors.
The holders of the Series A Convertible Preferred Stock are entitled to
participate with the holders of common stock on a pro rata basis in receiving
dividends in the amounts and at the time when declared by NuCycle's board of
directors out of funds legally available, based on the number of shares of
common stock held by each class of stock (assuming the conversion of all of the
Series A Convertible Preferred Stock into common stock). The pro rata
distribution does not apply to a dividend payable in common stock or other
securities or rights convertible into or entitling the common shareholder to
receive, directly or indirectly, additional shares of NuCycle common stock.
In the event of a liquidation, dissolution or winding up of NuCycle,
whether voluntary or involuntary, the holders of Series A Convertible Preferred
Stock shall have a preference of $3.00 per share from all of the assets of
NuCycle available for distribution to the shareholders. The liquidation
preference for the Series A Convertible Preferred Stock includes all declared
and unpaid dividends and will be adjusted for stock splits, reverse stock splits
and similar types of transactions. If the assets of NuCycle are insufficient to
satisfy the Series A Convertible Preferred shareholders' preference, then the
NuCycle assets will be distributed to the Series A Convertible Preferred
shareholders on a pro rata basis. The remaining assets will be distributed to
the holders of common stock on a pro rata basis.
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The shares of Series A Convertible Preferred Stock will convert into shares
of common stock on the earlier of March 30, 2001, or the last business day
before the closing of a securities offering by NuCycle of at least $4.0 million.
The shares of Series A Convertible Preferred Stock will convert on a one-to-one
basis to shares of common stock, subject to any adjustments resulting from prior
stock splits, stock dividends or other subdivisions of the outstanding shares of
common stock.
Other than these conversion rights and the rights described above, the
Series A Convertible Preferred shareholders have no preemptive, subscription or
redemption rights, nor are they entitled to the benefit of any sinking fund.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for NuCycle's common stock is Registrar
and Transfer Company. Its address is 10 Commerce Drive, Cranford, New Jersey
07016, and its telephone number is (800) 456-0596.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
There is no public trading market for the common stock of NuCycle.
Upon implementation of NuCycle's Plan of Reorganization, there will be
issued and outstanding 2,939,967 shares of common stock held by approximately
266 holders of record. Upon implementation of the Plan of Reorganization, there
will be issued and outstanding 805,266 shares of preferred stock held by
approximately 34 holders of record.
In accordance with the Plan of Reorganization, NuCycle will issue warrants
to purchase 446,335 shares of its common stock. The warrants will have an
exercise price of $8.00 per share and will be issued to NuCycle's former warrant
and option holders whose securities were terminated under the Plan of
Reorganization. There are no options outstanding. In addition, NuCycle will
issue a warrant to purchase 150,000 shares of common stock pursuant to the Plan
of Reorganization.
Neither NuCycle nor its predecessor Phytotech has declared or paid any cash
dividends on its common stock. NuCycle presently, and for the foreseeable
future, intends to retain all its earnings, if any, for the development of its
business. The declaration and payment of cash dividends in the future will be at
the discretion of the Board of Directors, and will depend upon a number of
factors, including among others, future earnings, operations, funding
requirements, the general financial condition of NuCycle, and such other factors
as the Board of Directors may deem relevant.
The shares of NuCycle common stock (including those shares of common stock
issued upon the conversion of Series A Preferred stock and the exercise of
warrants) that will be subject
33
<PAGE>
to Rule 144 are the 313,089 shares of common stock beneficially held by Burt D.
Ensley, a director and President and Chief Executive Officer of NuCycle, the
72,312 shares of common stock beneficially held by Philip J. Whitcome, the
Chairman of NuCycle's Board of Directors, the 16,494 shares of common stock
beneficially held by Alexander Baltovski, the Chief Financial Officer of
NuCycle, the 19,755 shares of common stock beneficially held by Abraham H.
Nechemie, a director of NuCycle, and the 1,336,308 shares of common stock
beneficially held by Paxton Ventures Corp. and deemed to be beneficially held by
Lorenzo A. DeLuca, the owner and President of Paxton, and director of NuCycle.
ITEM 2. LEGAL PROCEEDINGS
On May 19, 1999, Phytotech, Inc., the predecessor to NuCycle, filed a
Chapter 11 Petition for Reorganization, docketed to Case No. 99-55905/KCF in the
United States Bankruptcy Court for the District of New Jersey. In June 1999,
Phytotech changed its name to NuCycle Therapy, Inc. in connection with the sale
of its remediation business. NuCycle filed a Plan of Reorganization with the
Bankruptcy Court on October 15, 1999. The Bankruptcy Court confirmed the Plan of
Reorganization on February 10, 2000 with an effective date of February 21, 2000.
No other material legal proceedings to which NuCycle or any of its property
is subject or pending, nor to the knowledge of NuCycle are any such legal
proceedings threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The firm of KPMG Peat Marwick, LLP served as the independent accountants of
NuCycle until May 19, 1999 and issued an opinion with respect to the audit of
NuCycle's balance sheets as of December 31, 1997 and the related statements of
operations, stockholder's equity/deficit and statements of cash flows for each
of the two years for the period ended December 31, 1997. Following NuCycle's
filing for Chapter 11 bankruptcy protection, NuCycle and KPMG Peat Marwick, LLP
mutually agreed to terminate their relationship due to the conflict resulting
from the status of KPMG Peat Marwick, LLP as an unsecured creditor.
The reports of KPMG Peat Marwick, LLP on NuCycle's financial statements for
the two years ended December 31, 1997 contained a going concern qualification,
but did not contain any adverse opinion or disclaimer of opinion, or
modification or qualification as to audit scope or accounting principles. In
connection with the audits for the fiscal year ended December 31, 1997 and
through May 19, 1999, there have been no disagreements between NuCycle and KPMG
Peat Marwick, LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of KPMG Peat Marwick, LLP would have caused them to
make reference thereto in their report on NuCycle's financial statements for the
years ended December 31, 1997. During the fiscal year ended December 31, 1997
and through May 19, 1999, there have been no reportable disagreements or events
(as defined in Item 304(a)(1)(iv) of Regulation S-B of the Securities and
Exchange Commission).
NuCycle has provided KPMG Peat Marwick, LLP with a copy of the above
statements and has requested that KPMG Peat Marwick, LLP furnish it with a
letter addressed to the Securities and Exchange Commission stating whether or
not it agrees with the above statements. A copy of this letter is attached as an
Exhibit to this Form 10-SB.
On December 15, 1999, the Bankruptcy Court approved the appointment of
Richard A. Eisner & Company, LLP, to serve as NuCycle's new independent
auditors. Richard A. Eisner & Company, LLP audited NuCycle's financial
statements as of December 31, 1999 and for each of the years in the two year
period ended December 31, 1999, which are included in this Form 10-SB.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth NuCycle's sales of securities within the past
three years:
In September 1997, NuCycle issued an aggregate of 12.25 units to accredited
investors for $1,225,000. Each unit consisted of a 10% non-negotiable secured
promissory note for $100,000 and warrants to purchase 20,000 shares of NuCycle
common stock. NuCycle issued these securities pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"). Under the Plan of
Reorganization, these warrants will be canceled and replaced by new warrants to
be issued by NuCycle. See "Description of Business - Organizational
History/Background."
In March 1998, NuCycle issued an aggregate of 9.618 units to accredited
investors for $961,800. Each unit consisted of a 12% non-negotiable secured
promissory note for $100,000 and warrants to purchase 30,000 shares of NuCycle
common stock. NuCycle issued these securities pursuant to Section 4(2) of the
Securities Act. Under the Plan of Reorganization, these
34
<PAGE>
warrants will be canceled and replaced by new warrants to be issued by NuCycle.
See "Description of Business - Organizational History/Background."
In July 1998, January 1999 and April 1999, NuCycle issued an aggregate of
984,060 shares of Series C Preferred Stock to those holders of the secured
promissory notes issued in September 1997 and March 1998 who agreed to extend
the maturity of their notes. NuCycle issued these securities pursuant to Section
4(2) of the Securities Act. Under the Plan of Reorganization, the Series C
Preferred Stock will be converted into common stock. See "Description of
Business - Organizational History/Background."
In August 1998, NuCycle issued an aggregate of 2,600,000 shares of Series B
Preferred Stock and warrants to purchase an aggregate of 2,600,000 shares of
common stock to four accredited investors for $650,000. NuCycle issued these
securities pursuant to Section 4(2) of the Securities Act. Under the Plan of
Reorganization, the Series B Preferred Stock will be converted into common stock
and the warrants will be canceled and replaced by new warrants to be issued by
NuCycle. See "Description of Business - Organizational History/Background."
Under the Plan of Reorganization, NuCycle will issue an aggregate of
2,003,659 shares of common stock, 805,266 shares of Series A Preferred stock,
and warrants to purchase 446,335 shares of common stock. These securities that
will be issued under the Plan of Reorganization will be exempt from the
registration requirements of the Securities Act pursuant to Section 3(a)(7) of
the Securities Act and Section 1145 of the Bankruptcy Code.
NuCycle will issue 936,308 shares of common stock to Paxton Ventures Corp.
and will issue a warrant to purchase 150,000 shares of common stock to IK
Capital, Inc., an affiliate of Paxton, in connection with Paxton providing
NuCycle with investment banking services and assistance in preparing and
financing the Plan of Reorganization. In addition, NuCycle will issue an 8%
subordinated note to Paxton for $500,000, which is convertible into NuCycle
common stock at a price equal to the greater of $2.00 per share or 85% of the
per share market price of the common stock at the date of conversion. NuCycle
will issue these securities pursuant to Section 4(2) of the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following areas of indemnification apply to NuCycle:
NEW JERSEY STATUTORY INDEMNIFICATION PROVISIONS
Section 14A:3-5 of the New Jersey Business Corporation Act provides that
where a corporate agent, which is defined as a director, officer, employee or
agent acting on behalf of the corporation, has acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, a corporation may indemnify the corporate agent
for all reasonable costs, disbursements and counsel fees and any amounts paid or
incurred to satisfy settlements, judgments, fines and penalties. If a corporate
agent has been successful on the merits of a case, suit or proceeding, the
corporation is obligated to indemnify the corporate agent. The corporation may
broaden a corporate agent's right to indemnification beyond what the statute
provides in its certificate of incorporation or by-laws, provided, that the
corporate agent has not breached his or her duty of loyalty to the corporation's
shareholders, the corporate agent has acted in good faith and has not received
an improper personal benefit. A corporation may not indemnify a corporate agent
if the corporate agent is adjudged liable to the corporation, unless a court
with jurisdiction determines otherwise. A corporation may purchase and maintain
insurance on behalf of the corporate agent whether or not the corporation has
the power to indemnify the corporate agent under the New Jersey statute.
35
<PAGE>
CERTIFICATE OF INCORPORATION AND BYLAWS
Article Seventh of NuCycle's Amended and Restated Certificate of
Incorporation provides as follows:
All corporate officers, directors, employees and agents shall be
indemnified to the full extent permitted by law. Such indemnification may be
funded through insurance or otherwise as authorized by the Board of Directors.
Article VII of NuCycle's Amended and Restated By-laws provides as follows:
The Corporation shall indemnify to the full extent permitted by law any
person made, or threatened to be made, a party to an action, suit or proceedings
(whether civil, criminal, administrative or investigative) by reason of the fact
that he, his testator or intestate is or was a director, officer, employee or
agent of the Corporation or serves or served any other enterprise as such at the
request of the Corporation.
SEC POSITION ON INDEMNIFICATION FOR SECURITY ACT LIABILITY
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of our Company pursuant to the foregoing provisions, or otherwise,
NuCycle 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 of 1933, as amended, and is, therefore, unenforceable. If a claim
for indemnification against such liabilities (other than the payment by NuCycle
of expenses incurred or paid by a director, officer or controlling person of
NuCycle 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, NuCycle will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy expressed in the Securities Act of 1933, as amended, and
will be governed by the final adjudication of such issue.
OFFICERS AND DIRECTORS LIABILITY INSURANCE
At present, NuCycle maintains an officers and directors liability insurance
policy that provides comprehensive coverage for a maximum of $1,000,000 of
liability for each occurrence with a $25,000 deductible for each occurrence.
The policy will expire on September 3, 2000 unless it is renewed before such
date.
36
<PAGE>
PART F/S
NUCYCLE THERAPY, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
NuCycle Therapy, Inc. (debtor in possession)
We have audited the accompanying balance sheet of NuCycle Therapy, Inc. (debtor
in possession) as of December 31, 1999 and the related statements of operations,
capital deficiency and cash flows for each of the years in the two-year period
then ended. 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 NuCycle Therapy, Inc. (debtor in
possession) as of December 31, 1999 and the results of its operations and its
cash flows for each of the years in the two-year period then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that NuCycle
Therapy, Inc. (debtor in possession) will continue as a going concern. As
discussed in Note A to the financial statements, NuCycle Therapy, Inc. has
suffered recurring losses from operations and has insufficient working capital
to fund its current operating requirements and in May 1999 sought the protection
of the Bankruptcy Court. Management's plans in regard to these matters are also
described in Note A. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
January 31, 2000
With respect to Note A
February 10, 2000
With respect to Note I
February 9, 2000
F-2
<PAGE>
NUCYCLE THERAPY, INC.
(debtor in possession)
Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Adjustments (Note A)
----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 155,000 $ 155,000
Inventory 70,000 70,000
Other current assets 24,000 24,000
------------ ------------ -----------
Total current assets 249,000 249,000
Property and equipment, net 58,000 58,000
Deferred debt offering costs, net 13,000 $ (13,000)
Deferred tax asset 595,000 595,000
Other assets 21,000 21,000
------------ ------------ -----------
$ 936,000 $ (13,000) $ 923,000
============ ============ ===========
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities not subject to compromise - accounts payable
and accrued expenses $ 179,000 $ 179,000
------------ ------------ -----------
Current liabilities subject to compromise:
Accounts payable and accrued expenses - pre-petition 2,384,000 $(2,166,000) 218,000
Notes payable - related parties 403,000 (403,000)
Notes payable 1,325,000 (1,325,000)
Convertible notes payable 962,000 (962,000)
------------ ------------ -----------
5,074,000 (4,856,000) 218,000
------------ ----------- -----------
Total current liabilities 5,253,000 (4,856,000) 397,000
------------ ----------- -----------
Commitments
CAPITAL DEFICIENCY
Authorized 100,000,000 shares all capital stock 42,000,000
undesignated
Series A convertible preferred stock, no par value, voting,
authorized 10,000,000 shares; issued and outstanding
6,364,500 shares (aggregate liquidation value $5,091,600) 5,206,000 (5,206,000)
Series B convertible preferred stock, no par voting,
8,000,000 shares authorized, 2,600,000 shares,
issued and outstanding 650,000 (650,000)
Series C convertible preferred stock, no par voting,
984,060 shares subscribed 279,000 (279,000)
Series A convertible preferred stock to be issued upon emerging from
bankruptcy, 805,266 shares to be issued, at liquidation value 2,416,000 2,416,000
Common stock, no par value, voting, authorized 35,000,000
shares issued and outstanding 4,095,000 shares (1999) 308,000 (308,000)
Common stock, no par value, voting to be issued upon emerging
from bankruptcy protection, 2,003,659 shares to be issued 6,925,000 6,925,000
Common stock, no par value, non-voting, authorized
5,000,000 shares; issued and outstanding 1,044,700 shares 57,000 (57,000)
Additional paid-in capital 290,000 (124,000) 166,000
Accumulated deficit (10,983,000) 2,002,000 (8,981,000)
Deferred compensation (124,000) 124,000
------------ ------------ -----------
Total stockholders' equity (capital deficiency) (4,317,000) 4,843,000 526,000
------------ ----------- -----------
$ 936,000 $ (13,000) $ 923,000
============ =========== ===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
NUCYCLE THERAPY, INC.
(debtor in possession)
Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Grant revenue $ 65,000 $ 406,000
Environmental plant sales 111,000 597,000
Nutritional supplements revenue 10,000 13,000
----------- -----------
186,000 1,016,000
Cost of sales 74,000 311,000
----------- -----------
112,000 705,000
Operating expenses:
Research and development 28,000 38,000
General and administrative 1,413,000 3,135,000
----------- -----------
1,441,000 3,173,000
----------- -----------
Loss from operations (1,329,000) (2,468,000)
----------- -----------
Other income (expense):
Royalty income - net 6,000
Gain on sale of assets and contracts 556,000
Interest expense (244,000) (302,000)
----------- -----------
318,000 (302,000)
----------- -----------
Loss before reorganization item and income tax benefit (1,011,000)
Reorganization item - professional fees 59,000
-----------
Loss before income tax benefit (1,070,000) (2,770,000)
Income tax benefit 253,000 342,000
----------- -----------
Net loss $ (817,000) $(2,428,000)
=========== ===========
Basic and diluted net loss per share $(0.16) $(0.47)
=========== ===========
Weighted average shares outstanding 5,139,300 5,138,638
=========== ===========
Pro forma basic and diluted net loss per share from continuing operations
giving retroactive effect to the shares of new common stock outstanding
as of February 10, 2000 $(0.41) $(1.21)
=========== ===========
Pro forma weighted average shares outstanding as of February 10, 2000 2,003,659 2,003,659
=========== ===========
</TABLE>
See notes to financial statements
F-4
<PAGE>
NUCYCLE THERAPY, INC.
(debtor in possession)
Statements of Capital Deficiency
<TABLE>
<CAPTION>
Common Stock
Preferred -----------------------------------------
Stock Voting Non-voting Additional
----------- ----------------------------------------- Paid-in Accumulated
Amount Amount Shares Amount Shares Capital Deficit
----------- --------- --------- -------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of,
December 31, 1997 $5,206,000 $308,000 4,095,000 $56,000 1,039,400 $ 385,000 $ (7,738,000)
Stock options exercised 1,000 5,300
Deferred compensation
resulting from the grant
of options 146,000
Reduction of deferred
compensation due to
forfeitures of options (28,000)
Amortization of deferred
compensation
Issuance of Series B
convertible preferred stock 650,000
Issuance of Series C
convertible preferred stock 164,000
Net loss (2,428,000)
----------- --------- --------- -------- --------- ---------- -------------
Balance as of
December 31, 1998 6,020,000 308,000 4,095,000 57,000 1,044,700 503,000 (10,166,000)
Issuance of Series C
convertible preferred stock 115,000
Reduction of deferred
compensation due to
forfeitures of options (213,000)
Amortization of deferred
compensation
Net loss (817,000)
----------- --------- --------- -------- --------- ---------- -------------
Balance as of
December 31, 1999 $6,135,000 $308,000 4,095,000 $57,000 1,044,700 $ 290,000 $(10,983,000)
=========== ========= ========= ======== ========= ========== =============
Deferred
Compensa-
Tion Total
---------- -----------
<S> <C> <C>
Balance as of,
December 31, 1997 $(366,000) $(2,149,000)
Stock options exercised 1,000
Deferred compensation
resulting from the grant
of options (146,000)
Reduction of deferred
compensation due to
forfeitures of options 28,000
Amortization of deferred
compensation 89,000 89,000
Issuance of Series B
convertible preferred stock 650,000
Issuance of Series C
convertible preferred stock 164,000
Net loss 2,428,000
---------- -----------
Balance as of
December 31, 1998 (395,000) (3,673,000)
Issuance of Series C
convertible preferred stock 115,000
Reduction of deferred
compensation due to
forfeitures of options 213,000
Amortization of deferred
compensation 58,000 58,000
Net loss (817,000)
---------- -----------
Balance as of
December 31, 1999 $(124,000) $(4,317,000)
========== ===========
</TABLE>
See notes to financial statements
F-5
<PAGE>
NUCYCLE THERAPY, INC.
(debtor in possession)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(817,000) $(2,428,000)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 237,000 167,000
Deferred income tax benefit (253,000) (342,000)
Deferred compensation expense 58,000 89,000
Series C preferred stock issued in lieu of interest expense 115,000 164,000
Changes in:
Receivables 226,000 (54,000)
Inventory (37,000) (32,000)
Other current assets (24,000)
Other assets (6,000)
Accounts payable and accrued expenses - pre-petition 409,000 1,039,000
Accounts payable and accrued expenses - post-petition 179,000
--------- -----------
Net cash provided by (used in) operating activities 87,000 (1,397,000)
--------- -----------
Cash flows from investing activities:
Purchase of property and equipment (32,000) (25,000)
Proceeds from sale of property and equipment 13,000
--------- -----------
Net cash used in investing activities (19,000) (25,000)
--------- -----------
Cash flows from financing activities:
Proceeds from notes payable 653,000
Debt offering costs (74,000)
Proceeds from shareholders' loans 77,000 97,000
Proceeds from loans payable 100,000
Proceeds from sale of Series B convertible preferred stock
and warrants, net 650,000
Proceeds from exercise of stock options 1,000
--------- -----------
Net cash provided by financing activities 77,000 1,427,000
--------- -----------
Net increase in cash and cash equivalents 145,000 5,000
Cash and cash equivalents, beginning of year 10,000 5,000
--------- -----------
Cash and cash equivalents, end of year $ 155,000 $ 10,000
========= ===========
</TABLE>
See notes to financial statements
F-6
<PAGE>
NUCYCLE THERAPY, INC.
(debtor in possession)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE A - ORGANIZATION, OPERATIONS AND BASIS OF PRESENTATION
NuCycle Therapy, Inc. (the "Company"), organized in April 1993, formerly known
as Phytotech, Inc., has developed and is commercializing novel applications of
selected plants for health food markets. During 1999, the Company sold the
patents and other assets relating to the use of selected plants in the
environmental market and recognized a gain of $556,000.
In May 1999, the Company sought protection under Chapter 11 of the Bankruptcy
Code. Its Chapter 11 plan of reorganization was confirmed on February 10, 2000.
Under this plan, employee compensation up to $4,300 per employee and a $153,000
payable will be paid in cash, all unsecured creditors, other than the
aforementioned cash payments, will receive one share of the Company's common
stock for each $5 of allowed claims, secured creditors will receive one share of
Series A convertible preferred stock for each $3 of allowed claims, the common
and preferred stockholders will receive one share of common stock for each 10
shares of either common or preferred stock and warrant and option holders will
receive a warrant for one share of common stock with an exercise price of $8 per
share for each 10 shares of common stock.
As a result of the Company's filing for bankruptcy protection, it operated as a
debtor-in-possession and the Bankruptcy Court exerted significant influence over
the Company's expenditures and ability to enter into contractual arrangements.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the continuation of operations, realization of assets
and liquidation of liabilities in the ordinary course of business. Although the
Company has emerged from the protection of the Bankruptcy Court, the Company's
ability to continue in business is dependent upon its ability to generate
sufficient cash flow from operations or obtaining additional financing. The
Company is currently attempting to complete an equity financing to raise
additional capital. The Company's ability to continue as a going concern is
dependent upon the financing efforts being successful. The financial statements
do not include any adjustments relating to the recoverability and
classifications of reported asset amounts or the amounts of liabilities that
might result from the outcome of this uncertainty.
The pro forma balance sheet and related adjustments reflect the balances and
adjustments that would have been recorded had the Company emerged from
bankruptcy protection as of December 31, 1999. The holders of existing voting
shares before the confirmation received greater than 50% of the newly issued
stock of the emerged entity and, therefore, fresh-start reporting does not
apply. The pro forma net loss per share from continuing operations reflects the
loss per share, including debt service costs and excluding the impact of the
extraordinary gain on the forgiveness of debt, had the shares outstanding upon
the Company's emergency from the bankruptcy protection been outstanding for each
of the years in the two-year period ended December 31, 1999.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE>
NUCYCLE THERAPY, INC.
(debtor in possession)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[2] INVENTORY
Inventory, primarily in process plants, is valued at the lower of cost or
market on a first-in, first-out basis.
[3] PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost less accumulated depreciation.
The cost of maintenance and repairs is charged against operation as
incurred.
Depreciation is charged against the results of operations on a straight-
line method over the estimated useful lives of the related assets (ranging
from 3 to 7 years).
[4] RESEARCH AND DEVELOPMENT AND PATENT COSTS:
Research and development and patent costs are expensed as incurred.
[5] DEFERRED FINANCING COSTS:
Deferred financing costs are amortized on straight-line bases over the
estimated term of the related notes payable.
[6] REVENUE RECOGNITION:
Revenue under research grants are recognized when the research expenses are
incurred and in accordance with the specific terms of the contracts.
[7] INCOME TAXES:
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined on the basis of the difference between the tax basis
of assets and liabilities and their respective financial reporting amounts
("temporary differences") at enacted tax rates in effect for the years in
which the differences are expected to reverse.
[8] STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("FAS 123") allows companies to either expense the
estimated fair value of employee stock options or to continue to follow the
intrinsic value method set forth in Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25") but to disclose the
pro forma effects on net loss had the fair value of the options been
expensed. The Company has elected to apply APB 25 in accounting for its
employee stock options incentive plans.
[9] PER SHARE DATA:
The per share data has been computed on the basis of the loss for the year
divided by the weighted average number of shares of common stock
outstanding.
F-8
<PAGE>
NUCYCLE THERAPY, INC.
(debtor in possession)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value of financial instruments:
The carrying amounts of the Company's cash, accounts receivable and
accounts payable not subject to compromise and accrued expenses,
approximate fair value. The fair value of liabilities subject to compromise
are as follows: accounts payable and accrued expenses ($566,000), notes
payable related parties ($111,000), notes payable and convertible notes
payable ($749,000). The estimated fair value is the sum of the amounts to
be settled in cash and the estimated fair value of the common stock to be
issued.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1999 consist of the following:
Leasehold improvements $170,000
Lab equipment 176,000
Computers 46,000
Furniture and fixtures 84,000
--------
476,000
Less accumulated depreciation and
amortization 418,000
--------
$ 58,000
========
NOTE D - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As of December 31, 1999, accounts payable and accrued expenses consists of the
following:
Subject to compromise:
Accounts payable $1,653,000
Accrued interest 236,000
Accrued compensation 419,000
Accrued research and development 50,000
Other 26,000
----------
$2,384,000
==========
Not subject to compromise:
Accounts payable $ 82,000
Accrued interest 65,000
Accrued compensation 20,000
Other 12,000
----------
$ 179,000
==========
F-9
<PAGE>
NUCYCLE THERAPY, INC.
(debtor in possession)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE E - FINANCINGS
In 1997 and 1998, the Company issued units consisting of notes payable
aggregating $1,225,000 and 245,200 warrants convertible into the Company's
voting common stock. The notes payable bear interest at 10% without regard to
the term of the notes and were due the earlier of the completion of an initial
public offering or in 24 monthly installments beginning June 30, 1998. The
warrants are exercisable at $2.50 per share after one year and expire five years
after issuance. No value was ascribed to the warrants based upon the fair value
as determined by the Black-Scholes options pricing model calculation using the
following assumptions: no dividend yield, expected volatility of 1%, risk free
interest rate of 5.50% and expected lives of 5 years.
In 1997 and 1998, the Company issued units consisting of convertible notes
payable aggregating $961,800 and 288,540 warrants convertible into the Company's
voting common stock. The notes payable bear interest at 12% without regard to
the term of the notes and were due the earlier of the completion of an initial
public offering or in 24 monthly installments beginning June 30, 1998 (subject
to a six-month extension at the option of the majority in the principal amount
of all note holders). The notes were convertible into voting common stock on the
earlier of June 10, 1998 (subject to the aforementioned extension) or thirteen
days before an initial public offering. Upon conversion, the number of shares of
common stock to be issued shall be determined by dividing the principal amount
of the notes by the greater of $2.50 or 60% of the market value of the common
stock 30 days prior to the maturity date of the notes. The warrants are
exercisable at $2.50 per share after one year and expire five years after
issuance. No value was ascribed to the warrants based upon the fair value as
determined by the Black-Scholes option pricing model calculation.
In connection with these financings, the placement agent received warrants to
purchase 218,680 shares of common stock. These warrants are similar to the
warrants issued to the note holders.
As of December 31, 1999, the Company had a $100,000 unsecured note payable due
upon 30 days notice. The note bears interest at 10% per annum.
The Company, in order to induce the note holders of both series of notes to
extend the maturity of their notes issued them 328,020 shares of Series C
preferred stock on each of the following dates: July 1 1998, January 1, 1999 and
April 1, 1999. The estimated fair value of the Series C preferred stock was
charged to operations as interest expense.
NOTE F - RELATED PARTY TRANSACTIONS
As of December 31, 1999, notes payable to certain directors/stockholders and an
officer/stockholder aggregated $403,000. The notes are due on demand with
interest at 6%.
Additionally, in 1997 and 1998, in connection with the proposed initial public
offering, $260,000 was paid to the placement agent. A director of the Company
was an employee of the placement agent. These costs were charged to operations
in 1998.
F-10
<PAGE>
NUCYCLE THERAPY, INC.
(debtor in possession)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE G - INCOME TAXES
There is no benefit for federal income taxes for the years ended December 31,
1999 and 1998, since the Company has incurred operating losses. In addition, the
Company has fully reserved the net potential future tax benefits resulting from
its temporary differences and net operating loss carryforwards.
The deferred tax asset as of December 31, 1999 consists of the following:
Net operating loss carryforward $ 4,269,000
Research credit carryforward 119,000
Other 43,000
-----------
4,431,000
Valuation allowance (3,836,000)
-----------
Deferred tax asset $ 595,000
===========
In accordance with New Jersey statutes, the Company has entered into an
agreement to sell certain New Jersey net operating losses and research and
development credits, accordingly, state income tax benefits and deferred tax
assets have been recognized in 1998 and 1999.
During the years ended December 31, 1999 and 1998, the benefit for deferred
taxes before change in valuation allowances aggregated $514,000 and $1,166,000,
respectively. The change in valuation allowances for the years ended December
31, 1999 and 1998 were $261,000 and $824,000, respectively.
The difference between the statutory federal income tax rate and the effective
rate for the Company's income tax benefit for each of the years ended December
31, 1999 and 1998, respectively, is summarized as follows:
1999 1998
---- ----
Statutory federal
income tax rate 34.0% 34.0%
State income tax
benefit, net of
federal effect 15.6 8.2
Increase in valuation
allowance (24.4) (28.8)
Other (1.6) (1.0)
---- ----
23.6% 12.4%
==== ====
As of December 31, 1999, the Company has unused net operating loss carryforwards
of $10,789,000 available for federal income tax purposes. The unused net
operating loss carryforwards expire in various years from 2010 to 2019. The
Company, in the future, will be subject to limitations on the use of its NOL's
as provided under Section 382 of the Internal Revenue Code. Additionally, as a
result of the debt forgiveness associated with the plan of reorganization, the
net operating loss carryforwards will be reduced.
F-11
<PAGE>
NUCYCLE THERAPY, INC.
(debtor in possession)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE H - CAPITAL DEFICIENCY
Preferred stock:
All series of preferred stock are entitled to the same dividends paid on the
common stock.
The Series A convertible preferred stock, under its terms should have converted
into common stock on a share for share basis in November 1999. However, as a
result the bankruptcy proceedings the conversion was deferred.
In 1998, the Company issued units consisting of 2.6 million shares of Series B
voting preferred stock and warrants to purchase 2.6 million shares of voting
common stock at 110% of the initial public offering price of the common stock
for an aggregate of $650,000. The warrants are exercisable after one year and
expire five years after issuance.
In 1998 and 1999, the Company agreed to issue Series C preferred stock to the
note holders as an inducement to extend the maturity of the notes payable. The
shares have been subscribed but not issued.
The following summarizes the changes in non-voting convertible preferred stock
for the two years ended December 31, 1999:
<TABLE>
<CAPTION>
Balance, Balance, Balance,
January 1, December 31, December 31,
1997 Issuances 1998 Issuances 1999
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Series A:
Shares 6,364,500 6,364,500 6,364,500
Amount $5,206,000 $5,206,000 $5,206,000
Series B:
Shares 2,600,000 2,600,000
Amount $ 650,000 650,000
Series C:
Shares 328,020 328,020 656,040 984,060
Amount 164,000 $115,000 279,000
</TABLE>
Stock Option Plan:
The Company maintains a stock option plan ("the Plan") pursuant to which
2,500,000 shares of non-voting common stock are reserved for issuance upon
exercise of incentive and non-qualified stock options which may be granted from
to time by the board of directors to employees and others.
The fair value of each option granted has been estimated on the date of grant
using the Black-Scholes options pricing model with the following assumptions; no
dividend yield, expected volatility of 1%, risk-free interest rate of 4.77% and
5.11% and expected lives of approximately 10 years. The weighted average fair
value of options granted during 1998 was $0.60 per share.
F-12
<PAGE>
NUCYCLE THERAPY, INC.
(debtor in possession)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE H - CAPITAL DEFICIENCY (CONTINUED)
The Company applies APB 25 in accounting for its stock option incentive plan
and, accordingly, recognizes compensation expense for the difference between
fair value of the underlying common stock and the exercise price of the option
at the date of grant. The effect of valuing the options on 1999 and 1998 net
loss is not necessarily representative of the effects on reported net earnings
or loss for future years due to, among other things, (1) the effect on
outstanding options as a result of the Company's emergence from the Chapter 11
proceedings (2) the vesting period of the stock options and (3) the fair value
of additional stock options in future years. Had compensation cost for the
Company's stock option plan been determined based upon the fair value at the
grant date for awards under the plan consistent with the methodology prescribed
under FAS 123, the Company's pro forma net loss and net loss per share for 1999
and 1998 would have been as follows:
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998
---------- ------------
Pro forma net loss $(829,000) $(2,441,000)
Pro forma net loss
per share $ (0.16) $ (0.48)
The following table summarizes stock option transactions during the two years
ended December 31, 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1999 1998
------------------------------- ----------------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
--------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Granted and outstanding
at beginning of year 1,404,000 $0.14 989,300 $0.14
Granted 518,000 0.15
Exercised (5,300) 0.15
Cancelled (480,992) 0.15 (98,000) 0.11
--------- ---------
Outstanding at end of year 923,008 $0.14 1,404,000 $0.14
========= =========
</TABLE>
Substantially all options, as of the grant date, have been granted with exercise
prices below the estimated fair value of the stock.
The following table summarizes information about stock options outstanding as of
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------
Number Weighted
of Options Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Exercise as of Life Exercise as of Exercise
Prices 12/31/99 (In Years) Price 12/31/99 Price
------------ --------------- -------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
$0.10 140,464 1.20 $0.10 107,464 $0.10
$0.15 782,544 3.36 $0.15 336,944 $0.15
</TABLE>
F-13
<PAGE>
NUCYCLE THERAPY, INC.
(debtor in possession)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE H - CAPITAL DEFICIENCY (CONTINUED)
Shares reserved for issuance:
The Company has reserved 7,180,865 shares of its common stock for issuance upon
exercise of the outstanding warrants and options, including warrants to purchase
1,333,995 shares of common stock issued in connection with the sale of the
Series A preferred stock.
Deferred compensation:
In 1997 and 1998, the Company issued stock below its estimated fair value at the
date of grant and options with exercise prices below the estimated fair value of
the stock at the date of grant. Accordingly, the Company is amortizing the
deferred compensation of the five year vesting period.
NOTE I - RENT EXPENSE
On February 9, 2000, the Company entered into a three year facilities lease
commencing March 1, 2000. The minimum future obligation under this operating
lease is $40,000 in 2000, $50,000 in 2001, $53,000 in 2002, $9,000 in 2003 and
aggregating $151,000.
Currently, the Company leases its office facility on a month to month lease.
Rent expense for the years ended December 31, 1999 and 1998 aggregated $93,000
and $159,000, respectively.
F-14
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
The following list describes the exhibits filed as part of this
Registration Statement on Form 10-SB:
Exhibit No. Description of Document
- ----------- -----------------------
2.1 Amended and Restated Certificate of Incorporation of NuCycle
Therapy, Inc.
2.2 By-Laws of NuCycle Therapy, Inc.
3.1 Form of Warrant (pursuant to NuCycle's Plan of Reorganization,
warrants will be issued to NuCycle's former warrant and option
holders whose securities were terminated under the Plan of
Reorganization).
6.1 Exclusive Nutritional Supplement License Agreement, effective
October 31, 1999, between NuCycle Therapy, Inc. and Rutgers
University.
6.2 Operating Agreement of BioScience, L.L.C. dated February 25,
2000.
6.3 Distribution Agreement dated February 2, 2000 between NuCycle
Therapy, Inc. and Technical Sourcing International.
6.4 Production Agreement dated February 25, 2000 between NuCycle
Therapy, Inc. and BioScience, L.L.C.
6.5 Manufacturing and Production Agreement dated October 19, 1999, as
amended, between NuCycle Therapy, Inc. and Greenlane of South
Jersey, Inc.
6.6 Sales and Marketing Agreement dated March 17, 2000 between
NuCycle Therapy, Inc. and John R. Benemann.
6.7 Lease Agreement dated February 9, 2000 between NuCycle Therapy,
Inc. and Eisenhart Real Estate L.L.C.
6.8 Letter Agreement dated August 30, 1999 between Paxton Ventures
Corp. and NuCycle Therapy, Inc.
6.9 2000 NuCycle Therapy, Inc. Stock Option Plan
8.1 First Amended Disclosure Statement for Plan of Reorganization of
NuCycle Therapy, Inc. submitted to the United States Bankruptcy
Court for the District of New Jersey with the Plan of
Reorganization of NuCycle Therapy, Inc. and the confirmation
order of the court confirming the Chapter 11 Plan approved by the
Court on February 10, 2000 attached as exhibits.
8.2 Technology Business Tax Certificate Program Agreement dated
November 30, 1999 between NuCycle Therapy, Inc. and PSE&G.
8.3 Asset Purchase Agreement dated May 24, 1999 between Phytotech,
Inc. and Edenspace Systems Corporation.
10.1* Letter from KPMG Peat Marwick, LLP.
* To be filed by amendment.
<PAGE>
SIGNATURES
In accordance with Section 12 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.
Date: May 11, 2000 NUCYCLE THERAPY, INC.
/s/ Burt D. Ensley
---------------------------------
Burt D. Ensley, President and CEO
<PAGE>
EXHIBIT INDEX
-------------
The following exhibits are filed as part of this Form 10-SB:
Exhibit No. Description of Document
- ----------- -----------------------
2.1 Amended and Restated Certificate of Incorporation of NuCycle
Therapy, Inc.
2.2 By-Laws of NuCycle Therapy, Inc.
3.1 Form of Warrant (pursuant to NuCycle's Plan of Reorganization,
warrants will be issued to NuCycle's former warrant and option
holders whose securities were terminated under the Plan of
Reorganization).
6.1 Exclusive Nutritional Supplement License Agreement, effective
October 31, 1999, between NuCycle Therapy, Inc. and Rutgers
University.
6.2 Operating Agreement of BioScience, L.L.C. dated February 25,
2000.
6.3 Distribution Agreement dated February 2, 2000 between NuCycle
Therapy, Inc. and Technical Sourcing International.
6.4 Production Agreement dated February 25, 2000 between NuCycle
Therapy, Inc. and BioScience, L.L.C.
6.5 Manufacturing and Production Agreement dated October 19, 1999, as
amended, between NuCycle Therapy, Inc. and Greenlane of South
Jersey, Inc.
6.6 Sales and Marketing Agreement dated March 17, 2000 between
NuCycle Therapy, Inc. and John R. Benemann.
6.7 Lease Agreement dated February 9, 2000 between NuCycle Therapy,
Inc. and Eisenhart Real Estate L.L.C.
6.8 Letter Agreement dated August 30, 1999 between Paxton Ventures
Corp. and NuCycle Therapy, Inc.
6.9 2000 NuCycle Therapy, Inc. Stock Option Plan
8.1 First Amended Disclosure Statement for Plan of Reorganization of
NuCycle Therapy, Inc. submitted to the United States Bankruptcy
Court for the District of New Jersey with the Plan of
Reorganization of NuCycle Therapy, Inc. and the confirmation
order of the court confirming the Chapter 11 Plan approved by the
Court on February 10, 2000 attached as exhibits.
8.2 Technology Business Tax Certificate Program Agreement dated
November 30, 1999 between NuCycle Therapy, Inc. and PSE&G.
8.3 Asset Purchase Agreement dated May 24, 1999 between Phytotech,
Inc. and Edenspace Systems Corporation.
10.1* Letter from KPMG Peat Marwick, LLP.
* To be filed by amendment.
<PAGE>
Exhibit 2.1
-----------
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NUCYCLE THERAPY, INC.
(formerly known as Phytotech, Inc.)
To: The Secretary of State
State of New Jersey
In accordance with the provisions of Sections 14A:9-5(4) and 14A:14-26
of the New Jersey Business Corporation Act, the undersigned hereby certifies
that NuCycle Therapy, Inc. (the "Corporation"), organized under the laws of the
State of New Jersey on April 15, 1993 under the name Phytotech, Inc. executes
the following amendment and restatement of its certificate of incorporation
pursuant to the Plan of Reorganization confirmed by the United States Bankruptcy
Court for the District of New Jersey on February 10, 2000:
FIRST: The name of the corporation is NuCycle Therapy, Inc.
SECOND: The purpose or purposes for which the corporation is
organized are to engage in any activity within the lawful business purposes for
which corporations may be organized under the New Jersey Business Corporation
Act.
THIRD: The total number of shares of capital stock that the
Corporation shall have authority to issue is Ten Million (10,000,000) shares,
divided into Eight Million (8,000,000) shares of common stock, no par value (the
"Common Stock"), and Two Million (2,000,000) shares of preferred stock, no par
value (the "Preferred Stock"). The Board of Directors of the Corporation shall
have the power, and is hereby authorized, to divide the authorized and unissued
shares of the Corporation into classes and into series within any class or
classes, to determine the designation and the number of shares of any class or
series, to determine the relative rights, preferences, and limitations of the
shares of any class or series, including but not limited to, the convertibility
of any shares of one class or series into shares of another class or series, and
to change the designation or number of shares, or the relative rights,
preferences or limitations of the shares, or any theretofore established series
or class, no shares of which have been issued, all to the fullest extent and in
the manner provided by the New Jersey Business Corporation Act, as heretofore or
hereafter amended. The number of shares of authorized Common Stock of the
Corporation may be increased or decreased (but not below the number then
outstanding) by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Corporation entitled to vote thereon,
voting together as a single class.
Any and all authorized shares of the Corporation may be issued and sold in
such manner, in such amounts and proportions, and for such consideration, as
from time to time may be fixed
-1-
<PAGE>
and determined by the Board of Directors of the Corporation, and any shares,
when so issued, shall be fully paid and nonassessable.
A description of the respective classes of stock and a statement of
the designations, preferences, voting powers (or no voting powers), relative,
participating, optional or other special rights and privileges and the
qualifications, limitations and restrictions of the Preferred Stock and Common
Stock are as follows:
A. PREFERRED STOCK
---------------
1. Designation. Of the shares of Preferred Stock which the Corporation
-----------
is authorized to issue hereby, One Million (1,000,000) shares are hereby
designated as Series A Convertible Preferred Stock (the "Series A Convertible
Preferred Stock"). The preferences, limitations, voting rights, and relative
rights of the Series A Convertible Preferred Stock shall be as set forth below.
2. Voting. Except as may otherwise be provided herein or by law, the
------
holders of each share of Preferred Stock shall have the right to one vote for
each share of Common Stock into which such Preferred Stock could then be
converted (with any fractional share determined on an aggregate conversion basis
being rounded down to the nearest whole share), and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting rights
and powers of the holder of shares of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders' meeting, in
accordance with the Bylaws of the Corporation and applicable law, and shall be
entitled to vote, together with holders of shares of Common Stock, with respect
to any question upon which holders of shares of Common Stock have the right to
vote (including, without limitation, a vote regarding an amendment to this
Amended and Restated Certificate of Incorporation to increase or decrease the
number of authorized shares of Common Stock).
3. Dividends. The holders of shares of Preferred Stock shall be entitled
---------
to receive, when and as declared by the Board of Directors of the Corporation
out of funds legally available for such purpose, dividends at such rate, if any,
as shall have been fixed by the Board of Directors, which dividends shall
participate with dividends on shares of Common Stock on a pro rata basis, based
--- ----
on the number of shares of Common Stock held by each class of stock (assuming
conversion of all such of Preferred Stock into Common Stock on the terms set
forth herein) (other than a dividend payable in Common Stock or other securities
or rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of the Corporation).
4. Liquidation. Upon any liquidation, dissolution or winding up of the
-----------
Corporation, whether voluntary or involuntary, the holders of the shares of
Series A Convertible Preferred Stock shall first be entitled to be paid, before
any distribution or payment is made upon any stock ranking on liquidation junior
to the Series A Convertible Preferred Stock, an amount equal to $3.00 per share
plus, in the case of each share, an amount equal to all dividends unpaid thereon
(whether declared or deemed declared) and any other dividends declared but
unpaid thereon,
-2-
<PAGE>
computed to the date payment thereof is made available, such amount payable with
respect to one share of Series A Convertible Preferred Stock being sometimes
referred to as the "Liquidation Preference Payment" and with respect to all
shares of Series A Convertible Preferred Stock being sometimes referred to as
the "Liquidation Preference Payments." If upon such liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the assets to
be distributed among the holders of Series A Convertible Preferred Stock shall
be insufficient to permit payment in full to the holders of Series A Convertible
Preferred Stock of the Liquidation Preference Payments, then the entire assets
of the Corporation to be so distributed shall be distributed ratably among the
holders of Series A Convertible Preferred Stock. Upon any such liquidation,
dissolution or winding up of the Corporation, immediately after the holders of
Series A Convertible Preferred Stock shall have been paid in full the
Liquidation Preference Payments, the remaining net assets of the Corporation
available for distribution shall be distributed ratably among the holders of
Common Stock. Written notice of such liquidation, dissolution or winding up,
stating a payment date and the place where said payments shall be made, shall be
given by mail, postage prepaid not less than 20 days prior to the payment date
stated therein, to the holders of record of Series A Convertible Preferred
Stock, such notice to be addressed to each such holder at its address as shown
by the records of the Corporation. Except as provided in paragraph 5M below, the
consolidation or merger of the Corporation into or with any other entity or
entities which results in the exchange of outstanding shares of the Corporation
for securities or other consideration issued or paid or caused to be issued or
paid by any such entity or affiliate thereof (a "Change of Control Event"), and
the sale or transfer by the Corporation of all or substantially all its assets,
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of the provisions of this paragraph 4. For
purposes hereof, the Common Stock shall rank on liquidation junior to the Series
A Convertible Preferred Stock.
5. Conversions.
-----------
5A. Mandatory Conversion. Subject to the terms and conditions of
--------------------
this paragraph 5, all shares of Series A Convertible Preferred Stock shall
convert into such number of fully paid and nonassessable shares of Common Stock
as is obtained by (i) multiplying the number of shares of Series A Convertible
Preferred Stock so to be converted by $3.00 and (ii) dividing the result by the
Conversion Price (as such term is defined in subparagraph 5D) upon the earlier
of either the close of business on (a) March 30, 2001 or (b) the last business
day immediately preceding the closing of a sale by the Corporation of capital
stock or instruments convertible into capital stock of the Corporation that
results in gross proceeds to the Corporation of at least Four Million Dollars
($4,000,000) (the "Mandatory Conversion Date"). Upon the occurrence of the
Mandatory Conversion Date, the Corporation shall provide written notice to the
holders of the Series A Convertible Preferred Stock instructing such holders to
surrender each holders certificate or certificates representing the Series A
Convertible Preferred Stock to the Corporation at its principal office (or such
other office or agency of the Corporation as the Corporation may designate by
notice in writing to the holders of the Series A Convertible Preferred Stock) at
any time during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with address) in which the
certificate or certificates for shares of Common Stock shall be issued.
-3-
<PAGE>
5B. Issuance of Certificates; Time Conversion Effected. Promptly
--------------------------------------------------
after the date specified in the written notice referred to in subparagraph 5A
and surrender of the certificate or certificates for the share or shares of
Series A Convertible Preferred Stock to be converted, the Corporation shall
issue and deliver, or cause to be issued and delivered, to the holder thereof a
certificate or certificates for the number of whole shares of Common Stock
issuable upon the conversion of such share or shares of Series A Convertible
Preferred Stock. To the extent permitted by law, such conversion shall be deemed
to have been effected and the Conversion Price shall be determined as of the
close of business on the date on which such written notice shall have been
delivered by the Corporation and the certificate or certificates for such share
or shares shall have been surrendered as aforesaid, and at such time the rights
of the holder of such share or shares of Series A Convertible Preferred Stock
shall cease, and the holder of any such certificate or certificates for shares
of Common Stock shall be deemed to have become the holder of record of the
shares represented thereby.
5C. Fractional Shares; Dividends, Partial Conversion. No fractional
------------------------------------------------
shares shall be issued upon conversion of Series A Convertible Preferred Stock
into Common Stock and no payment or adjustment shall be made upon any conversion
on account of any cash dividends on the Common Stock issued upon such
conversion. If any fractional share of Common Stock would, except for the
provisions of the first sentence of this subparagraph 5C, be delivered upon such
conversion, the Corporation, in lieu of delivering such fractional share, shall
pay to the holder surrendering the Series A Convertible Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board of Directors of the
Corporation.
5D. Conversion Price. The initial conversion price with respect to
----------------
any share of Series A Convertible Preferred Stock shall be $3.00 (such price, or
such price as last adjusted pursuant to Subparagraph 5E below, being referred to
as the "Conversion Price").
5E. Subdivision or Combination of Common Stock. In case the
------------------------------------------
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased; provided, however, that no such adjustment to the
Conversion Price shall be made with respect to the subdivision or combination of
Series A Convertible Preferred Stock.
5F. Reorganization or Reclassification. If any capital
----------------------------------
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Series A Convertible Preferred Stock shall thereupon have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore receivable upon
the conversion of such share or shares of Series A Convertible
-4-
<PAGE>
Preferred Stock, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore receivable upon such conversion had such reorganization or
reclassification not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of such holder to the end
that the provisions hereof (including without limitation provisions for
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights.
5G. Notice of Adjustment. Upon any adjustment of the Conversion
--------------------
Price, then and in each such case the Corporation shall give written notice
thereof, by first class mail, postage prepaid, addressed to each holder of
shares of Series A Convertible Preferred Stock at the address of such holder as
shown on the books of the Corporation, which notice shall state the Conversion
Price resulting from such adjustment, setting forth in reasonable detail the
method upon which such calculation is based.
5H. Stock to be Reserved. The Corporation will at all times reserve
--------------------
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Series A Convertible Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Series A Convertible Preferred
Stock. The Corporation covenants that all shares of Common Stock which shall be
so issued shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, and,
without limiting the generality of the foregoing, the Corporation covenants that
it will from time to time take all such action as may be requisite to assure
that the par value per share of the Common Stock is at all times equal to or
less than the Conversion Price in effect at the time. The Corporation will take
all such action as may be necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or regulation, or
of any requirement of any national securities exchange upon which the Common
Stock may be listed. The Corporation will not take any action which results in
any adjustment of the Conversion Price if the total number of shares of Common
Stock issued and issuable after such action upon conversion of the Series A
Convertible Preferred Stock would exceed the total number of shares of Common
Stock then authorized by this Amended and Restated Certificate of Incorporation.
5I. Reacquired Shares of Preferred Stock. Shares of Series A
------------------------------------
Convertible Preferred Stock which have been issued and reacquired in any manner
by the Corporation (excluding, until the Corporation elects to retire them,
shares which are held as treasury shares but including shares redeemed, shares
purchased and retired and shares which have been converted into shares of Common
Stock) will have the status of authorized and unissued shares of Preferred Stock
and may be reissued upon the approval and authority of the Board of Directors.
5J. Issue Tax. The issuance of certificates for shares of Common
---------
Stock upon conversion of Series A Convertible Preferred Stock shall be made
without charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required
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<PAGE>
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the holder
of the Series A Convertible Preferred Stock which is being converted.
5K. Closing of Books. The Corporation will at no time close its
----------------
transfer books against the transfer of any Series A Convertible Preferred Stock
or of any shares of Common Stock issued or issuable upon the conversion of any
shares of Series A Convertible Preferred Stock in any amount which interferes
with the timely conversion of such Series A Convertible Preferred Stock, except
as may otherwise be required to comply with applicable securities laws.
5L. Definition of Common Stock. As used in this paragraph 5, the term
--------------------------
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
no par value, as constituted on the date of filing of these terms of the Series
A Convertible Preferred Stock, and shall also include any capital stock of any
class of the Corporation thereafter authorized which shall neither be limited to
a fixed sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends nor entitled to a preference in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of Common
Stock receivable upon conversion of shares of Series A Convertible Preferred
Stock shall include only shares designated as Common Stock of the Corporation on
the date of filing of this instrument, or in case of any reorganization or
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in subparagraph 5F.
5M. Mandatory Conversion Upon Option of the Corporation. The
---------------------------------------------------
Corporation may convert each share of Series A Convertible Preferred Stock into
shares of Common Stock, at the then applicable conversion rate and price set
forth in this paragraph 5, immediately prior to the closing of a Change of
Control Event. Upon the election of the Corporation to convert the Series A
Convertible Preferred Stock immediately prior to the occurrence of a Change of
Control Event, all shares of Series A Convertible Preferred Stock shall be
converted automatically without any further action by any holder of such shares
and whether or not the certificate or certificates representing such shares are
surrendered to the Corporation or the transfer agent for the Series A
Convertible Preferred Stock and such shares shall no longer be deemed to be
outstanding; provided, however, that the Corporation shall not be obligated to
issue a certificate or certificates evidencing the shares of Common Stock
issuable upon such conversion unless the holder surrenders to the Corporation
the certificate or certificates evidencing such shares of Series A Convertible
Preferred Stock as provided in subparagraph 5B above. Holders of Series A
Convertible Preferred Stock shall be entitled to payment for any fractional
shares issuable upon a conversion pursuant to this subparagraph 5M in the same
manner as provided in subparagraph 5C above.
6. Amendments. No provision of these terms of the Series A Convertible
----------
Preferred Stock may be substantively amended, modified or waived without
written consent or affirmative vote of the holders of at least a majority of the
then outstanding shares of Series A Convertible Preferred Stock.
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<PAGE>
B. COMMON STOCK
------------
1. Relative Rights of Preferred Stock and Common Stock. All preferences,
---------------------------------------------------
voting powers, relative, participating, optional or other special rights and
privileges, and qualifications, limitations, or restrictions of the Common Stock
are expressly made subject and subordinate to those that may be fixed with
respect to any shares of the Preferred Stock.
2. Voting Rights. Except as otherwise required by law or this Amended
-------------
and Restated Certificate of Incorporation, each holder of Common Stock shall
have one vote in respect of each share of stock held by him of record on the
books of the Corporation for the election of directors and on all matters
submitted to a vote for stockholders of the Corporation.
3. Dividends. Subject to the participation rights of Preferred Stock
---------
under Section A, paragraph 3 above, the holders of shares of Common Stock shall
be entitled to receive, when and if declared by the Board of Directors, out of
the assets of the Corporation which are by law available therefor, dividends
payable either in cash, in property or in shares of capital stock.
4. Dissolution, Liquidation or Winding Up. In the event of any
--------------------------------------
dissolution, liquidation or winding up of the Corporation, after distribution in
full of the preferential amounts, if any, to be distributed to the holders of
shares of the Preferred Stock, holders of Common Stock shall be entitled, unless
otherwise provided by law or this Amended and Restated Certificate of
Incorporation, to receive all of the remaining assets of the Corporation of
whatever kind available for distribution to stockholders ratably in proportion
to the number of shares of Common Stock held by them respectively.
5. Redemption. Common Stock is not redeemable.
----------
FOURTH: The address of the Corporation's registered office is 1 Deer
Park Drive, Monmouth Junction, New Jersey 08852, and the name of the
Corporation's registered agent at such address is Burt Ensley.
FIFTH: The number of directors constituting the current Board of
Directors is three (3) and the names and addresses of the said directors are as
follows:
Burt Ensley
1 Deer Park Drive
Monmouth Junction, NJ 08852
Schneur Genack
18 East 48th Street
Suite 1800
New York, NY 100171
John R. Benemann
3434 Tice Creek Drive, #1
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<PAGE>
Walnut Creek, CA 94595
Lorenzo DeLuca
Paxton Ventures Corp.
372 Fifth Avenue
Apartment 10B
New York, NY 10168
Amy Diamond
720 West Road
Richmond, MA 01254
Harch S. Gill
10 Banff Drive
Princeton Junction, NJ 08550
Peter Nalen
48 Pheasant Hill Road
Princeton, NJ 08540
Abraham Nechemie
C/o Wiss & Co. LLP
354 Eisenhower Parkway
Livingston, NJ 07039
Louis Padulo
2020 Walnut Street, Apt. 32A
Philadelphia, PA 19103
Philip Whitcome
99 Field Brook Road
Madison, CT 06443
SIXTH: A director or officer of the Corporation shall not be
personally liable to the Corporation or its shareholders for damages for breach
of duty as a director or officer, except to the extent and for the duration of
any period of time such personal liability may not be eliminated or limited
under the New Jersey Business Corporation Act as the same exists, or may
hereafter be amended.
SEVENTH: All corporate officers, directors, employees and agents
shall be indemnified to the full extent permitted by law. Such indemnification
may be funded through insurance or otherwise as authorized by the Board of
Directors.
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<PAGE>
IN WITNESS WHEREOF, the President of the above-named corporation has
hereunto signed this Amended and Restated Certificate of Incorporation on the
____ day of April, 2000.
NUCYCLE THERAPY, INC.
By: /s/ Burt Ensley
-----------------------------
Burt Ensley
President
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<PAGE>
EXHIBIT 2.2
-----------
BY-LAWS
-------
OF
--
NUCYCLE THERAPY, INC.
---------------------
(a New Jersey corporation)
____________
ARTICLE I
SHAREHOLDERS
------------
Section 1. CERTIFICATES REPRESENTING SHARES.
--------------------------------
(a) Certificates representing shares shall set forth thereon the
statements prescribed by Section 14A:7-11, and, where applicable, by Sections
14A:5-21 and 14A:12-5, of the New Jersey Business Corporation Act and by any
other applicable provision of law and shall be signed by the Chairman or Vice-
Chairman of the Board of Directors, if any, or by the President or a Vice-
President and may be counter-signed by the Secretary or Assistant Secretary or
the Treasurer or an Assistant Treasurer and may be sealed with the corporate
seal or a facsimile thereof. Any or all other signatures upon a certificate may
be a facsimile. In case any officer, transfer agent, or registrar who has
signed or whose facsimile has been place upon such certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of its issue.
(b) A card which is punched, magnetically coded, or otherwise treated
so as to facilitate machine or automatic processing, may be used as a share
certificate if it otherwise complies with the provisions of Section 14A:7-11 of
the New Jersey Business Corporation Act.
(c) The corporation may issue a new certificate for shares in place of
any certificate theretofore issued by it, alleged to have been lost or
destroyed, and the Board of Directors may require the owner of any lost or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged loss or destruction of any such certificate
or the issuance of any such new certificate.
Section 2. FRACTIONAL SHARE INTERESTS. Unless otherwise provided in its
--------------------------
certificate of incorporation, the corporation may, but shall not be obliged to,
issue fractions of a share and certificates therefor. By action of the Board,
the corporation may, in lieu of issuing fractional shares, pay cash equal to the
value of such fractional share or issue scrip in registered or bearer form which
shall entitle the holder to receive a certificate for a full share upon the
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<PAGE>
surrender of such scrip aggregating a full share. A certificate for a fractional
share shall entitle the holder to exercise voting rights, to receive dividends
thereon, and to participate in any distribution of assets unless such scrip
shall so provide. All scrip shall be issued subject to the condition that it
shall become void if not exchanged for certificates representing full shares
before a specified date.
Section 3. SHARE TRANSFERS. Upon compliance with provisions restricting the
---------------
transferability of shares, if any, transfers of shares of the corporation shall
be made only on the share record of the corporation by the registered holder
thereof, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of all taxes due
thereon, if any.
Section 4. RECORD DATE FOR SHAREHOLDERS. The Board of Directors may fix, in
----------------------------
advance, a date as the record date for determining the shareholders with regard
to any corporate action or event and, in particular, for determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof; to give written consent to any action without a
meeting; or to receive payment of any dividend or allotment of any right. Any
such record date shall in no case be more than sixty days prior to the
shareholders' meeting or other corporation action or event to which it relates.
Any such record date for a shareholders' meeting shall not be less than ten days
before the date of the meeting. Any such record date to determine shareholders
entitled to give a written consent shall not be more than sixty days before the
date fixed for tabulation of the consents or, if no date has been fixed for
tabulation, more than sixty days before the last day on which consents received
may be counted. If no such record date is fixed, the record date for a
shareholders' meeting shall be the close of business on the day next preceding
the day on which notice is given, or, if no notice is given, the day next
preceding the day on which the meeting is held; and the record date for
determining shareholders for any other purpose shall be at the close of business
on the day on which the resolution of the Board of Directors relating thereto is
adopted. When a determination of shareholders of record for a shareholders'
meeting has been made as provided in this section, such determination shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date under this section for the adjourned meeting.
Section 5. MEANING OF CERTAIN TERMS. As used herein in respect of the right
------------------------
to notice of a meeting of shareholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "shareholder" or shareholders"
refers to an outstanding share or shares and to a holder or holders of record of
outstanding shares when the corporation is authorized to issue only one class of
shares, and said reference is also intended to include any outstanding share or
shares and any holder or holders of record of outstanding shares of any class
upon which or upon whom the Certificate of Incorporation confers such rights
where there are two or more classes or series of shares or upon which or upon
whom the New Jersey Business Corporation Act confers such rights notwithstanding
that the Certificate of Incorporation may provide for more than one class or
series of shares, one or more of which are limited or denied such rights
thereunder.
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<PAGE>
Section 6. SHAREHOLDER MEETINGS.
--------------------
(a) Time. The annual meeting shall be held at the time fixed, from
----
time to time, by the directors, provided, that the first annual meeting shall be
held on a date within thirteen months after the organization of the corporation,
and each successive annual meeting shall be held on a date within thirteen
months after the date of the preceding annual meeting. If, for any reason, the
directors shall fail to fix the time for an annual meeting, such meeting shall
be held at noon on the first Tuesday in April. A special meeting shall be held
on the date fixed by the directors.
(b) Place. Annual meetings and special meetings shall be held at such
-----
place, within or without the State of New Jersey, as the directors may, from
time to time, fix. Whenever the directors shall fail to fix such place, the
meeting shall be held at the registered office of the corporation in the State
of New Jersey.
(c) Call. Annual meetings may be called the directors or by the
----
President or by any officer instructed by the directors to call the meeting.
Special meetings may be called in like manner.
(d) Notice or Actual or Constructive Waiver of Notice. Written notice
-------------------------------------------------
of every meeting shall be given, stating the time, place, and purpose or
purposes of the meeting. If any action is proposed to be taken which would, if
taken, entitle shareholders to dissent and to receive payment for their shares,
the notice shall include a statement of that purpose and to that effect. The
notice of every meeting shall be given, personally or by mail and, except as
otherwise provided by the New Jersey Business Corporation Act, not less than ten
days nor more than sixty days before the date of the meeting, unless the lapse
of the prescribed period of time shall have been waived before or after the
taking of any action, to each shareholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in a post office or official depository under the
exclusive care and custody of the United States post office department. When a
meeting is adjourned to another time or place, it shall not be necessary to give
notice of the adjourned meeting if the time and place to which the meeting is
adjourned are announced at the meeting at which the adjournment is taken and at
the adjourned meeting only such business is transacted as might have been
transacted at the original meeting. However, if after the adjournment the
directors fix a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be given to each shareholder on the new record date.
Notice of a meeting need not be given to any shareholder who submits a signed
waiver of notice before or after the meeting. The attendance of a shareholder at
a meeting without protesting prior to the conclusion of the meeting the lack of
notice of such meeting shall constitute a waiver of notice by him.
(e) Voting List. The officer or agent having charge of the
-----------
stock transfer books for shares of the corporation shall make and certify a
complete list of the shareholders entitled to vote at the shareholders' meeting
or any adjournment thereof. Any such list may consist of cards arranged
alphabetically or any equipment which permits the visual display of the
information required by the provisions of Section 14A:5-8 of the New Jersey
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<PAGE>
Business Corporation Act. Such list shall be arranged alphabetically within each
class, series, if any, or group of shareholders maintained by the corporation
for convenience of reference, with the address of, and the number of shares held
by, each shareholder; be produced (or available by means of a visual display) at
the time and place of the meeting; be subject to the inspection of any
shareholder for reasonable periods during the meeting; and be prima facie
evidence as to who are the shareholders entitled to examine such list or to vote
at such meeting.
(f) Conduct of Meeting. Meetings of the shareholders shall be
------------------
presided over by one of the following officers in the order of seniority and if
present and acting - the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and action, by a chairman to be chosen by the
shareholders. The Secretary of the corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the Chairman of the meeting shall appoint
a secretary of the meeting.
(g) Proxy Representation. Every shareholder may authorize another
--------------------
person or persons to act for him by proxy in all matters in which a shareholder
is entitled to participate, whether by waiving notice of or the lapse of the
prescribed period of time before any meeting, voting or participating at a
meeting, or expressing consent without a meeting, in accordance with the
provisions of Section 14A:5-19 of the New Jersey Corporation Act.
(h) Inspectors - Appointment. The directors, in advance of any
------------------------
meeting, or of the tabulation of written consents of shareholders without a
meeting may, but need not, appoint one or more inspectors to act at the meeting
or any adjournment thereof or to tabulate such consents and make a written
report thereof. If an inspector or inspectors to act at any meeting of
shareholders are not so appointed by the directors or shall fail to qualify, if
appointed, the person presiding at the shareholders' meeting may, and on the
request of any shareholder entitled to vote thereat, shall, make such
appointment. In case any person appointed as inspector fails to appear or act,
the vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding at the meeting. Each inspector
appointed, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability. No person shall be
elected a director in an election for which he has served as an inspector. The
inspectors, if any, shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes or consents, determine the result,
and do such acts as are proper to conduct the election or vote with fairness to
all shareholders. If there are three or more inspectors, the act of a majority
shall govern. On request of the person presiding at the meeting or any
shareholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, question, or matter determined by them. Any report
made by them shall be prima facie evidence of the facts therein stated, and such
report shall be filed with the minutes of the meeting.
(i) Quorum. Except for meetings ordered by the Superior Court to be
------
called and held pursuant to Sections 14A:5-2 and 14A:5-3 of the New Jersey
Business
-4-
<PAGE>
Corporation Act, the holders of the shares entitled to cast at least a majority
of the votes at a meeting shall constitute a quorum at the meeting of
shareholders for the transaction of business. The shareholders present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. Less than a quorum may adjourn.
(j) Voting. Each share shall entitle the holder thereof to one vote.
------
In the election of directors, a plurality of the votes cast shall elect, and no
election need be by ballot unless a shareholder demands the same before the
voting begins. Any other action shall be authorized by a majority of the votes
cast except where the New Jersey Business Corporation Act prescribes a different
proportion of votes.
Section 7. SHAREHOLDER ACTION WITHOUT MEETINGS. Subject to any limitations
-----------------------------------
prescribed by the provisions of Sections 14A:5-6 and 14A:5-7 of the New Jersey
Business Corporation Act and upon compliance with said provisions, any action
required or permitted to be taken at a meeting of shareholders by the provisions
of said Act or by the Certificate of Incorporation or these By-laws may be taken
without a meeting if all of the shareholders entitled to vote thereon consent
thereto in writing and (except for the annual election of directors) may also be
taken without a meeting, without prior notice, and without a vote, by less than
all of the shareholders who would have been entitled to cast the minimum number
of votes which would be necessary to authorize any such action at a meeting at
which all shareholders entitled to vote thereon were present and voting.
Whenever any action is taken pursuant to the foregoing provisions, the written
consents of the shareholders consenting thereto or the written report of
inspectors appointed to tabulate such consents shall be filed with the minutes
of proceedings of shareholders.
ARTICLE II
GOVERNING BOARD
---------------
Section 1. FUNCTIONS, DEFINITIONS AND COMPENSATION. The business and
---------------------------------------
affairs of the corporation shall be managed and conducted by or under the
direction of a governing board, which is herein referred to as the "Board of
Directors" or "directors" notwithstanding that the members thereof may otherwise
bear the titles of trustees, managers, or governors or any other designated
title, and notwithstanding that only one director legally constitutes the Board.
The word "director" or "directors" likewise herein refers to a member or to
members of the governing board notwithstanding the designation of a different
official title or titles. The use of the phrase "entire board" herein refers to
the total number of directors which the corporation would have if there were no
vacancies. The Board of Directors, by the affirmative vote of a majority of
directors in office and irrespective of any personal interest of any of them,
shall have authority to establish reasonable compensation of directors for
services to the corporation as directors, officers, or otherwise.
Section 2. QUALIFICATIONS. Each director shall be at least eighteen years
--------------
of age. A director need not be a shareholder, a citizen of the United States,
or a resident of the State of New Jersey. The number of directors of the
corporation shall not be less than one nor more than
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<PAGE>
nine (9). The directors shall have power from time to time, in the interim
between annual and special meetings of the shareholders, to increase or decrease
their number within the minimum and maximum number prescribed above in this
Article II, Section 2.
Section 3. ELECTION AND TERM. The first Board of Directors shall hold
-----------------
office until the first annual meeting of shareholders and until their successors
have been elected and qualified. Thereafter, directors who are elected at an
annual meeting of shareholder, and directors who are elected in the interim to
fill vacancies and newly created directorships, shall hold office until the next
succeeding annual meeting of shareholders and until their successors have been
elected and qualified. In the interim between annual meetings of shareholders
or of special meetings of shareholders called for the election of directors,
newly created directorships and any existing vacancies in the Board of
Directors, including vacancies resulting from the removal of directors for cause
or without cause, may be filled by the affirmative vote of the remaining
directors, although less than a quorum exists or by the sole remaining director.
A director may resign by written notice to the corporation. The resignation
shall be effective upon receipt thereof by the corporation or at such subsequent
time as shall be specified in the notice of resignation. When one or more
directors shall resign from the Board of Directors effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective.
Section 4. REMOVAL OF DIRECTORS. One or more or all the directors of the
--------------------
corporation may be removed for cause or without cause by the shareholders. The
Board of Directors shall have the power to remove directors for cause and to
suspend directors pending a final determination that cause exists for removal.
Section 5. MEETINGS.
--------
(a) Time. Meetings shall be held at such time as the Board shall
----
fix, except that the first meeting of a newly elected Board shall be held as
soon after its election as the directors may conveniently assemble.
(b) Place. Meeting shall be held at such place within or without the
-----
State of New Jersey as shall be fixed by the Board.
(c) Call. No call shall be required for regular meetings for which
----
the time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, of the President, or of a
majority of the directors in office.
(d) Notice or Actual or Constructive Waiver. No notice shall be
---------------------------------------
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. The notice of any meeting need not specify the business to
be transacted at, or the purpose of, the meeting. Any requirement of furnishing
a notice shall be waived by any director who signs a waiver of notice before or
after the meeting, or who attends the meeting without protesting, prior to the
conclusion of the meeting, the lack of
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<PAGE>
notice to him. Notice of an adjourned meeting need not be given if the time and
place are fixed at the meeting adjourning, and if the period of adjournment does
not exceed ten days in any one adjournment.
(e) Quorum and Action. Each director shall have one vote at meetings
-----------------
of the Board of Directors. The participation of directors with a majority of
the votes of the entire Board shall constitute a quorum for the transaction of
business. Any action approved by a majority of the votes of directors present
at that meeting at which a quorum is present shall be the act of the Board of
Directors unless the New Jersey Business Corporation Act requires a greater
proportion. Where appropriate communication facilities are reasonably
available, any or all directors shall have the right to participate in all or
any part of a meeting of the Board of Directors or a committee of the Board of
Directors by means of conference telephone or any means of communication by
which all persons participating in the meeting are able to hear each other.
(f) Chairman. The Chairman of the Board, if any and if present, shall
--------
preside at all meetings. Otherwise, the President, if present, or any other
director chosen by the Board, shall preside.
Section 6. COMMITTEES. The Board of Directors, by resolution adopted by a
----------
majority of the entire Board of Directors, may appoint from among its members
one or more directors to constitute an Executive Committee and one or more other
committees, each of which, to the extent provided in the resolution appointing
it, shall have and may exercise all of the authority of the Board of Directors
with the exception of any authority the delegation of which is prohibited by
Section 14A:6-9 of the New Jersey Business Corporation Act. Actions taken at a
meeting of any such committee shall be reported to the Board of Directors at its
next meeting following such committee meeting; except that, when the meeting of
the Board is held within two days after the committee meeting, such report
shall, if not made at the first meeting, be made to the Board at its second
meeting following such committee meeting. Each director of a committee shall
have one vote at meetings of that committee. The participation of directors
with the majority of the votes of a committee shall constitute a quorum of that
committee for the transaction of business. Any action approved by a majority of
the votes of directors of a committee present at a meeting of that committee at
which a quorum is present shall be the act of the committee unless the New
Jersey Business Corporation Act requires a greater proportion.
Section 7. WRITTEN CONSENT. Any action required or permitted to be taken
---------------
pursuant to authorization voted at a meeting of the Board of Directors or any
committee thereof may be taken without a meeting, if, prior or subsequent to the
action, all members of the Board of Directors or of such committee, as the case
may be, consent thereto in writing and such written consents are filed with the
minutes of the proceedings of the Board of Directors or committee. Such consent
shall have the same effect as a unanimous vote of the Board of Directors or
committee for all purposes and may be stated as such in any certificate or other
document filed with the Secretary of State of the State of New Jersey.
ARTICLE III
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<PAGE>
OFFICERS
--------
Section 1. ELECTION OF OFFICERS. The directors shall elect a President, a
--------------------
Secretary, and a Treasurer, and may elect a Chairman of the Board, a Vice-
Chairman of the Board, one or more Vice-Presidents, Assistant Vice-Presidents,
Assistant Secretaries, and Assistant Treasurers, and such other officers and
agents as they shall determine. The President may but need not be a director.
Any two or more offices may be held by the same person but no officer shall
execute, acknowledge, or verify any instrument in more than one capacity if such
instrument is required by law to be executed, acknowledged, or verified by two
or more officers.
Section 2. TERM OF OFFICE. Unless otherwise provided in the resolution of
--------------
election, each officer shall hold office until the meeting of the Board of
Directors following the next annual meeting of shareholders and until his
successor has been elected and qualified.
Section 3. POWERS AND DUTIES. Officers shall have the powers and duties
-----------------
defined in the resolutions appointing them.
Section 4. REMOVAL. The Board of Directors may remove any officer for cause
-------
or without cause. An officer may resign by written notice to the corporation.
The resignation shall be effective upon receipt thereof by the corporation or at
such subsequent time as shall be specified in the notice of resignation.
ARTICLE IV
REGISTERED OFFICE, BOOKS AND RECORDS
------------------------------------
Section 1. OFFICE. The address of the initial registered office of the
------
corporation in the State of New Jersey, and the name of the initial registered
agent at said address, are set forth in the original Certificate of
Incorporation of the corporation.
Section 2. BOOKS AND RECORDS. The corporation shall keep books and records
-----------------
of account and minutes of the proceedings of its shareholders, Board of
Directors, and the Executive Committee and other committee or committees, if
any. Such books, records and minutes may be kept within or outside the State of
New Jersey. The corporation shall keep at its principal office, or at the
office of its transfer agent, its registered office, a record or records
containing the names and addresses of all shareholders, the number, class, and
series of shares held by each and the dates when they respectively became the
owners of record thereof. Any of the foregoing books, minutes, or records may
be in written form or in any other form capable of being converted into readable
form with a reasonable time.
ARTICLE V
CORPORATE SEAL
--------------
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
-8-
<PAGE>
ARTICLE VI
FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VII
INDEMNIFICATION
---------------
The Corporation shall indemnify to the full extent permitted by law any person
made, or threatened to be made, a party to an action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that he, his testator or intestate is or was a director, officer, employee or
agent of the Corporation or serves or served any other enterprise as such at the
request of the Corporation.
ARTICLE VIII
CONTROL OVER BY-LAWS
--------------------
On and after the date upon which the first Board of Directors shall have
adopted the initial corporate By-Laws, which shall be deemed to have been
adopted by the shareholders for the purposes of the New Jersey Business
Corporation Act, the power to make, alter, and repeal the By-Laws of the
corporation may be exercised by the directors or the shareholders; provided,
that any By-Laws made by the Board of Directors may be altered or repealed, or
new By-Laws made, by the shareholders. The Shareholders may prescribe that any
By-law made by them shall not be altered or repealed by the Board of Directors.
-9-
<PAGE>
EXHIBIT 3.1
-----------
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS IT IS REGISTERED
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM REGISTRATION IS THEREUNDER AVAILABLE.
________________________
Date: February 21, 2000
WARRANT TO PURCHASE
___ SHARES OF COMMON STOCK OF
NUCYCLE THERAPY, INC.
Number ___
Void after 5:00 P.M. (Eastern Time),
February 21, 2005 as provided herein.
THIS CERTIFIES that _______________ (the "Warrant Holder"), or registered
assigns, is entitled to purchase from NUCYCLE THERAPY, INC. (the "Company"), a
New Jersey corporation, at any time after the date hereof and until 5:00 P.M.
(Eastern Time) on February 21, 2005 __________________ (____) fully paid and
nonassessable shares of Common Stock of the Company, no par value (the "Common
Stock"), at a purchase price of Eight Dollars ($8.00) per share, subject to
adjustment as provided in Section 6.
1. Definitions. For the purpose of this Warrant:
-----------
(a) "Warrants" shall mean this original Warrant to purchase Common
Stock of the Company and any and all Warrants which are issued in exchange or
substitution for the Warrant pursuant to the terms of that Warrant.
(b) "Warrant Price" shall mean the price per share at which shares of
Common Stock of the Company are purchasable hereunder, as such price may be
adjusted from time to time hereunder.
(c) "Warrant Shares" shall mean the Common Stock purchased upon
exercise of Warrants.
2. Method of Exercise of Warrants. This Warrant may be exercised at any
------------------------------
time after the date hereof and prior to 5:00 P.M. (Eastern Time) on February 21,
2005, in whole or in part (but not as to fractional shares), by the surrender of
the Warrant, with the Purchase Agreement attached hereto as Exhibit A properly
---------
completed and duly executed, at the principal office of the
<PAGE>
Company at 1 Deer Park Drive, Suite M, Monmouth Junction, New Jersey 08852, or
such other location which shall at that time be the principal office of the
Company (the "Principal Office"), and upon payment to it by certified check or
bank draft or wire transfer of immediately available funds to the order of the
Company of the purchase price for the shares to be purchased upon such exercise.
The person entitled to the shares so purchased shall be treated for all purposes
as the holder of such shares as of the close of business on the date of exercise
and certificates for the shares of stock so purchased shall be delivered to the
person so entitled within a reasonable time, not exceeding thirty (30) days,
after such exercise. Unless this Warrant has expired, a new Warrant of like
tenor and for such number of shares as the holder of this Warrant shall direct,
representing in the aggregate the right to purchase a number of shares with
respect to which this Warrant shall not have been exercised, shall also be
issued to the holder of this Warrant within such time.
3. Exchange. This Warrant is exchangeable, upon the surrender thereof by
--------
the holder thereof at the Principal Office of the Company, for new Warrants of
like tenor registered in such holder's name and representing in the aggregate
the right to purchase the number of shares purchasable under the Warrant being
exchanged, each of such new Warrants to represent the right to subscribe for and
purchase such number of shares as shall be designated by said holder at the time
of such surrender.
4. Transfer. Subject to restrictions on transfer set forth herein, this
--------
Warrant is transferable, in whole or in part, at the Principal Office of the
Company by the holder thereof, in person or by duly authorized attorney, upon
presentation of this Warrant, properly endorsed, for transfer. Each holder of
this Warrant, by holding it, agrees that the Warrant, when endorsed in blank,
may be deemed negotiable, and that the holder thereof, when the Warrant shall
have been so endorsed, may be treated by the Company and all other persons
dealing with the Warrant as the absolute owner thereof for any purpose and as
the person entitled to exercise the rights represented by the Warrant, or to the
transfer thereof on the books of the Company, any notice to the contrary
notwithstanding. Notwithstanding the foregoing, without the Company's express
written consent, the Warrant Shares are not transferable until the expiration of
twelve (12) months after the Company's Going Public Event (as defined in the
Company's First Amended Disclosure Statement for Plan of Reorganization).
Certificates representing the Warrant Shares issued upon the exercise of this
Warrant prior to the expiration of twelve (12) months after the Company's Going
Public Event shall bear a restrictive legend referring to the transfer
restrictions set forth herein.
5. Certain Covenants of the Company. The Company covenants and agrees
--------------------------------
that all shares which may be issued upon the exercise of this Warrant, will,
upon issuance, be duly and validly issued, fully paid and nonassessable; and
will from time to time take all such action as may be required to assure that
the par value per share of the Common Stock is at all times equal to or less
than the then effective purchase price per share of the Common Stock issuable
pursuant to the Warrants. The Company further covenants and agrees that during
the period within which the rights represented by this Warrant may be exercised,
the Company will at all times have authorized, and reserved for the purpose of
issue upon exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
-2-
<PAGE>
6. Adjustment of Purchase Price and Number of Shares. The number and
-------------------------------------------------
kind of securities purchasable upon the exercise of the Warrants and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Reclassification, Consolidation or Merger. At any time while the
-----------------------------------------
Warrants remain outstanding and unexpired, in case of any reclassification or
change of outstanding securities issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from no par
value to par value or as a result of a subdivision or combination of outstanding
securities issuable upon the exercise of the Warrants) or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is a continuing
corporation and which does not result in any reclassification or change, other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination of
outstanding securities issuable upon the exercise of the Warrants), or in the
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, or such
successor or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute new Warrants providing that
the holders of the Warrants shall have the right to exercise such new Warrants
(upon terms not less favorable to the holders than those then applicable to the
Warrants) and to receive upon such exercise, in lieu of each share of Common
Stock theretofore issuable upon exercise of the Warrants, the kind and amount of
shares of stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by the holder
of one share of Common Stock issuable upon exercise of the Warrants had the
Warrants been exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Warrants shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 6. The provisions of this Subsection
6(a) shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
(b) Subdivision or Combination of Shares. If the Company at any time
------------------------------------
while the Warrants remain outstanding and unexpired shall subdivide or combine
its Common Stock, the Warrant Price shall be proportionately reduced, in case of
subdivision of such shares, as of the effective date of such subdivision, or, if
the Company shall take a record of holders of its Common Stock for the purpose
of so subdividing, as of such record date, whichever is earlier, or shall be
proportionately increased, in the case of combination of such shares, as of the
effective date of such combination, or, if the Company shall take a record of
holders of its Common Stock for the purpose of so combining, as of such record
date, whichever is earlier.
(c) Stock Dividends. If the Company at any time while the Warrants
---------------
are outstanding and unexpired shall pay a dividend in shares of, or make other
distribution of shares of, its Common Stock, then the Warrant Price shall be
adjusted, as of the date the Company shall take a record of the holders of its
Common Stock for the purpose of receiving such dividend or other distribution
(or if no such record is taken, as at the date of such payment or other
distribution), to that price determined by multiplying the Warrant Price in
effect immediately prior to such payment or other distribution by a fraction (i)
the numerator of which shall be the
-3-
<PAGE>
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution. The number of shares of Common Stock at any time outstanding shall
not include any shares thereof then directly or indirectly owned or held by or
for the account of the Company or any wholly-owned subsidiary. The provisions of
this Subsection 6(c) shall not apply under any of the circumstances for which an
adjustment is provided in Subsections 6(a) or 6(b).
(d) Liquidating Dividends, Etc. If the Company at any time while the
--------------------------
Warrants are outstanding and unexpired makes a distribution of its assets to the
holders of its Common Stock as a dividend in liquidation or by way of return of
capital or other than as a dividend payable out of earnings or surplus legally
available for dividends under applicable law or any distribution to such holders
made in respect of the sale of all or substantially all of the Company's assets
(other than under the circumstances provided for in the foregoing Subsections
6(a) through 6(c)), the Warrant Holder shall be entitled to receive upon the
exercise hereof, in addition to the shares of Common Stock receivable upon such
exercise, and without payment of any consideration other than the Warrant Price,
an amount in cash equal to the value of such distribution per share of Common
Stock multiplied by the number of shares of Common Stock which, on the record
date for such distribution, are issuable upon exercise of this Warrant (with no
further adjustment being made following any event which causes a subsequent
adjustment in the number of shares of Common Stock issuable upon the exercise
hereof), and an appropriate provision therefor shall be made a part of any such
distribution. The value of a distribution which is paid in other than cash shall
be determined in good faith by the Board of Directors of the Company.
(e) Notice of Adjustments. Whenever the Warrant Price or the number
---------------------
of shares of Common Stock purchasable under the terms of this Warrant at the
Warrant Price shall be adjusted pursuant to this Section 6, the Company shall
promptly prepare a certificate signed by its President or a Vice President and
by its Treasurer or Assistant Treasurer or its Secretary or Assistant Secretary,
setting forth in reasonable detail the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Company's Board of Directors
made any determination hereunder), and the Warrant Price and number of shares of
Common Stock purchasable at that Warrant Price after giving effect to such
adjustment, and shall promptly cause copies of such certificate to be mailed (by
first class and postage prepaid) to the registered holder of this Warrant.
7. Redemption By Company. The Company has the option to redeem this
---------------------
Warrant at any time prior to its termination or exercise at a redemption price
equal to the sum of $0.50 multiplied by the number of Warrant Shares exercisable
under this Warrant at the time of redemption (the "Redemption Payment") upon
written notice to Warrant Holder. Upon such notice, the Warrant Holder will have
five (5) days within which to exercise this Warrant in whole at the Exercise
Price per share or receive the Redemption Payment. The Company's right to redeem
this Warrant shall be effective upon the delivery of written notice (such notice
is hereinafter referred to as the "Redemption Notice") by the Company to Warrant
Holder,
-4-
<PAGE>
notifying such holder of the redemption of this Warrant and instructing such
holder to surrender to the Company, in the manner and at the place designated,
this original Warrant on the fifth business day after the date of the Redemption
Notice (such date referred to as the "Redemption Date"). On or after the
Redemption Date, the Warrant Holder shall surrender this original Warrant to the
Company, in the manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Payment shall be payable to the order of the Warrant
Holder and this Warrant shall be canceled. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Payment, all
rights of the Warrant Holder (except the right to receive the Redemption Payment
for this Warrant redeemed by the Company upon the surrender of this Warrant)
shall cease.
8. Payment of Taxes. All shares of Common Stock issued upon the exercise
----------------
of this Warrant shall be validly issued, fully paid and nonassessable, and the
Company shall pay all taxes and other governmental charges that may be imposed
in respect of the issue or delivery thereof. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock in any name
other than that of the registered holder of the Warrant surrendered in
connection with the purchase of such shares, and in such case the Company shall
not be required to issue or deliver any stock certificate until such tax or
other charge has been paid or it has been established to the Company's
satisfaction that no tax or other charge is due.
9. Fractional Shares. No fractional shares of the Company's Common Stock
-----------------
will be issued in connection with any purchase hereunder but in lieu of such
fractional shares, the Company shall make a cash refund therefor equal in amount
to the product of the applicable fraction multiplied by the Warrant Price paid
by the holder for its Warrant Shares upon such exercise.
10. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of
--------------------------------------
evidence reasonably satisfactory to it that any Warrant has been mutilated,
destroyed, lost or stolen, and in the case of any destroyed, lost or stolen
Warrant, a bond of indemnity reasonably satisfactory to the Company, or in the
case of a mutilated Warrant, upon surrender and cancellation thereof, the
Company will execute and deliver in the Warrant Holder's name, in exchange and
substitution for the Warrant so mutilated, destroyed, lost or stolen, a new
Warrant of like tenor substantially in the form thereof with appropriate
insertions and variations.
11. Headings. The descriptive headings of the several sections of this
--------
Warrant are inserted for convenience only and do not constitute a part of this
Warrant.
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer on the date of this Warrant.
NUCYCLE THERAPY, INC.
By:______________________________
Burt D. Ensley, President and
Chief Executive Officer
-6-
<PAGE>
Exhibit 3.1
-----------
EXHIBIT A
---------
PURCHASE AGREEMENT
------------------
Date: ____________________
TO:
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to purchase __________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by this Warrant.
Signature:__________________________________
Address:____________________________________
____________________________________
____________________________________
* * *
ASSIGNMENT
----------
For Value Received, __________________________________________________
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Common Stock covered
by such Warrant, to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- ---------------- ------- -------------
Dated: Signature:__________________________________
Witness:____________________________________
<PAGE>
EXHIBIT 6.1
-----------
EXCLUSIVE NUTRITIONAL SUPPLEMENT LICENSE AGREEMENT
--------------------------------------------------
THIS LICENSE AGREEMENT (the "Agreement") is made and is effective as of the
day of October, 1999, by and between RUTGERS, THE STATE UNIVERSITY OF NEW
JERSEY, having its statewide Office of Corporate Liaison and Technology Transfer
at 58 Bevier Road, ASB Annex II, Piscataway, New Jersey 08854-8010, (hereinafter
referred to as "Rutgers"), and Nucycle Therapy Inc., a New Jersey corporation
having a principal place of business at One Deer Park Drive, Suite 1, Monmouth
Junction, NJ 08852 (hereinafter referred to as "Licensee").
RECITALS
--------
WHEREAS, This Agreement is entered into pursuant to the terms of a United
States Bankruptcy Court District of New Jersey Stipulation and Order (the
"Order") in Case No. 99-55905 (KCF) In re PHYTOTECH, INC., a New Jersey
Corporation, Debtor.
WHEREAS, Certain inventions relating to the development of phytoremediation
technology, with application to the field of nutritional and dietary
supplements, were made in the course of research sponsored by Licensee at
Rutgers, The State University of New Jersey, by Dr. Ilya Raskin, Dr. Michael
Blaylock, Dr. Ilan Chet, Dr. Slavik Douchenkov, and Dr. David Salt (hereinafter,
"Inventors") and were previously licensed to Licensee in the licensed field of
commercial phytoremediation, and Rutgers has obtained, pursuant to the terms of
the Order, a 50% undivided right, title and interest in and to certain
nutritional supplement inventions and a
<PAGE>
related patent application and certain hyperaccumulation inventions and related
patent applications; and
WHEREAS, Licensee entered into a research agreement relating to the
development of phytoremediation technology with Rutgers effective November 19,
1993 and amended by Modification No. 1 effective January 13, 1994 and
Modification No. 2 effective December 7, 1994 ("Research Agreement I") which
granted certain license option rights in certain of the aforementioned
inventions and this Agreement provides for incorporation into this Agreement of
inventions for which Licensee exercises its option rights; and
WHEREAS, Licensee is a "small business firm" as defined in 15 U.S.C. 632;
and
WHEREAS, Both parties recognize and agree that royalties due hereunder will
be paid on both pending patent applications and issued patents; and
WHEREAS, Rutgers is desirous that the licensed property be developed and
utilized to the fullest extent so that the benefits can be enjoyed by the
general public.
NOW THEREFORE, for good and valuable consideration, the receipt, adequacy
and sufficiency of which is hereby acknowledged, and for and in consideration of
the mutual covenants and agreements herein contained, the parties agree as
follows:
-2-
<PAGE>
1. DEFINITIONS
-----------
1.1 "Affiliate" means any corporation or business entity that directly or
indirectly controls, is controlled by, or is under common control with Licensee
to the extent of at least fifty percent (50%) of the outstanding stock or other
voting rights entitled to elect directors.
1.2 "Data" means all information owned and/or controlled by Rutgers which
is acquired by Licensee, its Affiliates or its sublicensees directly or
indirectly from or through Rutgers, its units, its employees the Inventors, or
its consultants relating to the Licensed Field, Rutgers Patent Rights, Licensed
Products, or this Agreement, including but not limited to all patent prosecution
documents and all information received from Inventors.
1.3 "Licensed Field" means the use for nutritional and dietary
supplements.
1.4 "Licensed Method" means any process, method, or use that is covered by
Rutgers Patent Rights or whose use or practice would constitute, but for the
license granted to Licensee pursuant to this Agreement, an infringement of any
issued or pending claim within Rutgers Patent Rights.
1.5 "Licensed Product (s)" means any material or product or kit, or any
service, process, or procedure that (1) either is covered by Rutgers Patent
Rights or whose manufacture, use, or sale would constitute, but for the license
granted to Licensee pursuant to this Agreement, an infringement of any claim
within Rutgers Patent Rights or (2) is discovered, developed, made,
-3-
<PAGE>
sold, registered, or practiced using Licensed Method or which may be used to
practice the Licensed Method, in whole or in part.
1.6 "Net Sales" means the total of the gross consideration received for
Licensed Products made, used, leased, transferred, sold or otherwise disposed of
by Licensee, its Affiliates, and its sublicensees, at arms-length prices, less
the sum of the following actual and customary deductions (net of rebates or
allowances of such deductions received by Licensee, its Affiliates and
sublicensees) included on the invoice and actually paid: trade discounts; sales,
excise or use taxes imposed upon particular sales; import/export, customs or
duties or similar levies paid by Licensee; insurance; costs of packaging
materials, boxes, cartons and crates required for shipping; returns; and
shipping, transportation and delivery charges. In the event Licensee or any of
its Affiliates or sublicensees makes a transfer of a Licensed Product to a third
party for other than monetary consideration or for less than fair market value,
such transfer shall be considered a sale hereunder to be calculated at a fair
market value for accounting and royalty purposes.
A Licensed Product shall be deemed made, used, leased, transferred, sold,
or otherwise disposed of at the time Licensee receives payment for such Licensed
Product.
1.7 "Proprietary and Confidential Information" means all confidential
information or trade secrets owned and/or controlled by Licensee (other than by
license hereunder) relating to the development of phytoremediation technology or
the Licensed Products, including, but not limited to, all information of
Licensee in written, oral, graphic or tangible form relating to the
-4-
<PAGE>
design, manufacture, programming, operation, or service of the Licensed
Products, including, but not limited to, any inventions, intellectual property,
know-how, or trade secrets relating thereto, as such information exists as of
the date hereof or is developed by Licensee during the term of this Agreement.
1.8 "Rutgers Patent Rights" means U.S. Patent Application Numbers 94-0809-
1, 95-0315-1 and 95-0413-1, U. S. Patents resulting therefrom and foreign
patents and patent applications corresponding thereto owned by Rutgers,
including any reissues, extensions, substitutions, continuations (not including
continuations-in-part) and divisions thereof as well as any additional patents
and patent applications covered by Research Agreement I which are added by
operation of the terms of Article 4 of this Agreement. "Rutgers Patent Rights"
also includes Rutgers' interest in U.S. Patent Application 09/041/355, U.S.
Patent Application numbers 08/621, 138 and 60/027, 127 and all patents issuing
on the foregoing, and all continuations, continuations-in-part, divisions, and
reissues of the foregoing, and all corresponding foreign patents and patent
applications of the foregoing.
1.9 "Territory" means all countries of the world in which Rutgers has
Rutgers Patent Rights, subject to any exclusions provided in this Agreement.
2. GRANT
-----
2.1 Subject to the limitations set forth in this Agreement, Rutgers hereby
grants to Licensee a semi-exclusive license (terminable only pursuant to the
express terms of this Agreement) under Rutgers' interest in the Rutgers Patent
Rights in the Licensed Field to make,
-5-
<PAGE>
have made, use, and sell Licensed Products and to practice Licensed Method in
the Territory during the term of this Agreement. It is mutually agreed that the
preceding license includes the right to use and/or sell Licensed Product outside
of the Territory which is developed and/or manufactured within the Territory.
Licensee shall have the right to extend such license to its Affiliates, provided
Licensee is the primary guarantor of all payment and other obligations hereunder
of its Affiliates. The license for which a royalty has been paid under this
Agreement includes the right of Licensee, its Affiliates or sublicensees to
grant to the purchaser thereof the right to use and/or resell such Licensed
Product without payment of any other royalty hereunder. For purposes of this
Agreement, "semi-exclusive" means that Rutgers may grant one additional license,
with right of sublicense, at any one time in addition to the license granted
hereunder to Licensee. Notwithstanding the foregoing, Rutgers will not grant a
license to a third party during the two (2) year period after the effective date
if Licensee is diligently commercializing the technology licensed hereunder. In
addition, in the event Licensee meet all the diligence requirements specified in
Section 6.4 of this Agreement within the time limits specified in such Section,
then the semi-exclusive license grant shall at the time of completion of the
last of such milestones automatically convert thereafter to an exclusive license
hereunder.
2.2 If the licensed invention(s) were funded by the U.S. Government, the
license granted hereunder shall be subject to the overriding obligations to the
U.S. Government set forth in 35 U. S. C. 200-212 and applicable governmental
implementing regulations.
2.3 Rutgers is permitted to use Rutgers Patent Rights, Licensed Products,
Licensed Methods, and associated information and technology (i) in the Licensed
Field for educational and
-6-
<PAGE>
research purposes and to publish the results thereof (ii) and outside the
Licensed Field for any purpose.
3. SUBLICENSES
-----------
3.1 Rutgers grants to Licensee the right to grant sublicenses to third
parties under the license granted in Article 2. To the extent applicable, such
sublicenses shall include all of the rights of and obligations due to Rutgers
(and, if applicable, to the United States Government) that are contained in this
Agreement.
3.2 Within thirty (30) days after execution thereof, Licensee shall
provide Rutgers with a copy of each sublicense issued hereunder, and shall
thereafter collect and, upon receipt of payment from any such sublicensee (s) ,
guarantee payment of royalties due Rutgers from such sublicensees and summarize
and deliver all reports due Rutgers from sublicensees.
3.3 Upon termination of this Agreement for any reason, Rutgers, at its
sole discretion, shall determine whether any or all sublicenses shall be
canceled or assigned to Rutgers. Upon determination by Rutgers that a sublicense
shall be canceled, at the request of sublicensee and absent material reasons not
to continue the sublicense during a transition period, Rutgers will provide the
sublicensee the option to continue the sublicense under the terms of this
Agreement for a phase out period not to exceed one (1) year.
-7-
<PAGE>
4. INCORPORATION OF FUTURE RESEARCH AGREEMENT DISCOVERIES
------------------------------------------------------
INTO THIS AGREEMENT
-------------------
4.1 If Licensee exercises its Research Agreement option rights to patent
and license any intellectual property rights discovered after the Effective Date
of this Agreement under Research Agreement I, the subject patent rights shall
automatically be added to the definition of Rutgers Patent Rights hereunder and
shall be thereafter deemed to be part of this Agreement.
5. LICENSEE ISSUE FEE, EQUITIES AND ROYALTIES
------------------------------------------
5.1 Licensee shall pay a license issue fee to Rutgers of $153, 000 payable
in cash (or by in kind services acceptable to and agreed to by Rutgers) over a
three (3) year period beginning on the execution date of this Agreement. When
Licensee receives cumulative gross income of $1,000,000 from and after the
execution date of this Agreement, any unpaid balance of the license issue fee
shall be accelerated and become immediately due and payable in cash. The license
issue fee is non-refundable and not creditable against future royalty payments
made hereunder.
5.2 Licensee will issue to Rutgers, at no cost to Rutgers, shares of new
stock representing, at time of issue and delivery, 2% of all fully diluted
equity of Licensee plus new stock equivalent to Rutgers' existing shares,
pursuant to a plan of reorganization filed in Licensee's Chapter 11 bankruptcy
case or, if no plan of reorganization is confirmed, upon Licensee's emergence
from Chapter 11. Licensee warrants and represents that when the equity is
delivered to Rutgers (i) it shall be free from any claims, security interests or
liens and (ii) that
-8-
<PAGE>
Licensee shall have full right and authority to issue and deliver the equity to
Rutgers. Rutgers shall have no less rights in the equity than any other holders
of any of Licensee's equity.
5.3 Except as otherwise required by law, Licensee shall pay to Rutgers a
running royalty on sales by it, its Affiliates and its sublicensees of 2.5% of
Net Sales of Licensed Products hereunder. Sales among Licensee, its Affiliates
and its sublicensees for ultimate third party use shall be disregarded for
purposes of computing royalties. Royalties shall be payable only upon receipts
from sales or transfers between unrelated third parties and shall be based on
arms length consideration.
5.4 Royalties payable to Rutgers shall be paid to Rutgers quarterly on or
before 35 days following the end of each calendar quarter. Each such payment
will be for royalty payments received within Licensee's most recently completed
calendar quarter.
5.5 All amounts due Rutgers shall be payable in United States Dollars in
New Brunswick, New Jersey. When Licensed Products are sold for monies other than
United States Dollars, the earned royalties will first be determined in the
foreign currency of the country in which such Licensed Products were sold and
then converted into equivalent United States Dollars. The exchange rate will be
the United States Dollar buying rate quoted in the Wall Street Journal on the
last day of the reporting period.
5.6 Licensee shall be responsible for any and all taxes, fees, or other
charges, where such taxes, fees or other charges are imposed by the government
of any country outside the
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United States on the remittance of royalty income for sales occurring in any
such country. Licensee shall also be responsible for all bank transfer charges.
5.7 If at any time legal restrictions prevent the acquisition or prompt
remittance of United States Dollars by Licensee with respect to any country
where a Licensed Product is sold and payment is received, Licensee shall pay
royalties due to Rutgers from Licensee's other sources of United States Dollars.
5.8 In the event that any patent or any claim thereof included within the
Rutgers Patent Rights shall be held invalid in a final decision by a court of
competent jurisdiction and last resort in any country and from which no appeal
has or can be taken, all obligation to pay royalties based on such patent or
claim or any claim patentably indistinct therefrom shall cease as of the date of
such final decision with respect to such country. Licensee shall not, however,
be relieved from paying any royalties that accrued and were paid before such
decision or that are based on another patent or claim not involved in such
decision.
5.9 Royalties will be paid one time only even if a Licensed Product is
covered by more than one issued patent included in the Rutgers Patent Rights.
5.10 Rutgers shall not be entitled to share in any equity investment in
Licensee by a third party as part of a strategic alliance, nor is Rutgers
entitled to any share in revenues received as part of a sponsored research and
development agreement between Licensee and a third party.
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6. DILIGENCE
---------
6.1 Licensee, upon execution of this Agreement, shall use its reasonable
and diligent efforts to develop, test, obtain regulatory approval, manufacture,
market and sell Licensed Products in all countries of the Territory and shall
earnestly and diligently endeavor to market the same within a reasonable time
after execution of this Agreement and in quantities sufficient to meet the
market demands therefor.
6.2 Licensee shall be entitled to exercise prudent and reasonable business
judgment in meeting its diligence obligations hereunder.
6.3 Licensee shall use all reasonable efforts to obtain all necessary
governmental approvals for the manufacture, use and sale of Licensed Products.
6.4 If Licensee fails to perform any of the following:
(a) apply for any necessary U. S. Government approval to market a
Licensed Product within one (1) year of the effective date of this Agreement,
and
(b) commence commercial sales of a Licensed Product within two (2)
years of the effective date of this Agreement, and
(c) obtain financing adequate to finance two (2) years of its
operations within six (6) months of the effective date of this Agreement,
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then the exclusive license granted hereunder shall automatically revert to a
non-exclusive license at such time as such failure occurs in addition to any
other remedies Rutgers may have.
7. PROGRESS AND ROYALTY REPORTS
----------------------------
7.1 Beginning January 2, 2000, and annually thereafter, Licensee shall
submit to Rutgers a progress report covering Licensee's activities related to
the development and testing of all Licensed Products and the obtaining of the
governmental approvals necessary for marketing. These progress reports shall be
made for each Licensed Product in each country of the Territory.
7.2 The progress reports submitted under section 7. 1, which may be
presented as a two (2) page report prior to commercial introduction of Licensed
Product, shall include sufficient information (taking into due consideration
that a two (2) page report will contain significantly less detail) to enable
Rutgers to reasonably determine Licensee's progress in fulfilling its
obligations under Article 6, including, but not limited to, the following
topics:
- summary of work completed
- summary of work in progress, including product development and testing
and progress in obtaining government approvals
- current schedule of anticipated events or milestones
- summary of market plans for introduction of Licensed
Products in countries of the Territory in which Licensed Products have not
yet been introduced
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- summary of resources (dollar value) spent in the reporting period for
research, development, and marketing of Licensed Products
- summary of activities in obtaining sublicensees and activities of
sublicensees
- the most recent certified financial statements
7.3 Licensee shall have a continuing responsibility to keep Rutgers
informed of the large/small entity status (as defined by the United States
Patent and Trademark Office) of itself and its sublicensees.
7.4 Licensee shall notify Rutgers of the date of first commercial sale of
each Licensed Product in each country in the first report due after such
commercial introduction.
7.5 After the first commercial sale of a Licensed Product anywhere in the
world, Licensee will make quarterly royalty reports to Rutgers on or before the
date 30 days after each calendar quarter.
7.6 Each such royalty report will show (a) the units and gross sales and
Net Sales of each type of Licensed Product sold by Licensee on which royalties
have not been paid, including a clear indication of how Net Sales were
calculated; (b) the royalties, in U.S. dollars, payable hereunder with respect
to such sales on which payment has been received; Q the method used to calculate
the royalty; and (d) the exchange rates used, if any; and (e) any other
information reasonably requested by Rutgers.
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7.7 If no sales of Licensed Products have been made during any reporting
period, a statement to this effect shall be made by Licensee.
8. BOOKS AND RECORDS
-----------------
8.1 Licensee shall keep books and records in accordance with generally
accepted accounting principles accurately showing all transactions and
information relating to this Agreement. Such books and records shall be
preserved for at least five (5) years from the date of the entry to which they
pertain and shall be open to inspection by representatives or agents of Rutgers
at reasonable times upon reasonable notice, but not more often than once
annually.
8.2 The fees and expenses of Rutgers' representatives performing such an
examination shall be borne by Rutgers. However, if an error in royalties of more
than seven and one-half (7 1/2%) percent of the total royalties due for any year
is discovered, or if as a result of the examination it is determined that
Licensee is in material breach of its other obligations under this Agreement,
then the fees and expenses of these representatives shall be borne by Licensee.
9. TERM OF THE AGREEMENT
---------------------
9.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the provisions of this Agreement, this Agreement
shall be in force from its Effective Date and shall remain in effect in each
country of the Territory until the last day of the month of the expiration of
the last-to-expire Rutgers Patent Rights licensed under this Agreement in such
country.
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9.2 Any expiration or termination of this Agreement shall not affect the
rights and obligations set forth in the following Articles:
Article 8 Books and Records
Article 11 Disposition of Licensed Products
on Hand Upon Termination
Article 12 Use of Names, Trademarks and
Confidential Data
Article 17 Indemnification
Article 22 Failure to Perform
Article 27 Confidentiality
10. TERMINATION
-----------
10.1 If either party should breach or fail to perform any provision of
this Agreement, then the other party may give written notice of such default
(Notice of Default) to the defaulting party. If the defaulting party should fail
to cure such default within sixty (60) days of the effective date of such
notice, the other party shall have the right to terminate this Agreement and the
licenses herein by a second written notice (Notice of Termination) to the
defaulting party. If a Notice of Termination is sent to defaulting party, this
Agreement shall terminate on the date five (5) days following the receipt of
such notice(Effective Date of Termination). Termination shall not relieve either
party of its obligation to pay all amounts due hereunder as of the Effective
Date of Termination and shall not impair any accrued rights.
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10.2 The Agreement shall terminate in accordance with the procedures
detailed in paragraph 10.1 hereof upon the filing by Licensee of a petition in
bankruptcy or insolvency, or upon any adjudication that the Licensee is bankrupt
or insolvent, or upon the filing by Licensee of any petition or answer seeking
judicial reorganization, readjustment or arrangement of the business of Licensee
under any law relating to bankruptcy or insolvency, or upon the appointment of a
receiver for all or substantially all the property of Licensee, or upon the
making of any assignment or attempted assignment for the benefit of the
creditors.
11. DISPOSITION OF LICENSED PRODUCTS AND INFORMATION
-------------------------------------------------
ON HAND UPON TERMINATION
------------------------
11.1 Upon termination of this Agreement by either party (i) Licensee shall
have the privilege of disposing of all previously made or partially made
Licensed Products, but no more, within a period of one hundred and twenty (120)
days after the effective date of termination, provided, however, that the
disposition of such Licensed Products shall be subject to the terms of this
Agreement including, but not limited to, the payment of royalties at the rate
and at the time provided herein and the rendering of reports thereon; (ii)
Licensee shall promptly return, and shall cause its sublicensees to return, to
Rutgers all property belonging to Rutgers, if any, that has been provided to
Licensee or its Affiliates or sublicensees hereunder, and all copies and
facsimiles thereof and derivatives therefrom (except that Licensee may retain
one copy of written material for record purposes only, provided such material is
not used by Licensee for any other purpose and is not disclosed to others).
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12. USE OF NAMES AND TRADEMARKS
---------------------------
12.1 Nothing contained in this Agreement shall be construed as granting
any right to Licensee or its Affiliates to use in advertising, publicity, or
other promotional activities any name, trade name, trademark, or other
designation of Rutgers or any of its units (including contraction, abbreviation
or simulation of any of the foregoing). Unless required by law or used in
connection with a private or public offering of Licensee's stock or used in any
of Licensee's business agreements, the use of the name, "Rutgers, The State
University of New Jersey" or any campus or unit of Rutgers is expressly
prohibited, and no use of such names may be made in any manner without Rutgers
prior written consent.
13. LIMITED WARRANTY
----------------
13.1 Rutgers warrants to Licensee that it has the lawful right to grant
this license.
13.2 This license and the associated Rutgers Patent Rights are provided
WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY
OTHER WARRANTY, EXPRESS OR IMPLIED. RUTGERS MAKES NO REPRESENTATION OR WARRANTY
THAT THE LICENSED PRODUCTS OR LICENSED METHODS WILL NOT INFRINGE ANY THIRD PARTY
PATENT OR OTHER PROPRIETARY RIGHT.
13.3 IN NO EVENT WILL RUTGERS BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS
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LICENSE OR MANUFACTURE, SALE, OR USE OF THE RUTGERS PATENT RIGHTS OR LICENSED
PRODUCTS OR LICENSED METHODS OR RUTGERS DATA.
13.4 Nothing in this Agreement shall be construed as:
(13.4a) a warranty or representation by Rutgers regarding the Rutgers
Patent Rights other than the ownership interest of Rutgers
therein; or
(13.4b) a warranty or representation that anything made, used, sold or
otherwise disposed of under any license granted in this Agreement
is or will be free from infringement of patents or other
intellectual property of third parties; or
(13.4c) an obligation to bring or prosecute actions or suits against third
parties except as provided in Article 16; or
(13.4d) conferring by implication, estoppel or otherwise any license or
rights under any patents or other intellectual property of
Rutgers, other than Rutgers Patent Rights as defined herein,
regardless of whether such patents are dominant or subordinate to
Rutgers Patent Rights; or
(13.4e) an obligation to furnish any know-how or Data not provided in
Rutgers Patent Rights.
14. PATENT PROSECUTION AND MAINTENANCE
----------------------------------
14.1 Rutgers shall diligently prosecute and maintain the United States
patents comprising Rutgers Patent Rights using counsel of its choice, or at
Licensee's option, an attorney selected by Licensee subject to Rutgers approval,
which approval shall not be unreasonably
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withheld. Rutgers counsel shall take instructions only from Rutgers, provided
that Rutgers will consult with Licensee prior to instructing counsel on any
significant issues which have been raised by Licensee. Rutgers shall promptly
provide Licensee with copies of all relevant documentation so that Licensee may
be informed and apprised of the continuing prosecution and so that Licensee may
provide input on such prosecution to assure that Licensee's interests are
covered. Licensee agrees to keep this documentation confidential.
14.2 Rutgers shall amend any patent application to include claims
reasonably requested by Licensee to protect the Licensed Products contemplated
to be sold under this Agreement and Rutgers shall not unreasonably withhold
consent to any such request from Licensee to amend any such patent application.
14.3 All past, present, and future costs of preparing, filing,
prosecuting, defending, and maintaining all United States patent applications
and/or patents, including interferences and oppositions, and all corresponding
foreign patent applications and patents covered by Rutgers Patent Rights shall
be borne by Licensee. Current and future costs shall be payable by Licensee
within sixty (60) days of the billing date.
14.4 Rutgers shall, at the request of Licensee, file, prosecute, and
maintain patent applications and patents covered by Rutgers Patent Rights in
foreign countries if available. Licensee consents to the filing of all PCT and
foreign patent applications that have already been filed as of the Effective
Date of this Agreement. Licensee shall notify Rutgers within a reasonable period
of time before a bar date occurs of its decision of where it wishes to file for
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foreign patents so that Rutgers has a reasonable amount of time to prepare and
make such filings. This notice shall be in writing and shall identify the
countries desired.
14.5 Licensee's obligation to underwrite and to pay patent costs shall
continue for so long as this Agreement remains in effect, provided, however,
that Licensee may terminate its obligations with respect to any given patent
application or issued patent upon 3 months' written notice to Rutgers. Rutgers
shall use reasonable efforts to curtail patent costs when such a notice is
received from Licensee. Licensee shall promptly pay patent costs which cannot be
so curtailed. Commencing on the effective date of such notice, Rutgers may
continue prosecution and/or maintenance of such application (s) or patent (s) at
its sole discretion and expense, and Licensee shall have no further right or
licenses thereunder.
14.6 Rutgers shall have the right to file patent applications at its own
expense in any country or countries in which Licensee has not elected to secure
patent rights or in which Licensee's patent license rights hereunder have
terminated, and such applications and resultant issued patents shall not be
subject to this Agreement and may be freely licensed by Rutgers to others.
14.7 With respect to any Rutgers Patent Rights, each patent application,
office action, response to office action, request for terminal disclaimer,
request for reissue or reexamination of any patent issuing from such application
shall be provided to Licensee by Rutgers, or at the direction of Rutgers by
Rutger's patent counsel, sufficiently prior to the filing of such application
response or request to allow for review and comments by Licensee.
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15. PATENT MARKING
--------------
15.1 Licensee shall mark all Licensed Products made, used, sold or
otherwise disposed of under the terms of this Agreement, and/or their
containers, in accordance with the applicable patent marking laws.
16. PATENT INFRINGEMENT
-------------------
16.1 In the event that Licensee shall learn of the substantial
infringement of any patent licensed under this Agreement, Licensee shall call
Rutgers attention thereto in writing and shall provide Rutgers with reasonable
evidence of such infringement. Both parties to this Agreement agree that during
the period and in a jurisdiction where Licensee has exclusive rights under this
Agreement, neither will notify a third party of the infringement of any of
Rutgers Patent Rights without first obtaining consent of the other party, which
consent shall not be unreasonably withheld. Both parties shall use their best
efforts in cooperation with each other to terminate such infringement without
litigation.
16.2 Licensee may request that Rutgers take legal action against the
infringement of Rutgers Patent Rights. Such request shall be made in writing and
shall include reasonable evidence of such infringement and damages to Licensee.
If the infringing activity has not been abated within 90 days following the
effective date of such request, Rutgers shall have the right to
(16.2a) commence suit on its own account; or
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(16.2b) refuse to commence such suit;
and Rutgers shall give notice of its election in writing to Licensee by the end
of the 100th day after receiving notice of such request from Licensee. If
Rutgers commences suit on its own account, Licensee may thereafter join such
suit at its own expense. If Rutgers refuses to commence suit, Licensee may
thereafter bring suit for patent infringement if and only if Rutgers elects not
to commence suit and if the infringement occurred during the period and in a
jurisdiction where Licensee had exclusive rights under this Agreement. However,
if Licensee elects to bring suit in accordance with this paragraph, Rutgers may
thereafter join such suit at its own expense.
16.3 Such legal action as is decided upon shall be at the expense of the
party on account of whom suit is brought and all recoveries recovered thereby
shall belong to such party, provided, however, that recoveries from legal
actions brought jointly by Rutgers and Licensee shall be shared equally by them,
after paying the reasonable legal expenses of both parties.
16.4 Each party agrees to cooperate with the other in litigation
proceedings instituted hereunder but at the expense of the party on account of
whom suit is brought. Such litigation shall be controlled by the party bringing
the suit. Each party may be represented by counsel of its choice.
16.5 Rutgers will permit Licensee to bring suit in the name of Rutgers
where required by law.
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17. INDEMNIFICATION AND INSURANCE
-----------------------------
17.1 Licensee shall indemnify, hold harmless and defend Rutgers, its
governors, trustees, officers, employees, students, agents and the Inventors
against any and all claims, suits, losses, liabilities, damages, costs, fees and
expenses (including reasonable attorneys' fees) resulting from or arising out of
the exercise of this license or any sublicense. This indemnification shall
include, but is not limited to, any and all claims alleging products liability.
17.2 Licensee shall, throughout the term of this Agreement, at its sole
cost and expense, insure its activities in connection with this Agreement and
will maintain and keep in force the following types of insurance:
(a) Comprehensive or Commercial General Liability with minimum
limits as follows:
(i) ______________/1/ combined single limit as respects premises
and operations with an excess policy of ________________/2/
where required;
_________________________
/1/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
/2/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
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(ii) From and after the first commercial sale of a
Licensed Product, Licensee shall maintain
appropriate levels of comprehensive or commercial
general liability coverage, as agreed to by the
parties, which shall include, but not be limited
to, products/completed operations liability. In
the determination of appropriate level of such
insurance, the parties shall take into
consideration the nature of the Licensed Product
sold, the size of the market, the availability of
insurance at commercially reasonable rates and the
practices of comparable competitors of Licensee
using similar technology. Licensee will notify
Rutgers at least 120 days prior to first
commercial sale of proposed coverages and
documentation on explaining its rationale. The
parties will thereafter discuss and agree upon
final coverages to be taken. Further, such
appropriate levels of insurance are subject to
periodic review by the parties.
(b) Workers' Compensation and Employers Liability
insurance, covering each employee of the Licensee
engaged in the performance of the action required under
the contract, with a limit of liability in accordance
with applicable law, in the case of workers'
compensation insurance, and with the following limits
of liability in the case of employers' liability:
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Bodily injury by accident - ___________/3/ each accident;
Bodily injury by disease - ___________/4/ policy limit;
Bodily injury by disease - ___________/5/ each employee.
(c) It is expressly understood and agreed, however, that the
insurance coverage and limits stated in A and B above shall not
in any way limit the liability of Licensee and that the required
insurance shall be primary coverage. Any insurance Rutgers may
purchase will be excess and noncontributory. Licensee's
liability insurance will be endorsed to specifically name Rutgers
as an additional insured.
(d) Licensee shall furnish Rutgers with a certificate of insurance
evidencing the coverage and limits required pursuant to A and B
above. The liability certificate shall:
(i) Provide for thirty (30) day advance written notice to
Rutgers of cancellation or material alteration of the
policy;
_________________________
/3/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
/4/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
/5/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
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(ii) Indicate that Rutgers has been endorsed as an additional
insured under the coverages referred to above;
(iii) Include a provision that the insurance will be primary and
any valid and collectible insurance or program of self-
insurance carried or maintained by Rutgers shall be excess
and noncontributory.
17.3 Rutgers shall promptly notify Licensee in writing of any claim or
suit brought against Rutgers in respect of which Rutgers intends to invoke the
provisions of Article 17. Licensee shall keep Rutgers informed on a current
basis of its defense of any claims pursuant to Article 17.
18. NOTICES
-------
18.1 Any notice or payment required to be given to either party shall be
deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in person or (b) five (5) days after mailing if mailed by
first-class certified mail, postage paid and deposited in the United States
mail, to the respective addresses given below, or to such other address as it
shall designate by written notice given to the other party.
In the case of Licensee: Nucycle Therapy, Inc.
One Deer Park Drive, Suite M
Monmouth Junction, NJ 08852
Attn: President
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In the case of Rutgers: Rutgers, The State University of New Jersey
Office of Corporate Liaison & Technology Transfer
58 Bevier Road
ASB Annex II
Piscataway, NJ 08854-8010
Attention: Director
19. ASSIGNABILITY
-------------
19.1 This Agreement is binding upon and shall inure to the benefit of
Rutgers and Licensee, and their successors and assigns Any such successor or
assignee shall expressly assume in writing the terms and conditions and
obligations of this Agreement. This Agreement shall not be assignable by either
of the parties without the prior written consent of the other party (which
consent shall not be unreasonably withheld), except that Licensee, without the
consent of Rutgers, may assign this Agreement to an Affiliate, provided that
Licensee is the primary guarantor of all Agreement payment and other obligations
of the Affiliate related to an assignment of this Agreement to such Affiliate.
20. LATE PAYMENTS
-------------
20.1 In the event any amounts due Rutgers hereunder, including but not
limited to royalty payments, fees and patent cost reimbursements, are not
received when due, Licensee shall pay to Rutgers interest charges at a rate of
the greater of (1) 12 percent per annum or (ii) the
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highest rate permitted by law, if less than the rate referred to in (I) above.
Such interest shall be calculated from the date payment was due until actually
received by Rutgers.
21. WAIVER
------
21.1 It is agreed that no waiver by either party hereto of any breach or
default of any of the covenants or agreements herein set forth shal1 be deemed
a waiver as to any subsequent and/or similar breach or default.
22. FAILURE TO PERFORM
------------------
22.1 In the event of a failure of performance due under the terms of this
Agreement and if it becomes necessary for either party to undertake legal action
against the other on account thereof, then the prevailing party shall be
entitled to reasonable attorney's fees in addition to costs and necessary
disbursements.
23. GOVERNING LAWS
--------------
23.1 THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW JERSEY, but the scope and validity of any patent or
patent application shall be governed by the applicable laws of the country of
such patent or patent application.
24. PREFERENCE FOR UNITED STATES INDUSTRY
-------------------------------------
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24.1 If the U.S. Government sponsored an invention included in the Rutgers
Patent Rights in whole or in part, Licensee agrees that any Licensed Products
sold in the United States embodying this invention or produced through the use
thereof will be manufactured substantially in the United States.
25. FOREIGN GOVERNMENT APPROVAL OR REGISTRATION
-------------------------------------------
25.1 If this Agreement or any associated transaction is required by the
law of any nation to be either approved or registered with any governmental
agency, Licensee shall assume all legal obligations to do so and the costs in
connection therewith.
26. EXPORT CONTROL LAWS
-------------------
26.1 Licensee shall observe all applicable United States and foreign laws
with respect to the transfer of Licensed Products and related technical data to
foreign countries, including, without limitation, the International Traffic in
Arms Regulations (ITAR) and the Export Administration Regulations,
27. CONFIDENTIALITY
---------------
27.1 Licensee shall safeguard and keep confidential Data against
disclosure to others with the same degree of care as it exercises with its own
data of a similar nature, and shall not disclose or permit the disclosure of
Data to others (except to its employees, agents or consultants who are bound to
Licensee and Rutgers by a like obligation of confidentiality) without the
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express written permission of Rutgers, except that Licensee shall not be
prevented from using or disclosing
(27 la) which Licensee can demonstrate by written records was
previously known to it; or
(27.1b) which is now, or becomes in the future, information
generally available to the public in the form supplied,
other than through acts or omissions of Licensee; or
(27.1c) which is lawfully obtained by Licensee from sources
independent of Rutgers who were entitled to provide such
information to Licensee.
27.2 Rutgers shall safeguard and keep confidential Proprietary and/or
Confidential Information relating to Licensed Products which is owned or
controlled by Licensee and disclosed to Rutgers hereunder in writing or if oral,
if confirmed in writing within a reasonable time after disclosure. Rutgers shall
use the same degree of care in safeguarding the information as it exercises with
its own information of a similar nature, and shall not disclose or permit the
disclosure of such information to others (except to its employees, agents or
consultants who are bound to Licensee and Rutgers by a like obligation of
confidentiality) without the express written permission of Licensee, except that
Rutgers shall not be prevented from using or disclosing any such information:
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(27.2a) which Rutgers can demonstrate by written records was
previously known to it; or
(27.2b) which is now, or becomes in the future, information
generally available to the public in the form supplied,
other than through acts or omissions of Rutgers; or
(27.2c) which is lawfully obtained by Rutgers from sources
independent of Licensee who were entitled to provide such
information to Rutgers. The obligations of the parties
under this Article 27 shall remain in effect during the
term of this Agreement and f or 5 years from the date of
termination or expiration of this Agreement.
28. MISCELLANEOUS
-------------
28.1 The headings of the several articles are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
28.2 This Agreement will not be binding upon the parties until it has been
signed below on behalf of each party, in which event, it shall be effective as
of the Effective Date.
28.3 No amendment or modification hereof shall be valid or binding upon
the parties unless made in writing and signed on behalf of each party.
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28.4 This Agreement embodies the entire understanding of the parties and
shall supersede all communications, representations or understandings, either
oral or written, between the parties relating to the subject matter hereof.
28.5 In case any of the provisions contained in this Agreement shall be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, but
this Agreement shall be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
28.6 Licensee shall not enter into any agreement (s) relating to this
Agreement with Inventors or other Rutgers employees or students in contravention
of the legal rights or policies of Rutgers.
IN WITNESS WHEREOF, both Rutgers and Licensee have executed this Agreement,
in duplicate originals, by their duly authorized representatives on the day and
year hereinafter written.
Nucycle Therapy, Inc. Rutgers, The State University
of New Jersey
By /s/Burt Ensley By: /s/William T. Adams
--------------------- ------------------------
(Signature) (Signature)
Name: Burt Ensley Name William T. Adams
Director
Office of Corporate Liaison and
Technology Transfer
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Exhibit 6.2
-----------
OPERATING AGREEMENT
OF
BIOSCIENCE, L.L.C.
THIS OPERATING AGREEMENT of BIOSCIENCE, L.L.C., made as of the 25th
day of February, 2000, by and between NUCYCLE THERAPY, INC., a New Jersey
corporation having offices at 1 Deer Park Drive, Suite M, Monmouth Junction, New
Jersey 08852 ("NUCYCLE"), and MANHATTAN DRUG COMPANY, INC., a New York
corporation having offices at 225 Long Avenue, Building 15, P.O. Box 278,
Hillside, New Jersey 07205 (hereinafter referred to as "MANHATTAN")
(collectively referred to as the "Members" and individually as a "Member") (the
"Agreement").
W I T N E S S E T H:
-------------------
WHEREAS, the Members desire to form a limited liability company named
BIOSCIENCE, L.L.C. (the "LLC"), and to cause a Certificate of formation (the
"Certificate") to be filed in the office of the Secretary of the State of New
Jersey establishing the LLC; and
Whereas, MANHATTAN is in the business of developing vitamins and
nutritional supplements; and
Whereas, NUCYCLE is in the business of developing and producing
nutritionally important materials derived from
<PAGE>
hydropanically grown plants for utilization in nutritional supplements; and
WHEREAS, in light of the objective of maintaining control of the
business within the Members, the Members believe it to be in the best interests
of the LLC to place certain restrictions on a Member's ability to transfer its
Interest; and
WHEREAS, the Members have agreed as to the operation of the LLC and
wish to set forth the terms and conditions thereof in this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows;
ARTICLE I
---------
DEFINITIONS
-----------
"Additional Capital Contribution" has the meaning assigned to such
---------------------------------
term in Section 7.4(b).
"Additional Capital Contribution Priority Return" shall mean, with
-------------------------------------------------
respect to any Member making an Additional Capital Contribution after the date
hereof, an amount calculated at a rate per annum equal to the Base Rate on such
Member's Unreturned Additional Capital Contribution for such Fiscal Year. For
income tax purposes, the Additional Capital Contribution Priority Return shall
neither be an expense of the LLC nor
2
<PAGE>
regarded as a "guaranteed payment" within the meaning of Code Section 707(c).
"Appraised Value" shall mean the average value for the LLC determined
---------------
by three independent appraisers licensed to appraise businesses, who are
experienced in valuing closely-held business operations. One appraiser shall be
selected by each Member, and the third appraiser shall be selected by the two
appraisers chosen as aforesaid.
"Base Rate" shall mean a rate of interest equal to one (1) percentage
-----------
point above the fluctuating annual rate of interest announced publicly by
Citibank, N.A., in its New York City office, as its base rate, as the same may
change from time to time.
"Business" shall mean the development and worldwide marketing of
----------
vitamins and nutritional products.
"Capital Account" of a Member shall mean the capital account of that
-----------------
Member determined from the inception of the LLC in accordance with the rules set
forth in Section 1.704-1(b)(2) of the Treasury Regulations.
"Capital Items" means the net cash proceeds, if any, realized by the
---------------
LLC from borrowings by the LLC secured by a mortgage, deed of trust or other
lien or security interest on, or a sale or other disposition by the LLC of, all
or substantially all of the LLC's assets in a transaction treated
3
<PAGE>
as a Capital Transaction for Federal income tax purposes, after deducting all
expenses related to such borrowing, sale or other disposition and any repayment
of existing indebtedness from the proceeds thereof.
"Capital Transaction" means a transaction resulting in Capital Items.
---------------------
"Code" shall mean the Internal Revenue Code of 1986, as amended (or
------
any corresponding provision or provisions of succeeding law).
"Contribution(s)" or "Capital Contribution(s)" shall mean the cash or
----------------------------------------------
other property contributed or to be contributed by the Members pursuant to
Article VII hereof.
"Contributing Member" shall have the meaning given to such term in
---------------------
Section 7.5 hereof.
"Fiscal Year" shall mean the period ending on December 31, 2000, and
-------------
each successive twelve-month period thereafter during the term hereof.
"Interest" shall mean as to a Member that percentage set forth
----------
opposite the Member's name on Exhibit A attached hereto.
"LLC" shall have the meaning given to such term in the Preliminary
-----
Statement.
"Member Loan" shall have the meaning given to such term in Sections
-------------
7.4(a) and 7.5(a) hereof.
4
<PAGE>
"Members" shall mean at any time the persons or entities owning
---------
Interests in the LLC or, with respect to any transfer of all or any portion of
an Interest pursuant to Article X, the transferor of such Interest, unless and
until the transferee thereof is admitted as a Member to the extent of the
Interest transferred pursuant to Section 10.2. The current Members are the
Persons listed on Schedule A.
"Net Cash Flow" for any period shall mean (i) the cash receipts of the
--------------
LLC derived from the sale of the Products of the LLC or otherwise (but excluding
all Capital Contributions) in excess of operating expenses (including interest
on indebtedness of the LLC, taxes and the like, but excluding those expenses
paid for from Capital Contributions), less (ii) all payments made in
amortization of indebtedness of the LLC (including Member Loans) when made from
sources other than reserves previously deducted in determining Net Cash Flow,
borrowings, or Capital Contributions, and less (iii) such amounts as the Members
may require to maintain reasonable cash reserves and working capital, and less
(iv) amounts reinvested in the Business by the Members.
"Net Income" and "Net Losses" shall mean, for each Fiscal Year of the
-----------------------------
LLC or other period, an amount equal to the LLC's taxable income or loss for
such Fiscal Year or other period, determined in accordance with Code Section
703(a) (for
5
<PAGE>
this purpose, all items of income, gain, loss or deduction required to be
separately stated pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments:
(a) Any income of the LLC that is exempt from Federal income tax and
not otherwise taken into account in computing Net Income or Net Losses shall be
added to such taxable income or loss;
(b) Any expenditures of the LLC described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Net Income or Net Losses shall be subtracted from such
taxable income or loss; and
(c) Any items which are specially allocated pursuant to Section 8.5
hereof shall not be taken into account in computing Net Income or Net Losses.
"Non-Contributing Member" shall have the meaning given such Term in
-------------------------
Section 7.5 hereof.
"Person" shall mean any individual, partnership, corporation, trust,
--------
limited liability company or other entity.
"Tax Matters Partner" shall have the meaning given to such term in
---------------------
Section 11.5 hereof.
6
<PAGE>
"Term" shall have the meaning given to such term in Article IV hereof.
------
"Tradename" shall mean the name selected by the Members for retail
---------
sales of vitamins and nutritional products.
"Transfer" shall mean any disposition of an Interest in the LLC by a
----------
Member (including, without limitation, gifts, sales, assignments, pledges and
encumbrances), whether voluntary or involuntary, or whether pursuant to court
order or by operation of law. Any transfer of an interest, direct or indirect,
in a Member or in any entity constituting such Member shall be deemed to be a
Transfer of an Interest in the LLC by such Member.
"Treasury Regulation(s)" means the regulations promulgated under the
------------------------
Code, as such Treasury Regulations may be amended from time to time (it being
understood that all references to specific sections of the Treasury Regulations
shall be deemed also to refer to any corresponding provisions of succeeding
Treasury Regulations).
"Unreturned Additional Capital Contribution" shall mean, with respect
--------------------------------------------
to any Member the amount of such Member's Additional Capital Contributions, and
thereafter (a) increased on an annual basis by the difference between the
Additional Capital Contribution Priority Return and the amount distributed
pursuant to Sections 8.1(a)(i) and 8.2(a) hereof in such Fiscal
7
<PAGE>
Year, if any, and (b) decreased by amounts distributed under Sections 8.1(a)(ii)
and 8.2(b) hereof.
ARTICLE II
----------
CONTINUATION, NAME, PRINCIPAL PLACE OF BUSINESS,
------------------------------------------------
REGISTERED OFFICE, REGISTERED AGENT
-----------------------------------
2.1 FORMATION. The LLC has been formed and continues under the
---------
Limited Liability Company Act of the State of New Jersey, to carry on the
business purposes provided for herein.
2.2 NAME. The name of the LLC is BIOSCIENCE, L.L.C.
----
2.3 PRINCIPAL PLACE OF BUSINESS. The principal place of
---------------------------
business of the LLC shall be maintained at the offices of 225 Long Avenue,
Hillside, New Jersey 07205. The LLC may relocate its office or have such
additional offices as the Members may determine.
2.4 REGISTERED OFFICE AND REGISTERED AGENT. The registered office of
--------------------------------------
the LLC for purposes of service of process shall be 225 Long Avenue, Hillside,
New Jersey 07205 and its registered agent at such address shall be Eric
Friedman.
ARTICLE III
-----------
PURPOSES OF LLC
---------------
The LLC may conduct and be involved in any lawful business, activity
or investment. Without limiting the generality of the foregoing, the LLC
specifically may acquire,
8
<PAGE>
own, hold, improve, develop, transfer, dispose of, pledge, mortgage, deal in,
and loan or borrow money upon, alone or in conjunction with others, real and
personal property, tangible and intangible, of every kind, character and
description, or any interest therein, and all kinds and forms of securities,
shares of capital stock, scrip, bonds, debentures, coupons, mortgages, notes,
bills of exchange, acceptances, assignments, patents, licenses, accounts, fees,
evidences of indebtedness, obligations, trust certificates, interim receipts,
warrants, and certificates issued or created by or being claims against any
corporation, association, partnership, limited liability company, syndicate,
entity, or person, or governmental, municipal or public subdivision, district,
authority or agency, and do all things necessary and proper in connection
therewith, and conduct and be involved in any other business necessary and
relating to the foregoing.
ARTICLE IV
----------
TERM
----
The LLC shall have perpetual existence (the "Term") unless sooner
terminated as hereinafter provided or by operation of law.
9
<PAGE>
ARTICLE V
---------
MEMBERS
-------
5.1 LIABILITY. The Members shall not be bound by, or be personally
---------
liable for, the losses, expenses, liabilities or obligations of the LLC.
5.2 STATUS OF LLC INTEREST. The Interests in the LLC owned by the
----------------------
Members are fully paid and nonassessable.
5.3 RIGHTS OF COMPETITION. Subject to the provisions of that
---------------------
Confidentiality Agreement entered into between the Members on the date hereof,
and except as hereinafter set forth below and in paragraph 9.2(d) hereof, each
Member shall be free to engage in, conduct or participate in any business
activity whatsoever, without liability to the Members or the LLC, even if such
business or activity competes, directly or indirectly, with the business of the
LLC; and any such activity shall not be deemed to be a business opportunity of
the LLC nor shall any of the Members of the LLC be deemed to have any interest
therein or rights to profits or other revenues therefrom. Notwithstanding
anything hereinabove to the contrary, neither Member shall compete with the LLC
or with any other Member in any business activity involving specific
formulations of vitamins or nutritional supplements owned by the LLC.
10
<PAGE>
ARTICLE VI
----------
MANAGEMENT
----------
6.1 MANAGEMENT DECISIONS. (a) All Members may participate in
--------------------
decisions affecting the day-to-day operations of the LLC. The day-to-day
decisions of the LLC shall be made by Members owning a majority in Interests of
LLC.
(b) The Members agree to create a separate electronic commerce web
site business to be owned by the LLC that will conduct business under a trade
name agreed to by all Members.
(c) The Members shall link their electronic commerce sites and
information sites.
6.2 DUTIES. (a) The Members will consult with respect to
------
establishment of product lines, tradenames, marketing and distribution
strategies.
(b) NUCYCLE will create a new information site to provide content and
direct electronic visitors to electronic commerce sites.
(c) MANHATTAN will market and sell for the account of the LLC the
jointly developed products to retail outlets and other branded resellers.
(d) MANHATTAN shall provide fulfillment services at the expense of
the LLC for its separate electronic commerce site, if any.
11
<PAGE>
(e) MANHATTAN will list LLC products for sale on any electronic
commerce site maintained by MANHATTAN or any of its affiliates.
ARTICLE VII
-----------
MEMBERS' CAPITAL CONTRIBUTIONS; WITHDRAWALS;
--------------------------------------------
ADDITIONAL CAPITAL CONTRIBUTIONS
--------------------------------
7.1 CAPITAL ACCOUNTS. The LLC shall maintain a cash Method Capital
----------------
Account for each of the Members.
7.2 CAPITAL CONTRIBUTIONS AND INTERESTS OF MEMBERS. (a) On the date
----------------------------------------------
hereof, the Members have contributed to the capital of the LLC the funds set
forth on attached Exhibit A (hereinafter referred to as an "Initial Capital
Contribution"). In addition, the Members shall contribute, at no cost to the
LLC, the following to the LLC:
(i) NUCYCLE shall supervise the development of an electronic
commerce web site owned by the LLC for retail sales of vitamins and nutritional
products on the internet using the Tradename.
(ii) MANHATTAN shall develop the labels on behalf of the LLC for the
products sold under the Tradename.
(iii) MANHATTAN and NUCYCLE shall jointly develop the formulations
of vitamins and nutritional products using chemicals derived from botanical
sources, and all such formulations shall be owned by the LLC.
12
<PAGE>
(b) Notwithstanding the foregoing to the contrary, NUCYCLE shall be
obligated to fund all third party costs and expenditures for the development of
the electronic commerce web site for the LLC, which expenditures shall be
treated as Additional Capital Contributions under Section 7.4 hereof.
7.3 WITHDRAWALS AND DISTRIBUTIONS OF CAPITAL. A Member shall not be
----------------------------------------
entitled to withdraw any part of its Capital Account or to receive any
distributions from the LLC except as specifically provided herein, and no
interest shall be paid on the outstanding balance of a Member's Capital Account.
7.4 ADDITIONAL CAPITAL CONTRIBUTIONS. (a) Prior to requiring an
--------------------------------
Additional Capital Contribution from the Members, the Members shall make a good
faith effort to obtain the required funds from a third party lender on
commercially reasonable terms and conditions. If unable to obtain third party
financing, the Members may arrange for a loan to the LLC from any Member, upon
such terms and conditions as lending Member and Members owning a majority in
Interests may agree (a "Member Loan").
(b) If Members owning a majority in Interests determine that any
additional capital is required by the LLC, and the date required, the Members
shall each be responsible for a portion of such additional capital contribution
in the ratio of their respective Interests in the LLC (each an "Additional
13
<PAGE>
Capital Contribution"). A Member may refuse to make such Additional Capital
Contributions. In addition to the foregoing, the Members anticipate making
expenditures on behalf of the LLC. Such expenditures must be approved by
Members owning a majority in Interests. Such expenditures will be deemed
Additional Capital Contributions at the end of each calendar month, and the
Members shall make such Additional Capital Contributions as may be necessary by
the end of the following calendar month to equalize their deemed Additional
Capital Contributions. Except as provided in this Section 7.4, the Members
shall have no further obligations to make Additional Capital Contributions to
the LLC.
7.5 FAILURE TO CONTRIBUTE. If any Member (the "Non-Contributing
---------------------
Member") fails to make any Additional Capital Contribution when due, the other
Members (each a "Contributing Member") shall have the right, but not the
obligation, to advance directly to the LLC the additional capital required from
the Non-Contributing Member as a loan to the Non-Contributing Member (the
"Member Loan"). Member Loans due to a Non-Contributing Member hereunder shall
be repaid from all distributions (whether from Net Cash Flow or Capital Items)
which the Non-Contributing Member would be entitled to receive but for this
provision. (Such repayments shall first be applied to unpaid and accrued
interest and then to the principal of such
14
<PAGE>
Member Loan). It is understood, however, that if the Member Loan is not repaid
from such distributions, the Non-Contributing Member shall be obligated to repay
all unpaid principal of and accrued interest on such Member Loan upon
dissolution of the LLC but only to the extent of such Non-Contributing Member's
share of liquidation proceeds under Section 9.2. A Non-Contributing Member shall
have no personal liability for the repayment of a Member Loan hereunder. All
allocations relating to the distributions from the LLC paid to the maker of the
Member Loan as a result of this Section 7.5 shall be allocated to the Non-
Contributing Member.
7.6 LOANS BY MEMBERS. Member Loans to the LLC shall not be
----------------
considered contributions to the capital of the LLC and shall not increase the
Capital Account of the lending Member, and the repayment of such loans shall not
be deemed withdrawals from the capital of the LLC. Member Loans shall bear
interest at the greater of (x) the Base Rate or (y) any interest paid by the
Member on loans incurred by the Member to acquire capital to, in turn, loan to
the LLC. Member Loans shall include all expenses attributable to such
borrowings.
7.7 NO RESTORATION OF NEGATIVE CAPITAL ACCOUNTS. The Members shall
-------------------------------------------
not be obligated to restore any negative balances in their Capital Accounts on
liquidation of the LLC or at any other time.
15
<PAGE>
ARTICLE VIII
------------
DISTRIBUTIONS OF NET CASH FLOW; ALLOCATION OF
----------------------------------------------
NET INCOME AND NET LOSSES; SPECIAL ALLOCATIONS
----------------------------------------------
8.1 DISTRIBUTION OF NET CASH FLOW. (a) Net Cash Flow shall be
-----------------------------
distributed to the Members on not less than an annual basis, in the following
manner:
(i) First, to each Member who has made an Additional Capital
Contribution, the amount, if any, equal to such member's Additional Capital
Contribution Priority Return, pro rata, in accordance with the respective
amounts of all Additional Capital Contribution Priority Returns of all Members,
provided that the distribution under this paragraph shall not exceed fifty (50%)
percent of the Net Cash Flow in any Fiscal Year;
(ii) Second, to each Member who has made an Additional Capital
Contribution, the amount, if any, required to provide such Member with his
Unreturned Additional Capital Contribution, pro rata, in accordance with the
respective amounts of all Unreturned Additional Capital Contributions of all
Members, provided that the distribution under this paragraph shall not exceed
the difference of fifty (50%) percent of the Net Cash Flow in any Fiscal Year,
reduced by the amount distributed pursuant to the immediately preceding
paragraph (i);
(iii) Third, to the Members in proportion to their respective
Interests in the LLC.
16
<PAGE>
(b) The amounts distributable pursuant to this Section 8.1 are to be
determined on a Fiscal Year basis and amounts distributed more frequently are
for convenience only and are not controlling as to the total amounts to be
distributed to a Member for the applicable Fiscal Year of the LLC. In the event
any Member receives any distributions under this Section 8.1 which are in excess
of the amount to which such Member would be entitled if distributions had been
made annually, then an amount equal to such excess distribution shall be repaid
to the LLC by the Member who received such excess distribution promptly after
the amount of such excess distribution becomes known, and shall then be
redistributed to the Members entitled to receive such excess amount. Without
limiting any other rights which the other Members may have, if a Member does not
repay an excess distribution as above provided, future distributions to that
Member shall be reduced until an amount equal to the excess distribution,
together with interest at a rate per annum equal at all times to the Base Rate,
shall have been so withheld.
8.2 DISTRIBUTION OF CAPITAL ITEMS. Capital Items shall be
-----------------------------
distributed to the Members in the discretion of the Members, in the following
manner:
(a) First, to each Member who has made an Additional Capital
Contribution, the amount, if any equal to such Member's Additional Capital
Contribution Priority Return, pro rata, in
17
<PAGE>
accordance with the respective amounts of all Additional Capital Contribution
Priority Returns of all Members, reduced by prior distributions of Net Cash Flow
for such Fiscal Year under Section 8.1(a)(ii) hereof;
(b) Second, to each Member who has made an Additional Capital
Contribution, the amount, if any, required to provide such member with his
Unreturned Additional Capital Contribution, pro rata, in accordance with the
respective amounts of all Unreturned Additional Capital Contributions of all
Members;
(c) Third, to the Members in proportion to their Interests in the
LLC.
8.3. ALLOCATION OF NET INCOME. Except as set forth in Section
------------------------
8.6 hereof, Net Income shall be allocated to the Members in the following
manner:
(a) First, to each Member who has made an Additional Capital
Contribution in an amount, if any, equal to the aggregate of distributions made
to such Member(s) pursuant to Sections 8.1(a)(i) and 8.2(a) hereof for such
Fiscal Year, and to the extent allocations were insufficient for any prior
Fiscal Year, to such Member(s) for all prior Fiscal Years.
(b) Second, the balance, if any, to the Members in accordance with
their Interests.
18
<PAGE>
8.4 ALLOCATION OF NET LOSSES. Except as set forth in Section
------------------------
8.5 hereof, Net Losses shall be allocated to the Members in accordance with
their Interests in the LLC.
8.5 SPECIAL ALLOCATIONS
-------------------
(a) Negative Capital Accounts. If the allocation of any Net Loss of
-------------------------
the LLC for any Fiscal Year of the LLC pursuant to Section 8.4 would cause a
Member to further decrease a negative Capital Account balance (determined after
making appropriate adjustments to reflect (A) all distributions, allocations,
and contributions made during such Fiscal Year of the LLC and (B) reasonably
expected allocations of loss and deduction and reasonably expected adjustments
and distributions within the meaning of Treasury Regulation Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6)) which exceeds such Member's share of the LLC's
Minimum Gain at the end of such Fiscal Year of the LLC, then the portion of such
Net Loss that would have such result shall instead be specially allocated to the
other Members to the extent of such other Members' positive Capital Account
balances, if any (determined before such special allocation but after all
adjustments to such other Members' Capital Accounts for such Fiscal Year of the
LLC and after adjustment for any reasonably expected adjustments, allocations
and distributions described above).
19
<PAGE>
(b) Qualified Income Offset. In the event that any Member
-----------------------
unexpectedly receives any adjustments, allocations or distributions described in
Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which causes or
increases a deficit in such Member's Capital Account (in excess of any amount of
such deficit that the Member may be obligated to restore in accordance with this
Agreement and any amendments hereto and determined after making appropriate
adjustments to reflect all distributions, allocations, and contributions made
during such Fiscal Year) as of the end of such Year of the LLC to which such
allocation, distribution or adjustment relates, then such Member shall be
allocated, prior to any other allocation required by this Article VIII (other
than Section 8.5(a)), income and gain in the amount and proportions necessary to
eliminate, to the extent required by the Treasury Regulations under Code Section
704, such excess deficit as quickly as possible, provided that an allocation
pursuant to this Section 8.5(b) shall be made only if and to the extent that
such Member would have a deficit in its Capital Account after all other
allocations provided for in this Section 8.5 have been made tentatively as if
this Section 8.5(b) were not in this Agreement.
(c) Gross Income Allocation. In the event any Member has a deficit
-----------------------
Capital Account at the end of any Year of the LLC
20
<PAGE>
which is in excess of the sum of (i) the amount such Member is obligated to
restore pursuant to any portion of this Agreement, and (ii) the amount such
Member is deemed to be obligated to restore pursuant to the penultimate
sentences of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5), each
such Member shall be specially allocated items of LLC income and gain in the
amount of such excess as quickly as possible, provided that an allocation
pursuant to this Section 8.5(c) shall be made only if and to the extent that
such Member would have a deficit Capital Account in excess of such sum after all
other allocations provided for in this Article VIII have been made as if Section
8.5(b) hereof and this Section 8.5(c) were not in this Agreement.
(d) (i) LLC Minimum Gain Chargeback. Except as otherwise provided
---------------------------
in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of
this Section 8.5, if there is a net decrease in LLC Minimum Gain during a Year
of the LLC, each Member shall be specially allocated, before any other
allocation under this Section 8.5, items of LLC income and gain for such Year of
the LLC (and, if necessary, subsequent years) in proportion to and to the extent
of an amount equal to such Member's share of the net decrease in LLC Minimum
Gain determined in accordance with Regulation Section 1.704-2(g)(2). This
Section 8.5(d)(i) is intended to comply with, and shall be
21
<PAGE>
interpreted consistently with, the "minimum gain chargeback" provisions of
Regulation Section 1.704-2(f).
(ii) Member Minimum Gain Chargeback. Except as otherwise provided in
------------------------------
Treasury Regulation Section 1.704-2(i)(4), notwithstanding any other provision
of this Article VIII, if there is a net decrease in Member Nonrecourse Debt
Minimum Gain attributable to a Member during any Fiscal Year of the LLC, each
Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt, determined in accordance with Treasury
Regulation Section 1.704-2(i)(5), shall be specially allocated items of LLC
income and gain for such Fiscal Year of the LLC (and, if necessary, subsequent
Fiscal Years of the LLC) in an amount equal to such Member's share of the net
decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treasury Regulation Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in
accordance with Treasury Regulation Sections 1.704-2(f)(6) and 1.704-2(j)(2).
This Section 8.6(d)(ii) is intended to comply with the minimum gain chargeback
requirement in Section 1.704-2(i)(4) of the Regulations and shall be interpreted
consistently therewith.
22
<PAGE>
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal
----------------------
Year of the LLC shall be specially allocated among the Members in proportion to
their Interests in the LLC.
(f) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions
-----------------------------
for any Fiscal Year of the LLC shall be specially allocated to the Member who
bears the economic risk of loss with respect to the Member Nonrecourse Debt to
which such Member Nonrecourse Deductions are attributable in accordance with
Treasury Regulation Section 1.704-2(i)(1).
(g) Code Section 754 Adjustment. To the extent an adjustment to the
---------------------------
adjusted tax basis of any LLC asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Treasury Regulation Section 1.704-
1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken
into account in determining Capital Accounts as the result of a distribution to
a Member in complete liquidation of his, her or its Interest in the LLC, the
amount of such adjustment to the Capital Accounts shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall be specially
allocated to the Members in accordance with their Interests in the LLC in the
event Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the
Members to whom such
23
<PAGE>
distribution was made in the event Treasury Regulation Section 1.704-
1(b)(2)(iv)(m)(4) applies.
(h) Targeting Allocations. The allocations set forth in this Article
---------------------
VIII are intended to comply with certain requirements of the Code and
regulations thereunder, as well as produce final Capital Account balances that
are at levels ("Target Final Balances") which would permit liquidating
distributions to be made in accordance with Section 9.2 hereof (relating to
distribution upon liquidation). To the extent that the allocation provisions of
this Agreement would not produce the Target Final Balances, the Members are
hereby authorized (in the year of liquidation, or if necessary and permissible
under the Code, in immediately preceding years) to amend such provisions by
allocating items of gross income, gain, income, or deduction in a manner
necessary to produce such Target Final Balances.
(i) Code Section 704(c). The LLC's ordinary income and losses and
-------------------
capital gains and losses as determined for Federal income tax purposes (and each
item of income, gain, loss or deduction entering into the computation thereof)
shall be allocated to the Members in the same proportion as the corresponding
"book" items are allocated pursuant to this Article VIII. Notwithstanding the
foregoing sentence, Federal income tax items relating to "Section 704(c)
Property" shall be
24
<PAGE>
allocated among the Members in accordance with Code Section 704(c) to take into
account the difference between the fair market value and the tax basis of such
Section 704(c) Property as of the date of its contribution to the LLC or such
other date as may be determined in accordance with Code Section 704(c). Items
described in this Section 8.5(i) shall neither be credited nor charged to the
Member's Capital Accounts to the extent already reflected therein. For purposes
of this Agreement, the Members shall elect under Treasury Regulation Section
1.704-3(b)(1) to use the "traditional method" to cure book and tax disparities
in Capital Accounts.
(j) "Nonrecourse Deductions" in any Fiscal Year shall mean an amount
of LLC deductions (other than Member Nonrecourse Deductions) that are
characterized as "nonrecourse deductions" under Section 1.704-2(b) of the
Treasury Regulations.
(k) "LLC Minimum Gain" shall have the meaning scribed to the term
"partnership minimum gain" in Regulations Section 1.704-2(d)(1).
(l) "Member Nonrecourse Debt" shall have the meaning ascribed to the
term "partner nonrecourse debt" in Regulations Section 1.704-2(b)(4).
(m) "Member Nonrecourse Debt Minimum Gain" shall have the meaning
ascribed to the term "partner nonrecourse debt minimum gain" in Regulations
Section 1.704-2(i)(2).
25
<PAGE>
(n) "Member Nonrecourse Deductions" shall mean any and all items of
loss, deduction or expenditure (described in Section 705(a)(2)(B) of the Code)
that, in accordance with the principles of Regulations Section 1.704-2(i)(2),
are attributable to Member Nonrecourse Debt.
(o) Definitions. All capitalized terms used in this Section 8.5, if
-----------
not otherwise defined, shall have the meaning set forth in the applicable
Treasury Regulations.
ARTICLE IX
----------
DISSOLUTION AND LIQUIDATION; ALLOCATION OF
------------------------------------------
LIQUIDATION GAIN
----------------
9.1 TERMINATION. (a) The LLC shall terminate and be dissolved upon
-----------
the occurrence of any of the following:
(i) The election of any Member to terminate the LLC.
(ii) Upon the sale of all or substantially all of the assets
of the LLC and the termination of the business of the LLC.
(iii) The entry of a decree of judicial dissolution.
(b) Dissolution of the LLC shall be effective on the day on which the
event occurs giving rise to the dissolution,
26
<PAGE>
but the LLC shall not terminate until the assets of the LLC shall have been
distributed as provided herein.
9.2 (a) DISTRIBUTION ON LIQUIDATION. Upon the termination and
---------------------------
dissolution of the LLC, the assets of the LLC shall be liquidated as promptly as
possible, but in an orderly and business-like manner, and the proceeds thereof
shall be applied to and distributed in the following priority:
(i) First, to the creditors of the LLC (other than secured
creditors whose obligations are assumed or otherwise transferred on the sale or
distribution of LLC assets and other than Members).
(ii) Second, to the Members in repayment of outstanding
loans, if any, made by them to the LLC.
(iii) Third, to the Members in accordance with Section
8.2(a) hereof as if such proceeds constituted Capital Items.
(iv) Fourth, the balance shall be payable to the Members to the
extent of the then balances in their respective Capital Accounts.
(b) Subject to paragraph (d) below, the Members may choose to
distribute one or more of the LLC's assets in kind rather than liquidating all
or part of the LLC assets.
(c) Immediately prior to such distribution, Capital Accounts shall be
adjusted in accordance with Section 1.704-
27
<PAGE>
1(b)(2)(iv)(f) of the Treasury Regulations to reflect unrealized appreciation or
unrealized depreciation in the event that property is distributed to a Member
pursuant to Section 9.2(b) hereof.
(d) On liquidation of the LLC each Member shall have equal access to
and right to use the mailing list of the LLC.
ARTICLE X
---------
TRANSFERABILITY OF LLC INTERESTS, THIRD PARTY OFFERS
-----------------------------------------------------
10.1 TRANSFERS. The Transfer of any Interest in the LLC shall,
---------
except as otherwise permitted herein, be null and void.
10.2 TRANSFEREE'S RIGHTS. (a) Notwithstanding anything herein to
-------------------
the contrary, subject to paragraph (c) of this Section 10.2, any Member may
Transfer its Interest in the LLC with the prior written unanimous consent of the
Members owning not less than two-thirds of the Interests in the LLC (including
the transferring Member).
(b) Any transferee of an Interest in the LLC pursuant to a Transfer
hereunder shall receive and hold the Interest in the LLC so transferred subject
to the terms and conditions of this Agreement as though a party hereto, and no
Transfer of the whole or any portion of such LLC Interest shall be made to such
transferee (by conveyance, operation of law or otherwise), and such transferee
shall not become a substituted Member in the
28
<PAGE>
LLC, unless and until he executes and delivers to the other Members a
counterpart of this Agreement, and such other instruments and documents as the
Members reasonably deem necessary or desirable, evidencing such transferee's
agreement to be bound by all of the terms and conditions of this Agreement.
10.3 EXPENSES OF TRANSFER; INDEMNIFICATION. All costs and
-------------------------------------
expenses incurred by the LLC in connection with any Transfer of a Member's
Interest pursuant to this Article, including any filing and recording costs and
the fees and disbursements of counsel for the LLC, shall be paid by the
transferring Member or such Member's transferee. In addition, the transferring
Member or such transferee shall indemnify the other Members and the LLC against
any losses, claims, damages or liabilities to which such Members or the LLC may
become subject arising out of or based upon any false representation or warranty
made by, or breach or failure to comply with any covenant or agreement of, such
transferring Member or such transferee in connection with such Transfer.
10.4 CODE SECTION 708 LIMITATION. If a technical termination of
---------------------------
the LLC for partnership tax purposes under Code Section 708 would result in
recapture, loss, reduction or deferral of a material amount of deductions or
credits of the LLC or any Member under the Code, then no sale, exchange,
29
<PAGE>
transfer or assignment of a Member's Interest in the LLC may be made if the
Interests sought to be sold, exchanged, transferred or assigned, when added to
the total of all other Interests sold, exchanged, transferred or assigned,
within the period of twelve (12) consecutive months prior thereto, would result
in any such termination.
10.5 THIRD PARTY OFFERS. If at any time after the date hereof
------------------
any Member receives a bona fide offer for the purchase of all (but not less than
all) of the LLC's assets, then such Member shall notify the other Members in
writing of the receipt of the offer.
10.6 RIGHTS OF WITHDRAWAL. (a) If at any time after December
--------------------
31st, 2002, either Member wishes to withdraw as a Member from the LLC (the
"Withdrawing Member"), the Withdrawing Member shall give notice to the other
Member, as the remaining Member, of the Withdrawing Member's intention to
withdraw from the LLC and in such notice shall set forth its assumed fair market
value (net of all authorized contractual obligations of the LLC and of any
costs) for the LLC assets. Under the terms herein set forth, the Withdrawing
Member must sell the LLC Interest owned by it to the remaining Member for a
purchase price equal to the distribution the Withdrawing Member would have
received had the LLC sold all of its assets to a third party for such assumed
fair market value, had paid off all of its debts, and had
30
<PAGE>
distributed the assets in liquidation of the LLC. The purchase price to be paid
shall be paid in cash. The remaining Member shall, within thirty (30) days after
receiving notice from the Withdrawing Member, be obligated to elect either to
purchase the Interest of the Withdrawing Member at the purchase price set forth
in the notice, or to sell to the Withdrawing Member the Interest owned by the
remaining Member, for cash in an amount equal to the product of: (a) the entire
Interest owned by the remaining Member; multiplied by (b)
____________________________/1/ of the assumed fair market value of all LLC
assets set forth in the notice. If the remaining Member fails to give notice to
the Withdrawing Member of its intention to either purchase or sell by the
expiration date, such failure shall be deemed to be notice of its election to
sell the LLC Interest of the remaining Member to the Withdrawing Member at the
price determined as set forth above. The closing of the purchase shall occur
ninety (90) days after the expiration of the thirty (30) day period. Any closing
hereunder shall be at the principal place of business of the LLC unless
otherwise agreed to in writing by all of the Members. The purchase price payable
at closing shall be adjusted for any debts existing between the Members.
_____________________
/1/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
31
<PAGE>
(b) Upon the withdrawal of MANHATTAN under the terms of this Section
10.6, MANHATTAN agrees to continue to perform under the terms and conditions of
the Manufacturing, Warehousing and Order Fulfillment Agreement by and between it
and the LLC, except that the prices charged by MANHATTAN thereunder shall be its
normal prices charged to third parties for the quantities involved.
(c) Upon the withdrawal of NUCYCLE under the terms of this Section
10.6, NUCYCLE agrees to continue to perform under the terms and conditions of
the Production Agreement by and between it and the LLC, except that the prices
charged by NUCYCLE thereunder shall be its normal prices charged to third
parties for the quantities involved.
ARTICLE XI
----------
BOOKS AND RECORDS
-----------------
11.1 BOOKS AND RECORDS. The Members shall maintain full and
-----------------
accurate books of the LLC, showing all receipts and expenditures, assets and
liabilities, profits and losses, and all other records necessary for recording
the LLC's business and affairs, including those sufficient to record the
allocation and distributions provided herein. All LLC financial statements shall
be accurate in all material respects, shall fairly present the financial
position of the LLC and the results of its operations, and shall be prepared in
accordance with generally
32
<PAGE>
accepted accounting principles, subject in the case of quarterly statements to
year-end adjustments. The Members shall elect the accounting method to be used
by the LLC. Such books and records shall be open for the inspection and
examination of the Members or by their duly authorized representatives upon
reasonable notice and during normal business hours.
11.2 REPORTS. (a) The Members shall cause the LLC to prepare
-------
annually such necessary information to be furnished to the Members for use in
preparing their respective income tax returns. Not later than March 15 of each
year, the Members shall prepare and furnish to the Members the annual financial
statements for the LLC for such prior Fiscal Year accurately reflecting the
financial condition of the LLC and the results of the LLC's operations and
containing, without limiting the foregoing, balance sheets, statements of
changes in Members' capital, profit and loss statements (including each Member's
allocable shares of the Net Income and Net Losses (and items thereof) of the
LLC), and statements of changes in financial position, all of which are to be
verified by the accountants for the LLC.
(b) Each year a majority in Interests of the Members may cause the
following to be performed: (i) an examination to be made, at the expense of the
LLC, by an independent certified accountant selected by the Members as the
auditors for the LLC,
33
<PAGE>
covering the financial position of the LLC, and the results of its operations
and the changes in its financial position for such Fiscal Year, and all matters
customarily included in such examinations; (ii) the prompt delivery to the
Members, of a copy of the report of such examination, stating that such
examination has been performed in accordance with generally accepted auditing
standards, together with the following financial statements with respect to the
LLC, attested to by such accountants as being prepared in accordance with
generally accepted accounting principles; and (iii) a balance sheet, an income
statement and statements of changes in financial position and the Capital
Account balances of the Members as of the end of and for such Fiscal Year. The
annual financial statements sent to the Members shall be accompanied by a status
report on the LLC's operations for the Fiscal Year covered thereby.
(c) After the end of each Fiscal Year, the Members shall use their
best efforts to cause the LLC's independent accountants to prepare and transmit
to each Member, as promptly as practicable, a Federal income tax Schedule K-1
and such other tax information as may be reasonably necessary to enable such
Member to prepare its Federal, state and local income tax returns relating to
such Fiscal Year.
11.3 BANK ACCOUNTS. All funds of the LLC shall be deposited in its
-------------
name in such checking and savings accounts or
34
<PAGE>
time certificates as shall be designated by the Members. Withdrawals therefrom
shall be made upon signature of the Members.
11.4 ACCOUNTING DECISIONS. All decisions as to accounting
--------------------
matters shall be made by the Members.
11.5 TAX MATTERS PARTNER. MANHATTAN shall be the "Tax Matters
-------------------
Partner" of the LLC as described in Code Section 6231(a)(7). MANHATTAN shall be
solely responsible for handling the administrative and/or judicial proceedings
involving the Internal Revenue Service or any government authority relating to
any return of the LLC. MANHATTAN shall provide prompt notice to the Members of
any communication to or from a Federal, state or local authority regarding any
return of the LLC.
ARTICLE XII
-----------
INDEMNIFICATION
---------------
The LLC shall indemnify the Members against any loss or threat of loss
as a result of any claim or legal proceedings related to the performance or non-
performance of any act concerning the business or activities of the LLC in good
faith within what it reasonably believed to be the scope of its authority and
for a purpose for which it reasonably believed to be in the best interests of
the LLC. Further, a Member shall not be liable, responsible or accountable in
damages or otherwise to the other Members or the LLC for any acts performed
35
<PAGE>
by it under this Agreement or by law, except for any acts of fraud, gross
negligence or willful misconduct.
ARTICLE XIII
------------
AMENDMENTS
----------
This Agreement may not be amended without the prior written consent of
all the Members.
ARTICLE XIV
-----------
MISCELLANEOUS
-------------
14.1 FEDERAL INCOME TAX ELECTIONS. All elections required or
----------------------------
permitted to be made by the LLC under the Code (including any election under
Code Section 754) shall be made by the Members in such manner as will be most
advantageous to the LLC.
14.2 MEETINGS Meetings of the LLC may be called by the Members.
--------
14.3 NOTICES. All notices under this Agreement shall be in
-------
writing, duly signed by the party giving such notice, and transmitted by
certified mail or by a reputable overnight courier to such Member at the address
set forth in Exhibit A attached hereto or at such other address which such
Member may hereafter designate in writing. Copies of all notices delivered to
the Members shall be delivered to:
Drinker Biddle & Shanley, a Pennsylvania LLP
500 Campus Drive
Florham Park, New Jersey 07932
Attention: Kevin M. Kilcullen, Esq.
36
<PAGE>
and
Lorenza DeLuca, Esq.
C/o NuCycle Therapy, Inc.
1 Deer Park Drive, Suite 1h
Monmouth Junction, New Jersey 08852
14.4 CAPTIONS. Section titles or captions contained in this
--------
Agreement are inserted only as a matter of convenience and for reference and in
no way define, limit, extend or describe the scope of this Agreement or the
intent of any provision hereof.
14.5 IDENTIFICATION. Whenever the singular number is used in
--------------
this Agreement and when required by the context, the same shall include the
plural, and the masculine gender shall include the feminine and neuter genders.
14.6 COUNTERPARTS. This Agreement may be executed in any number
------------
of counterparts and all of such counterparts shall for all purposes constitute
one agreement binding on the parties hereto, notwithstanding that all parties
are not signatory to the same counterpart.
14.7 APPLICABLE LAW. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of New Jersey. Any dispute
hereunder shall be resolved by the Courts of the State of New Jersey.
14.8 MEMBER'S QUALIFICATION. Anything in this Agreement to the
----------------------
contrary notwithstanding, no Member, or any assignee
37
<PAGE>
of the interest thereof, shall be a person or entity prohibited by law from
becoming such. Any assignment of any Interest in the LLC to any person or entity
not meeting such standard shall be void and ineffectual and shall not bind the
LLC.
14.9 BINDING AGREEMENT. Except as herein otherwise provided to
-----------------
the contrary, this Agreement shall be binding upon and inure to the benefit of
the parties hereto, their personal representatives, successors and assigns.
14.10 MERGER. This Agreement contains the entire agreement
------
between the Members and supersedes all prior and contemporaneous negotiations,
understandings and agreements, written or oral, between the Members.
IN WITNESS WHEREOF, the parties hereto, have affixed their hands and
seals the day and year first above written.
MEMBERS:
ATTEST: MANHATTAN DRUG COMPANY, INC.,
a New York Corporation
/s/ /s/ Eric Friedman
- --------------------------- ---------------------------------
by: Eric Friedman, Vice President
ATTEST: NUCYCLE THERAPY, INC.
a New Jersey Corporation
/s/ /s/ Burt Ensley
- --------------------------- ---------------------------------
by: Burt Ensley, President
38
<PAGE>
EXHIBIT A
---------
Member, Name and Address Capital Accounts Interest
- ------------------------------ ---------------- ---------
Manhattan Drug Company, Inc. $500.00 50%
225 Long Avenue
Hillside, NJ 07205
NuCycle Therapy, Inc. $500.00 50%
1 Deer Park Drive, Suite M
Monmouth Junction, NJ
08852
<PAGE>
Exhibit 6.3
-----------
DISTRIBUTION AGREEMENT
AGREEMENT by and among Technical Sourcing International Inc., a Montana
Corporation ("Distributor") and NuCycle Therapy, Inc., a New Jersey Corporation
("Manufacturer").
WHEREAS, Distributor is in the business of marketing ingredients to the
Dietary Supplement industry;
WHEREAS, Manufacturer owns and uses certain patented processes and other
processes for the manufacture of ingredients for the Dietary Supplement Industry
("Products");
WHEREAS, Manufacturer desires to appoint Distributor and Distributor agrees
to become a Distributor in accordance with the terms and conditions of this
agreement;
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
1) Manufacturer hereby agrees to sell bulk mineral products ("Products")
through the Distributor to the Distributor's customers during the term of this
Agreement.
2) Distributor hereby agrees to use it's Best Efforts to promote the sale
of the Manufacturers' Products during the term of this Agreement.
3) Either party may terminate this Agreement by sending three months prior
written notice of termination in accordance with the notice provisions of this
agreement.
4) As consideration for the Distributor's exercise of it Best Efforts to
market the products of the Manufacturer, Manufacturer hereby covenants and
agrees that for a three year period after termination of this Agreement,
Manufacturer will pay Distributor a fee equivalent to Distributor's normal mark
up for any products sold directly or indirectly to any customer who purchased
these products from Distributor during the term of this Agreement. Manufacturer
agrees to make these payments hereunder on a monthly basis on or before the 15th
day of the month following Manufacturer's receipt of payment from the respective
customers. Manufacturer hereby acknowledges that in the event it terminates
this agreement, it will advise all of it's customers or future distributors of
these provisions and will obtain written undertakings by it's customers and
Distributors to abide by the terms and conditions of this Agreement.
5) Manufacturer hereby grants to Distributor a right to audit
manufacturer's books and records to insure compliance by the manufacturer of its
obligations under paragraph 4 hereof to pay Distributor the fee equivalent to
Distributor's normal markup for any product sold after termination of this
Agreement. Distributor shall notify Manufacturer of it's election to audit the
books and records of Manufacturer by sending a written notice and Manufacturer
hereby grants Distributor a right to conduct this audit during normal business
hours. The cost of this audit shall be paid by the Distributor unless there is a
discrepancy of more than 10% of the amount paid to Distributor in which event
the Manufacturer shall pay for the reasonable costs of this audit.
6) If any of the provisions of this Agreement shall be adjudicated to be
invalid or unenforceable, that provision shall be deemed to be amended and the
portion that is thus adjudicated to be invalid and unenforceable shall be
deleted and the balance
<PAGE>
of the agreement shall be enforced to the fullest extent possible under the laws
and public policies that apply in each jurisdiction in which enforcement is
sought.
7) Any notice required or permitted to be given under this Agreement shall
be sufficient if in writing and sent certified mail, return receipt requested,
to the recipient.
8) A waiver by any party of a breach or of any provision of this Agreement
by the other party shall not operate or be construed as a waiver of any
subsequent breach by the other party.
9) This instrument contains the entire Agreement of the parties. It may
not be changed except by a writing signed by the party against whom enforcement
of any waiver, change, modification, extension or discharge is sought.
IN WITNESS WHEREOF the parties have executed this agreement.
TECHNICAL SOURCING INTERNATIONAL, INC.
/s/ Larry Kolb
----------------------------------------------
by: Larry Kolb, Executive Vice President
NUCYCLE THERAPY, INC.
/s/ Burt Ensley
----------------------------------------------
by: Burt Ensley, CEO
<PAGE>
Exhibit 6.4
-----------
PRODUCTION AGREEMENT
AGREEMENT (this "Agreement") made and entered into effective as of the 25th
day of February, 2000, by and between BIOSCIENCE, L.L.C., a New Jersey limited
liability company having an office at 225 Long Avenue, Building 15, P.O. Box
278, Hillside, New Jersey 07205 (hereinafter referred to as "BIOSCIENCE"), and
NUCYCLE THERAPY, INC., a New Jersey corporation, having its office at 1 Deer
Park Drive, Suite M, Princeton Junction, New Jersey 08852 (the "NUCYCLE").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, BIOSCIENCE is a newly-formed entity to engage in, among other
things, the business of developing, marketing and selling various vitamins and
nutritional supplements derived from botanicals and plants (the "Business"); and
WHEREAS, NUCYCLE is engaged in, among other things, the business of
producing raw materials to be used as vitamins and nutritional supplements; and
WHEREAS, the parties anticipate that they will develop a new private label
for the sale of vitamins and nutritional supplements to be known as BIOMINS (the
"Private Label"); and
<PAGE>
WHEREAS, BIOSCIENCE and NUCYCLE agree that it is in their mutual interest
that NUCYCLE produce the raw materials related to the Business of BIOSCIENCE for
the Private Label, under the terms herein set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereby agree as follows:
1. PRODUCTS. NUCYCLE shall produce and deliver to BIOSCIENCE, and
--------
BIOSCIENCE shall purchase and receive exclusively from NUCYCLE, the raw
materials derived from plants to be used in the Private Label products as may be
required by BIOSCIENCE from time to time for the Business (the "Products") upon
the terms and conditions hereinafter set forth. The initial Products are set
forth on Schedule A attached hereto.
2. PRODUCT DEVELOPMENT. (a) Using the Products, NUCYCLE and BIOSCIENCE
-------------------
shall jointly develop formulas, vitamins, and/or nutritional supplements for
sale under the Private Label.
(b) Each party hereto acknowledges and agrees that upon termination of
this Agreement, all right, title and interest in and to the formulas using the
Products shall be owned by BIOSCIENCE.
3. CONFIDENTIALITY AGREEMENT. Simultaneously with and as a condition to
-------------------------
the execution and delivery of this Agreement by BIOSCIENCE, MANHATTAN DRUG
COMPANY, INC., who is a member or BIOSCIENCE, and NUCYCLE are entering into that
certain Confidentiality Agreement (the "Confidentiality Agreement"), the
-2-
<PAGE>
terms of which are an integral part of the terms of this Agreement and are
hereby incorporated by this reference.
4. TERM. This Agreement shall be effective for a five (5) year period
----
(the "Initial Term") commencing as of the date hereof (the "Effective Date"),
and for successive five (5) year periods thereafter (each a "Renewal Term"),
subject to termination by either party upon written notice to the other party
not less than one (1) month prior to the expiration of the Initial Term or any
Renewal Term thereafter, unless sooner terminated in accordance with Section 16
below. Each annual period under this Agreement is hereinafter sometimes
referred to as a "contract year".
5. DELIVERY FORECASTS.
------------------
The parties to this Agreement acknowledge that BIOSCIENCE is unable to
forecast its delivery requirements on a monthly basis with respect to such
Products for the first contract year. BIOSCIENCE shall use its best efforts to
submit to NUCYCLE delivery forecasts for succeeding contract years.
6. ALTERNATE MANUFACTURERS. NUCYCLE and BIOSCIENCE acknowledge and agree
-----------------------
that NUCYCLE shall be the exclusive producer for BIOSCIENCE of all such
Products. BIOSCIENCE shall have the right to purchase the Products from other
manufacturers designated by NUCYCLE during the term of this Agreement if NUCYCLE
is unable to, or does not desire to, produce the Products.
7. PRICE. (a) This paragraph 7(a) shall control so long as NUCYCLE or
-----
any of its affilitates has an ownership interest in
-3-
<PAGE>
BIOSCIENCE. The initial per unit prices for the Products shall be NUCYCLE's
_____________________________________________./1/ After production commences, a
list of NUCYCLE's __________________/2/ will be provided to BIOSCIENCE upon
request. NUCYCLE hereby represents that such price includes only direct costs
incurred in the production of the Products. The price per unit for each of the
Products shall change from time to time based on changes in NUCYCLE's costs of
acquiring the raw materials component of the Products, changes in labor, and
other changes in direct costs. The shipping component shall be the cost for
delivery of the Products to BIOSCIENCE's designated warehouse facility. Such
charges shall be directly paid by BIOSCIENCE or paid by NUCYCLE and reimbursed
by BIOSCIENCE.
(b) If NUCYCLE or any of its affiliates no longer owns any ownership
interest in BIOSCIENCE, then the price charged under paragraph 7(a) for the
applicable services described therein shall be its most competitive prices
charged to third parties for the quantities involved.
8. PAYMENTS. BIOSCIENCE shall directly reimburse NUCYCLE from sales its
--------
current prices as set forth in paragraph 7 not less often than monthly.
_____________________
/1/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
/2/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
-4-
<PAGE>
9. CHANGES IN SPECIFICATIONS.
-------------------------
(a) BIOSCIENCE may at any time and from time to time make changes to
the Product specifications previously given to NUCYCLE. All changes in the
Product specifications shall be in writing, signed by BIOSCIENCE and, as of the
effective date specified by BIOSCIENCE (which shall be at least thirty (30) days
after the same are delivered to NUCYCLE), shall be deemed to be a part of this
Agreement.
(b) If any change in the Product specifications shall result in a
change in NUCYCLE's actual direct costs of production and manufacture,
BIOSCIENCE shall pay such increase costs as the same may be reflected from time
to time in NUCYCLE's current prices.
10. COMPLIANCE WITH LAWS. NUCYCLE shall be responsible for compliance
--------------------
with all health, environmental and other laws relating to the safe handling and
transportation of the Products until delivered to BIOSCIENCE' designated
warehouse facility.
11. WARRANTIES; REMEDIES. NUCYCLE hereby warrants and agrees that:
--------------------
(a) All Products delivered pursuant to this Agreement shall be free
from defects in materials and workmanship.
(b) NUCYCLE shall comply with all applicable Federal, State and local
laws and regulations in producing the Products hereunder, including, but not
limited to, all requirements of the
________________________________________________________________________________
-5-
<PAGE>
Fair Labor Standards Act of 1938, as amended, the Equal Employment Opportunities
provisions of the Civil Rights Act of 1964, as amended, and all regulations
promulgated thereunder.
12. INSURANCE.
---------
(a) NUCYCLE shall, throughout the term hereof, maintain (i) worker's
compensation insurance in statutory amounts covering all of its employees, (ii)
employer's liability insurance with a minimum per occurrence limit of
______________/3/ and (iii) public liability insurance (including product
liability and "broad form" contractual liability) for injuries, including
accidental death, to any one person in an amount not less than ______________/4/
and on account of any one accident in an amount not less than ______________/5/
and for property damage in an amount not less than ______________/6/ (the
employer's liability and public liability insurance are herein referred to as
the "Liability Insurance").
________________________
/3/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
/4/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
/5/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
/6/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
-6-
<PAGE>
(b) All insurance policies required hereunder shall be issued by
companies reasonably acceptable to BIOSCIENCE. BIOSCIENCE (and such other
companies as it may nominate) shall be, upon written request, named as
additional insured under NUCYCLE's Liability Insurance. NUCYCLE shall furnish
BIOSCIENCE with certificates of insurance which provide that BIOSCIENCE (and
such other companies as it may nominate) are named as an additional insured
under the Liability Insurance, that the Liability Insurance is primary as to any
other insurance, that the issuers of the Liability Insurance waive subrogation
against BIOSCIENCE (and its nominees), that the Liability Insurance includes
contractual liability and that all policies required hereunder cannot be
modified or cancelled without thirty (30) days advance notice being given to
BIOSCIENCE. The existence of any such insurance shall not be construed as a
limitation of NUCYCLE's liability hereunder.
13. FORCE MAJEURE.
-------------
(a) Failure by NUCYCLE to make any delivery hereunder (or portions
thereof) when due shall not subject NUCYCLE to any liability to BIOSCIENCE if
NUCYCLE declares in writing to BIOSCIENCE that performance cannot be made due to
(i) act of God or the public enemy, fire, explosion, perils of the sea, flood,
drought, war, riot, sabotage, accident or embargo; (ii) without limiting the
foregoing circumstances, any circumstances of like or different character beyond
the reasonable control of NUCYCLE;
-7-
<PAGE>
(iii) interruption of or delay in transportation beyond the reasonable control
of NUCYCLE; (iv) inadequacy or shortage or failure of normal sources of supply
of materials, energy or equipment beyond the reasonable control of NUCYCLE; (v)
equipment breakdowns beyond the reasonable control of NUCYCLE; (vi) labor
trouble from whatever cause arising and whether or not the demands of the
employees involved are reasonable and within NUCYCLE's power to concede; or
(vii) compliance by NUCYCLE with any order, action, direction or request of any
governmental officer, department, agency, authority or committee thereof (any
occurrence or condition set forth in subsections (i) through (vii) above are
herein referred to as "Force Majeure").
(b) If NUCYCLE claims an excuse hereunder, NUCYCLE shall promptly
notify BIOSCIENCE in writing, specifying the reasons therefor and expected
duration thereof. NUCYCLE shall take reasonable steps to ensure resumption of
full performance hereunder as soon as reasonably possible.
14. INTANGIBLE PROPERTY; GRANT OF LICENSE.
-------------------------------------
The parties hereby acknowledge and agree that BIOSCIENCE will own all new
trademarks and tradenames relating directly to the vitamins and nutritional
products manufactured with the Products.
15. NUCYCLE'S INDEMNITY.
-------------------
NUCYCLE shall indemnify and hold harmless BIOSCIENCE, its subsidiaries and
affiliates, and their respective officers, directors and employees
(collectively, "Indemnitees") from and
-8-
<PAGE>
against any and all claims, demands, causes of action, suits, proceedings,
judgments, decrees, liabilities, losses, damages and costs, including attorneys'
fees and disbursements (collectively "Claims"), which may be asserted against
any Indemnitee to the extent they arise out of, are connected with or relate to,
any and all units of the Product, whether or not for damage to property or
injury or death, including, but not limited to (a) Claims involving the
operation of NUCYCLE's facility, and (b) Claims involving any environmental,
safety or health law, regulation or order of any governmental authority.
Notwithstanding the foregoing, NUCYCLE shall not be responsible for any Claim
arising out of misuse of any Product.
16. TERMINATION.
-----------
(a) In addition to the right of either party to terminate this
Agreement at the end of the Initial Term or any Renewal Term thereafter as set
forth in Section 4 above, either party may terminate this Agreement by written
notice to the other party if the other party (i) suspends payment of its debts
or enters into or becomes subject to insolvency, liquidation, dissolution or
bankruptcy proceedings, (ii) makes an assignment for the benefit of its
creditors, (iii) has a receiver or trustee appointed for all or a substantial
portion of its assets, (iv) seeks relief under any law for debtors' relief, or
(v) fails to comply with the terms and conditions of this Agreement in any
material respect; provided, however, that in such event, with
-------- -------
-9-
<PAGE>
respect to the events or circumstances set forth in subsection (v) above, the
party failing to comply with the terms and conditions of this Agreement in such
material respect shall be provided at least ten (10) days' prior written notice
during which it may cure the failure.
(b) Except as expressly set forth in this Agreement, termination of
this Agreement:
(i) will not affect or impair the rights, liabilities and
obligations of any party under any purchase order issued prior to the effective
date of termination, including without limitation the right of BIOSCIENCE to
sell all Products delivered to BIOSCIENCE prior to termination hereof; and
(ii) will not relieve any party of any obligation or liability
incurred under this Agreement prior to the effective date of termination.
(c) In the event of termination hereunder for whatever reason (other
than nonpayment), NUCYCLE shall, at BIOSCIENCE's option, and upon BIOSCIENCE's
request, continue to perform its obligations hereunder for a period of up to one
hundred eighty (180) days beyond the date of termination.
17. GOVERNING LAW. This Agreement shall be governed by the laws of the
-------------
State of New Jersey, including the New Jersey adopted version of the Uniform
Commercial Code.
18. ASSIGNABILITY. This Agreement may not be assigned by either party
-------------
without the consent of the other party, provided,
--------
-10-
<PAGE>
however, that either party may assign some or all of its rights or obligations
- -------
hereunder without the other party's consent to any person or entity controlling,
controlled by, or under common control with, the first party, or, pursuant to a
stock or asset sale, a merger or any other transaction, to any successor to all
or substantially all of the assets of any business unit of the first party
receiving the benefits of this Agreement.
19. ARBITRATION. Any dispute, controversy or claim arising out of or
-----------
relating to this Agreement, which cannot be amicably settled, shall be finally
settled by arbitration to be held in New Jersey, in accordance with the rules of
the American Arbitration Association. Arbitration shall be before three
arbitrators, one to be selected by each of the parties and the third to be
chosen by the first two arbitrators. Each party shall be responsible for its
own expenses regarding any arbitration. The costs of the arbitration itself
shall be shared equally by the parties unless otherwise determined by the
arbitrators. Judgment upon any award may be entered in any court having
jurisdiction and shall be final.
20. NOTICES. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be given to the parties at their
respective addresses set forth below and shall be sent by (i) hand delivery;
(ii) certified mail, return receipt requested, postage prepaid; (iii) a
recognized "overnight" delivery service; or (iv) telecopy. Notices sent by hand
delivery
-11-
<PAGE>
shall be deemed received when delivered to the address and/or person set forth
below; notices sent by certified mail shall be deemed received when accepted;
notices sent by "overnight" delivery service shall be deemed received when
delivered; and notices sent by telecopy shall be deemed received upon receipt of
confirmation of dispatch:
If to BIOSCIENCE:
BIOSCIENCE, L.L.C.
225 Long Avenue
Hillside, NJ 07205
Attention: Mr. Eric Friedman
Telephone No. (973) 926-0816
Telecopy No. (973) 926-1735
With copies to: Dr. Burt Ensley
Pres. & CEO
NuCycle Therapy, Inc.
1 Deer Park Drive, Suite M
Monmouth Junction, NJ 08852
Telephone No. (732)438-0900
Telecopy No. (732) 438-1209
If to NUCYCLE: NUCYCLE THERAPY, INC.
Dr. Burt Ensley
Pres. & CEO
NuCycle Therapy, Inc.
1 Deer Park Drive, Suite M
Monmouth Junction, NJ 08852
Telephone No. (732)438-0900
Telecopy No. (732) 438-1209
With copies to: Drinker Biddle & Shanley, LLP
500 Campus Drive
Florham Park, NJ 07932
Attention: Kevin M. Kilcullen, Esq.
Telephone No. (973) 549-7390
Telecopy No. (973) 360-9831
-12-
<PAGE>
or to such other address or telecopy number as any party may designate by
written notice in the aforesaid manner.
21. INSPECTION. BIOSCIENCE shall have the right, during normal business
----------
hours and upon not less than two (2) days prior notice, to inspect the books and
records of NUCYCLE as to BIOSCIENCE transactions hereunder and plants and
facilities of NUCYCLE producing BIOSCIENCE Products in order to confirm
compliance with this Agreement or to review any information provided to
BIOSCIENCE by NUCYCLE hereunder. NUCYCLE shall have the right during normal
business hours and upon not less than two (2) days prior notice, to inspect the
books and records of BIOSCIENCE as to BIOSCIENCE transactions hereunder and
plants and facilities of BIOSCIENCE producing BIOSCIENCE Products in order to
confirm compliance with this Agreement or to review any information provided to
NUCYCLE by BIOSCIENCE hereunder.
22. WAIVER. The right of either party at any time to require strict
------
performance by the other party hereto of any or all of the terms and conditions
of this Agreement shall in no way be affected or impaired by prior waiver,
forbearance, or course of dealing.
23. ENTIRETY. This Agreement constitutes the entire agreement between the
--------
parties hereto with respect to the development, manufacture, warehouse, order
fulfillment, and supply by NUCYCLE and purchase by BIOSCIENCE of the Products,
and merges and supersedes all prior understandings and representations,
-13-
<PAGE>
whether oral or written, between the parties pertaining thereto. No addition,
modification or alteration of this Agreement shall be of any force or effect
whatsoever unless reduced to writing and signed by the party to be charged
thereby. Any provision appearing on any purchase order, sales order, sales
acknowledgment, purchase order release or similar document which appears to
modify, alter or add to the provisions of this Agreement, shall be null and void
and of no effect whatsoever unless acknowledged and accepted, in writing, by
both parties on said documents.
24. SURVIVAL. The obligations of the parties under Sections
--------
-14-
<PAGE>
10, 13, 14, 15, 18, and 19 hereof shall survive the termination of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the date and year first
hereinabove written.
BIOSCIENCE, L.L.C. NUCYCLE DRUG COMPANY, INC.
By: /s/ Eric Friedman By: /s/ Burt Ensley
--------------------------- ----------------------------
Name: Eric Friedman Name: Burt Ensley
----------------------------- --------------------------
Title: Member Title: CEO
------------------------ -------------------------
-15-
<PAGE>
Exhibit 6.5
-----------
MANUFACTURING AND DISTRIBUTION AGREEMENT
This Agreement, dated as of August 10, 1999, is made and entered into by and
between Greenlane of South Jersey Inc. ("Greenlane") and NuCycle Therapy, Inc.
("NuCycle").
Recitals
A. NuCycle owns and is in the process of developing certain
hyperaccumulating plant technology including but not limited to the
production of enhanced bioavailable mineral health supplements and
food ingredients (the "Technology").
B. Greenlane has facilities and manpower for the manufacturing of
commercial products utilizing such technology.
C. Greenlane and NuCycle wish to work together to commercialize new
products for the health supplement and food industry.
Therefore Greenlane and NuCycle agree as follows:
Section 1. Product Development.
1.1 General. GREENLANE and NUCYCLE shall work together in good faith to
------------
develop the Technology into commercial products for the health
supplement and food industry.
1.2 NUCYCLE's Contribution. NUCYCLE shall furnish expertise, information
---------------------------
Standard Operating Procedures, equipment, know-how and seeds necessary
to facilitate the product manufacturing contemplated by this
Agreement.
1.3 GREENLANE's Contribution. GREENLANE shall furnish manpower,
-----------------------------
management and facilities for manufacturing of the contemplated
products.
1.4 Product Ownership. NUCYCLE shall own all proprietary rights to any
----------------------
products involving the Technology.
Section 2. Distribution and Sales of Products.
2.1 License. NUCYCLE hereby grants GREENLANE an exclusive US license to
------------
manufacture nutritional mineral containing plant material solely for
NUCYCLE markets in accordance with Section 2 (the "License").
2.2 Minimums and Compensation. The parties have agreed to minimum
------------------------------
purchase requirements of _____________/1/ of plant material purchased
per month and compensation
_________________________
/1/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
1
<PAGE>
payable to GREENLANE by NUCYCLE of an amount to be negotiated after
actual manufacturing costs are determined. Terms are to be Net 30
days.
2.3 Marketing. NUCYCLE through it's own marketing efforts will build an
--------------
account base for mineral containing plant based nutritional supplements.
2.4 Warranties of NUCYCLE. NUCYCLE represents and warrants that NUCYCLE
--------------------------
has the proprietary and other rights necessary to produce and sell
each Product and to grant the License to GREENLANE.
2.5 Infringement Indemnity of GREENLANE. NUCYCLE shall defend GREENLANE
----------------------------------------
against any judicial proceedings based upon infringement by a Product
of any proprietary right of any third party. NUCYCLE shall also (i)
indemnify GREENLANE against any and all claims, losses, costs, harm,
liabilities, damages and expenses (including but not limited to
attorney's fees) arising out of or in connection with such
infringements, and (ii) in the event such action is settled, pay any
amounts agreed to by NUCYCLE in settlement of any claims of such
infringement.
2.6 Indemnity of NUCYCLE. GREENLANE releases and shall defend, indemnify
-------------------------
and hold harmless NUCYCLE from and against any and all claims, losses,
costs, harm, liability, damages and expenses (including but not
limited to attorney's fees) arising out of any Product manufacturing
by GREENLANE. Notwithstanding the foregoing, GREENLANE shall not be
required to so defend, indemnity or hold harmless NUCYCLE from any
claims, losses, costs, harm, liabilities, damage or expenses arising
out of (i) injury to any person or damage to any property caused by or
resulting from the negligence of NUCYCLE or (ii) infringement of a
third party's proprietary rights.
Section 3. Protection of Proprietary Rights.
GREENLANE acknowledges that the Technology and Technology Products involve
valuable patent, trademark, trade secret and other proprietary rights of
NUCYCLE. NUCYCLE reserves all such proprietary rights. GREENLANE shall not
infringe or violate and shall take appropriate precautions for the protection of
such rights. Without limiting the generality of the foregoing, GREENLANE shall
not (i) apply for or otherwise attempt to obtain any patent or other proprietary
right in the Technology or Technology Product or (ii) authorize or assist any
person or entity to do so.
Section 4. Miscellaneous.
4.1 Excused Performance. Neither party shall be liable for, or be
------------------------
considered to be in breach of or default under this Agreement on
account of, any delay or failure to perform as required by this
Agreement as a result of any cause or condition beyond such party's
reasonable control (including but not limited to: fire, casualty,
storms, flood and acts of God or the elements; court orders; acts,
delays and failures to act by civil, military or other governmental
authority; strikes, lockouts, labor disputes, riots, insurrection,
sabotage and war; breakdown or destruction off or damage or casualty
to, any equipment, facilities or the property; unavailable
ingredients, materials, supplies, parts, equipment personnel or
2
<PAGE>
other necessary items, interruption, suspension, curtailment or other
disruption of utilities, and acts or omissions of person or entities
other than the party in question.
4.2 Assignment. The Agreement shall be fully binding upon, inure to the
---------------
benefit of and be enforced by the parties hereto and their respective
successors and assigns.
4.3 Entire Agreement. This Agreement constitutes the entire agreement and
---------------------
supersedes any and all prior agreements, between GREENLANE and NUCYCLE
with regard to the Technology and Products.
4.4 Nonwaiver. The failure of either party to insist upon or enforce
--------------
strict performance by the other party of any of the provisions of this
Agreement or to exercise any right or remedy under this Agreement
shall not be construed as a waiver or relinquishment to any extent of
that part's right to assert or rely upon any such provisions, rights,
or remedies in that or any other instance; rather, the same shall be
and remain in full force and effect.
4.5 Invalid Provisions. The invalidity or unenforceability of any
-----------------------
provision of this Agreement shall not affect the other provisions of
this Agreement. This Agreement shall be construed in all respects as
if such invalid or unenforceable provision were replaced with a valid
and enforceable provision containing terms as similar as possible to
the provision replaced.
4.6 No Partnership. This Agreement for manufacturing by GREENLANE of
-------------------
Technology and Products shall not be interpreted or construed to
create an association, joint venture or partnership between the
parties or to impose any partnership obligation or liability upon
either party. Neither party is an agent of the other. Neither party
has the right to and each party shall not, bind the other party
without the other party's prior written consent.
4.7 Implementation. Each party shall take such action, including but not
-------------------
limited to the execution, acknowledgment and delivery of documents, as
the other party may reasonably request for the implementation and
continuing performance of this Agreement.
4.8 Authorized Execution. The individuals signing below each represent
-------------------------
and warrant that (a) they are authorized to execute this Agreement for
and on behalf of the party for whom they are signing, (b) such party
shall be bound in all respects hereby, and (c) such execution presents
no conflict with any other agreement of such party.
4.9 Counterparts. This Agreement may be executed in two or more
-----------------
counterparts, all of which shall constitute one and the same
Agreement.
GREENLANE NUCYCLE
--------- -------
Greenlane of South Jersey, Inc. NuCycle Therapy, Inc.
By: /s/Eric Eisenhart By: /s/Burt D. Ensley
------------------------------ ------------------------------
Eric Eisenhart Burt D. Ensley
President President & CEO
3
<PAGE>
August 31, 1999
Mr. Eric Eisenhart
Greenlane of South Jersey
184 Lambs Road
Sewell, NJ 08090
Re: Agreement
Dear Ric:
I would like to take this opportunity to thank you for your efforts over the
past few weeks in helping us put together a production facility in such short
time. Your insights, enthusiasm, and professionalism are well appreciated.
As per our conversation, Nucycle confirms that Greenlane will perform the
following services on our behalf:
1. Begin and complete production of three batches of Selenium product which
began on August 30, 1999 and to be completed by September 20, 1999;
2. Batches will consist of approximately ____________/2/ of product on a dry
weight basis
3. Drying of product;
4. Deliver to processor, pick up from processor;
5. Store and ship product.
In consideration we agree to pay you _____________/3/ which is to be paid in
three installments of ____________./4/ The first two installments are to be paid
at the beginning of the production cycle and the last payment will be paid at
the completion of the last batch.
Thereafter, we shall evaluate the production process and costs together and
determine whether we need to make any adjustments for future productions runs.
Yours truly,
/s/Alexander Baltovski
CFO
Cc: Mr. Larry Lesnick
_________________________
/2/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
/3/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
/4/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
<PAGE>
October 19, 1999
Mr. Eric Eisenhart
Greenlane of South Jersey
184 Lambs Road
Sewell, NJ 08090
Re: Amendment to Production Agreement
Dear Ric:
As per our recent previous conversation, this letter will amend and extend our
agreement of August 31, 1999 as follows:
Nucycle confirms that Greenlane will perform the following services on our
behalf:
1. Provide contract services for the production of nutritional products on a
per batch basis;
2. Batches will consist of approximately _____________/5/ of selenium and
chromium product on a dry weight basis;
3. Drying of product;
4. Package, ship or deliver to processor for grinding & blending;
5. Pick up from processor, and;
6. Maintain inventory of finished product and ship product as directed.
In consideration we agree to pay you _____________/6/ which is to be paid upon
completion of batches. This will equate to approximately _____________/7/ per
batch.
Nucycle also agrees to reimburse Greenlane for the purchase of any equipment
required in the production process however, Nucycle will retain the ownership of
the property.
Nucycle also agrees to provide and or reimburse Greenlane for raw materials of
minerals and seeds only.
Burt and I appreciate your efforts to date and we thank you for your enthusiasm
and input you have provided to date. We are looking forward with increasing
confidence that we will be able to provide a superior product to the marketplace
sooner rather than later.
__________________________
/5/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
/6/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
/7/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
<PAGE>
Please call if you have any questions or concerns.
Yours truly,
/s/ Alexander Baltovski
CFO
<PAGE>
Exhibit 6.6
-----------
SALES AND MARKETING AGREEMENT
THIS SALES AND MARKETING AGREEMENT (the "Agreement") is made and entered into as
of this 17th day of March, 2000 (the Effective Date"), by and between NUCYCLE
THERAPY, INC., a New Jersey corporation (the "Company") having its principal
place of business at 1 Deer Park Drive, Suite M, Monmouth Junction, NJ 08852,
and John R. Benemann, Ph.D. (the "Agent") having his place of business at 3434
Tice Creek #1, Walnut Creek, CA 94595.
W I T N E S S E T H:
WHEREAS, the Agent has expertise in the sales and marketing of
nutritional products; and
WHEREAS, the Company has developed, manufactures and sell its
proprietary plant nutritional products; and
WHEREAS, the Company desires to obtain the benefits of the Agent's
business contacts, marketing abilities and advice in the nutritional
products industry and the Agent desires to provide the Company access
to such contacts and advise and assist the Company in developing new
business relationships in the nutritional products industry on the
terms provided herein.
WHEREAS, the Company and the Agent contemplate that information
considered to be proprietary and confidential to the Company may be
given to or discussed with the Company and Agent agree that the
misappropriation of such information related to the Company would
damage the Company.
NOW, THEREFORE, in consideration of the promises and mutual covenants
and agreements contained herein, the parties hereto agree as follows:
1. Services to be Provided by the Agent. Agent agrees to assist the
Company in selling and marketing the Company's nutritional products
(the "NuCycle Products"), including helping to develop marketing
literature related to the NuCycle Products.
2. Agent's Commissions. In consideration of the Agent's services and
the agreements contained herein, during the Term of this Agreement (as
defined herein), the Company agrees to pay the Agent a commission (the
"Commission") equal to ten percent (10%) of sales, to customers of
<PAGE>
NuCycle Products from whom Agent has through his actions and
representations secured for the Company purchase orders, less returns,
allowances, customary discounts, rebates, shipping and sales and other
taxes ("Net Sales"). For a period of twentyfour (24) months following
the Term of this Agreement the Company will pay Commissions to Agent
equal to five percent (5%) of Net Sales to all customers that had
placed Purchase Orders for NuCycle Products qualifying for the 10%
commission during the Term of this Agreement.
3. Payment Terms. For so long as Commissions are due to Agent
pursuant to the terms set forth herein, the Company will pay the
Commission on Net Sales to the Agent within thirty (30) days of
collection by Company of receivables from the Purchase Orders placed by
customers of Agent and shipped by Company. Agent is not entitled to
any advances, or commissions on any uncollected or uncollectable
accounts payable.
4. Agent's Expenses. Agent and not the Company, shall be responsible
for all expenses necessary to carry out Agent's responsibilities
pursuant to this Agreement, including but not limited to travel
expenses, entertainment, office overheads, sales assistance, etc.
Company shall provide Agent with reasonable amounts of product samples
and such quantities of brochures and promotional materials as it, at
its sole discretion, may deem appropriate.
5. Other Services Rendered to Company. Agent may provide other
services to Company, including but not limited to assistance with
research and development projects, corporate management, and serving on
the Board of Directors, on such terms and conditions as the Company and
Agent may agree in the future to be in their mutual best interest,
without, however, changing or affecting in part or whole the terms and
conditions of this Agreement.
6. Confidential Information. The Agent and the Company recognize
that due to the nature of the Agent's duties hereunder, the Agent will
have access to, will acquire and may assist in developing, confidential
and proprietary information relating to the business and operations of
the Company, including, without limiting the foregoing, information
with respect to the Company's present and systems, customers and sales
and marketing methods ("Confidential Information"). The parties hereto
acknowledge that such Confidential Information has been and will
continue to be of central importance to the Company's business, and
that disclosure of it to others or its use by others or by the Agent,
other than as such information relates to the use of such Confidential
Information by the Agent for the purposes set forth hereunder, could
<PAGE>
cause substantial loss to the Company, and the Agent accordingly agrees
that the Agent will keep confidential and will not use any Confidential
Information obtained pursuant to this Agreement other than for the
purposes set forth herein. Such Confidential Information shall be
safeguarded by the Agent and shall not be disclosed to Third Parties
and shall be made available only to the Agent's employees or other
agents who have a need to know such information for purposes of
performing the Agent's obligations under this agreement and when such
employees or other agents shall have a legal obligation to the Agent
not to disclose such information to Third Parties. The Agent shall
treat any and all such Confidential Information in the same manner and
with the same protection as the Agent maintains for Agent's own
confidential information. His obligation of confidentiality will not
apply to any information to the extent that such information: (i) is
known to the Agent prior to the date of this Agreement as evidenced by
the Agent's written records; (ii) is now or later becomes generally
available to the public, such as by publication or otherwise, through
no fault of the Agent; or (iii) is obtained from a Third Party having
the legal right to make such a disclosure.
7. Records. Any and all personal property, data, written materials,
findings, records and documents, information and Confidential
Information provided to Agent by the Company during relating to Agent's
engagement by the Company concerning the business or affairs of the
Company, and upon termination of his Agreement or upon request of the
Company during the term of this Agreement, shall be promptly delivered
by the Agent to the Company.
8. Remedies for Breach of Section 6. It is recognized that damages in
the event of breach of Section 5 herein, by the Agent would be
difficult, if not impossible, to ascertain, and it is therefore agreed
that the Company, in addition to and without limiting any other remedy
or right it may have, shall have the right to an injunction or other
equitable relief in any court of competent jurisdiction, enjoining any
such breach. The existence of this right shall not preclude any other
rights and remedies at law or in equity which the Company may have.
9. Arms-length Negotiations. The parties agree that the restrictions
and agreements contained herein are reasonable, are the product of
arms-length negotiation, and are necessary for the Company to protect
its goodwill and other interests.
10.a. Insiders Information. Company intends to become a publicly
traded company in the future and Agent agrees to strictly abide by all
<PAGE>
Federal and State securities regulations. The Federal securities laws
strictly prohibit the purchase or sale of a publicly held security by
persons who are in the possession of "materials non-public information"
relating to that security. Generally, "material non-public
information" is information (i) which is possessed by a person by
virtue of a special relationship between such person and a company
whose securities are publicly-held, such as a relationship that a Agent
may have with such a company, and (ii) which would be considered
important by a person in considering whether to buy or sell the
securities of such a company. Agent acknowledges that trading in the
Company's securities when in possession of "material non-public
information" regarding the Company is strictly prohibited and expressly
agrees not to buy, sell or otherwise dispose of the Company's
securities when in possession of such "material non-public
information".
10.b. Tipping. The Federal Securities laws also prohibit a person
from communicating "material non-public information" to a third party
for use in dealing with the securities of a publicly held company (i.e.
"tipping"). Any person who communicates a "tip" is in violation of
these rules and is subject to monetary penalties and/or imprisonment.
Agent acknowledges that communicating "material non-public information"
regarding the Company is strictly prohibited and expressly agrees not
to communicate such "material non-public information" to third parties
without the prior written consent of the Company.
11. Independent Contractor. The parties agree that no employment
relationship exists between them and that the Agent, Agent's employees
and agents are independent contractors with respect to the Company and
Agent accordingly waives any benefits and employment by the Company.
This Agreement shall not be construed in any way to constitute Agent as
an agent for the Company for any purpose whatsoever, and Agent, in
providing the services set forth above shall be engaged in Agent's own
independent and entirely separate business. As an independent
contractor, Agent shall be solely responsible for determining Agent's
hours and the methods and persons used by Agent to carry out Agent's
responsibilities under this Agreement. Agent may not represent Agent
to be an employee of the Company and is not authorized to, and agrees
not to, incur for any reason any debt or expense on behalf of or for
the Company. In addition, at Agent's own expense, Agent shall be
responsible for the payment and reporting of all applicable federal,
state and local taxes and tax related information, licenses and license
fees that may become applicable as a result of Agent's activities
under this Agreement.
<PAGE>
12. Representatives and Warranties. Agent represents and warrants
that: (i) Agent will not discredit the Company's name or misrepresent
the Company's products by making claims contrary to the Company's
product literature and labels; (ii) Agent will, at all times during the
Term of this Agreement, conform to and comply with all applicable laws,
regulations, orders and other governmental requirements, now or
hereinafter in force, related to the performance of Agents duties
hereunder.
13. Assignability. This contract may not be assigned by the Agent.
14. Term and Termination. The Term of this Agreement shall begin on
the Effective Date and end on such date as it is terminated pursuant to
this Section 11 (the "Term"). The Company may terminate this Agreement
on five (5) days written notice to Agent if Agent breaches the
representations and warranties set forth in Section 12 above. The
Company may terminate this Agreement, at its sole discretion, on four
(4) months written notice to Agent.
12. Survival. Notwithstanding anything to the contrary contained in
this Agreement, Sections 6, 7, and 8 hereof shall survive any
expiration or termination of this Agreement for a period of five years
after the date of such expiration or termination.
13. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and if
sent by registered or certified mail to the Agent at Agent's address as
first written above, or at such other address as the Agent has filed in
writing with the Company, or, in the case of the Company, at its
principal executive offices.
14. Entire Agreement and Severability. This Agreement constitutes the
entire understanding of the Agent and the Company with respect to the
subject matter hereof and supersedes any and all prior understanding
written or oral. This Agreement may not be changed, modified, or
discharged orally, but only by an instrument in writing signed by the
parties. This Agreement shall be governed by the laws of the State of
Maryland and the invalidity or unenforceability of any Provisions
hereof shall in no way affect the validity or enforceability of any
other provision. If any provision shall be interpreted to be only so
broad as is enforceable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in their respective behalves as of the date first above
written.
<PAGE>
NUCYCLE THERAPY, INC. JOHN R. BENEMANN, PH.D.
By: /s/Burt Ensley /s/John R. Benemann
------------------------------ -----------------------------
Name: Burt Ensley.
Title: President and C.E.O.
<PAGE>
Exhibit 6.7
-----------
COMMERCIAL LEASE
THIS LEASE is made on the 9th day of February, 2000.
The Landlord hereby hereby agrees to lease to the Tenant, and the Tenant
hereby agrees to hire and take from the Landlord, the Leased Premises described
below pursuant to the terms and conditions specified herein:
LANDLORD: TENANT:
EISENHART REAL ESTATE LLC NUCYCLE THERAPY, INC.
184 Lambs Road One Deer Park Drive, Suite M
Sewell, NJ 08080 Monmouth Junction, NJ 08852
1. Leased Premises. The Leased Premises are those premises described as:
Production facilities of approx. 4200 sq. ft. located at 250 Aura Road,
Richwood, NJ
2. Term. The term of the Lease shall be for a period of 3 year(s) commencing
on the 1st day of March, 2000, ending on the 28th day of February, 2003 unless
sooner terminated as hereinafter provided. If Tenant remains in possession of
the Leased Premises with the written consent of the Landlord after the lease
expiration date stated above, this Lease will be converted to a month-to-month
Lease and each party shall have the right to terminate the Lease by giving at
lease one months' prior written notice to the other party.
3. Rent. The Tenant agrees to pay the ANNUAL RENT of Forty-Eight Thousand
Dollars ($48,000.00) payable in equal installments of $4,000.00 in advance on
the first day of each and every calendar month during the full term of this
Lease.
4. Rent Adjustment. If in any tax year commencing with the fiscal year --- the
real estate taxes on the land and buildings of which the Leased Premises are a
part, are in excess of the amount of the real estate taxes thereon for the
fiscal year (hereinafter called the "Lease Year"), Tenant will pay to Landlord
an additional rent hereunder, when and as designated by notice in writing by
Landlord, ______ percent of such excess that may occur in each year of the term
of this Lease or any extension or renewal thereof and proportionately for any
part of a fiscal year. (see provision #22)
5. Security Deposit. The sum of _______________________ Dollars ($_______) is
deposited by the Tenant with the Landlord as security for the faithful
performance of all the covenants and conditions of the lease by the said Tenant.
If the Tenant faithfully performs all the covenants and conditions on his part
to be performed, then the sum deposited shall be returned to the Tenant.
6. Delivery of Possession. If for any reason the Landlord cannot deliver
possession of the leased property to the Tenant when the lease term commences,
this Lease shall not be void or voidable, nor shall the Landlord be liable to
the Tenant for any loss or damage resulting
<PAGE>
therefrom. However, there shall be an abatement of rent for the period between
the commencement of the lease term and the time when the Landlord delivers
possession.
7. Use of Leased Premises. The Leased Premises may be used only for the
following purpose: Production and distributing of nutritional products.
8. Utilities. Except as specified below, the Tenant shall be responsible for
all utilities and services that are furnished to the Leased Premises. The
application for and connecting of utilities, as well as all services, shall be
made by and only in the name of the Tenant: (List exceptions, if any) The
Landlord will pay electric, gas and/or propane.
9. Condition of Leased Premises, Maintenance and Repair. The Tenant
acknowledges that the Leased Premises are in good order and repair. The Tenant
agrees to take good care of and maintain the Leased Premises in good condition
throughout the term of the Lease.
The Tenant, at his expense, shall make all necessary repairs and replacements to
the Leased Premises, including the repair and replacement of pipes, electrical
wiring, heating and plumbing systems, fixtures and all other systems and
appliances and their appurtenances. The quality and class of all repairs and
replacements shall be equal to the original worth. If Tenant defaults in making
such repairs or replacements, Landlord may make them for Tenant's account and
such expenses will be considered additional rent.
10. Compliance with Laws and Regulations. Tenant, at its expense, shall
promptly comply with all federal, state and municipal laws, orders and
regulations, and with all lawful directives of public officers, which impose any
duty upon it or Landlord with respect to the Leased Premises. The Tenant at its
expense, shall obtain all required licenses or permits for the conduct of its
business within the terms of this lease or for the making of repairs,
alterations, improvements or additions. Landlord, when necessary, will join with
the Tenant in applying for all such permits or licenses.
11. Alterations and Improvements. Tenant shall not make any alterations,
additions or improvements to, or install any fixtures on, the Leased Premises
without Landlord's prior written consent. If such consent is given, all
alterations, additions and improvements made and fixtures installed by Tenant
shall become Landlord's property upon the expiration or sooner termination of
this Lease. Landlord may, however, require Tenant to remove such fixtures at
Tenant's cost upon the termination hereof.
12. Assignment/Subletting Restrictions. Tenant may not assign this agreement
or sublet the Leased Premises without the prior written consent of the Landlord.
Any assignment, sublease or other purported license to use the Leased Premises
by Tenant without the Landlord's consent shall be void and shall at Landlords
option terminate this Lease.
13. Insurance.
(a) By Landlord. Landlord shall at all times during the term of this
Lease, at its expense, insure and keep in effect on the building in which the
Leased Premises is located fire
-2-
<PAGE>
insurance with extended coverage. The Tenant shall not permit any use of the
Leased Premises which will make voidable any insurance on the property of which
the Leased Premises are a part, or on the contents of said property or which
shall be contrary to any law or regulation from time to time established by the
applicable fire insurance rating association. Tenant shall, on demand, reimburse
the Landlord, and all other tenants all extra insurance premiums caused by the
Tenant's use of the premises.
(b) By Tenant. Tenant shall, at its expense, during the term hereof,
maintain and deliver to Landlord public liability and property damage and plate
glass insurance policies with respect to the Leased Premises. Such policies
shall name the Landlord and Tenant as insureds, and have limits of at least
$______ for injury or death to any one person and $________ for any one
accident, and $________ with respect to damage to property and with full
coverage for plate glass. Such policies shall be in whatever form and with such
insurance companies as are reasonably satisfactory to Landlord, shall name the
Landlord as additional insured and shall provide for at least ten days' prior
notice to Landlord of cancellation.
14. Indemnification of Landlord. Tenant shall defend, indemnify and hold
Landlord harmless from and against any claim, loss, expense or damage to any
person or property in or upon the Leased Premises, arising out of Tenant's use
or occupancy of the Leased Premises, or arising out of any act or neglect of
Tenant or its servants, employees, agents or invitees.
15. Condemnation. If all or any part of the Leased Premises is taken by
eminent domain, this lease shall expire on the date of such taking, and the rent
shall be apportioned as of that date. No part of any award shall belong to
Tenant.
16. Destruction of Premises. If the building in which the Leased Premises is
located is damaged by fire or other casualty, without Tenant's fault and the
damage is so extensive as to effectively constitute a total destruction of the
property or building, this Lease shall terminate and the rent shall be
apportioned to the time of the damage. In all other cases of damage without
Tenant's fault, Landlord shall repair the damage with reasonable dispatch, and
if the damage has rendered the Leased Premises wholly or partially untenantable,
the rent shall be apportioned until the damage is repaired. In determining what
constitutes reasonable dispatch, consideration shall be given to delays caused
by strike, adjustment of insurance, and other causes beyond the Landlord's
control.
17. Landlord's Rights Upon Default. In the event of any breach of this Lease
by the Tenant, which shall not have been cured within TEN (10) DAYS, then the
Landlord, besides other rights or remedies it may have, shall have the immediate
right of reentry and may remove all persons and property from the Leased
Premises; such property may be removed and stored in a public warehouse or
elsewhere at the cost of, and for the account of, the Tenant. If the Landlord
elects to reenter as herein provided, or should it take possession pursuant to
any notice provided for by law, it may either terminate this Lease or may, from
time to time, without terminating this lease, relet the Leased Premises, or any
part thereof for such term or terms and at such rental or rentals and upon such
other terms and conditions as the Landlord in Landlord's own discretion may deem
advisable. Should rentals received from such reletting during any months be
less than that agreed to be paid during the month by the Tenant hereunder, the
Tenant
-3-
<PAGE>
shall pay such deficiency to the Landlord monthly. The Tenant shall also pay to
the Landlord as soon as ascertained, the cost and expenses incurred by the
Landlord in such reletting.
18. Quiet Enjoyment. The Landlord agrees that if the Tenant shall pay the rent
as aforesaid and perform the covenants and agreements herein contained on its
part to be performed, the Tenant shall peaceably hold and enjoy the said rented
premises without hindrance or interruption by the Landlord or by any other
person or persons acting under or through the Landlord.
19. Landlord's Right to Enter. Landlord may, at reasonable times, enter the
Leased Premises to inspect it, to make repairs or alterations, and to show it to
potential buyers, lenders or tenants.
20. Surrender Upon Termination. At the expiration of the lease term the Tenant
shall surrender the leased property in as good condition as it was in at the
beginning of the term, reasonable use and wear expected.
21. Subordination. This Lease, and the Tenant's leasehold interest, is and
shall be subordinate, subject and inferior to any and all liens and encumbrances
now and hereafter placed on the Leased Premises by Landlord, any and all
extensions of such liens and encumbrances and all advances paid under such liens
and encumbrances.
22. Additional Provisions.
Annual rent shall be $50,400 ($4,200/month) and $52,920 ($4,410/month) in
years two and three of lease.
23. Miscellaneous Terms.
(a) Notices. Any notice, statement, demand or other communication by one
party to the other, shall be given by personal delivery or by mailing the same,
postage prepaid, addressed to the Tenant at the premises or to the Landlord at
the address set forth above.
(b) Severability. If any clause or provision herein shall be adjudged
invalid or unenforceable by a court of competent jurisdiction or by operation of
any applicable law, it shall not affect the validity of any other clause or
provision, which shall remain in full force and effect.
(c) Waiver. The failure of either party to enforce any of the provisions
of this lease shall not be considered a waiver of that provision or the right of
the party to thereafter enforce the provision.
(d) Complete Agreement. This lease constitutes the entire understanding
of the parties with respect to the subject matter hereof and may not be modified
except by an instrument in writing and signed by the parties.
(e) Successors. This lease is binding on all parties who lawfully succeed
to the rights or take the place of the Landlord or Tenant.
-4-
<PAGE>
IN WITNESS WHEREOF the parties have set their hands and seals on this 7th
day of March, 2000.
/s/ Eric Eisenhart /s/ Alexander Baltovski
- ------------------------------- -----------------------------------
Landlord or Landlord's Authorized Agent Tenant
-5-
<PAGE>
EXHIBIT 6.8
-----------
Paxton Ventures Corp
372 Fifth Avenue
New York, NY 10018
212-239-2339
212-239-7440 fax
August 30, 1999
Mr. Burt Ensley, President
NuCycle Therapy, Inc... f/k/a Phytotech, Inc.
1 Deer Park Avenue
Monmouth Junction, NJ 08852
Dear Mr. Ensley:
This letter will set forth the approximate terms of a transaction or
transactions to be consummated by, between and among NuCycle Therapy, Inc. (the
"Company"), Paxton Ventures Corp ("Paxton") and a public corporation (the
"Public Shell") to be introduced by Paxton. The letter and the terms and
conditions set forth herein are expressions of the parties intent only and are
not intended to be a final and binding contract. Completion of the transactions
will be dependent upon a number of conditions precedent including but not
limited to approval of the United States Bankruptcy Court of a formal plan of
reorganization upon terms acceptable to Paxton and the negotiation, preparation
and execution of definitive agreements and other documents encompassing the
terms herein approved by both parties and their respective counsel.
I. Assumptions.
-----------
The Company will submit a plan of reorganization (the "Plan") to the
UnitedStates Bankruptcy Court not later than November 1, 1999. The plan of
reorganization will contain provisions substantially as follows:
1. All secured debt will be converted into Preferred Stock
convertible into approximately 884,572 shares of Common stock.
2. All unsecured debt and accounts payable will be settled or
converted into not more than 572,088 shares of Common stock.
3. All existing common and preferred stock will be converted into not
more than 1,550,000 shares of Common stock of one class. Not more
than 80,000 shares will be issued to Rutgers University in
connection with the transfer of certain intellectual property
rights to the Company.
4. All existing warrants and options are cancelled and replaced with
new warrants to purchase not more than 460,000 shares with an
exercise price of not less than $8.00 per share. 150,000 warrants
will be issued to IK Capital Inc with an
<PAGE>
Mr. Burt Ensley
August 30, 1999
Page 2
exercise price equal to the conversion price of the notes issued
in connection with the new financing. The warrants will not
provide for cashless exercise.
5. Upon consummation of the plan the company will have net working
capital of not less than $400,000, long term debt of not more than
$150,000 and net worth of not less than $500,000.
II. Going Public Transaction
------------------------
Paxton will assist the Company in arranging for a "Going Public
Event". A Going Public Event shall mean any event after which the new common
stock of the Company outstanding after the approval of the Plan ("Newco Stock")
shall become publicly traded, including but not limited to (1) the filing of a
Form 10-SB and form 15C-211 and the commencement of public trading of the
Company's common stock, (2) a merger or acquisition by an existing Public
corporation, (3) a merger with a subsidiary of a Public corporation or a Public
Shell and subsequent Spin-Off of the subsidiary's stock to the Public Shell's
shareholders. The Going Public Event shall be upon terms substantially as
follows:
1. The current and new shareholders of the Company after completion
of the Bankruptcy Reorganization would receive Newco Stock such
that their combined equity will be approximately 65% of the
available equity in the case of Spin-Off or merger and 75% in the
case of a Form 10-SB filing, including shares held for conversion
of the convertible Preferred stock issued in connection with the
Plan.
2. The officers and directors of the Company would assume similar
positions with Newco along with representatives on the Board of
Directors of the Public Shell and Paxton.
3. In the event of a Spin-Off transaction, the Public Shell will
declare a stock dividend (the "Spin-off") of Newco Stock and
thereafter distribute up to 10% of the Newco Stock to its
shareholders.
4. The Company and the Public Shell, if necessary, will cooperate in
the filing of a Registration Statement or Form 10 covering the
Newco Stock, and use their best efforts to create a public trading
market for Newco. The Company agrees that all Newco Stock or
convertible equities will be restricted or otherwise locked up for
the period of time sufficient to establish an orderly market for
Newco Stock, which shall be not less than 12 months after the
Going Public Event.
5. The costs of the registration statement and/or Form 10 and related
legal services will be borne by the Company or Newco.
-2-
<PAGE>
Mr Burt Ensley
August 30, 1999
Page 3
6. If market conditions permit additional Newco Stock will be sold
directly to the public upon prices and terms to be determined.
III. New Financing
-------------
Upon completion of the Going Public Event, Paxton or its successors or
assigns will purchase a new issue of Company or Newco convertible subordinated
notes in the minimum amount of $300,000 and up to a maximum amount of $500,000.
The Notes will be convertible into Newco Stock at a price of $2.00 per share or
85% of the then current market price of Newco Stock. Interest at the rate of 8%
will accrue for the first twelve 12 months and be payable semi-annually
thereafter.
IV. Transaction Fees and Expenses
-----------------------------
In connection with the Going Public Event and related financing the
Company agrees to issue an aggregate of not less than 35% of issued and
outstanding Newco Stock to Paxton and the Pubic Shell in the case of a Merger or
Spin-Off and 25% in the case of a Form 10 filing. The Company acknowledges that
Paxton, its successors or assigns, and the Public Shell may allocate the Newco
Stock, by, between and among Paxton, the Public Shell and the shareholders in
any manner in their sole discretion. The Public Shell may be an existing client
of Paxton. Paxton may have a significant equity stake in the Public Shell and
that in addition to any other fees, expenses or other consideration payable
hereunder that Paxton may receive cash remuneration, shares of stock or other
securities from the Public Shell or Newco Stock.
Notwithstanding the foregoing, the Company agrees that upon completion
of the Plan, in the event the Going Public Event is not completed for any
reason, Paxton, or its successors or assigns, will receive minimum transaction
fees and reimbursements as follows:
1. Newco Stock equal to 5% of the outstanding shares.
2. Reimbursement of expenses and costs in an amount not to exceed
$25,000.
V. Conditions Precedent
--------------------
Completion of the transactions contemplated herein will be dependent
upon a number of conditions precedent including; (i) satisfactory completion of
a due diligence review of the Company assets, including intellectual property,
liabilities and operations, (ii) approval of the Bankruptcy Reorganization Plan,
(iii) commencement of shipments of commercial quantities of the Company's
products, (iv) no material change in the business, assets, shareholdings and
prospects of the Company, (v) completion of audited financing statement for
period ended March 31, 1999, (vi) the parties shall have executed definitive
agreements and related documentation containing representations, warranties,
covenants, terms and conditions customary for transactions of this nature and
otherwise satisfactory to counsel for both sides, (vi) the parties shall have
obtained all court, shareholder and/or board approvals as are necessary.
VI. Other matters
-------------
-3-
<PAGE>
Mr. Burt Ensley
August 30, 1999
Page 4
In connection with Paxton's activities on the company's behalf, the
Company will cooperate with Paxton and will furnish Paxton all information and
data concerning the Company, the Company's financing requirements, financing
strategies and to the extent available, access to the Company's officers,
directors, employees, independent accountants and legal counsel. The company
represents and warrants that it will use its best efforts to ensure that all
information made available to Paxton will at all times during the period of
engagement by Paxton hereunder be complete and correct in all material respects
and will not contain any untrue statement of a material fact or omit a material
fact in order to make the statement therein misleading or fail to state any
facts or circumstances of a material nature and will notify Paxton in writing of
any changes or developments which might render any information previously made
available to Paxton by the Company not correct in any material respect.
If the above is in accordance with your understanding please so
indicate your agreement by signing in the place provided below and in addition
make a good faith deposit towards our due diligence expenses in the amount of
$15,000. This due diligence deposit will not be refundable in the event that
the transactions contemplated hereunder do not close.
This agreement is made subject to approval of the Bankruptcy Court.
Paxton Ventures Corp
By: /s/ Lorenzo A. De Luca
------------------------
Lorenzo A. De Luca
Agreed to an accepted
Nucyle Therapy, Inc.
f/k/a Phytotech Inc.
By: /s/ Burt Ensley
------------------
Burt Ensley, Pres.
-4-
<PAGE>
Exhibit 6.9
-----------
NUCYCLE THERAPY, INC.
2000 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 - PURPOSE AND DEFINITION................................... 1
SECTION 2 - ADMINISTRATION........................................... 3
SECTION 3 - ELIGIBILITY.............................................. 4
SECTION 4 - STOCK.................................................... 4
SECTION 5 - GRANTING OF OPTIONS...................................... 5
SECTION 6 - ISO ANNUAL LIMIT......................................... 5
SECTION 7 - TERMS AND CONDITIONS OF OPTIONS.......................... 5
SECTION 8 - OPTION AGREEMENTS -- OTHER PROVISIONS.................... 9
SECTION 9 - ADJUSTMENT IN CASE OF CHANGES IN COMMON STOCK............ 9
SECTION 10 - CERTAIN CORPORATE TRANSACTIONS.......................... 10
SECTION 11 - AMENDMENT OF THE PLAN................................... 10
SECTION 12 - TERMINATION OF PLAN; CESSATION OF ISO GRANTS............ 11
SECTION 13 - SHAREHOLDER APPROVAL.................................... 11
SECTION 14 - MISCELLANEOUS........................................... 12
</TABLE>
-i-
<PAGE>
NUCYCLE THERAPY, INC.
2000 STOCK OPTION PLAN
WHEREAS, NuCycle Therapy, Inc., a New Jersey corporation, desires to
award incentive and nonqualified stock options to certain of its employees,
consultants and non-employee directors;
NOW, THEREFORE, the NuCycle Therapy, Inc. 2000 Stock Option Plan is
hereby adopted under the following terms and conditions:
SECTION 1 - PURPOSE AND DEFINITION
(a) Purpose. The Plan is intended to provide a means whereby the
-------
Company may, through the grant of ISOs and NQSOs to Employees, Consultants and
Non-Employee Directors, attract and retain such individuals and motivate them to
exercise their best efforts on behalf of the Company and of any Related
Corporation.
(b) Definitions.
-----------
(1) "Board" shall mean the Board of Directors of the Company.
-----
(2) "Cause" shall mean the Optionee has --
-----
(A) materially failed to perform his or her stated duties
and not cured such failure (if curable) within 15 days of his or her receipt of
written notice of the failure;
(B) demonstrated his or her personal dishonesty;
(C) engaged in willful misconduct;
(D) engaged in a breach of fiduciary duty involving
personal profit;
(E) willfully violated any law, rule, or regulation, or
final cease-and-desist order (other than traffic violations or similar
offenses); or
(F) engaged in other serious misconduct of such a nature
that the continuation of the Optionee's status as an Employee, Consultant or
Non-Employee Director may reasonably be expected to affect the Company and
Related Corporations adversely.
(3) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
(4) "Common Stock" shall mean the common stock of the Company.
------------
(5) "Committee" shall mean the Board or a committee, the members
---------
of which shall be appointed by, and serve at the pleasure of, the Board;
provided, however, that on and
-1-
<PAGE>
after such date, if any, on which the Company first registers equity securities
under Section 12 of the Exchange Act, the term "Committee" shall mean:
(A) A committee which consists solely of not fewer than
two directors of the Company who shall be appointed by, and serve at the
pleasure of, the Board (taking into consideration the rules under section 16(b)
of the Exchange Act and the requirements of section 162(m) of the Code); or
(B) In the event a committee has not been established in
accordance with (A) above, the entire Board.
(6) "Company" shall mean NuCycle Therapy, Inc.
-------
(7) "Consultant" shall mean an individual who is not an
----------
Employee, and who has entered into a consulting arrangement with the Company or
a Related Corporation to provide services that are not in connection with the
offer or sale of securities in a capital-raising transaction.
(8) "Employee" shall mean an officer or other employee of the
--------
Company or a Related Corporation.
(9) "Exchange Act" shall mean the Securities Exchange Act of
------------
1934, as amended.
(10) "Fair Market Value" shall mean the following, arrived at by
-----------------
a good faith determination of the Committee:
(A) if there are sales of Common Stock on a national
securities exchange or in an over-the-counter market on the date of grant, then
the mean between the highest and lowest quoted selling price on the date of
grant; or
(B) if there are no such sales of Common Stock on the date
of grant but there are such sales on dates within a reasonable period both
before and after the date of grant, then the weighted average of the means
between the highest and lowest selling price on the nearest date before and the
nearest date after the date of grant, on which there were such sales; or
(C) if actual sales are not available during a reasonable
period beginning before and ending after the date of grant, then the mean
between the bid and asked price on the date of grant as reported by the National
Quotation Bureau; or
(D) if (A) through (C) are not applicable, such other
method of determining fair market value as shall be authorized by the Code, or
the rules or regulations thereunder, and adopted by the Committee.
Where the Fair Market Value of the optioned shares of Common Stock is determined
under (B) above, the average of the means between the highest and lowest sales
on the nearest date before and the nearest date after the date of grant shall be
weighted inversely by the respective numbers
-2-
<PAGE>
of trading days between the selling dates and the date of grant (i.e., the
valuation date), in accordance with Treas. Reg. (S) 20.2031-2(b)(1), or any
successor thereto.
(11) "ISO" shall mean an option which, at the time such option is
---
granted under the Plan, qualifies as an incentive stock option within the
meaning of section 422 of the Code, unless the Option Agreement states that the
option will not be treated as an ISO.
(12) "Non-Employee Director" shall mean a director of the Company
---------------------
who is not an Employee.
(13) "NQSO" shall mean an option which, at the time such option
----
is granted, does not meet the definition of ISO, whether or not it is designated
as a nonqualified stock option in the Option Agreement.
(14) "Option Agreement" shall mean a written document evidencing
----------------
the grant of an Option, as described in Section 8.
(15) "Optionee" shall mean an Employee, Consultant or Non-
--------
Employee Director who has been granted an Option under the Plan.
(16) "Options" shall mean ISOs and NQSOs.
-------
(17) "Plan" shall mean the NuCycle Therapy, Inc. 2000 Stock
----
Option Plan as set forth herein and as amended from time to time.
(18) "Related Corporation" shall mean either a "subsidiary
-------------------
corporation" of the Company, as defined in section 424(f) of the Code, or the
"parent corporation" of the Company, as defined in section 424(e) of the Code.
(19) "Termination of Service" shall mean (a) with respect to an
----------------------
Option granted to an Employee, the termination of the employment relationship
between the Employee and the Company and all Related Corporations; (b) with
respect to an Option granted to a Consultant, the termination of the consulting
arrangement between the Consultant and the Company and all Related Corporations;
and (c) with respect to an Option granted to a Non-Employee Director, the
cessation of the provision of services as a director of the Company and all
Related Corporations; provided, however, that if the Optionee's status changes
from Employee, Consultant or Non-Employee Director to any other status eligible
to receive Options under the Plan, the Committee (subject to Section 11(a)) may
provide that no Termination of Service occurs for purposes of the Plan until the
Optionee's new status with the Company and all Related Corporations terminates.
SECTION 2 - ADMINISTRATION
The Plan shall be administered by the Committee. Each member of the
Committee, while serving as such, shall be deemed to be acting in his or her
capacity as a director of the Company.
-3-
<PAGE>
The Committee shall have full authority, subject to the terms of the
Plan, to select the Employees, Consultants and Non-Employee Directors to be
granted Options under the Plan, to grant Options on behalf of the Company, and
to set the date of grant and the other terms of such Options in accordance with
the Plan; provided, however, that Consultants and Non-Employee Directors shall
not be eligible to receive ISOs under the Plan. The Committee may correct any
defect, supply any omission, and reconcile any inconsistency in the Plan and in
any Option granted hereunder in the manner and to the extent it deems desirable.
The Committee may also, in its discretion, adjust the price of an Option, or
cancel an Option and grant a new Option to replace the cancelled Option;
provided, that if the Committee adjusts the price of an Option or replaces an
Option, the resulting Option shall be treated as a new Option granted on the
date of such change or replacement and shall comply with the terms of the Plan
as such. The Committee also shall have the authority to establish such rules
and regulations, not inconsistent with the provisions of the Plan, for the
proper administration of the Plan, to amend, modify, or rescind any such rules
and regulations, and to make such determinations and interpretations under, or
in connection with, the Plan, as it deems necessary or advisable. All such
rules, regulations, determinations, and interpretations shall be binding and
conclusive upon the Company, its shareholders, and all Optionees, upon their
respective legal representatives, beneficiaries, successors, and assigns, and
upon all other persons claiming under or through any of them. Except as
otherwise required by the bylaws of the Company or by applicable law, no member
of the Board or the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Option granted under it.
SECTION 3 - ELIGIBILITY
Employees, Non-Employee Directors and Consultants shall be eligible to
receive Options under the Plan. However, Consultants and Non-Employee Directors
shall not be eligible to receive ISOs under the Plan. More than one Option may
be granted to an Optionee under the Plan.
SECTION 4 - STOCK
Options may be granted under the Plan to purchase up to a maximum of
400,000 shares of Common Stock; provided, however, that no Employee shall
receive Options for more than 300,000 shares of Common Stock under this Plan.
However, both limits in the preceding sentence shall be subject to adjustment as
hereinafter provided. Shares issuable under the Plan may be authorized but
unissued shares or reacquired shares, and the Company may purchase shares
required for this purpose, from time to time, if it deems such purchase to be
advisable.
If any Option granted under the Plan expires, or if any such Option is
canceled for any reason whatsoever (including, without limitation, the
Optionee's surrender thereof), without having been exercised, the shares subject
to the unexercised portion of the Option shall continue to be available for the
granting of Options under the Plan as fully as if the shares had never been
subject to an Option. However, (i) if an Option is cancelled, the shares of
Common Stock covered by the cancelled Option shall be counted against the
maximum number of shares specified above for which Options may be granted to a
single Employee, and (ii) if the exercise
-4-
<PAGE>
price of an Option is reduced after the date of grant, the transaction shall be
treated as a cancellation of the original Option and the grant of a new Option
for purposes of such maximum.
SECTION 5 - GRANTING OF OPTIONS
From time to time until the expiration or earlier suspension or
discontinuance of the Plan, the Committee may, on behalf of the Company, grant
to Employees, Consultants and Non-Employee Directors such Options as it
determines are warranted; provided, however, that grants of ISOs and NQSOs shall
be separate and not in tandem, and further provided that Consultants and Non-
Employee Directors shall not be eligible to receive ISOs under the Plan. A
member of the Committee shall not participate in a vote approving the grant of
an Option to himself or herself to the extent provided under the laws of New
Jersey governing corporate self-dealing. In making any determination as to
whether an Employee, Consultant or Non-Employee Director shall be granted an
Option, the type of Option to be granted to an Employee, the number of shares to
be covered by the Option, and other terms of the Option, the Committee may take
into account the duties of the Employee, Consultant or Non-Employee Director,
his or her present and potential contributions to the success of the Company or
a Related Corporation, the tax implications to the Company and the Employee of
any Option granted, and such other factors as the Committee may deem relevant in
accomplishing the purposes of the Plan. Moreover, the Committee may provide in
the Option that said Option may be exercised only if certain conditions, as
determined by the Committee, are fulfilled.
SECTION 6 - ISO ANNUAL LIMIT
The aggregate Fair Market Value of the Common Stock with respect to
which ISOs are exercisable for the first time by an Employee during any calendar
year (counting ISOs under this Plan and under any other stock option plan of the
Company or a Related Corporation) shall not exceed $100,000. If an Option
intended as an ISO is granted to an Employee and the Option may not be treated
in whole or in part as an ISO pursuant to the $100,000 limitation, the Option
shall be treated as an ISO to the extent it may be so treated under the
limitation and as an NQSO as to the remainder. For purposes of determining
whether an ISO would cause the limitation to be exceeded, ISOs shall be taken
into account in the order granted. The annual limits set forth above for ISOs
shall not apply to NQSOs.
SECTION 7 - TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall include expressly or by
reference the following terms and conditions, as well as such other provisions
not inconsistent with the provisions of the Plan (and, for ISOs granted under
the Plan, the provisions of section 422(b) of the Code), as the Committee shall
deem desirable --
(a) Number of Shares. The Option shall state the number of shares of
----------------
Common Stock to which it pertains.
-5-
<PAGE>
(b) Price. The Option shall state the option price which shall be
-----
determined and fixed by the Committee in its discretion but
(1) with respect to an ISO, the option price shall be 100
percent (110 percent in the case of a more-than-10-percent shareholder, as
provided in subsection (j) below) of the Fair Market Value of the shares of
Common Stock subject to the Option on the date the ISO is granted and,
(2) with respect to an NQSO, the option price shall be at
least 75 percent of the Fair Market Value of the shares of Common Stock subject
to the Option on the date the NQSO is granted.
(c) Term
----
(1) ISOs. Subject to earlier termination as provided in
----
subsections (e), (f), and (g) below and in Section 10 hereof, the term of each
ISO shall be not more than 10 years (five years in the case of a more-than-10-
percent shareholder, as discussed in subsection (j) below) from the date of
grant of the ISO.
(2) NQSOs. Subject to earlier termination as provided in
-----
subsections (e), (f), and (g) below and in Section 10 hereof, the term of each
NQSO shall be not more than 10 years from the date of grant.
(d) Exercise. Options shall be exercisable in such installments, upon
--------
fulfillment of such other conditions, and on such dates as the Committee may
specify. In the case of new Options granted to an Optionee to replace options
(whether granted under the Plan or otherwise) held by the Optionee or in the
case of Options repriced by the Committee, the new or repriced Options may be
made exercisable, if so determined by the Committee, in its discretion, at the
earliest date the original Options were exercisable. The Committee may
accelerate the exercise date of any outstanding Options, in its discretion, if
it deems such acceleration to be desirable.
Any exercisable Options may be exercised at any time up to the
expiration or termination of the Option. Exercisable Options may be exercised,
in whole or in part and from time to time, by giving written notice of exercise
to the Company at its principal office, specifying the number of shares to be
purchased and accompanied by payment in full of the aggregate Option exercise
price for such shares (except that, in the case of an exercise arrangement
approved by the Committee and described in paragraph (2) below, payment may be
made as soon as practicable after the exercise). Only full shares shall be
issued under the Plan, and any fractional share which might otherwise be
issuable upon exercise of an Option granted hereunder shall be forfeited.
The Option Agreement shall set forth, from among the following
alternatives, how the option price is to be paid --
(1) in cash or its equivalent;
-6-
<PAGE>
(2) by delivering a properly executed notice of exercise of
the Option to the Company and a broker, with irrevocable instructions to the
broker promptly to deliver to the Company the amount of sale or loan proceeds
necessary to pay the exercise price of the Option; or
(3) if the Committee so determines, at the date of grant in
the case of an ISO, or at or after the date of grant in the case of an NQSO, and
if the Optionee thereafter so requests, (i) the Company will loan the Optionee
the money required to pay the exercise price of the Option; (ii) any such loan
to an Optionee shall be made only at the time the Option is exercised; and (iii)
the loan will be made on the Optionee's personal, negotiable, demand promissory
note, bearing interest at the lowest rate which will avoid imputation of
interest under section 7872 of the Code, with a pledge of the Common Stock
acquired upon exercise, and including such other terms as the Committee may
prescribe; or
(4) in any combination of paragraphs (1), (2), and (3) above.
(e) Termination of Service for a Reason Other Than Death or
-------------------------------------------------------
Disability. If an Optionee's Termination of Service occurs prior to the
- ----------
expiration date fixed for his or her Option for any reason other than death or
disability, such Option may be exercised, to the extent of the number of shares
with respect to which the Optionee could have exercised it on the date of such
Termination of Service, or to any greater extent permitted by the Committee, by
the Optionee at any time prior to the earliest of (i) the expiration date
specified in the Option Agreement, (ii) three months after the date of such
Termination of Service, if the Termination was not for Cause (unless the Option
Agreement provides a later expiration date in the case of such a Termination),
and (iii) the date of such Termination of Service, if the Termination was for
Cause (unless the Option Agreement provides a later expiration date in the case
of such a Termination.)
(f) Disability. If an Optionee becomes disabled (within the meaning
----------
of section 22(e)(3) of the Code) prior to the expiration date fixed for his or
her Option, and the Optionee's Termination of Service occurs as a consequence of
such disability, such Option may be exercised, to the extent of the number of
shares with respect to which the Optionee could have exercised it on the date of
such Termination of Service, or to any greater extent permitted by the
Committee, by the Optionee at any time prior to the earlier of (i) the
expiration date specified in the Option Agreement, or (ii) one year after the
date of such Termination of Service (unless the Option Agreement provides a
later expiration date in the case of such a Termination). In the event of the
Optionee's legal disability, such Option may be exercised by the Optionee's
legal representative.
(g) Death. If an Optionee's Termination of Service occurs as a result
of death, prior to the expiration date fixed for his or her Option, or if the
Optionee dies following his or her Termination of Service but prior to the
earlier of (i) the expiration date fixed for his or her Option, or (ii) the
expiration of the period determined under subsections (e) and (f) above
(including any extension of such period provided in the Option Agreement), such
Option may be exercised, to the extent of the number of shares with respect to
which the Optionee could have exercised it on the date of his or her death, or
to any greater extent permitted by the Committee, by the Optionee's estate,
personal representative, or beneficiary who acquired the right to
-7-
<PAGE>
exercise such Option by bequest or inheritance or by reason of the death of the
Optionee. Such post-death exercise may occur at any time prior to the earlier of
(i) the expiration date specified in such Option, or (ii) one year after the
date of the Optionee's death (unless the Option Agreement provides a later
expiration date in the case of death).
(h) Non-Transferability; Registration. No ISO shall be assignable or
---------------------------------
transferable by the Optionee other than by will or by the laws of descent and
distribution. During the lifetime of the Optionee, an ISO shall be exercisable
only by the Optionee or, in the event of the Optionee's legal disability, by the
Optionee's guardian or legal representative. Except as provided in an Optionee's
Option Agreement, such limits on assignment, transfer and exercise shall also
apply to NQSOs. If the Optionee is married at the time of exercise and if the
Optionee so requests at the time of exercise, the certificate or certificates
shall be registered in the name of the Optionee and the Optionee's spouse,
jointly, with right of survivorship.
(i) Rights as a Shareholder. An Optionee shall have no rights as a
-----------------------
shareholder with respect to any shares covered by his or her Option until the
issuance of a stock certificate to him or her for such shares.
(j) Ten-Percent Shareholder. If, after applying the attribution rules
-----------------------
of section 424(d) of the Code, the Optionee owns more than 10 percent of the
total combined voting power of all shares of stock of the Company or of a
Related Corporation at the time an ISO is granted to him, the option price for
the ISO shall be not less than 110 percent of the Fair Market Value of the
optioned shares of Common Stock on the date the ISO is granted, and such ISO, by
its terms, shall not be exercisable after the expiration of five years from the
date the ISO is granted. The conditions set forth in this subsection shall not
apply to NQSOs.
(k) Listing and Registration of Shares. Each Option shall be subject
----------------------------------
to the requirement that, if at any time the Committee shall determine, in its
discretion, that the listing, registration, or qualification of the shares of
Common Stock covered thereby upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such Option or the purchase of shares of Common Stock thereunder, or that action
by the Company, its shareholders, or the Optionee should be taken in order to
obtain an exemption from any such requirement or to continue any such listing,
registration, or qualification, no such Option may be exercised, in whole or in
part, unless and until such listing, registration, qualification, consent,
approval, or action shall have been effected, obtained, or taken under
conditions acceptable to the Committee. Without limiting the generality of the
foregoing, each Optionee or his or her legal representative or beneficiary may
also be required to give satisfactory assurance that such person is an eligible
purchaser under applicable securities laws, and that the shares purchased upon
exercise of an Option are being purchased for investment and not with a view to
distribution; certificates representing such shares may be legended accordingly.
(l) Withholding and Use of Shares to Satisfy Tax Obligations. The
--------------------------------------------------------
obligation of the Company to deliver shares of Common Stock upon the exercise of
any Option shall be subject to applicable federal, state, and local tax
withholding requirements.
-8-
<PAGE>
If the exercise of any Option is subject to the withholding
requirements of applicable federal, state or local tax law, the Committee, in
its discretion, may permit or require the Optionee to satisfy the federal, state
and/or local withholding tax, in whole or in part, by electing to have the
Company withhold shares of Common Stock subject to the exercise (or by returning
previously acquired shares of Common Stock to the Company); provided, however,
that the Company may limit the number of shares withheld to satisfy the tax
withholding requirements to the extent necessary to avoid adverse accounting
consequences. Shares of Common Stock shall be valued, for purposes of this
subsection, at their Fair Market Value (determined as of the date the amount
attributable to the exercise of the Option is includible in income by the
Optionee under section 83 of the Code (the "Determination Date"), rather than
the date of grant). If shares of Common Stock acquired by the exercise of an
ISO are used to satisfy the withholding requirement described above, such shares
of Common Stock must have been held by the Optionee for a period of not less
than the holding period described in section 422(a)(1) of the Code as of the
Determination Date.
The Committee shall adopt such withholding rules as it deems necessary
to carry out the provisions of this subsection.
(m) Loans. If an Optionee is designated as an "eligible participant"
-----
by the Committee at the date of grant in the case of an ISO, or at or after the
date of grant in the case of an NQSO, and if the Optionee thereafter so
requests, the Company will loan the Optionee the money required to satisfy any
regular income tax obligations (as opposed to alternative minimum tax
obligations) resulting from the exercise of any Options. Any loan or loans to
an Optionee shall be made only at the time any such tax resulting from such
exercise is due. The Committee, in its discretion, may require an affidavit
from the Optionee specifying the amount of the tax required to be paid and the
date when such tax must be paid. The loan will be made on the Optionee's
personal, negotiable, demand promissory note, bearing interest at the lowest
rate which will avoid imputation of interest under section 7872 of the Code, and
including such other terms as the Committee may prescribe.
SECTION 8 - OPTION AGREEMENTS -- OTHER PROVISIONS
Options granted under the Plan shall be evidenced by Option Agreements
in such form as the Committee shall from time to time approve, and containing
such provisions not inconsistent with the provisions of the Plan (and, for ISOs
granted pursuant to the Plan, not inconsistent with section 422(b) of the Code),
as the Committee shall deem advisable. The Option Agreements shall specify
whether the Option is an ISO or NQSO. Each Optionee shall enter into, and be
bound by, an Option Agreement as soon as practicable after the grant of an
Option.
SECTION 9 - ADJUSTMENT IN CASE OF CHANGES IN COMMON STOCK
The number of shares which may be issued under the Plan, and the
maximum number of shares with respect to which Options may be granted to any
Employee under the Plan, both as stated in Section 4 hereof, and the number of
shares issuable upon exercise of
-9-
<PAGE>
outstanding Options under the Plan (as well as the option price per share under
such outstanding Options) shall be adjusted, as may be deemed appropriate by the
Committee, to reflect any stock dividend, stock split, spin-off, share
combination, or similar change in the capitalization of the Company; provided,
however, that no such adjustment shall be made to an outstanding ISO if such
adjustment would constitute a modification under section 424(h) of the Code,
unless the Optionee consents to such adjustment. In the event any such change in
capitalization cannot be reflected in a straight mathematical adjustment of the
number of shares issuable upon the exercise of outstanding Options (and a
straight mathematical adjustment of the exercise price thereof), the Committee
shall make such adjustments as are appropriate to reflect most nearly such
straight mathematical adjustment. Such adjustments shall be made only as
necessary to maintain the proportionate interest of Optionees, and preserve,
without exceeding, the value of Options.
SECTION 10 - CERTAIN CORPORATE TRANSACTIONS
In the event of a corporate transaction (such as, for example, a
merger, consolidation, acquisition of property or stock, separation,
reorganization, or liquidation), the surviving or successor corporation shall
assume each outstanding Option or substitute a new option for each outstanding
Option; provided, however, that, in the event of a proposed corporate
transaction, the Committee may terminate all or a portion of the outstanding
Options, effective upon the closing of the corporate transaction, if it
determines that such termination is in the best interests of the Company. If
the Committee decides so to terminate outstanding Options, the Committee shall
give each Optionee holding an Option to be terminated not fewer than seven days'
notice prior to any such termination, and any Option which is to be so
terminated may be exercised (if and only to the extent that it is then
exercisable) up to, and including the time of such termination. Further, as
provided in Section 7(d) hereof, the Committee, in its discretion, may
accelerate, in whole or in part, the date on which any or all Options become
exercisable.
The Committee also may, in its discretion, change the terms of any
outstanding Option to reflect any such corporate transaction, provided that, in
the case of ISOs, such change would not constitute a "modification" under
section 424(h) of the Code, unless the Optionee consents to the change.
SECTION 11 - AMENDMENT OF THE PLAN
(a) In General. The Board, pursuant to a written resolution, from
----------
time to time may amend or suspend the Plan, and the Committee may amend any
outstanding Options in any respect whatsoever; except that the following
amendments shall require the approval of shareholders (given in the manner set
forth in subsection (b) below) --
(1) a change in the class of employees eligible to participate
in the Plan with respect to ISOs;
(2) except as permitted under Section 9 hereof, an increase in
the maximum number of shares of Common Stock with respect to which ISOs may be
granted under the Plan;
-10-
<PAGE>
(3) an extension of the date, under Section 12 hereof, as of
which no ISOs shall be granted hereunder;
(4) a modification of the material terms of the "performance
goal," within the meaning of Treas. Reg. (S) 1.162-27(e)(4)(vi) or any successor
thereto (to the extent compliance with section 162(m) of the Code is desired);
and
(5) any amendment for which shareholder approval is required
under the rules of the exchange or market on which the Common Stock is listed.
No such amendment or suspension shall alter or impair any outstanding Options or
cause the modification (within the meaning of section 424(h) of the Code) of an
ISO, without the consent of the Optionee affected thereby.
(b) Manner of Shareholder Approval. The approval of shareholders must
------------------------------
comply with all applicable provisions of the corporate charter and bylaws of the
Company, and must be effected --
(1) by a method and in a degree that would be treated as
adequate under applicable state law in the case of an action requiring
shareholder approval (i.e., an action on which shareholders would be entitled to
vote if the action were taken at a duly held shareholders' meeting); or
(2) by a majority of the votes cast (including abstentions, to
the extent abstentions are counted as voting under applicable state law), in a
separate vote at a duly held shareholders' meeting at which a quorum
representing a majority of all outstanding voting stock is, either in person or
by proxy, present and voting on the Plan.
SECTION 12 - TERMINATION OF PLAN; CESSATION OF ISO GRANTS
The Board, pursuant to written resolution, may terminate the Plan at
any time and for any reason. No ISOs shall be granted hereunder after
[____________ ___, 2010], which date is within 10 years after the date the Plan
was adopted by the Board, or the date the Plan was approved by the shareholders
of the Company, whichever is earlier. Nothing contained in this Section,
however, shall terminate or affect the continued existence of rights created
under Options issued hereunder, and outstanding on the date the Plan is
terminated, which by their terms extend beyond such date.
SECTION 13 - SHAREHOLDER APPROVAL
This Plan shall become effective on [___________ ___, 2000] (the date
the Plan was adopted by the Board); provided, however, that if the Plan is not
approved by the shareholders, in the manner described in Section 11(b) hereof,
within 12 months before or after the date the Plan was adopted by the Board,
ISOs granted hereunder shall be null and void and no additional Options shall be
granted hereunder.
-11-
<PAGE>
SECTION 14 - MISCELLANEOUS
(a) Rights. Neither the adoption of the Plan nor any action of the
------
Board or the Committee shall be deemed to give any individual any right to be
granted an Option, or any other right hereunder, unless and until the Committee
shall have granted such individual an Option, and then his or her rights shall
be only such as are provided in the Option Agreement. Notwithstanding any
provisions of the Plan or the Option Agreement with an Employee, the Company and
any Related Corporation shall have the right, in its discretion but subject to
any employment contract entered into with the Employee, to retire the Employee
at any time pursuant to its retirement rules or otherwise to terminate his or
her employment at any time for any reason whatsoever.
(b) Indemnification of Board and Committee. Without limiting any
--------------------------------------
other rights of indemnification which they may have from the Company and any
Related Corporation, the members of the Board and the members of the Committee
shall be indemnified by the Company against all costs and expenses reasonably
incurred by them in connection with any claim, action, suit, or proceeding to
which they or any of them may be a party by reason of any action taken or
failure to act under, or in connection with, the Plan, or any Option granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit, or proceeding,
except a judgment based upon a finding of willful misconduct or recklessness on
their part. Upon the making or institution of any such claim, action, suit, or
proceeding, the Board or Committee member shall notify the Company in writing,
giving the Company an opportunity, at its own expense, to handle and defend the
same before such Board or Committee member undertakes to handle it on his or her
own behalf. The provisions of this Section shall not give members of the Board
or the Committee greater rights than they would have under the Company's by-laws
or New Jersey law.
(c) Application of Funds. Any cash received in payment for shares
--------------------
upon exercise of an Option shall be added to the general funds of the Company.
(d) No Obligation to Exercise Option. The granting of an Option shall
--------------------------------
impose no obligation upon an Optionee to exercise such Option.
(e) Governing Law. The Plan shall be governed by the applicable Code
-------------
provisions to the maximum extent possible. Otherwise, the laws of New Jersey
shall govern the operation of, and the rights of Optionees under, the Plan, and
Options granted thereunder.
-12-
<PAGE>
EXHIBIT 8.1
-----------
LARRY LESNIK
RAVIN, GREENBERG & MARKS, P.A.
Attorneys for Debtor/Debtor-In-Possession
101 Eisenhower Parkway
Roseland, NJ 07068
(973) 226-1500
LL 2031
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW JERSEY
In the Matter of: : In Proceedings for a Reorganization
Under Chapter 11 of the Bankruptcy Code
:
NUCYCLE THERAPY, INC.,
f/k/a PHYTOTECH, INC., :
A New Jersey Corporation,
: Case No. 99-55905/KCF
Debtor.
:
-
DEBTOR'S FIRST AMENDED DISCLOSURE STATEMENT
--------------------------------------------
FOR PLAN OF REORGANIZATION
--------------------------
ARTICLE 1
---------
INTRODUCTION
------------
Debtor/Debtor-In-Possession NuCycle Therapy, Inc., f/k/a Phytotech, Inc.
(hereafter the "Debtor" or "NuCycle") provides this First Amended Disclosure
Statement to all known creditors and equity interest holders of the within
estate pursuant to (S)1125 of the United States Bankruptcy Code, 11 U.S.C.
(S)101 et. seq. (the "Bankruptcy Code"). The purpose of this First Amended
Disclosure Statement is to provide such information as may be deemed material,
important and necessary for all creditors and equity interest holders of NuCycle
to make a reasonably informed decision in exercising their right to vote for
<PAGE>
acceptance or rejection of the Debtor's Plan of Reorganization (the "Plan"). The
Plan, a copy of which is annexed hereto as Exhibit "A", was filed with the Clerk
of the United States Bankruptcy Court on October 18, 1999.
Except as expressly indicated otherwise, the portions of this First Amended
Disclosure Statement describing the Debtor, its pre- and post-petition
operations, relevant events during the within Chapter 11 proceeding and the Plan
itself have been prepared from information supplied by either the Debtor's
personnel, the Chapter 11 Petition and Schedules filed thereby or the Debtor's
bankruptcy counsel. The Debtor is not aware of any material inaccuracies or
omissions with respect to the matters described in this First Amended Disclosure
Statement. However, the information contained herein has not been subjected to
a certified audit, and thus the Debtor is unable to warrant, represent or
guarantee that the information contained in this First Amended Disclosure
Statement is without any inaccuracies.
THE DEBTOR RESERVES THE RIGHT TO FILE ANOTHER AMENDED DISCLOSURE STATEMENT
AND PLAN. ALL CREDITORS AND INTEREST HOLDERS ARE HEREBY ADVISED AND ENCOURAGED
TO READ THE PLAN AND FIRST AMENDED DISCLOSURE STATEMENT IN THEIR ENTIRETY BEFORE
VOTING TO ACCEPT OR REJECT THE PLAN.
THE PLAN AND FIRST AMENDED DISCLOSURE STATEMENT ARE NOT REQUIRED TO BE
PREPARED IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR OTHER APPLICABLE
NON-BANKRUPTCY LAW. ALL
2
<PAGE>
PERSONS SHOULD EVALUATE THE PLAN AND FIRST AMENDED DISCLOSURE STATEMENT IN LIGHT
OF THE PURPOSES FOR WHICH THEY WERE PREPARED.
AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER ACTIONS OR
THREATENED ACTIONS, THIS FIRST AMENDED DISCLOSURE STATEMENT SHALL NOT BE
CONSTRUED AS AN ADMISSION OR STIPULATION, BUT RATHER AS A STATEMENT MADE IN
SETTLEMENT NEGOTIATIONS.
Except as described below, the Plan may be confirmed only if accepted by
each voting class. The Bankruptcy Code defines "acceptance" as acceptance by
holders of (a) at least two-thirds (2/3) in dollar amount and more than one-half
(1/2) in number of the allowed claims and (b) at least two-thirds (2/3) in
amount of allowed interests in each class whose holders cast ballots. Any voting
class that fails to accept the Plan will be deemed to have rejected the Plan.
Section 1129 (b) of the Bankruptcy Code permits confirmation of the Plan
notwithstanding rejection by one or more classes if the Bankruptcy Court finds
that the Plan does not discriminate unfairly and is "fair and equitable" with
respect to the rejecting class or classes ("Cramdown").
The Debtor may seek to have the Plan confirmed over the rejection of any
voting class which does not accept the Plan, or which is deemed to have rejected
the Plan.
THE DEBTOR BELIEVES THAT THE PLAN PROVIDES THE BEST POSSIBLE RECOVERY TO
CREDITORS AND EQUITY INTEREST HOLDERS. THE DEBTOR THEREFORE BELIEVES THAT
ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF EACH AND EVERY CLASS OF
CREDITORS AND EQUITY INTEREST
3
<PAGE>
HOLDERS. THE DEBTOR RECOMMENDS THAT YOU VOTE TO ACCEPT THE PLAN.
After carefully reviewing the Plan and First Amended Disclosure Statement,
including the Exhibits, each person holding a claim or interest should vote by
completing the enclosed Ballot and returning the Ballot in the envelope
provided. If you have a claim in more than one such voting class, you should
obtain a separate Ballot for each claim and vote on each claim separately.
TO BE COUNTED, YOUR BALLOT MUST BE COMPLETELY FILLED IN, SIGNED AND
RECEIVED AT THE ADDRESSES INDICATED BELOW BY 4:00 P.M. EASTERN DAYLIGHT TIME ON
__________________________, 2000. ANY BALLOTS RECEIVED AND SIGNED WHICH DO NOT
--------------------------------------------
INDICATE EITHER ACCEPTANCE OR REJECTION OF THE PLAN OR WHICH INDICATE BOTH AN
- -----------------------------------------------------------------------------
ACCEPTANCE AND REJECTION OF THE PLAN WILL BE DEEMED TO CONSTITUTE AN ACCEPTANCE
- -------------------------------------------------------------------------------
OF THE PLAN. FACSIMILE BALLOTS WILL NOT BE ACCEPTED.
- -----------------------------------------------------
Please return your Ballot(s) to:
Larry Lesnik, Esq.
c/o Ravin, Greenberg & Marks, P.A.
101 Eisenhower Parkway
Roseland, NJ 07068
with a copy to:
Clerk, United States Bankruptcy Court
402 East State Street
Trenton, NJ 08608
If you have any questions about the procedure for voting, if you did not
receive a
4
<PAGE>
Ballot, if you received a damaged Ballot or have lost your Ballot, please call
Larry Lesnik at (973) 226-1500 between 8:00 a.m. and 5:00 p.m. E.D.T.
ARTICLE II
----------
PRE-PETITION HISTORY OF THE DEBTOR
----------------------------------
The Debtor is a New Jersey Corporation formed in 1993 by Dr. Burt D. Ensley
("Ensley"), and Dr. Laura Meagher and Dr. Ilya Raskin, two members of the
faculty at Rutgers University. The Debtor was formed to capitalize on new
biotechnology through which plants could be utilized to effectuate environmental
remediation of contaminated properties ("phytoremediation") and, through other
technology, grown with high concentrations of desirable nutritional supplements
such as, inter alia, selenium and chromium ("nutraceutical"). Ensley had
----- ----
personal experience with other biotech start-up companies and had every
expectation that the Debtor's revenues for the first few years would be
deminimus, requiring subsequent infusions of capital in order to continue
operations.
Through efforts that began in December, 1994, approximately $300,000 in new
equity financing was raised. In 1995, $3,000,000 was raised by Spencer Trask
Securities. However, by the end of 1996, the majority of such funds had been
utilized for operations, research and development, and thus a second round of
post start-up financing was required. At that time, NuCycle utilized the
services of Trautman, Kramer & Co., Inc.
5
<PAGE>
("Trautman"), an investment banking firm that had approached the Debtor to
provide such assistance. Approximately $3,000,000 in additional financing was
raised through such efforts. By May, 1997, NuCycle had again depleted most of
its operating funds, at which time Ensley and two other individuals (Abraham H.
Nechemie and Philip Whitcome) lent money to the Debtor on a first priority
secured basis in order to fund operations until another round of equity
financing could be successfully completed. NuCycle then again utilized the
services of Trautman who assisted in raising an additional $2,100,000 in debt
financing between September 1997 and March 1998. As a condition of the aforesaid
provision of services by Trautman, one of its Vice-Presidents, Eric Johnson
("Johnson"), was added to the Debtor's Board of Directors.
Between April and June 1998, the Debtor commenced efforts to issue an IPO
with the assistance of an underwriter (Chester Paulson). The underwriter
requested a one year "lock up" agreement from all existing shareholders, most of
whom were willing to agree to this condition. However, those shareholders who
were affiliated with Johnson would not provide their consent to this condition.
When Ensley attempted to contact such individuals regarding this subject, he
received a written communication from Johnson instructing him to cease
communications with Johnson's "clients". Ensley subsequently determined that
Johnson had instructed the shareholders not to agree to the lock up agreement
requested by the underwriter. Eventually the syndicate that would have managed
the IPO was unnerved and the Debtor was required to seek alternate methods of
financing. Because the bridge notes given to certain individuals came due on
June 30, 1998, and the Debtor
6
<PAGE>
did not have the funds available to satisfy such obligations, efforts were made
to obtain extensions of these notes with the holders thereof. Moreover, as the
Debtor was unable to obtain significant additional financing without an
extension of these notes, it was necessary to attempt to negotiate with Johnson
regarding such extension because of his perceived control over certain
noteholders. Over what the Debtor believes to have been Johnson's objection to
such relief, sufficient consents to extend the aforesaid date were obtained from
the noteholders.
In March, 1999, the Debtor received a proposal from ADAR Equities to
undertake additional financing and a reverse merger of the Debtor into a shell
corporation. This proposal contemplated $250,000 in immediate additional
financing and $1,000,000 in further equity financing conditioned upon a merger
with a shell corporation. The aforesaid financing was contingent upon the
noteholders agreeing to subordinate their notes and to convert same into stock.
On or about March 15, 1999, consent of the noteholders to this transaction was
requested in writing. Eight of the nine noteholders who are not believed to be
affiliated with Johnson provided such consent, but only one of the 22
noteholders affiliated with Johnson agreed to such financing. Since consent of
75% of the noteholders was required for the contemplated conversion, this
transaction could not go forward.
Shortly thereafter, the Debtor commenced discussions with Alan Cohen
regarding a possible merger of the Debtor with Summit Silver, Inc., through
terms which would have provided new financing to the Debtor coincident with such
merger. Again, consent of the noteholders to convert their notes into stock was
required. Once such consents were
7
<PAGE>
solicited, the Debtor received correspondence from an attorney on behalf of
Johnson demanding that Johnson be provided with 1,200,000 shares of the Debtor's
stock, payment of purported legal expenses of $7,000 and the resignation of both
Ensley and the Debtor's CFO, Alex Baltovski ("Baltovski"). Alan Cohen refused to
move forward with the contemplated transaction if Ensley and Baltovski resigned.
Additionally, while the Debtor's counsel indicated a willingness to agree to
Johnson's demand for stock and payment of attorney's fees if, but only if, the
requisite consents to conversion were obtained from the subject noteholders,
such request was refused by Johnson's attorney.
By the time the foregoing events had occurred, the Debtor had made
significant progress in developing its phytoremediation business, and had
obtained meaningful contracts for utilization of its technology in the
remediation of contaminated sites. The Debtor anticipated that its sales volume
for 1999 in this area would exceed $2,000,000. However, because of the cash
shortages that the Debtor experienced during the second half of 1998 and the
first half of 1999, while the aforesaid efforts to obtain new financing were
being unsuccessfully pursued, by the beginning of 1999, the Debtor began to
experience difficulties in performing under the aforesaid contracts and in
maintaining its employees. In fact, the Debtor was unable to pay its employees
their regular salaries between February 1999 and May 1999, which understandably
led to the defection of various key employees. The Debtor was completely unable
to devote time and money to the development of new business in the
phytoremediation field while the aforesaid cash crisis was in place, and also
was unable to meet contractual deadlines for the provision of
8
<PAGE>
services thereby. Thus, the continued existence of the phytoremediation business
was in severe danger, leading Ensley to devote efforts to locating a purchaser
for the assets of such business as an alternative to new equity financing.
In April 1999, the Debtor received a proposal to purchase the assets of the
phytoremediation business from Edenspace Systems Corporation ("Edenspace"). The
initial proposal from Edenspace was at a price of $1,500,000 plus royalties for
a several year period. Based on the projections that were then in place, such
royalties could have totaled as much as $1,000,000. The Debtor's Board of
Directors approved Edenspace's offer, but was not able to promptly consummate
this transaction. When the Debtor had concluded that it was unable to obtain
any additional financing, and thus lacked the cash flow to continue to properly
operate its business, a decision was made to file a petition for reorganization
pursuant to Chapter 11 of the United States Bankruptcy Code, which petition was
filed on May 19, 1999. As will be addressed hereafter, the Debtor was able to
consummate the transaction with Edenspace, on different terms, in its Chapter 11
proceeding.
It is the Debtor's strong belief that Johnson, in his capacity as a Vice-
President of Trautman, has acted in bad faith vis-a-vis the Debtor. The Debtor
believes that Johnson's actions in this regard are the result of the following
"situation". In mid-1997, Johnson had introduced Ensley to Baltovski and
insisted that NuCycle hire Baltovski as its CFO. Baltovski commenced such
employment in November 1997 and has continued in such capacity through the
present time. Shortly after such hiring, Johnson instructed Ensley to
9
<PAGE>
terminate Baltovski, and became irate when he refused to do so. Throughout 1998,
Johnson repeatedly tried to convince Ensley and other members of the Debtor's
Board of Directors that Baltovski should be terminated. However, such efforts
were unsuccessful.
After Johnson had spent several months trying to convince the Debtor to
fire Baltovski, Johnson's motives in this regard became clearer to Ensley who
was informed of a problem between Johnson and Baltovski's wife. Upon
information and belief, as relayed to Ensley by Baltovski's wife, Johnson had
apparently become enamored of Mrs. Baltovski and made sexual advances that she
rebuffed, leading to Johnson's vendetta against both Baltovski and the Debtor
itself. When the Debtor first learned of this matter, it hired an attorney to
investigate the underlying basis for such allegations. Upon information and
belief, a report was then prepared by attorney Domenick Carmagnola which
indicated that a credible basis exists for such claim. This report was provided
to NuCycle's then corporate counsel, but was never reviewed by Ensley or any
other member of the Debtor's Board of Directors.
In August, 1998, counsel to Trautman was informed of Ensley's concerns
regarding the conduct of Johnson, who resigned from the Debtor's board of
directors on October 7, 1998. As indicated previously, even after such date,
Johnson continued to seek the ouster of both Baltovski and Ensley. He also
sought additional shares of stock in the Debtor as a condition of his
recommendation to the noteholders "controlled" by Johnson that they agree to one
or more of the Debtor's pre-petition financing options. Notwithstanding the
willingness of Ensley to resign his position upon consummation of a new
financing
10
<PAGE>
transaction, insufficient approvals from the noteholders were obtained, and no
transaction was consummated, thus leading to the Debtor's Chapter 11 filing. The
Debtor has listed its potential claim against Johnson and Trautman for the
aforesaid conduct of Johnson as an asset in the Schedules filed thereby,
although no litigation has yet been commenced in this regard.
ARTICLE III
-----------
CHAPTER 11 ADMINISTRATION
-------------------------
From and after the aforesaid Chapter 11 filing date, NuCycle has operated
as a Debtor-In-Possession continuing to manage its affairs under the supervision
of the same Board of Directors and officers as existed pre-petition. An
overview of the significant events during the Chapter 11 proceeding include the
following:
Sale of Phytoremediation Unit to Edenspace Systems: Although NuCycle had
--------------------------------------------------
been unable to consummate a pre-petition transaction with Edenspace, Edenspace
remained interested in purchasing the assets of the Debtor's phytoremediation
business, and such negotiations continued rapidly after the Debtor's Chapter 11
filing. Because the value of such assets had been diminishing at a rapid pace,
while key employees left their positions and contracts were canceled or not
renewed, Edenspace reduced the amount it was willing to pay for such assets to
$600,000 in cash and royalties as had previously been contemplated. Edenspace's
principal also informed Ensley that he had been contacted by both Johnson and
one of the Debtor's noteholders who attempted to persuade him not to
11
<PAGE>
consummate this proposed purchase of the phytoremediation assets. Johnson also
contacted one of the Debtor's board members and informed him that the Debtor's
deal with Edenspace would not be consummated and that Johnson was going to seek
control of the Debtor. As indicated hereafter, Johnson was incorrect in this
regard.
As expeditiously as possible, the Debtor completed negotiations with
Edenspace regarding an asset purchase agreement for the phytoremediation assets,
and then sought bankruptcy court approval of this transaction on an accelerated
basis. Due to the diminishing value of such assets, both the Debtor and
Edenspace were anxious to consummate the subject transaction quickly. The
Debtor's request in this regard was accommodated by the bankruptcy court which
scheduled a hearing on reasonable notice to all interested parties. Two
objections to the subject transaction were filed and addressed as follows:
Rutgers University filed a limited objection to the subject application
arguing, inter alia, that it was owed money by the Debtor for work that had
----- ----
been performed thereby, and further that it was the owner, or part-owner, of one
or more of the patents or licenses that the Debtor proposed to transfer to
Edenspace. Additionally, since the Debtor was proposing to assume and assign a
license agreement with Rutgers as part of its transaction with Edenspace,
Rutgers argued that the adequate assurance of future performance required by
(S)365 of the Bankruptcy Code had not been provided. Lastly, Rutgers wanted to
be assured that Edenspace would not utilize any of the patents or licenses being
conveyed thereto for purposes related to the nutritional supplement
12
<PAGE>
business that the Debtor would be retaining. The objection of Rutgers was
consensually resolved pursuant to a Stipulation and Consent Order which, in
pertinent part, precluded the Debtor from assigning to Edenspace a particular
contract (the Dredge Spoils Project), required the Debtor to withdraw with
prejudice any request to grant a license to Edenspace within the field of
nutritional supplements, granted Rutgers certain rights in pending patent
applications, provided that Rutgers would receive a specified portion of the
royalties to be paid by Edenspace pursuant to its asset purchase agreement with
the Debtor, compelled Rutgers and the Debtor to negotiate the terms of a license
from Rutgers to the Debtor regarding certain patent applications which would be
utilized in the nutritional supplement business being retained thereby, for
which a license fee of $153,000 would be payable to Rutgers over a three year
period, and, lastly, provided for a royalty of 2.5% of net sales of licensed
products to also be paid to Rutgers along with issuance of new stock
representing 2% of the post-reorganized Debtor's equity pursuant to the Debtor's
Plan of Reorganization.
A number of the noteholders also retained counsel to file an objection to
the Debtor's proposed transaction with Edenspace, which objection was premised
in large part on the particular noteholders' assertion that the consideration to
be paid by Edenspace for the phytoremediation assets was insufficient and that
the sale was not in the best interests of the within estate. In response to
such objection, the Debtor filed a lengthy, detailed certification of Ensley
providing further background regarding the status of the phytoremediation
business, the Debtor's prior efforts to sell such assets, a history of the
13
<PAGE>
Debtor's efforts to obtain additional financing to allow the phytoremediation
business to continue to operate and grow and a comparison of prices paid for
similar assets to support the reasonableness, under all of the subject
circumstances, of the consideration being offered by Edenspace for such assets.
The contents of the aforesaid certification were supplemented through the
personal testimony of Ensley at a hearing before the Honorable Kathryn C.
Ferguson on the Debtor's application for authorization to sell its
phytoremediation assets to Edenspace, with Her Honor being convinced that such
application was filed in good faith and was in the best interests of the within
estate, leading to the entry of an order authorizing such transaction. Several
weeks thereafter, a closing took place at which the Debtor transferred the
assets of its phytoremediation business to Edenspace pursuant to the terms of
the asset purchase agreement therewith and the bankruptcy court orders settling
the Rutgers' objection and authorizing the subject transaction.
Use of Cash Collateral: At the time of its Chapter 11 filing, there were a
----------------------
large number of individuals or institutions that had perfected a security
interest in the Debtor's assets, including its cash on hand, receivables,
inventory, etc. Accordingly, it was necessary to obtain the entry of bankruptcy
court orders authorizing the Debtor's use of cash collateral in order to fund
its ongoing operations. The Debtor's primary secured lenders prior to its
Chapter 11 filing were Ensley, Abraham H. Nechemie and Philip Whitcome who,
collectively, had a first lien on virtually all of the Debtor's assets to secure
a total of approximately $346,000 owed thereto. Additionally in conjunction
with the
14
<PAGE>
aforementioned equity financing in September 1997 and March 1998, a group of 33
noteholders had lent approximately $2,100,000 to the Debtor, which obligations
were also collateralized by a second lien on the Debtor's assets. Based on the
results of a UCC search conducted by the Debtor and the communications with said
noteholders, it appears that 30 of the 33 noteholders have perfected secured
claims against the Debtor, with the other three noteholders (James Scott, Arthur
Finocchio and Allen Weiss) appearing to have unsecured claims herein. Such
individuals have filed secured proofs of claim which the Debtor reserves the
right to seek to reclassify.
Pursuant to its initial application for such relief, on June 2, 1999, an
interim order authorizing the Debtor's use of cash collateral nunc pro tunc May
---- --- ----
19, 1999 was entered. Subsequent interim orders extended the Debtor's
authorization to use cash collateral through July 30, 1999. Thereafter, a
further order extending the Debtor's use of cash collateral through September
27, 1999 was entered on August 2, 1999. Additionally, although the requisite
authorization was likely contained in the aforesaid orders authorizing the
Debtor's use of cash collateral, in an abundance of caution, the Debtor sought
the entry of an order authorizing its utilization of the sale proceeds from its
closing with Edenspace, and a separate order was entered on August 3, 1999
authorizing the utilization of such funds. Since the Debtor's remaining
operations (its nutraceutical division) is in the process of being developed, as
addressed in more detail hereafter, and does not generate significant income,
the Debtor has necessarily been utilizing the Edenspace proceeds to fund its
ongoing operations.
15
<PAGE>
Retention of Professionals: As required by (S)327 of the Bankruptcy Code,
--------------------------
NuCycle has obtained bankruptcy court authorization to retain various
professionals during the course of the within proceeding. On each occasion, the
Debtor submitted the appropriate pleadings detailing its need for the
professional in question and obtained retention orders from the bankruptcy
court. The following professionals were retained by the Debtor:
a. Ravin, Greenberg & Marks, P.A. was retained as the Debtor's
bankruptcy counsel and has continued to render services in this regard through
the preparation of this Disclosure Statement.
b. David Berdon & Co. has been retained as the Debtor's accountants
to provide general accounting services on an as needed basis. The Debtor
anticipates that it may be necessary to retain another accounting firm in order
to prepare audited financial statements that may be required prior or subsequent
to confirmation of the Debtor's Plan.
c. Paxton Ventures Corp.: The Debtor has been authorized by court
order to enter into a letter agreement with Paxton Ventures Corp. ("Paxton"), a
copy of which is attached hereto as Exhibit "B", in order to provide investment
banking services and assist the Debtor in preparation and financing of the Plan.
This entity has not been formally retained pursuant to (S)327 of the Bankruptcy
Code, but the services to be provided thereby have been specifically authorized
by bankruptcy court order.
The Debtor also anticipates seeking to retain Richard Eisner & Company as
its auditor and Drinker, Biddle & Shanley as its Special Securities Counsel
within the near
16
<PAGE>
future.
Change of Debtor's Name: Because one of the assets that the Debtor conveyed
-----------------------
to Edenspace at the closing therewith was the right to use the name Phytotech,
Inc., it was thereafter necessary for the Debtor to select another name for its
ongoing operations, with the Debtor choosing the name of NuCycle Therapy, Inc.
An application was made to the bankruptcy court for the entry of an order
authorizing the Debtor's aforesaid change of name and to amend the caption of
the within Chapter 11 proceeding to reflect the Debtor's new name and its former
name. An order to this effect was entered on August 3, 1999. The Debtor has
also prepared and filed the appropriate amendment to its certificate of
incorporation to reflect that the name of the corporation shall be: NuCycle
Therapy, Inc.
Claims Analysis: After the expiration of the bar date for the filing of
---------------
proofs of claim by unsecured creditors, the Debtor's counsel reviewed all filed
claims and compared same to the Debtor's Schedules, books and records. On
November 10, 1999, the Debtor filed a motion seeking to expunge, reduce or
reclassify those claims with which the Debtor disagreed. The hearing on such
motion is scheduled for December 13, 1999.
In such motion, the Debtor sought to expunge the proofs of claim filed by
the Internal Revenue Service, Sanwa Leasing and John Lind (asserting a $20,000
unsecured claim as a result of warrants issued thereto) as well as to expunge
the claim the Debtor had scheduled as being due to Bell South Mobility (believed
to be more properly referred to as Bell South Mobile).
The Debtor also sought to reduce certain filed claims to the amounts set
forth on the
17
<PAGE>
Debtor's books and records as set forth hereafter:
<TABLE>
<CAPTION>
Creditor Filed Claim Allowed Claim
-------- ----------- -------------
<S> <C> <C>
Plant Food Company, Inc. $ 933.78 $ 859.74
McCabe Heidrich Wong $ 70,418.65 $ 69,486.65
C&D Warehouse $ 308.75 $ 248.75
Federal Express $ 5,010.36 $ 4,931.41
E.C. Geiger, Inc. $ 286.55 $ 247.41
Airborne Freight Corp. $ 1,400.90 $ 1,310.50
The Science Registry $ 684.48 $ 655.00
U.S. Nuclear Regulatory
Commission $ 5,681.26 $ 5,400.00
McCormack & Associates $ 62,809.56 $ 21,207.34
Farm-Rite, Inc. $ 1,347.57 $ 1,254.65
PSE&G $ 9,031.45 $ 5,684.49
David Spence $ 50,000.00(sec.) $ 25,000.00 (sec.)
UI USA, Inc. $ 24,401.86 $ 21,676.09
Champion Uniform Supply $ 1,833.43 $ 1,444.85
Aspen Associates $ 48,781.36 $ 23,113.86
Shanley & Fisher $518,831.78 $512,864.65
Issues Management $ 34,054.93 $ 18,081.75
Union D'Etudes $336,000.00 $300,000.00
Cananwill, Inc. $ 2,552.43 $ 36.62
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
Xerox Corp. $ 5,530.18 $ 3,324.62
Michael Lifton $ 7,769.70 $ 7,126.70
</TABLE>
Lastly, in such motion, the Debtor sought to reclassify and/or reduce
numerous proofs of claim filed by employees, most of whom asserted priority
claims in an amount that exceeded the section (S)507(a)(3) priority claims to
which they were entitled. The following chart lists the creditors whose claims
the Debtor sought to reclassify and/or reduce:
<TABLE>
<CAPTION>
Creditor Filed Claim/Class Allowed Claim/Class
-------- ----------------- -------------------
<S> <C> <C>
Michael Blaylock $ 4,000.00 pri $ 4,300.00 pri
$ 18,985.50 unsec. $ 19,107.39 unsec.
James Dechant $ 22,002.02 pri $ 4,300.00 pri
$ 2,713.81 unsec. $ 26,823.01 unsec.
Slavik Dushenkov 0.00 pri $ 4,300.00 pri
$ 14,549.86 unsec. $ 10,249.87 unsec.
Burt Ensley $ 4,000.00 pri $ 4,300.00 pri
$319,012.00 unsec. $318,713.02 unsec.
Mark Elless $ 4,000.00 pri $ 4,300.00 pri
$ 14,244.32 unsec. $ 13,944.32 unsec.
Armona Epstein 0.00 pri $ 4,300.00 pri
$ 8,076.39 unsec. $ 2,413.79 unsec.
Jack Frost 0.00 pri $ 4,300.00 pri
$ 37,468.87 unsec. $ 30,908.30 unsec.
Natalia Gouliaeva $ 18,000.00 pri $ 4,300.00 pri
0.00 unsec. $ 13,700.00 unsec.
Christopher Gussman 11,500.00 pri. $ 4,300.00 pri
0.00 unsec. $ 10,039.42 unsec.
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C>
Scott Larkin $ 35,332.10 pri $ 4,300.00 pri
0.00 unsec. $ 24,701.81 unsec.
Kathy Makowski 0.00 pri $ 4,300.00 pri
$ 9,231.05 unsec. $ 3,713.60 unsec.
Eric Muhr $ 13,750.00 pri $ 4,300.00 pri
0.00 unsec. $ 13,304.15 unsec.
Dev Vasudev $ 1,168.96 pri $ 4,300.00 pri
0.00 unsec $ 7,690.59 unsec.
Xerox Corp. $ 5,530.18 sec. $ 3,324.62 unsec.
</TABLE>
Upon information and belief, the Debtor has remained current on its
administrative trade claims, and will continue to pay same in the ordinary
course of business. The Debtor's administrative/professional claims will be
paid as authorized by bankruptcy court orders or otherwise set forth in the
Plan.
Princeton Corporate Plaza: At the time of its Chapter 11 filing (and for
-------------------------
several years prior thereto), NuCycle was occupying leased premises located at
One Deer Park Drive, Monmouth Junction, New Jersey which is owned by Princeton
Corporate Plaza, L.L.C. ("Princeton"). However, due to the aforementioned cash
crisis that Phytotech experienced for most of calender year 1999, NuCycle had
been unable to timely pay its rent to Princeton for the months of February,
March, April, May 1999 which led to the institution of a summary dispossess
proceeding by Princeton against the Debtor. A Judgment for Possession was
entered on May 11, 1999 and a warrant for removal issued on May 17, 1999. The
Debtor's Chapter 11 filing on May 19, 1999 operated as a stay of Princeton's
efforts to evict the Debtor from its premises, and subsequently a consensual
agreement
20
<PAGE>
was reached with Princeton pursuant to which the Debtor agreed to occupy a
smaller portion of the premises the Debtor had previously been leasing in
exchange for a reduced rental. At the time this Disclosure Statement was
prepared, the Debtor was occupying such premises, but had not yet executed a new
lease with Princeton.
Extension of Exclusivity: Pursuant to (S)1121 of the Bankruptcy Code,
------------------------
NuCycle's exclusive period within which to file a Plan of Reorganization would
have expired 120 days after its May 19, 1999 Chapter 11 filing. Prior to such
date, NuCycle filed a motion seeking to extend its period of exclusivity for an
additional 120 days, the hearing on which was scheduled for October 12, 1999.
On that date, an order was entered extending the Debtor's exclusive period to
file a Plan until January 14, 2000. As previously indicated, the Plan was filed
on October 18, 1999.
NJEDA NOL Program: The Debtor has recently submitted an application to the
-----------------
New Jersey Economic Development Authority ("NJEDA") pursuant to a program under
which the NJEDA authorizes the sale of net operating losses ("NOL's") from
companies in technology industries in order to assist such companies in the
development thereof. Although there is no guarantee that the subject funds will
be received, the Debtor is optimistic that prior to the end of 1999, it will
receive between $300,000 and $350,000 from a buyer authorized by the NJDEA,
which funds, pursuant to the applicable program, have been earmarked for
expenditures relating to continuing research and development, acquisition of new
equipment, marketing expenses and the hiring of new employees.
Nutraceutical Division: Subsequent to the sale of its phytoremediation
----------------------
business to
21
<PAGE>
Edenspace, the Debtor's remaining operations have been limited to its
nutraceutical division which produces and sells nutritional supplements. As
previously indicated, this aspect of NuCycle's business has not yet been fully
developed, with sales levels at the time this First Amended Disclosure Statement
was prepared being relatively modest. However, the Debtor has been concentrating
its efforts in this area for the past several months and believes it is well on
its way to significantly increasing its sales levels. In order to accomplish
this objective, the Debtor has entered into agreements with outside firms
regarding (1) the growing of its products - plants with concentration of
nutritional supplements such as selenium and chromium (2) processing its
products - i.e. grinding and blending nutritional supplements from the plants
and (3) distributing such supplements to wholesalers or retailers thereof.
NuCycle has been pleased with the consistency of the results achieved in the
growing of its products and is moving forward rapidly to complete the processing
thereof in order to develop appropriate distribution channels. The four year
cash flow projections and projected balance sheet for the reorganized Debtor
attached hereto as Exhibit "C" are predicated on continued success in the
development of the nutraceutical business.
ARTICLE IV
----------
LIQUIDATION ANALYSIS
--------------------
The estate's assets as of August 31, 1999, including the estimated value
---------
thereof, are as follows:
22
<PAGE>
<TABLE>
<CAPTION>
Assets Estimated Value
------ ---------------
<S> <C>
DIP bank account $455,000.00
Security deposits with utilities $ 2,000.00
Accounts receivable $ 9,000.00
Patents, licenses, etc. $100,000.00
Office equipment & supplies $ 5,000.00
Machinery & equipment $ 30,000.00
Inventory (at cost) $ 20,000.00
NOL's (per NJEDA program) 0.00 *
Potential cause of action versus
Johnson and Trautman unknown **
-------
Total Assets: $621,000.00
</TABLE>
*unavailable on liquidation.
**total damages continue to grow; collectability has not been evaluated.
Against the aforesaid estimated total assets of $621,000.00, the estate
---------
will have the following estimated liabilities with a priority of payment over
---------
general unsecured creditors:
<TABLE>
<CAPTION>
Liabilities Estimated Amount
----------- ----------------
<S> <C>
Administrative Professional Fees $ 50,000.00
Administrative Trade Creditors/Payroll $ 20,000.00
Secured Creditors $2,000,000.00
Priority Wage Claims $ 64,500.00
-------------
Total Liabilities: $2,134,500.00
</TABLE>
23
<PAGE>
It is not possible for NuCycle to predict the actual amount of funds that
would be available for distribution to various classes of creditors with
certainty, but in light of the amount owed to secured creditors herein, it
should be abundantly clear that upon a liquidation of the Debtor's assets, no
funds would be available to pay unsecured creditors. In fact, it appears likely
that if the Debtor's assets were liquidated at any point in the near future,
administrative trade creditors and only the first tier of secured creditors
would be likely to receive payment in full, with the distribution to the second
tier of secured creditors being relatively nominal. The Debtor notes that its
estimate of the amount that will be due for administrative professional claims
will necessarily increase as NuCycle moves forward toward confirmation of its
Plan, and additional services are rendered by its attorneys and accountants.
Recognizing that it is not possible to accurately predict either the total
amount that would be recovered upon a liquidation of the Debtor's assets or the
amount that would then be due to all creditor classes, the aforesaid analysis
attempts to draw reasonable conclusions regarding the amount that would be
brought into the within estate upon a liquidation of the Debtor's assets and the
totals that would be due to classes of creditors with a priority over general
unsecured creditors.
The Debtor notes that it originally scheduled claims of approximately
$1,600,000 to unsecured creditors, but the amount due to this class will be
increased by more than $400,000 as a result of the reclassification of the
claims of the three noteholders who failed to perfect a security interest in the
Debtor's assets. Additionally, since the bar date for the filing of proofs of
claim has not yet expired, it is possible that the amounts due to all classes
24
<PAGE>
of creditors (secured, priority and unsecured) will be increased as a result of
the filing of proofs of claim by creditors who were either not scheduled by
NuCycle or who are able to establish claims in amounts in excess of the amount
reflected as being due thereto on the Debtor's Schedules. As previously
indicated, the Debtor has reserved the right to object to all filed proofs of
claim with which it disagrees, but the outcome of any motion to expunge, reduce
or reclassify filed claims will not be known for several more months. As will be
reflected in Article VI hereafter, the Debtor's Plan of Reorganization will
propose to provide shares of stock in the reorganized Debtor to all classes of
creditors and equity interest holders as a method of maximizing the value of the
distribution that will be made to all such classes, since the Debtor lacks
sufficient liquid assets to propose cash payments to its creditors, and would be
unlikely to generate sufficient funds through a liquidation of its assets to pay
more than the first tier of secured creditors. The Debtor further notes that the
only known alternative to confirming a Plan of Reorganization along the lines
proposed by the Debtor would be the conversion of the within proceeding to a
Chapter 7 liquidation, which would have an adverse impact on all classes of
creditors, as it would likely decrease the value of the Debtor's existing
assets, and increase the professional fees and expenses as a result of the
appointment of a Chapter 7 Trustee and any professional retained thereby.
ARTICLE V
TREATMENT OF ADMINISTRATIVE AND TAX CLAIMS
------------------------------------------
25
<PAGE>
A. ADMINISTRATIVE CLAIMS: All costs or expenses of administration related to
---------------------
the Debtor's bankruptcy case from the commencement of the bankruptcy case, which
include, without limitation, fees and expenses of all attorneys, accountants,
appraisers, consultants, and other professionals retained by the Debtor, all
post-petition claims, expenses and payables (known or unknown and hereafter
arising), and all other administration expenses, shall be paid by the Disbursing
Agent (i) in cash on the confirmation date or (ii) within ten (10) days after an
Order of the Bankruptcy Court approving and allowing the appropriate fee
applications becomes a Final Order unless such holder shall agree to different
treatment of its claim; provided, however, that administrative claims
representing obligations incurred in the ordinary course of the Debtor's
business shall be paid in accordance with the terms of such agreement (s)
relating thereto during the bankruptcy case and in the ordinary course by the
Debtor. No interest shall be paid on any administrative claim unless expressly
allowed by a Final Order of the Bankruptcy Court.
B. APPLICATION FOR PROFESSIONAL FEES: All applications for professional fees
---------------------------------
for services rendered and reimbursement of expenses in connection with the
within proceeding by the professionals retained by the Debtor prior to the
Effective Date are administrative claims and shall be filed with the Bankruptcy
Court within ninety (90) days after the Effective Date of the Plan. Any
professional whose application is not filed within ninety (90) days after the
Effective Date shall be barred from receiving payment on account thereof. The
Disbursing Agent shall promptly pay or cause payment of professional fees for
services rendered prior to the confirmation date on the Effective Date or when
allowed
26
<PAGE>
by a Final Order of the Bankruptcy Court, whichever is earlier. Professional
fees of the Reorganized Debtor for services rendered in connection with the
within proceeding and the Plan after the Confirmation Date, including those
relating to the resolution of disputed claims, and all expenses of the
Disbursing Agent, shall be paid by or caused to be paid by the Disbursing Agent
upon the submission of invoices without the requirement of bankruptcy court
approval absent objection by any party-in-interest. Any objection(s) thereto not
amicably resolved shall be adjudicated by the Bankruptcy Court.
C. TAX CLAIMS: All tax claims shall be paid by the Reorganized Debtor in their
----------
allowed amount over a period of six years from the date of assessment thereof or
from the Effective Date of the Plan, whichever is later, in equal consecutive
quarterly payments commencing on the Effective Date pursuant to Bankruptcy Code
Section 1129(a)(9). Said tax claims may be prepaid at any time without penalty.
Interest on allowed tax claims shall be paid at the rate of 8.25% per annum or
as changed from time to time by the Secretary of the Treasury.
ARTICLE VI
----------
PLAN OF REORGANIZATION
----------------------
A. CLASSIFICATION
The Plan separates the Debtor's creditors and equity interest holders into
different categories known as classes. The Plan contains four such classes
consisting of the following:
Class I consists of the holders of secured claims against the Debtor. A
schedule of
27
<PAGE>
the names of such secured creditors and the principal amounts owed thereto is
attached hereto as Exhibit "D".
Class II consists of the priority claims of employees of the Debtor to the
maximum extent of $4,300 for each such individual pursuant to (S)507(a)(3) of
the Bankruptcy Code. Attached hereto as Exhibit "E" is a schedule listing the
names and priority claims of each member of this class.
Class III consists of all allowed unsecured claims, including the
reclassified claims of the three noteholders who failed to perfect a security
interest in the Debtor's assets, as well as any non-priority portion of the wage
claims held by the Class II creditors.
Class IV consists of all holders of an equity security interest in the
Debtor as per attached Exhibit "F".
B. TREATMENT OF CLASSES
The treatment of each class of creditors is described in Article IV of the
Plan. Each creditor should refer to such Article in order to ascertain the
treatment he, she or it will receive under the Plan. However, this First
Amended Disclosure Statement will attempt to summarize the treatment afforded to
each such class as follows:
Class I: The holders of the Class I claims will be impaired under the Plan.
Notwithstanding that Ensley, Abraham Nechemie and Philip Whitcome are fully
secured, and all other members of this class significantly undersecured, the
aforesaid three individuals have agreed to be treated identically to all other
secured creditors in the Plan. Thus all members of this class will be provided
with shares of Preferred Stock in the
28
<PAGE>
reorganized Debtor in satisfaction of the secured claims held thereby at a ratio
of one share per $3.00 of debt held by the members of this class. The Preferred
Stock that will be issued to the members of Class I will contain a liquidation
preference so that the holders of such shares would have a preference in payment
over the holders of Common Stock in the event of any liquidation of the Debtor's
assets, whether on a voluntary or involuntary basis and whether in a bankruptcy
proceeding or otherwise.
Class II: The holders of Class II claims will be impaired, although the
priority portion of the claims held thereby will be paid in full over time.
Members of this class will receive payment of one-third of their allowed claims
on the Effective Date of the Plan, an additional one-third six months thereafter
and a final one-third twelve months after the Effective Date.
Class III: The holders of Class III claims will be impaired and will
receive one share of Common Stock in the reorganized Debtor for each $5.00 of
claims held thereby.
Class IV: The Class IV claims will be impaired as holders of existing
common and preferred stock will receive shares of the Common Stock in the
reorganized Debtor at the rate of one share for each ten shares of stock
currently held in the Debtor. Notwithstanding the foregoing, pursuant to the
aforementioned stipulation with Rutgers University, 80,000 shares of Common
Stock in the reorganized Debtor will be issued to Rutgers University.
All existing warrants and options relating to the Debtor's stock will be
canceled as of the confirmation of the Plan and replaced on the Effective Date
with new warrants to purchase not more than 460,000 shares of Common Stock of
the reorganized Debtor at
29
<PAGE>
an exercise price of not less than $8.00 per share. Such new warrants will be
issued on a one-to-ten basis to the holders of existing warrants and options.
The Debtor also reserves the right to issue 150,000 warrants for the purchase of
Common Stock in the reorganized Debtor to IK Capital, Inc. for services to be
rendered thereby, which warrants will have an exercise price equal to the
conversion price of the notes that will be issued in connection with the new
financing to be provided to the Debtor by or with the assistance of Paxton, as
detailed hereafter. These warrants will not provide for the cashless exercise
---
thereof.
All payments and all distributions hereunder shall be in complete, full and
final satisfaction, settlement, release and discharge of all claims of any kind
or nature whatsoever known or unknown, from the beginning of time through the
Confirmation Date against the Debtor.
Whenever any payment of a fraction of a cent would otherwise be called for,
the actual payment shall reflect a rounding of such fraction to the nearest
whole cent (rounding down in the case of .5). No payment shall be required to
be made to the holder of a claim under this Plan unless the amount of the
payment is at least $25.00.
C. FEASIBILITY
Consummation of the Plan will require a relatively limited amount of
available cash from the Debtor, as only holders of administrative claims and the
Class II creditors will be receiving a monetary dividend. Only one-third of the
allowed Class II claims will be paid
30
<PAGE>
on the Effective Date of the Plan, with additional payments in similar amounts
being due both 6 and 12 months thereafter. As indicated, the holders of claims
in Classes I, III and IV will be receiving stock in the reorganized Debtor,
which stock will be made available by the Debtor as and when necessary. As the
Debtor had available funds in the approximate amount of $450,000.00 at the time
this First Amended Disclosure Statement was prepared, it appears all but certain
that the cash that will be necessary to make the initial distribution to the
Class II creditors on the Effective Date will be available when needed.
Moreover, as indicated in the Debtor's letter agreement with Paxton attached
hereto as Exhibit "B", Paxton, its successors or assigns has agreed to purchase
a minimum of $300,000 in notes from the Debtor after the completion of a Going
Public Event (as defined in such agreement), which funds, to the extent
necessary, could be utilized by the Debtor to make the remaining two payments
due to the Class II creditors. Lastly, it is likely that the Debtor's ongoing
operations will generate more than sufficient income for this purpose.
ARTICLE VII
-----------
POST-REORGANIZED DEBTOR
-----------------------
Immediately after confirmation of the Plan, the Debtor will continue to
operate in a manner similar to the present time. However, in addition to
continuing to grow and develop its nutraceutical division, the Debtor has
retained the services of Paxton for the very specific purpose of assisting the
Debtor in arranging for a Going Public Event pursuant to which the stock in the
reorganized Debtor will become publicly traded. As outlined in
31
<PAGE>
Exhibit "B", this may be accomplished by either the filing of necessary forms
in order to commence the public trading of the Debtor's common stock, a merger
with or acquisition of the Debtor by an existing public corporation or a merger
of the Debtor with a subsidiary of a public corporation or a public shell and a
subsequent spin-off of the subsidiary's stock to the public shell's
shareholders.
The Going Public Event shall be on terms that are substantially along the
following lines:
i. The holders of the stock in the reorganized Debtor will receive
stock in any merged entity (hereafter "Newco") in an amount that will equal 65%
of the equity in Newco in the event of a spin-off or merger and 75% of the
available equity in the event of the direct public trading of the stock in the
reorganized Debtor. Such percentages will include any shares needing to be held
for conversion rights in such stock.
ii. The officers and directors of the post-reorganized Debtor will
assume similar positions with Newco (along with representatives of the public
shell - if there is a merger - and Paxton).
iii. In the event of a spin-off, the public shell will declare a
stock dividend of Newco stock and distribute up to 10% of the Newco stock to its
existing shareholders.
iv. To the extent necessary, the reorganized Debtor and the public
shell will cooperate in the filing of a Registration Statement or Form 10
covering the Newco stock and will use their best efforts to create public
trading of such stock. However, Newco stock and any convertible equities will be
restricted or otherwise "locked up" for the period
32
<PAGE>
of time necessary to establish an orderly market for Newco stock, which time
period will be not less than 12 months after the Going Public Event.
v. The costs of any necessary Registration Statement or Form 10 and
the legal services relating to the preparation and filing thereof will be borne
by either the reorganized Debtor or Newco.
vi. When market conditions permit, additional Newco stock will be
sold directly to the public at prices and on terms that will be determined
hereafter.
Additionally, upon the completion of the Going Public Event, Paxton (or its
successors or assigns) will purchase a new issue of convertible subordinated
notes from either the reorganized Debtor or Newco in the minimum amount of
$300,000 and maximum amount of $500,000, which notes will be convertible into
Newco stock at a price of the higher of $2.00 per share or 85% of the then
current market price for Newco stock. Interest on such notes will accrue at the
rate of 8% for the first year thereof and be payable semi-annually thereafter.
As compensation for the provision of services relating to the Going Public
Event and the aforesaid new financing, NuCycle has agreed to issue not less than
35% of the outstanding Newco stock to Paxton and/or the public shell in the case
of a merger or spin-off and 25% of the stock in the reorganized Debtor in the
case of a Form 10 filing. Such stock may be allocated between Paxton, its
successors and assigns and the public shell pursuant to an agreement between
such parties in their sole discretion. Paxton may have an equity interest in the
public shell and may receive cash remuneration, stock or securities
33
<PAGE>
from such public shell in addition to the consideration provided to Paxton by
the Debtor.
Paxton and the Debtor have agreed that upon confirmation of the Plan, and
in the event that the Going Public Event is not consummated for any reason,
Paxton will receive minimum transaction fees and reimbursement as follows: (1)
5% of the outstanding shares of the reorganized Debtor and reimbursement of
expenses and costs not to exceed $25,000, $15,000 of which has already been
advanced by the Debtor as contemplated by Exhibit "B" and authorized by a
bankruptcy court order.
ARTICLE VIII
------------
ALTERNATIVES TO THE PROPOSED PLAN
---------------------------------
Because the Debtor is still in the early stages of developing its
nutraceutical division, and cannot predict with any certainty the revenues and
profits that may be available therefrom during the next few years, the Debtor
has been reluctant to propose a Plan of Reorganization that would provide for
cash payments in any amounts to its classes of creditors (other than the Class
II priority wage claims). Moreover, because $2,000,000 or more is due to its
secured creditors, the Debtor does not believe that a Plan of Reorganization
which provides for cash dividends would allow any distribution to be made to
unsecured creditors. Accordingly, the Debtor has proposed the Plan, as outlined
herein, and attached as Exhibit "A" hereto, in its belief that the Plan
represents the best method to maximize values for all classes of creditors and
the Debtor's equity interest
34
<PAGE>
holders, recognizing that the stock to be issued to creditors is likely to
require some period of time to develop a public trading market and increase in
value.
The Debtor strongly believes that the Plan is a preferable alternative to
all classes of creditors than a liquidation of the Debtor's assets by a Chapter
7 Trustee after conversion of the within proceeding to a Chapter 7 case, since
there are few assets of value that the Debtor would be able to liquidate, and
even its patents and licenses (most likely the Debtor's most valuable assets)
would be of interest to an extremely limited number of individuals who would be
able to "capitalize" on such technology. Rather, as the Debtor has already
commenced developing the nutraceutical aspect of the business, it believes that
its creditors would benefit by being provided with stock in the reorganized
Debtor in order to allow such creditors to participate in the anticipated marked
increase in the value of such shares.
ARTICLE IX
----------
EXPENSES OF ADMINISTRATION
--------------------------
All professional fees and allowances for retained professionals are subject
to the approval of the bankruptcy court. The Debtor's attorneys previously filed
a first interim fee application for services rendered thereby through August 31,
1999, with such firm expected to seek an allowance of its final fees within a
short period of time after the confirmation of the Plan. Applicable Local Rules
of Bankruptcy Procedure require final fee applications to be filed within 90
days of confirmation of a Plan, within which period of time the Debtor's
retained accountants will presumably also be filing a final fee application. The
preceding
35
<PAGE>
liquidation analysis has provided an estimate of the total fees that may be due
--------
to professionals at the time the Plan is confirmed, with the exact amount of
such indebtedness to be dependent on the additional services rendered by
professionals and determined by further order of the bankruptcy court. Such
professionals will expect their fees to be paid in full from the Debtor's cash
on hand after allowance thereof by the bankruptcy court. If, as previously
referenced, the Debtor requires the services of another accountant to prepare
audited financial statements, fees for all services rendered by such accounting
firm through confirmation of the Plan will be treated in the same fashion.
ARTICLE X
---------
DISBURSING AGENT
----------------
The Plan provides for payments to be made to the Class II creditors on
three occasions (the Effective Date of the Plan, 6 months thereafter and 12
months thereafter). The Debtor proposes that its bankruptcy counsel, Ravin,
Greenberg & Marks, P.A. serve as the disbursing agent for payment to this class
of creditors. The Disbursing Agent will be entitled to compensation at its usual
hourly rates for services provided in this regard.
ARTICLE XI
----------
MISCELLANEOUS PLAN PROVISIONS
-----------------------------
Bar Date for Objections to Claims. Unless an earlier or later time is set
---------------------------------
by Order
36
<PAGE>
of the Bankruptcy Court, all objections to claims shall be filed by the later of
sixty (60) days after the confirmation date or thirty (30) days after a
particular proof of claim is filed.
Unclaimed Property. Any cash, including interest earned thereon (if any),
------------------
that is unclaimed for a period of three (3) months after distribution thereof by
mail to the latest known mailing address filed by or for the person entitled
thereto (or to the last mailing address maintained in the records of the Debtor)
shall revest with the Disbursing Agent for the benefit of the Debtor.
Manner of Payments Under the Plan. At the option of the Disbursing Agent,
---------------------------------
any cash payment to be made pursuant to the Plan may be made by check or wire
transfer or as otherwise required or provided for in any applicable agreement.
Recovery Actions. All avoidance power actions under Bankruptcy Code
----------------
Sections 542, 543, 544, 546, 547, 548, 549, 550 and 551 and all causes of action
shall be the property of the Debtor unless otherwise agreed by the Debtor to be
assigned to another party.
ARTICLE XII
-----------
TITLE TO PROPERTY, DISCHARGE AND TAX CONSEQUENCES
-------------------------------------------------
Discharge. On the confirmation date, as to every discharged debt or claim,
---------
the creditor that held such debt or claim shall be precluded from asserting
against the Reorganized Debtor or against the Debtor's assets or properties, any
other or further claim based upon any document, instrument, act, omission,
transaction or other activity of any kind or nature that occurred prior to the
confirmation date.
37
<PAGE>
Vesting of Property. Except as otherwise provided in this Plan or the
-------------------
Confirmation Order, upon confirmation all assets of the Debtor's estate,
wherever situated, shall vest in the Reorganized Debtor or its designees and
shall be free and clear of all liens, security interests and claims of
creditors, except obligations pursuant to the Plan and Confirmation Order and
the liens and security interests, if any, granted or maintained pursuant to the
Plan.
Tax Consequences of Confirmation. Confirmation may have federal income tax
--------------------------------
consequences for the Debtor and holders of claims and interests. The Debtor has
not obtained and does not intend to request a ruling from the Internal Revenue
Service, nor has the Debtor obtained an opinion of counsel with respect to any
tax matters. Any federal income tax matters raised by Confirmation of the Plan
are governed by the Internal Revenue Code and the regulations promulgated
thereunder. Creditors and interest holders are urged to consult their own
counsel and tax advisors as to the consequences to them, under federal and
applicable state, local and foreign tax laws of the Plan. The following is
intended to be a summary only and not a substitute for careful tax planning with
a tax professional. The federal, state and local tax consequences of the Plan
may be complex in some circumstances and, in some cases, uncertain. Accordingly,
each holder of a claim or interest is strongly urged to consult with his, her or
its own tax advisor regarding the federal, state and local tax consequences of
the Plan.
Tax Consequences to the Debtor. The Debtor may not recognize income as a
------------------------------
result of the discharge of debt pursuant to the Plan because Section 108 of the
Internal
38
<PAGE>
Revenue Code provides that taxpayers in bankruptcy proceedings do not
recognize income from the discharge of debt. However, a taxpayer is required to
reduce its "tax attributes" by the amount of the debt discharged. Tax attributes
are reduced in the following order: (i) net operating losses; (ii) general
business credits; (iii) capital loss carryovers; (iv) basis in assets; and (v)
foreign tax credits.
Tax Consequences to Unsecured Creditors. An unsecured creditor that
---------------------------------------
receives only cash in satisfaction of its claim may recognize gain or loss, with
respect to the principal amount of the claim, equal to the difference between
(i) the creditor's basis in the claim (other than the portion of the claim, if
any, attributable to accrued interest), and (ii) the balance of the cash
received after any allocation to accrued interest. The character of the gain or
loss as capital gain or loss, or ordinary income or loss, will generally be
determined by whether the claim is a capital asset in the creditor's hands. A
creditor will also recognize income or loss in respect of consideration received
for accrued interest on the claim. The income or loss will generally be
ordinary, regardless of whether the creditor's claim is a capital asset in its
hands.
Disclaimer. Holders of claims and interests should not rely on this
----------
Disclosure Statement with respect to the tax consequences of the Plan. They
should consult with their own tax counsel. The discussion of tax consequences
in this Disclosure Statement is not intended to be a complete discussion or
analysis.
ARTICLE XIII
------------
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
----------------------------------------
39
<PAGE>
Assumption of Executory Contracts and Unexpired Leases. All Executory
------------------------------------------------------
contracts or unexpired leases shall, by the Confirmation Order, be deemed
accepted as of the confirmation date unless previously assumed and/or rejected
pursuant to a Final Order of the Bankruptcy Court or subject to a motion for
assumption or rejection pending on the confirmation date.
Cure of Defaults. As to any executory contracts and unexpired leases
----------------
assumed by the Debtor, unless the other party to the executory contract or
unexpired lease shall have otherwise agreed, pursuant to the provisions of
Section 1123(a)(5)(G) of the Bankruptcy Code, the Debtor shall cure all defaults
existing under and pursuant to such executory contract or unexpired lease by
paying the amount, if any, claimed by any party so such executory contract or
unexpired lease in a proof of claim, which proof of claim shall be filed with
the Bankruptcy Court. Payment of the amount claimed in such proof of claim
shall be in full settlement, satisfaction, release, discharge and cure of all
such defaults (including any other claims filed by any such party as a result of
such defaults) under the executory contract or unexpired lease; provided,
--------
however, that if the Debtor, within sixty (60) days of the filing of such Proof
- -------
of Claim, files an objection in writing to the amount set forth in the Proof of
Claim, the Bankruptcy Court shall determine the amount due and owing in respect
of the defaults or shall approve the settlement of any claims. Payment of such
claims shall be made by the Disbursing Agent on the later of (i) ten (10)
business days after the expiration of the sixty (60) day period for filing an
objection in respect of any proof of claim filed pursuant to this Section or
(ii) ten (10) business days after an order of
40
<PAGE>
the Bankruptcy Court allowing such claim becomes a Final Order.
Claims for Damages. Each person who was a party to an executory contract
------------------
or to an unexpired lease which is rejected by the Debtor shall be entitled to
file, not later than ten (10) days after such rejection by a Final Order, a
proof of claim for damages alleged to have arisen from the rejection of the
executory contract or of the unexpired lease to which such person is a party.
Objections to any proofs of claim shall be filed by the Debtor not later than
sixty (60) days after such proof of claim is filed. In the event that an
objection is filed, the Bankruptcy Court shall determine the amount due and
owing to the person that filed the proof of claim. Distribution(s) and
payment(s) received or to be received by holders of other claims in the classes
into which such claims are identified shall be made by the Disbursing Agent in
accordance with the Plan.
Classification of Claims. Allowed claims arising from the rejection of an
------------------------
executory contracts and/or an unexpired lease shall be treated in Class III of
the Plan.
ARTICLE XIV
-----------
CONFIRMATION PROCEDURE
----------------------
The Bankruptcy Court will confirm the Plan only if it finds that all of the
requirements of Section 1129 of the Bankruptcy Code are met. Among the
requirements for confirmation of a Plan are that the Plan: (i) is accepted by
all impaired classes of claims and Interests, or, if rejected or deemed rejected
by an impaired class, "does not discriminate unfairly" and is "fair and
equitable" as to each rejecting class; (ii) is feasible; and (iii) is in the
best interest of creditors and holders of interests impaired under the Plan.
41
<PAGE>
Solicitation of Votes. Any holder in any of the voting classes is entitled
---------------------
to vote if either (i) such holder's claim has been scheduled by the Debtor in
the Schedules filed with the Bankruptcy Court (provided that such claim has not
been scheduled as disputed, contingent or unliquidated), or (ii) such holder has
filed a proof of claim on or before the Bar Date (or, if not filed by such date,
any proof of claim filed out of time with the permission of the Bankruptcy
Court), unless such claim has been disallowed for voting purposes by the
Bankruptcy Court. A vote may be disregarded if the Bankruptcy Court determines,
after notice and a hearing, that an acceptance or rejection was not solicited or
procured or made in good faith or in accordance with the provisions of the
Bankruptcy Code.
The Bankruptcy Code requires the Bankruptcy Court to hold a hearing on
confirmation of the Plan after the ballots have been cast. The Confirmation
hearing has been scheduled for ___________________ ______ , 2000, at _____:00
__.m. (E.D.T.). The Confirmation Hearing may be adjourned from time to time by
the Bankruptcy Court without further notice except for an announcement of the
adjournment made at the Confirmation Hearing. At the Confirmation Hearing, the
Bankruptcy Court will (i) determine whether the Plan has been accepted by the
requisite majorities of each voting class; (ii) hear and determine all
objections to the Plan and to confirmation of the Plan; (iii) determine whether
the Plan meets the requirements of the Bankruptcy Code and has been proposed in
good faith; and (iv) confirm or refuse to confirm the Plan.
Acceptance. Each of the voting classes will be deemed to have accepted the
----------
Plan if the Plan is accepted by at least two-thirds in dollar amount and more
than one-half in number of the claims of such class (excluding certain claims
designated under Section
42
<PAGE>
1126(e) of the Bankruptcy Code) and two-thirds in amount of allowed interests
that have voted to accept or reject the Plan.
Fair and Equitable Test; Cramdown. Any voting class that fails to accept
---------------------------------
the Plan will be deemed to have rejected the Plan. Notwithstanding such
rejection, the Bankruptcy Court may confirm the Plan and the Plan will be
binding upon all classes, including the classes rejecting the Plan, if the
Debtor demonstrates to the Bankruptcy Court that at least one impaired class of
claims has accepted the Plan and that the Plan "does not discriminate unfairly"
and is "fair and equitable" with respect to each non-accepting class. A plan
does not discriminate unfairly if the legal rights of a dissenting class are
treated in a manner consistent with the treatment of other classes whose legal
rights are similar to those of the dissenting class and if no class receives
more than it is entitled to on account of its claim.
THE DEBTOR RESERVES THE RIGHT TO SEEK CONFIRMATION OF THE PLAN EVEN IF LESS
THAN THE REQUISITE NUMBER OF FAVORABLE VOTES ARE OBTAINED FROM ANY VOTING CLASS.
THE DEBTOR RECOMMENDS THAT ALL CREDITORS AND INTEREST HOLDERS VOTE TO ACCEPT
THE PLAN.
Objections to Confirmation. Objections to confirmation must be in writing
--------------------------
and specify in detail the name and address of the objector, all grounds for the
objection and the amount of the claim or the interest in the Debtor held by the
objector. Any such objection must be filed with the Clerk of the United States
Bankruptcy Court at 402 East State Street, Trenton, New Jersey 08608 and served
upon the following so that it is received by them on or before 4:00 P.M. on
_________________, _________:
43
<PAGE>
Ravin, Greenberg & Marks, P.A.
101 Eisenhower Parkway
Roseland, NJ 07068
Attention: Larry Lesnik, Esq.
Office of the United States Trustee
One Newark Center, Ste. 2100
Newark, NJ 07102
Objections to confirmation of the Plan are governed by Bankruptcy Rule
9014.
ARTICLE XV
----------
CONCLUSION
----------
For all of the foregoing reasons, the Debtor recommends that all creditors
and equity interest holders vote in favor of its Plan of Reorganization, as the
Plan is believed to provide the maximum possible return for all classes of
creditors by allowing creditors to participate in the Debtor's development of
its nutraceutical division. If the Debtor is unable to confirm the Plan, it
will be required to develop a new business plan to be reflected in a subsequent
Plan of Reorganization, which will delay the Debtor's emergence from Chapter 11
and increase significantly the administrative expenses that will be incurred by
the Debtor, to the detriment of all classes of creditors herein.
NuCycle Therapy, Inc.
Debtor/Debtor-In-Possession
Dated: November , 1999 By: /s/Burt Ensley
------------------------
Dr. Burt D. Ensley
44
<PAGE>
LARRY LESNIK
RAVIN, GREENBERG & MARKS, P.A.
Attorneys for Debtor/Debtor-In-Possession
101 Eisenhower Parkway
Roseland, NJ 07068
(973) 226-1500
LL 2031
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW JERSEY
In the Matter of: : In Proceedings for a Reorganization
Under Chapter 11 of the Bankruptcy Code
NUCYCLE THERAPY, INC.,
f/k/a PHYTOTECH, INC., : Case No. 99-55905/KCF
A New Jersey Corporation,
: Hearing Date: February 10, 2000
Debtor.
_________________:
ORDER CONFIRMING CHAPTER 11 PLAN
--------------------------------
The Debtor's Chapter 11 Plan having been transmitted to creditors and
equity interest holders, and the matter having come before the Court for
confirmation and it having been determined after the hearing on notice that the
requirements for confirmation set forth in 11 U.S.C. (S)1129 having been
satisfied:
IT IS ORDERED:
1. The Plan is confirmed. A copy of the confirmed Plan is attached hereto
as Schedule A.
2. The disbursing agent is Ravin, Greenberg & Marks, P.A. whose address
is 101 Eisenhower Parkway, Roseland, New Jersey 07068.
45
<PAGE>
3. The unsecured creditors will receive one share of common stock in the
reorganized Debtor for each $5.00 of claims held thereby.
4. The date of the initial Plan distribution is within ten days for Class
II (priority) creditors and as soon as practical for Class III (unsecured)
creditors.
5. The disbursing agent must file the report of initial distribution with
150 days of the date of this order utilizing Local Bankruptcy Form 7.
6. In accordance with FRBP 3022-1, after the estate is fully
administered, the court, on its own motion or on motion of a party-in-interest,
will enter a final decree closing the case.
7. All fee applications and motions challenging claims must be filed
within 60 days of this Order.
8. All claims of any kind or nature, whether asserted or unasserted,
against the Debtor, its agents and professionals be and hereby are satisfied,
discharged and released.
46
<PAGE>
9. Notwithstanding the filing of a proof of claim by Rutgers, The State
University of New Jersey ("Rutgers") asserting a pre-petition, unsecured claim
of $152,962, pursuant to a prior, court-approved Stipulation between Rutgers and
the Debtor approving the following agreement, and in consideration of Rutgers
waiving its aforesaid pre-petition claim, providing a continuing license to the
Debtor to utilize specified patents, agreeing to provide additional license
rights not previously granted and withdrawing its filed objection to the
Debtor's then pending sale of its phytoremediation division, Rutgers shall not
be deemed to have a Class III (unsecured) claim, but rather shall have an
administrative claim in the amount of $153,000 to be paid pursuant to the terms
of Paragraph 5.1 of the aforesaid Stipulation.
Dated: February 14, 2000 /s/ Kathryn C. Ferguson
---------------------------------------------
HONORABLE KATHRYN C. FERGUSON
UNITED STATES BANKRUPTCY JUDGE
47
<PAGE>
EXHIBIT 8.2
-----------
Technology Business Tax Certificate Program
This Agreement (hereinafter "Agreement"), made as of 30th day of
November, 1999, by and between NUCYCLE Therapy Inc./FKA Phytotech, Inc.,
("Selling Company"), a company organized under the laws of the State of New
Jersey, having its principal offices at One Deer Park Drive, Suite M, Monmouth
Junction, NJ 08852 and PSE&G ("Buying Company"), a company organized under the
laws of the State of New Jersey, having its principal offices at 80 Park Plaza,
P.O. Box 570, Newark, NJ 07101, the above entities being hereinafter referred
to as the "Parties."
WITNESSETH:
WHEREAS, in order for society to appreciate the anticipated potential
rewards from emerging technology and biotechnology research, private industry
must have access to sufficient financial resources to conduct research and
transfer research discoveries into viable commercial products;
WHEREAS, pursuant to P.L. 1997, c.334 as amended, the State of New
Jersey created a tax benefit transfer program for emerging technology and
biotechnology companies in order to provide additional funds to said companies
by allowing new or expanding emerging technology and biotechnology companies
with Unused NOL Carryover and/or Unused R & D Credits to surrender those tax
benefits for use by other corporation business taxpayers in exchange for private
financial assistance;
WHEREAS, the Division of Taxation has established the amount of tax
benefits that Selling Company can transfer over State Fiscal Year 2000 to be
$414,869;
NOW, therefore, in consideration of the mutual promises and covenant
the Parties agree as follows:
<PAGE>
ARTICLE I
Section 1.01 Definitions:
------------
"NJEDA" means the New Jersey Economic Development Authority
established pursuant to section 4 of P.L. 1974, c. 80 (C. 34:1B-4), as amended
and supplemented;
"Affiliated Business" means an entity which directly or indirectly
owns or controls 5% or more of the voting rights of any kind or 5% or more of
the value of all classes of stock of both the taxpayer receiving the benefits
and a corporation surrendering the benefits.
"Biotechnology" means the continually expanding body of fundamental
knowledge about the functioning of biological systems from the macro level to
the molecular and sub-atomic levels, as well as products, services, technologies
and sub-technologies developed as a result of insights gained from research
advances which add to that body of fundamental knowledge;
"Biotechnology company" means an emerging corporation that has a
headquarters or base of operations located in New Jersey and that is engaged in
the research, development, production, or provision of biotechnology for the
purpose of developing or providing products or processes for specific commercial
or public purposes, including but not limited to, medical, pharmaceutical,
nutritional, and other health-related purposes, agricultural purposes, and
environmental purposes, or a corporation that has a headquarters or base of
operations located in New Jersey and that is engaged in providing services or
products necessary for such research, development, production, or provision;
"Certificate" means the certificate issued by the Division relating to
the Unused NOL Carryover and/or Unused R & D Credits of the Selling Company;
"Division" means the New Jersey Division of Taxation.
-2-
<PAGE>
"Technology company" means an emerging corporation that has a
headquarters or base of operations located in New Jersey, and who employs some
combination of the following: highly educated or trained managers and workers,
or both, employed in New Jersey who use sophisticated scientific research
service or production equipment, processes or knowledge to discover, develop,
test, transfer or manufacture a product or service;
"Unused NOL Carryover" means unused net operating loss carryover,
pursuant to N.J.S.A. 54:10A-4(k)(6)(B), of the Selling Company.
--------
"Unused R & D Credits" means unused amounts of research and
development tax credits, pursuant to N.J.S.A. 54:10A-5.24(1)(b), of the Selling
--------
Company.
ARTICLE II
Section 2.01 Compensation.
------------
a) subject to the conditions set forth in Section 2.02 hereof,
within 10 days of Selling Company's notifying Buying Company of its receipt of
the Certificate from the Division, Buying Company agrees to purchase the
Certificate for a purchase price in the aggregate amount of $342,266.93 for the
transfer of tax benefits in the amount of $414,869 for the years and amounts
more fully set forth in the Selling Business Tax Benefit Identification Form,
attached.
b) subject to the conditions set forth in Section 2.02 hereof,
Buying Company agrees to purchase and Selling Company agrees to sell additional
tax benefits in the amount of $306,797 for the years and amounts more fully set
forth on Schedule A, to the extent that the Selling Company is authorized by
NJEDA to transfer those tax benefits In subsequent years. Within 10 days of
Selling Company's notifying Buying Company of its receipt of a Certificate
permitting the transfer of all or part of those tax benefits, Buying Company
shall pay Selling Company a purchase price of 83 and 1/8 cents ($.83125) for
each dollar of tax benefit transferred
-3-
<PAGE>
in that Certificate. Buying Company shall be permitted to assign its right to
purchase tax benefits in subsequent years to Public Service Enterprise Group,
Incorporated or any of Public Service Enterprise Group, Incorporated's
subsidiaries without prior approval from NJEDA or Selling Company.
Section 2.02 Conditions to Purchase. Buying Company's obligation
------------
to purchase is conditioned upon:
a) the approval by NJEDA of Selling Company's application for
transfer of tax benefits for private financial assistance;
b) the approval of this Agreement by the NJEDA and the Division;
c) a final determination by the Division that the amount of the
Certificate for fiscal year 2000 is equal to $414,869 or a final determination
by the Division of the amount of the Certificate issued in any subsequent year.
d) the Selling Company agrees not to sell any tax benefit
certificate in connection with the Technology Business Tax Certificate Program,
to an Affiliated Business.
ARTICLE III
Section 3.01 Covenants of the Selling Company. The Selling Company
------------
covenants:
a) it shall maintain a headquarters or a base of operations in the
State through the next calendar year following the signature dates of this
agreement.
b) the Selling Company shall expend the proceeds of this purchase in
connection with the operation of the Selling Company in the State of New Jersey
including but not limited to the expenses of fixed assets, such as the
construction, acquisition and development of real estate, materials, start-up,
tenant fit-out, working capital, salaries, research and
-4-
<PAGE>
development expenditures and any other expenses determined by the NJEDA to be
necessary to carry out the purposes of the New Jersey Emerging Technology and
Biotechnology Financial Assistance Program and any other expenses determined by
the New Jersey Emerging Technology and Biotechnology Financial Assistance
Program.
Section 3.02 Covenants of the Buying Company. The Buying Company
------------
covenants:
a) it shall not assign, sell or transfer the Certificate to any
Affiliated Business of Selling Company.
b) if any representation made by Buying Company in this Agreement is
willfully false or materially misleading or if Buying Company breaches the
covenant set forth in Paragraph 3.02(a), the transfer of tax benefits
contemplated by this Agreement shall be null and void.
Section 3.03 Representation by Selling Company. The Selling Company
------------
represents to Buying Company, NJEDA and the Division that Selling Company is not
an Affiliated Business of Buying Company.
Section 3.04 Representation by Buying Company. The Buying Company
------------
represents to Selling Company, NJEDA and the Division that Buying Company is not
an Affiliated Business of Selling Company.
ARTICLE IV
Section 4.01 Non-assignability. The Buying Company may not assign
------------
or transfer the Certificate in any manner.
-5-
<PAGE>
ARTICLE V
Section 5.01 Third Party Beneficiary. The NJEDA shall be a third
------------
party beneficiary to this agreement, with the authority to enforce the
provisions hereof and to declare a default hereunder.
ARTICLE VI
Section 6.01 Default. Failure by the Selling Company to comply with
------------
any covenant for a period of 30 days shall constitute an event of default.
Section 6.02 Remedies upon Default. Upon the existence of any events
------------
of default, the Buying Company or the NJEDA, as third party beneficiary to the
agreement, may take any action legally available to it.
Section 6.03 Forbearance Not a Waiver. No act of forbearance or
------------
failure to insist on the prompt performance of the obligations pursuant to this
Agreement, either expressed or implied, shall be construed as a waiver of any of
its rights hereunder. In the event that any provision of this Agreement should
be breached and the breach may thereafter be waived, such waiver shall be
limited to the particular breach waived and shall not be deemed to waive any
other breach.
ARTICLE VII
Section 7.01 Indemnification. Selling Company covenants and agrees
------------
to indemnify and hold harmless, the NJEDA and the State of New Jersey and their
respective members, agents, officers, employees and servants from all losses,
claims, damages, liabilities, and costs whatsoever (including all costs,
expenses and reasonable counsel fees incurred in investigating and defending
such losses and claims, etc.), brought by any person or entity, and caused by,
related to, arising or purportedly arising out of, or from: (i) the condition,
use,
-6-
<PAGE>
possession, conduct, management, construction, and financing of the Selling
Company's facility, (ii) the performance by Selling Party of its obligations
under this Agreement; (iii) any loss, damage of injury to, or death of, any
person occurring at or about or resulting from, the operations at the Selling
Company's facility and, (iv) any damage or injury to property of Selling Party
or to the agents, servants, or employees of Selling Party, or to any other
person who may be about the Selling Party's facility caused by the negligence of
any person. The provisions of this Paragraph shall survive termination of this
Agreement.
ARTICLE VIII
Section 8.01 Governing Law. This Agreement shall be governed by the
------------
laws of the State of New Jersey.
Section 8.02 Forum and Venue. All actions related to the matters
------------
which are the subject of this Agreement shall be formed and venued in the court
of competent jurisdiction in the County of Mercer, State of New Jersey.
Section 8.03 Entire Agreement. This Agreement and its exhibits, the
------------
application forms of the Selling Company and Buying Company and any documents
referred to herein constitute the complete understanding of the Parties and
merge and supersede any and all other discussions, agreements and
understandings, (other than the aforementioned applications) between the Parties
with respect to the subject matter of this Agreement.
Section 8.04 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
pursuant to applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provisions shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions of this Agreement, unless Buying
-7-
<PAGE>
Company shall in its sole and absolute discretion deem the invalidated provision
essential to the accomplishment of the public purposes served by this Agreement,
in which case Buying Company has the right to terminate this Agreement and all
benefits provided to Selling Company hereunder upon the giving of sixty (60)
days prior notice as set forth in Paragraph 8.05 hereof.
Section 8.05 Notices. All notices, consents, demands, requests and
------------
other communications which may be or are required to be given pursuant to any
term of this Agreement shall be in writing and shall be deemed duly given or
personally delivered or sent by United States mail, registered or certified,
return receipt requested, postage prepaid, to the addresses set forth hereunder
or to such other address as each party to this Agreement may hereafter designate
in a written notice to the other party transmitted in accordance with this
provision.
Selling Company Address:
NUCYCLE Therapy, Inc./ FKA Phytotech, Inc.
One Deer Park Drive Suite M
Monmouth Junction, NJ 08852
Buying Company Address:
PSE&G
80 Park Plaza
P.O. Box 570
Newark, NJ 07101
Section 8.06 Amendments or Modifications. This Agreement may only
------------
be amended or modified in a writing executed by both Parties, for good cause
shown. Such amendments or modifications shall become effective only upon
execution of same by both
-8-
<PAGE>
Parties and submission of the amendment or modification to the NJEDA and the
Division for approval.
Section 8.07 Headings. Section headings contained in this Agreement
------------
are inserted for convenience only and shall not be deemed to be a part of this
Agreement.
Section 8.08 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be an original and all of which
shall constitute but one and the same instrument.
Section 8.09 Successors and Assigns. This Agreement shall be
------------
binding upon the successors and assigns of the parties hereto.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed by their respective officers duly authorized as of the date and year
first set forth above.
ATTEST: SELLING COMPANY
By: /s/ Burt D. Ensley By: /s/ Alexander Baltovski
-------------------- ----------------------------
NAME: Burt D. Ensley NAME: Alexander Baltovski
------------------ --------------------------
TITLE: CEO TITLE: CFO
----------------- -------------------------
ATTEST: BUYING COMPANY
By: /s/ Fred DeSanto By: /s/ A. Rostami
-------------------- ----------------------------
NAME: Fred DeSanto NAME: A. Rostami
------------------ --------------------------
TITLE: Director CI&SGA TITLE: Assistant Treasurer
----------------- -------------------------
-9-
<PAGE>
NUCYCLE THERAPY INC. FKA as PHYTOTECH, INC.
SCHEDULE A
NJEDA NOL TAX SALE PROGRAM
NET OPERATING LOSS CARRYFORWARD
AND RESEARCH & DEVELOPMENT CREDITS
AMOUNT SOLD
STATE FISCAL YEAR 2000
<TABLE>
<CAPTION>
YEAR GROSS NET BENEFIT GROSS R & D NOL TOTAL BALANCE
NOL AVAILABLE R & D CREDITS BENEFIT AVAILABLE AVAILABLE REMAINING
AVAILABLE IN 2000 IN 2000 FOR 2001
<S> <C> <C> <C> <C> <C> <C> <C>
1993 90,499 8,113 - - 8,113 8,113 -
1994 529,814 47,496 12,175 12,175 47,496 59,671 -
1995 1,542,151 138,250 19,615 19,615 138,250 157,865 -
1996 2,418,303 216,795 20,928 20,928 168,292 189,220 48,503
1997 2,881,251 258,293 - - - - 258,293
--------- ------- ------ ------ ------- ------- -------
7,461,982 668,947 52,718 52,718 362,151 414,869 306,796
</TABLE>
<PAGE>
6/28/99 1
SELLING BUSINESS
TAX BENEFIT IDENTIFICATION FORM
Technology Business Tax Certificate Program
Business Name NUCYCLE THERAPY, Inc./FKA PHYTOTECH, INC.
-------------------------------------------------------
Primary Business Address ONE DEER PARK DRIVE, SUITE M
--------------------------------------------
MONMOUTH JUNCTION, NJ 08852
- ---------------------------------------------------------------------
Contact Name and Title MR. ALEXANDER BALTOVSKI, CFO
----------------------------------------------
Telephone 732 438-0900 EXT. 12
------------------------------------------------------------
Tax Identification Number 22-3239507
-------------------------------------------
Summary of Prior Years' Activities
- -------------------------------------------------------
Accumulated Prior Years' NOLs Authorized to be Sold $668,947
Accumulated Prior Years' NOLs Sold $ -0-
Accumulated Prior Years' R & D Tax Credits Authorized
to be Sold $ 52,718
Accumulated Prior Years' R & D Tax Credits Sold $ -0-
Total Authorized $721,665
Total Sold $414,869
Current Year Authorization
- --------------------------
Current Year 2000 Authorization $414,869
_______ Check here if you would like the New Jersey Division of Taxation to
determine which years and the amounts of Net Operating Loss (NOL) and Research
and Development (R & D) Tax Credit carryforwards within the amount that the
Selling Business has been authorized to sell.
<PAGE>
2
SELLING BUSINESS
TAX BENEFIT IDENTIFICATION FORM
Technology Business Tax Certificate Program
Directions: If the line on page I has not been checked, fill out the section
- ----------
below to identify which years and the amounts of the NOL and R & D Tax Credit
carryforwards you would like to sell up to the amount provided on the Current
Year Authorization line. Prior years' authorized or expired NOL and R&D Tax
Credit carryforwards cannot be listed.
Calculated NOL R & D Tax Credit
Gross Value of Carryforwards Carryforwards
Year NOLs Intended to be Sold Intended to be Sold
12-31-93 $ 90,499 $ 8,113 $_______
12-31-94 $ 529,814 $ 47,496 $ 12,175
12-31-95 $ 1,542,151 $ 138,250 $ 20,928
12-31-96 $ 2,418,303 $ 216,795 $ 19,615
12-31-97 $ 2,881,215 $ 258,293 $_______
$__________ $________ $_______
$__________ $________ $_______
Totals $ 7,461,982 $ 668,947 $ 52,718
GRAND TOTAL $721,665 (The sum
of Totals for the third and fourth
columns should be entered here.
This figure should equal the amount
provided on the Current Year
Authorization line.)
<PAGE>
7/7/99 1
BUYING BUSINESS INFORMATION SHEET
Technology Business Tax Certificate Program
Please provide the information requested below and sign and date as requested.
A. Buying Business
---------------
Business Name PSE&G
------------------------------------------------------
Primary Business Address 80 Park Plaza
-------------------------------------------
Newark, NJ 07101
-------------------------------------------------------------------
Contact Name and Title Steven Lapidus, Assistant Corp.
General Counsel
-------------------------------------------------------
Telephone 973-430-5239
----------------------------------------------------------
Tax Identification Number 22-1212800
------------------------------------------
B. Selling Business
----------------
Business Name Nucycle Therapy, Inc./FKA Phytotech, Inc.
------------------------------------------------------
Primary Business Address One Deer Park Drive, Suite M
-------------------------------------------
Monmouth Junction, NJ 08852
-------------------------------------------------------------------
Contact Name and Title Mr. Alexander Baltovski, CFO
---------------------------------------------
Telephone 732-438-0900, Ext. 12
----------------------------------------------------------
Tax Identification Number 22-3239507
------------------------------------------
Tax Benefits Authorized to be Sold $ 414,869
---------
C. Estimated Sale Price of Benefits to be Transferred
--------------------------------------------------
$ 342,266.93 (This must be at least 75% of the Tax Benefits Authorized
------------
to be Sold shown on the line above.)
____________ (Initial of Selling Business Contact or Authorized
Representative who signed the Selling Business Application)
It is expressly agreed and understood that any information submitted to or
obtained by the New Jersey Economic Development Authority (NJEDA) or the New
Jersey Division of Taxation in connection with this application may be shared by
the NJEDA, the New Jersey Division of Taxation and/or the New Jersey Commission
on Science and Technology.
The information provided in connection with this application is accurate to the
best of my knowledge.
<PAGE>
CERTIFICATE
-----------
With respect to each officer and director of Public Service Enterprise Group
Incorporated:
(a) within the last five (5) years, no petition under the Bankruptcy
Code or any state insolvency law was filed by or against, nor was a receiver,
fiscal agent or similar officer appointed by a court for the business or
property of, such person or any partnership in which such person was a general
partner at or within two years before the time of such filing, or any
corporation or business association of which such person was an executive
officer at or within two years before the time of such filing;
(b) within the last five (5) years, such person has never been
charged with or convicted of a criminal offense (excluding traffic violations
and other minor offenses), nor is such person the named subject of any criminal
proceeding which is presently pending;
(c) such person has never been found by any Federal or State court of
competent jurisdiction or authority, agency or commission to have violated, or
to have aided, abetted, commanded, or procured the violation by any other
person, of a Federal or State securities law, or any Federal commodities law or
of any rule or regulation under any such Acts or laws, nor has such person ever
been prohibited, restricted, barred, suspended, limited or enjoined, permanently
or temporarily from
(i) engaging in any activity in connection with the purchase
or sale of any security or commodity or in connection with any
violation of Federal or State securities laws or Federal commodities
laws, or acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the
Commodity Futures Trading Commission, or an associated person of any
of the foregoing, or engaging in or continuing in any conduct or
practice in connection with the purchase or sale of any security or
securities, including acting as an investment adviser, underwriter,
broker or dealer, or as an affiliated person, director or employee of
any investment company, bank, savings and loan association or
insurance company; or
(ii) engaging in any type of business practice or in any trade
business; or
(iii) being associated with persons engaged in any activity
referred to in this subparagraph (c).
Date: November 24, 1999 /s/ Edward J. Biggins, Jr.
----------------- ----------------------------
Edward J. Biggins, Jr.
Secretary
<PAGE>
Exhibit 8.3
-----------
ASSET PURCHASE AGREEMENT
------------------------
Agreement made as of the 24th day of May, 1999, between Phytotech, Inc.,
D.I.P., a New Jersey corporation with its principal office at One Deer Park
Drive, Suite I, Monmouth Junction, New Jersey 08852 (the "Seller") in its
------
capacity as Chapter 11 Debtor-in-Possession in Bankruptcy, Case No. 99-55905/kf
filed May 19, 1999, and pending in the United States Bankruptcy Court for the
District of New Jersey (the "Bankruptcy Court"), and Edenspace Systems
Corporation, a Delaware corporation with its principal office at 11604 Rolling
Meadow Drive, Great Falls, Virginia 22066 (the "Buyer").
-----
Preliminary Statement
---------------------
WHEREAS, the Buyer desires to purchase, and the Seller desires to sell, all
of the phytoremediation assets and business of the Seller, for the consideration
set forth below, subject to the terms and conditions of this Agreement,
including Bankruptcy Court approval.
WHEREAS, retaining the Business's (as defined herein) customers and key
employees is important to the ongoing value of the Business; certain customers
have indicated their intent to cancel contracts based on the Seller's perceived
failure to perform and the Seller's employees have expressed strong concern at
the Seller's inability to pay them months of accrued wages and expense
reimbursements; the Buyer and Seller agree that initial delivery of $50,000.00
provided by the Buyer to the Seller upon the execution of this Agreement is
essential to retaining such customers arid key employees; and the Seller agrees
to use such funds for that purpose.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Sale and Delivery of the Assets; Bankruptcy Provisions
------------------------------------------------------
1.1 Sale and Delivery of the Assets.
-------------------------------
(a) Subject to and upon the terms and conditions of this
Agreement, at the closing of the transactions contemplated by this Agreement
(the "Closing"), the Seller shall sell, transfer, convey, assign and deliver to
-------
the Buyer, and the Buyer shall purchase from the Seller, the following
properties, assets and other claims, rights and interests related to the
phytoremediation business of the Seller (the "Business").
--------
(i) all inventories of raw materials, work in process,
finished goods, office supplies, maintenance supplies, packaging materials,
spare parts and similar items of the Setter (collectively, the "Inventory")
---------
which exist on the Closing Date (as defined below);
(ii) all accounts, accounts receivable, notes and notes
receivable existing on the Closing Date which are payable to the Seller,
including any security held by the Seller for the payment thereof (the accounts,
accounts receivable, notes and notes receivable, including any related security
therein, to be transferred to the Buyer pursuant hereto are collectively
referred to herein as the "Accounts Receivable").
-------------------
<PAGE>
(iii) all prepaid expenses, customer prepayments and other
similar assets of the Seller existing on the Closing Date, including the cash
represented by such assets;
(iv) all rights of the Seller under the contracts,
agreements, leases, insurance policies, licenses (including but not limited to
licenses with respect to Intangible Property) and other instruments set forth on
Schedule 2.15 attached hereto (collectively, the "Contract Rights");
- ------------- ---------------
(v) all books, records and accounts, correspondence,
production records, technical, accounting, manufacturing and procedural manuals,
customer lists, employment records, studies, reports or summaries relating to
any environmental conditions or consequences of any operation, present or
former, as well as all studies, reports or summaries relating to any
environmental aspect or the general condition of the Assets, and any
confidential information which has been reduced to writing relating to or
arising out of the business of the Seller.
(vi) all rights of the Seller under express or implied
warranties from the suppliers of the Seller;
(vii) all of the machinery, equipment, tools, production
reels and spools, tooling, dies, production fixtures, maintenance machinery and
equipment, furniture, leasehold improvements and construction in progress owned
by the Seller on the Closing Date whether or not reflected as capital assets in
the accounting records of the Seller (collectively, the "Fixed Assets");
------------
(viii) all of the Seller's right, title and interest in and
to all intangible property rights owned, or licensed to Seller, and used by the
Seller in the Business, including but not limited to: all technical and
commercial information, data and documents of whatever kind, and in whatever
form or medium, relating to or useful for phytoremediation, including but not
limited to inventions, discoveries, trade secrets, formulas, databases,
drawings, specifications, photographs, samples, models, processes, procedures,
reports and correspondence, including the underlying copyright in works of
authorship embodying the foregoing, owned by Seller or which Seller otherwise
may lawfully disclose to Buyer; every United States and foreign patent that is
owned by Seller, or which is licensed to Seller, as well as all patents issued
on or claiming priority from an application filed prior to ninety days after the
Closing Date, including but not limited to any later filed continued
prosecution, continuations, substitutions, or divisionals thereof, and any
reissues or reexaminations of such patents, including but not limited to the
patents and any patents issuing from any patent application listed in Schedule
2.22 attached hereto; trade names, including but not limited to the name
"Phytotech, Inc." or any derivation thereof; trademarks; trademark
registrations; applications for trademark registrations; copyrights; and
copyright registrations (collectively, the "Intangible Property"); and
-------------------
(ix) except as specifically provided in Subsection 1.1(b)
hereof, all other assets, properties, claims, rights and interests of the Seller
which exist on the Closing Date, of every kind and nature and description,
whether tangible or intangible, real, personal or mixed.
-2-
<PAGE>
(b) Notwithstanding the provisions of paragraph (a) above, the
assets to be transferred to the Buyer under this Agreement shall not include
those assets listed on Schedule 1.1 attached hereto (the "Excluded Assets").
------------ ---------------
(c) The Inventory, Accounts Receivable, Contract Rights, Fixed
Assets, Intangible Property and other properties, assets and business of the
Seller described in paragraph (a) above, other than the Excluded Assets, shall
be referred to collectively as the "Assets."
------
1.2 Further Assurances. At any time and from time to time after the
------------------
Closing, at the Buyer's request and without further consideration, the Seller
promptly shall execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation, and take such other action, as the
Buyer may reasonably request to more effectively transfer, convey and assign to
the Buyer, and to confirm the Buyer's title to, all of the Assets, to put the
Buyer in actual possession and operating control thereof, to assist the Buyer in
exercising all rights with respect thereto and to carry out the purpose and
intent of this Agreement.
1.3 Purchase Price.
--------------
(a) The cash purchase price for the Assets shall be Six Hundred
Thousand Dollars ($600,000.00), plus 5% of Net Sales (as defined herein) through
December 31, 2002, payable quarterly in arrears on the 15th day of the second
month following each calendar quarter, with the first payment to be made on
August 15, 1999 for the quarter ending June 30, 1999, and the last payment to be
made on February 15, 2003 for the quarter ended December 31, 2002.
(b) "Net Sales" means the total of the gross consideration
received for any materials or product or kit, or any service, method, process,
or (the "Product") that is covered by a valid claim of the Seller's patents
-------
listed, or issuing from any patent application listed, on Schedule 2.22 attached
hereto, and made, used, leased, transferred, sold or otherwise disposed of by
the Buyer, its affiliates, and its sublicensees, at arms-length prices, less the
sum of the following actual and customary deductions (net of rebates or
allowances of such deductions received by the Buyer, its affiliates and
sublicensees) included on the invoice and actually paid: trade discounts; sales;
excise or use taxes imposed upon particular sales; import/export, customs or
duties or similar levies paid by the Buyer; royalties and other payments made by
Buyer to Rutgers, The State University of New Jersey under the Exclusive License
Agreement between Phytotech, Inc. and Rutgers, The State University of New
Jersey dated May 1997, and assigned to Buyer under the terms of this Agreement;
insurance; costs of packaging materials, boxes, cartons and crates required for
shipping; returns; and shipping, transportation and delivery charges. A product
shall be deemed made, used, leased, transferred, sold, or otherwise disposed of
at the time the Buyer receives payment for such Product.
(c) Upon signing this Agreement, the Buyer shall deliver to the
Seller by wire transfer the amount of Fifty Thousand Dollars ($50,000.00). At
the Closing, the Buyer shall deliver to the Seller the sum of Five Hundred Fifty
Thousand Dollars ($550,000.00) in cash, by cashier's or certified check or by
wire transfer of immediately available funds to an account designated by the
Seller, which shall constitute Buyer's second payment to Seller for the
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<PAGE>
Assets. Specifically incorporated within this sum is a payment of Fifty Thousand
Dollars ($50,000.00) for the Seller's agreement not to compete with the Buyer.
(d) The Buyer shall have the right, in its sole determination,
to offset against the purchase price any payment of indebtedness or liability of
the Seller to the Buyer.
1.4 No Assumption of Liabilities.
----------------------------
The Buyer shall not assume or agree to perform, pay or discharge, and the
Seller shall remain unconditionally liable for, all Seller's obligations,
liabilities and commitments, fixed or contingent, of the Seller whether or not
the relate to the Business.
1.5 The Closing. The Closing shall take place at the offices of
-----------
Ravin, Greenberg & Marks, 101 Eisenhower Parkway, Roseland, New Jersey 07068 at
10:00 a.m., New Jersey time, on June 11, 1999, or at such other place, time or
date as may be mutually agreed upon in writing by the parties hereto. The
transfer of the Assets by the Seller to the Buyer shall be deemed to occur at
9:00 a.m., Washington, D.C. Time, on the date of the Closing (the "Closing
-------
Date").
- ----
1.6 Bankruptcy Procedural Provisions
--------------------------------
(a) The obligations of the Buyer and the Seller under this
Agreement are expressly conditioned upon the Seller obtaining approval of the
transactions contemplated by this Agreement from the Bankruptcy Court in an
order confirming the Seller's sale of Assets under 11 U.S.C. Section 363 (the
"Bankruptcy Order").
----------------
(b) The sale of the Assets under this Agreement shall be
effectuated under the authority of 11 U.S.C. Section 363. The Seller's
conveyance, sale, transfer, assignment and delivery of all right, title and
interest of the Seller in and to the Assets shall be free and clear of any and
all liens, claims, encumbrances, rights, interests, easements, mortgages,
pledges, charges, equities, licenses, leases, agreements and restrictions of any
kind or nature whatsoever, to the fullest extent permitted by 11 U.S.C. Section
363, except as set forth on Schedule 2.4(ii) attached hereto.
(c) The Buyer acknowledges that, consistent with the Seller's
duties as Debtor-in-Possession, the Seller must consider competing offers, if
any, for the Assets. In addition to the deposit requirement set forth in Section
5.8, the Seller Agrees that it will not consider any such competing offer unless
such offer provides at least Fifty Thousand Dollars ($50,000.00) in additional
cash to Seller's bankruptcy estate. The Buyer will have the right to "top" any
competing offer submitted by the Seller to the Bankruptcy Court so long as the
Buyer's offer provides at least Twenty Thousand Dollars ($20,000.00) more cash
to the Seller's bankruptcy estate than is provided by such competing offer.
(d) The Seller hereby agrees to assume and assign to the Buyer
the contracts listed on Schedule 2.15 hereto in accordance with 11 U.S.C.
Section 365.
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<PAGE>
2. Representations of the Seller
-----------------------------
Subject to the effect of the Bankruptcy Code and any orders entered by the
Bankruptcy Court, the Seller represents and warrants to the Buyer as follows:
2.1 Organization. The Seller is a corporation duly organized, validly
------------
existing and in good standing under the laws of the state of its incorporation,
and has requisite power and authority (corporate and other) to own its
properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and the agreements contemplated herein, and to consummate
the transactions contemplated hereby, subject to approval by the Bankruptcy
Court. There are no corporate, partnership, joint venture and other entities in
which the Seller holds, directly or indirectly, a 50% or greater interest. The
Seller is duly qualified to do business and is in good standing in all
jurisdictions in which its ownership of property or the character of its
business requires such qualification. Certified copies of the Certificate of
Incorporation and Bylaws of the Seller, each as amended to date, have been
previously delivered to the Buyer, are complete and correct, and no amendments
have been made thereto or have been authorized since the date thereof. There are
no subsidiaries of the Seller, and the Seller does not own any capital stock of
or other equity interest in any corporation, partnership or other entity.
2.2 Capitalization of the Seller. All capital stock of the Seller has
----------------------------
been duly and validly authorized, issued and is fully paid and nonassessable.
2.3 Authorization. The execution and delivery of this Agreement by
-------------
the Seller, and the agreements provided for herein, and the consummation by the
seller of all transactions contemplated hereby, have been duly authorized by all
requisite corporate and shareholder action. This Agreement and all such other
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby to which the Seller is a party constitute the
valid and legally binding obligations of the Seller, enforceable against the
Seller in accordance with their respective terms, subject to Bankruptcy Court
approval. The execution, delivery and performance by the Seller of this
Agreement and the agreements provided for herein, and the consummation by the
Buyer of the transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the Seller; (b) violate
the provisions of the Certificate of Incorporation or Bylaws of the Seller; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator; or (d) conflict with or result in the breach or termination of any
term or provision of, or constitute a default under, or cause any acceleration
under, or cause the creation of any lien, charge or encumbrance upon the
properties or assets of the Seller pursuant to, any indenture, mortgage, deed of
trust or other instrument or agreement to which the Seller is a party or by
which the Seller or any of its properties is or may be bound. Schedule 2.3
------------
attached hereto sets forth a true, correct and complete list of all consents and
approvals of third parties that are required in connection with the consummation
by the Seller of the transactions contemplated by this Agreement.
2.4 Ownership of the Assets. Schedule 2.4(i) attached hereto sets
----------------------- ---------------
forth a true, correct and complete list of all claims, liabilities, liens,
pledges, charges, encumbrances and equities of any kind affecting the Assets
(collectively, the "Encumbrances"). The Seller is, and at
------------
-5-
<PAGE>
the Closing will be, the true and lawful owner of the Assets, and will have the
right to sell and transfer to the Buyer good, clear, record and marketable title
to the Assets, free and clear of all Encumbrances of any kind, except as set
forth on Schedule 2.4(ii) attached hereto (the "Permitted Encumbrances"),
---------------- ----------------------
subject to Bankruptcy Court approval. The delivery to the Buyer of the
instruments of transfer of ownership contemplated by this Agreement will vest
good and marketable title to the Assets in the Buyer, free and clear of all
liens, mortgages, pledges, security interests, restrictions, prior assignments,
encumbrances and claims of any kind or nature whatsoever, except for the
Permitted Encumbrances.
2.5 Financial Statements.
--------------------
(a) The Seller has previously delivered to the Buyer its audited
balance sheet as of December 31, 1997 (the "Audited Balance Sheet") and the
---------------------
related statements of income, shareholders' equity, retained earnings and
changes in financial condition of the Seller for the fiscal year then ended
(collectively, including the Audited Balance Sheet, the "Audited Financial
-----------------
Statements"). The Seller shall deliver to Buyer as soon as practicable, but in
- ----------
any event prior to the Closing Date, its Current Balance Sheet and the related
statements of income, shareholders' equity, retained earnings and changes in
financial condition of the Seller for 1998 and the 3-month period ended March
31, 1999 (collectively, the "Current Financial Statements"). The Audited
----------------------------
Financial Statements, the Current Financial Statements and the interim financial
statements (the "Interim Financial Statements") to be delivered pursuant to
----------------------------
Subsection 5.4 hereof (collectively, the "Financial Statements") have been (or
--------------------
will be) prepared in accordance with generally accepted accounting principles
applied consistently with past practice and are certified without qualification
by the Seller's independent public accountants, in the case of the Audited
Financial Statements, and have been (or will be) certified by the Seller's chief
financial officer, in the case of the Current Financial Statements and the
Interim Financial Statements.
(b) The Financial Statements fairly present, as of their
respective dates, the financial condition, retained earnings, assets and
liabilities of the Seller and the results of operations of the Seller's business
for the periods indicated; with respect to the contracts and commitments for the
sale of goods or the provision of services by the Seller, the Financial
Statements contain and reflect adequate reserves, which are consistent with
previous reserves taken, for all reasonably anticipated material losses and
costs and expenses; and the amounts shown as accrued for current and deferred
income and other taxes in the Financial Statements are sufficient for the
payment of all accrued and unpaid federal, state and local income taxes,
interest, penalties, assessments or deficiencies applicable to the Seller,
whether disputed or not, for the applicable period then ended and periods prior
thereto.
2.6 Absence of Undisclosed Liabilities affecting the Assets. Except
-------------------------------------------------------
as and to the extent (a) reflected and reserved in the Current Balance Sheet,
(b) set forth on Schedule 2.6 attached hereto or (c) incurred in the ordinary
------------
course of business after the date of the Current Balance Sheet and not material
in amount, either individually or in the aggregate, the Seller does not have any
liability or obligation, secured or unsecured, whether accrued, absolute,
contingent, unasserted or otherwise, affecting the Assets. For purposes of this
Subsection 2.6, "material" means any amount in excess of $20,000.00.
-6-
<PAGE>
2.7 Litigation. The Seller is not a party to, or to the Seller's best
----------
knowledge threatened with, and none of the Assets are subject to, any
litigation, suit, action, investigation, proceeding or controversy before any
court, administrative agency or other governmental authority relating to or
affecting the Assets or the business or condition (financial or otherwise) of
the Seller, except that the Assets are property of the Seller's bankruptcy
estate pursuant to 11 U.S.C. Sec. 541. The Seller is not in violation of or in
default with respect to any judgment, order, writ, injunction, decree or rule of
any court, administrative agency or governmental authority or any regulation of
any administrative agency or governmental authority.
2.8 Insurance. Schedule 2.8 attached hereto sets forth a true,
--------- ------------
correct and complete list of all fire, theft, casualty, general liability,
workers compensation, business interruption, environmental impairment, product
liability, automobile and other insurance policies insuring the Assets or
business of the Seller and of all life Insurance policies maintained for any of
its employees, specifying the type of coverage, the amount of coverage, the
premium, the insurer and the expiration date of each such policy (collectively,
the "Insurance Policies") and all claims made under such Insurance Policies
------------------
since inception. True, correct and complete copies of all of the Insurance
Policies have been previously delivered by the Seller to the Buyer. The
Insurance Policies are in full force and effect and are in amounts and of a
nature which are adequate and customary for the Seller's business. All premiums
due on the Insurance Policies or renewals thereof have been paid and there is no
default under any of the Insurance Policies. Except as set forth on Schedule 2.8
------------
attached hereto, the Seller has not received any notice or other communication
from any issuer of the Insurance Policies since inception canceling or
materially amending any of the Insurance Policies, materially increasing any
deductibles or retained amounts thereunder, or materially increasing the annual
or other premiums payable thereunder, and, to the best knowledge of the Seller,
no such cancellation, amendment or increase of deductibles, retainages or
premiums is threatened.
2.9 Inventory. Schedule 2.9 attached hereto sets forth a true,
--------- ------------
correct complete list of the Inventory as of the date hereof, including a
description and book value thereof. Schedule 2.9, as updated pursuant to
------------
Subsection 7.9 hereof, shall set forth a true, correct and complete list of the
Inventory as of the Closing Date, including a description and valuation thereof.
Such Inventory consists of items of a quality and quantity which are usable or
saleable without discount in the ordinary course of the business conducted by
the Seller. The value of all items of obsolete materials and of materials of
below standard quality has been written down to realizable market value, and the
values at which such Inventory is carried reflect the normal inventory valuation
policy of the Seller of stating the Inventory at the lower of cost or market
value in accordance with generally accepted accounting principles.
2.10 Equipment and Fixed Assets. Schedule 2.10 attached hereto sets
-------------------------- -------------
forth a true, correct and complete list of all Equipment and Fixed Assets as of
the date hereof, including a description and the book value thereof. Schedule
--------
2.10, as updated pursuant to Subsection 7.9 hereof, shall set forth a true,
- ----
correct and complete list of all Equipment and Fixed Assets as of the Closing
Date, including a description and valuation thereof. All of the Equipment and
Fixed Assets are in good operating condition and repair, normal wear and tear
excepted, are currently used by the Seller ordinary course of business and in
the production of products of the Seller and
-7-
<PAGE>
normal maintenance has been consistently performed with respect to such
Equipment and Fixed Assets.
2.11 Change in Condition and Assets. Except as set forth on Schedule
------------------------------ --------
2.11 attached hereto, since the Balance Sheet Date, and except for the Seller's
- ----
filing of its case with the Bankruptcy Court on May 19, 1999, there has been no
change which materially and adversely affects the business, properties, assets,
condition (other than financial) or prospects of the Seller. The Seller has no
knowledge of any existing or threatened occurrence, event or development which,
as far as can be reasonably foreseen, could have a material adverse effect on
the Seller or its business, properties, assets, condition (financial or
otherwise) or prospects.
2.12 Tax Matters. The Seller has filed all federal, state and local
-----------
tax returns which are required to be filed and has paid all taxes, interest,
penalties, assessments and deficiencies which have become due or which have been
claimed to be due. The Seller is current in the payment of all income,
franchise, real estate, sales, use and withholding taxes and other employee
benefits, taxes or imposts. No deficiencies have been asserted or assessed as a
result of any audit by the Internal Revenue Service or any state or local taxing
authority and no such deficiency or audit has been proposed or threatened.
2.13 Accounts Receivable. Schedule 2.13 attached hereto sets forth a
------------------- -------------
true, correct and complete list of all Accounts Receivable, including an aging
thereof as of the Balance Sheet Date. Schedule 2.13, as updated pursuant to
-------------
Subsection 7.9 hereof, shall set forth a true, correct and complete list of the
Accounts Receivable as of the Closing Date, including an aging thereof. All
Accounts Receivable arose out of the sales of inventory or services in the
ordinary course of business and are collectible in the face value thereof within
90 days of the date of invoice, using normal collection procedures, net of the
reserve for doubtful accounts as set forth thereon, which reserve is adequate
and was calculated in accordance with generally accepted accounting principles
consistently applied.
2.14 Books and Records. The general ledgers and books of account of
-----------------
the Seller, all federal, state and local income, franchise, property and other
tax returns filed by the Seller, with respect to the Assets, and all other books
and records of the Seller are in all material respects complete and correct and
have been maintained in accordance with good business practice and in accordance
with all applicable procedures required by laws and regulations.
2.15 Contracts and Commitments.
-------------------------
(a) Schedule 2.15 attached hereto, as updated pursuant to
-------------
Section 7.9 hereof, contains a true, complete and correct list and description
of the following contracts and agreements related to the Business, whether
written or oral (collectively, the "Contracts"):
---------
(i) all loan agreements, indentures, mortgages and
guaranties to which the Seller is a party or by which the Seller or any of its
property is bound;
(ii) all pledges, conditional sale or title retention
agreements, security agreements, equipment obligations, personal property leases
and lease purchase
-8-
<PAGE>
agreements relating to any of the Assets to which the Seller is a party or by
which the Seller or any of its property is bound;
(iii) all contracts, agreements, commitments, purchase
orders, licenses or other understandings or arrangements to which the Seller is
a party or by which the Seller or any of its property is bound which (A) involve
payments or receipts by the Seller of more than $10,000.00 in the case of any
single contract, agreement, commitment, understanding or arrangement under which
full performance (including payment) has not been rendered by all parties
thereto or (B) which may materially adversely affect the condition (financial or
otherwise) or the properties, assets, business or prospects of the Seller.
(iv) all collective bargaining agreements, employment and
consulting agreements, executive compensation plans, bonus plans, deferred
compensation agreements, pension plans, retirement plans, employee stock option
or purchase plans and group life, health and accident insurance and other
employee benefit plans, agreements, arrangements or commitments to which the
Seller is a party or by which the Seller or any of its property is bound;
(v) all agency, distributor, sales, representative and
agreements to which the Seller is a party;
(vi) all contracts, agreements or other understandings or
arrangements between the Seller any stockholder or Affiliate of the Seller;
(vii) all leases, whether operating, capital or otherwise,
under which the Seller is lessor or lessee;
(viii) all contracts, agreements and other documents or
information relating to past disposal of waste (whether or not hazardous); and
(ix) any other material agreement or contract entered into
by the Seller.
(b) Except as set forth on Schedule 2.15 attached hereto:
-------------
(i) each Contract is a valid and binding agreement of the
Seller, enforceable against the Seller in accordance with its terms, and the
Seller does not have any knowledge that any Contract is not a valid and binding
agreement of the other parties thereto;
(ii) the Seller has fulfilled all material obligations
required pursuant to the Contracts to have been performed by the Seller on its
part prior to the date hereof, and the Seller has no reason to believe that it
will not be able to fulfill, when due, all of its obligations under the
Contracts which remain to be performed after the date hereof;
(iii) the Seller is not in breach of or default under any
Contract, and no event has occurred which with the passage of time or giving of
notice or both would
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<PAGE>
constitute such a default, result in a loss of rights or result in creation of
any lien, charge or encumbrance, thereunder or pursuant thereto;
(iv) to the best knowledge of the Seller, there is no
existing breach or default by any other party to any Contract, and no event has
occurred which with the passage of time or giving of notice or both would
constitute a default by such other party, result in a loss of rights or result
in the creation of any lien, charge or encumbrance thereunder or pursuant
thereto;
(v) the Seller is not restricted by any Contract from on
its business anywhere in the world; and
(vi) the Seller has no written or oral Contracts to sell
or perform services which are expected to be performed at, or to result in, a
loss.
(c) Except as set forth on Schedule 2.3 or Schedule 2.15, the
------------ -------------
continuation, validity and effectiveness of each Contract will not be affected
by the transfer thereof to Buyer under this Agreement and all such Contracts are
assignable to Buyer without a consent.
(d) True, correct and complete copies of all Contracts have
previously been delivered by the Seller to the Buyer.
2.16 Compliance with Agreements and Laws. The Seller has all
-----------------------------------
requisite licenses, permits and certificates, including environmental, health
and safety permits, from federal, state and local authorities necessary to
conduct the Business and own and operate its assets related to the Business
(collectively, the "Permits"). Schedule 2.16 attached hereto sets forth a true,
------- -------- ----
correct and complete list of all such Permits, copies of which have previously
been delivered by the Seller to the Buyer. The Seller is not in violation of any
law, regulation or ordinance (including, without limitation, laws, regulations
or ordinances relating to building, zoning, environmental, disposal of hazardous
substances, land use or similar matters) relating to its properties, the
violation of which could have a material adverse effect on the Seller or its
properties. The business of the Seller does not violate, in any material
respect, any federal, state, local or foreign laws, regulations or orders
(including, but not limited to, any of the foregoing relating to employment
discrimination, occupational safety, environmental protection, hazardous waste
(as defined in the Resource Conservation and Recovery Act, as amended, and the
regulations adopted pursuant thereto), conservation, or corrupt practices, the
enforcement of which would have a material and adverse effect on the results of
operations, condition (financial or otherwise), assets, properties, business or
prospects of the Seller. Except as set forth on Schedule 2.16 attached hereto,
-------- ----
the Seller has not since inception received any notice or communication from any
federal, state or local governmental or regulatory authority or otherwise of any
such violation or noncompliance.
2.17 Employee Relations. The Seller is in compliance with all federal
------------------
state and municipal laws respecting employment and employment practices, terms
and conditions of employment, and wages and hours, and is not engaged in any
unfair labor practice, and there are no arrears in the payment of wage-based
taxes, including social security taxes.
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<PAGE>
2.18 Absence of Certain Changes or Events. Since the Balance Sheet
------------------------------------
Date, there has been no material adverse change in the condition, financial or
otherwise, net worth, or results of operations of the Seller, other than changes
occurring in the ordinary course of business, which changes have not,
individually or in the aggregate, had a materially adverse effect on the
business, prospects, properties, or condition, financial or otherwise, of the
Seller.
2.19 Customers. Schedule 2.19 attached hereto sets forth a true,
--------- -------------
correct and complete list of the names and addresses of all customers of the
Seller which accounted for more than 1% of the Seller's total sales in the
fiscal year ended December 31, 1998. None of such customers has notified the
Seller that it intends to discontinue its relationship with the Seller except
those customers that have notified Seller in the ordinary course of the
completion of the contract between Seller and the customer.
2.20 Suppliers. Schedule 2.20 attached hereto sets forth a true,
--------- -------------
correct and complete list of the names and addresses of the ten suppliers of the
Seller which accounted for the largest dollar volume of purchases by the Seller
for the fiscal year ended December 31, 1998. None of such suppliers has notified
the Seller that it intends to discontinue its relationship with the Seller
except those customers that have notified Seller in the ordinary course of the
completion of the contract between Seller and the customer.
2.21 Prepayments and Deposits. Schedule 2.21, as updated pursuant to
------------------------ -------------
Subsection 7.9 hereof, attached hereto sets forth all prepayments or deposits
from customers for products to be shipped, or services to be performed, after
the Closing Date which have been received by the Seller as of the date hereof.
2.22 Trade Names and Other Intangible Property.
-----------------------------------------
(a) Schedule 2.22, as updated pursuant to Subsection 7.9
-------------
hereof, attached hereto sets forth a true, correct and complete list and, where
appropriate, a description of, all Intangible Property. True, correct and
complete copies of all licenses and other agreements relating to the Intangible
Property have been previously delivered by the Seller to the Buyer.
(b) Except as otherwise disclosed in Schedule 2.22 attached
-------------
hereto, the Seller is the sole and exclusive owner of all Intangible Property
and all designs, permits, labels and packages used on or in connection
therewith. The Intangible Property owned by the Seller is sufficient to conduct
the Seller's business as presently conducted and, when transferred to the Buyer
pursuant to this Agreement, will be sufficient to permit the Buyer to conduct
the business of the Seller as presently conducted by the Seller. The Seller has
received no notice of, and has no knowledge of any basis for, a claim against it
that any of its operations, activities, products or publications infringes on
any patent, trademark, trade name, copyright or other property right of a third
party, or that it is illegally or otherwise using the trade secrets, formulae or
any property rights of others. The Seller has no disputes with or claims against
any third party for infringement by such third party of any trade name or other
Intangible Property of the Seller. The Seller has taken all steps reasonably
necessary to protect its right, title and interest in and to the Intangible
Property.
-11-
<PAGE>
2.23 Employee Benefit Plans.
----------------------
(a) The Seller does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974 other than a medical benefit plan with respect to
which the Seller has made all required contributions and has complied with all
applicable laws.
(b) Liabilities. The Buyer assumes no liabilities with respect
-----------
to any employee plan of the Company which liability relates to any period prior
to the Closing Date, including, without limitation, any taxes, accrued vacation
or sick pay (whether or not vested), accrued vacation, sick and personal leaves,
employee policies, employee benefit claims or liability to the Pension Benefit
Guaranty Corporation.
2.24 Real Estate. The Seller does not own any real property.
-----------
2.25 Acquired Assets Complete. The Assets are, when utilized by a
------------------------
labor force substantially similar to that employed by the Seller on the date
hereof, adequate to conduct the Business.
2.26 Regulatory Approvals. Except for Bankruptcy Court approval,
--------------------
there are no consents, approvals, authorizations and other requirements
prescribed by any law, rule or regulation which must be obtained or satisfied by
the Seller or which are necessary for the execution and delivery by the Seller
of this Agreement.
2.27 Powers of Attorney and Suretyships. Except as set forth on
----------------------------------
Schedule 2.27 attached hereto, the Seller has no general or special powers of
- -------------
attorney outstanding (whether as grantor or grantee thereof) and has no
obligation or liability (whether actual, accrued, accruing, contingent or
otherwise) as guarantor, surety, co-signor, endorser, co-maker, indemnitor or
otherwise in respect of the obligation of any person, corporation, partnership,
joint venture, association, organization or other entity, except as endorser or
maker of checks or letters of credit, respectively, endorsed or made in the
ordinary course of business.
2.28 Disclosure. No representation or warranty by the Seller in this
----------
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading. The Seller has
disclosed to the Buyer all material facts pertaining to the transactions
contemplated by this Agreement.
2.29 Confidentiality. The Seller has taken and will continue to take
---------------
reasonable security measures to protect the secrecy, confidentiality and value
of the Assets.
2.30 Operating of Business. Since its filing with the Bankruptcy
---------------------
Court, the Seller has continued to operate the Business as Debtor-in-Possession.
3. Representations of the Buyer
----------------------------
The Buyer represents and warrants to the Seller as follows:
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<PAGE>
3.1 Organization and Authority. The Buyer is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the state of
Delaware, and has requisite power and authority (corporate and other) to own its
properties and to carry on its business as now being conducted. The Buyer has
full power to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and thereby. Certified copies of the
Certificate of Incorporation and the Bylaws of the Buyer, as amended to date,
have been previously delivered to the Seller, are complete and correct, and no
amendments have been made thereto or have been authorized since the date
thereof.
3.2 Capitalization of the Buyer. All capital stock of the Buyer has
---------------------------
been duly and validly authorized, issued and is fully paid and nonassessable.
3.3 Authorization. The execution and delivery of this Agreement by
-------------
the Buyer, and the agreements provided for herein, and the consummation by the
Buyer of all transactions contemplated hereby, have been duly authorized by all
requisite corporate action. This Agreement and all such other agreements and
written obligations entered into and undertaken in connection with the
transactions contemplated hereby constitute the valid and legally binding
obligations of the Buyer, enforceable against the Buyer in accordance with their
respective terms. The execution, delivery and performance of this Agreement and
the agreements provided for herein, and the consummation by the Buyer of the
transactions contemplated hereby and thereby, will not, with or without the
giving of notice or the passage of time or both, (a) violate the provisions of
any law, rule or regulation applicable to the Buyer; (b) violate the provisions
of the Buyer's Certificate of Incorporation or Bylaws; (c) violate any judgment,
decree, order or award of any court, governmental body or arbitrator; or (d)
conflict with or result in the breach or termination of any term or provision
of, or constitute a default under, or cause any acceleration under, or cause the
creation of any lien, charge or encumbrance upon the properties or assets of the
Buyer pursuant to, any indenture, mortgage, deed of trust or other agreement or
instrument to which it or its properties is a party or by which the Buyer is or
may be bound.
3.4 Regulatory Approvals. All consents, approvals, authorizations and
--------------------
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Buyer and which are necessary for the consummation
of the transactions contemplated by this Agreement have been, or will be prior
to the Closing Date, obtained and satisfied.
3.5 Disclosure. No representation or warranty by the Buyer in this
----------
Agreement or in any Exhibit hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant hereto, contains or will contain any untrue statement of a
material fact or will omit any material fact necessary in order to make the
statements contained therein not misleading.
4. Access to Information; Public Announcements
-------------------------------------------
4.1 Access to Management, Properties and Records.
--------------------------------------------
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<PAGE>
(a) From the date of this Agreement until the Closing Date, the
Seller shall afford the officers, attorneys, accountants and other authorized
representatives of the Buyer free and full access upon reasonable notice and
during normal business hours to all management personnel, offices, properties,
books and records of the Seller, so that the Buyer may have full opportunity to
make such investigation as it shall desire to make of the management, business,
properties and affairs of the Seller, and the Buyer shall be permitted to make
abstracts from, or copies of, all such books and records. The Seller shall
furnish to the Buyer such financial and operating data and other information as
to the Assets and the business of the Seller as the Buyer shall reasonably
request.
(b) The Seller shall authorize the release to the Buyer of all
files pertaining to the Seller, the Assets or the business or operations of the
Seller held by any federal, state, county or local authorities, agencies or
instrumentalities.
4.2 Confidentiality. All information not previously disclosed to the
---------------
public or generally known to persons engaged in the business of the Buyer which
shall have been furnished by the Buyer to the Seller in connection with the
transactions contemplated hereby or as provided pursuant to this Section 4 shall
not be disclosed to any person other than the Seller's employees, directors,
attorneys, accountants or financial advisors or other than as contemplated
herein. In the event that the transactions contemplated by this Agreement shall
not be consummated, all such information which shall be in writing shall be
returned to the Buyer, including, to the extent reasonably practicable, all
copies or reproductions thereof which may have been prepared, and the Seller
shall not at any time thereafter disclose to third parties, or use, directly or
indirectly, for its own benefit, any such information, written or oral, about
the business of the Buyer hereto.
4.3 Public Announcements. The parties agree that prior to the Closing
--------------------
Date, except as otherwise required by law (including the Bankruptcy Code), any
and all public announcements or other public communications concerning this
Agreement and the purchase of the Assets by the Buyer shall be subject to the
approval of both parties, which approval shall not be unreasonably withheld.
5. Pre-Closing Covenants of the Seller
-----------------------------------
From and after the date hereof and until the Closing Date, except by order
of the Bankruptcy Court:
5.1 Conduct of Business. The Seller shall carry on its business
-------------------
diligently and substantially in the same manner as heretofore and shall not make
or institute any unusual or new methods of manufacture, purchase, sale, shipment
or delivery, lease, management, accounting or operation, and shall not ship or
deliver any quantity of products in excess of normal shipment or delivery
levels, except as Agreed to in writing by the Buyer. All of the property of the
Seller shall be used, operated, repaired and maintained in a normal business
manner consistent with past practice.
5.2 Absence of Material Changes. Without the prior written consent of
---------------------------
the Buyer, the Seller shall not:
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<PAGE>
(a) Mortgage, pledge, or subject to any lien, charge or any
other encumbrance any of the Assets;
(b) Sell, assign, or transfer any of the Assets, except for
inventory sold in the ordinary course of business, at a normal profit margin,
and for not less than replacement cost;
(c) Modify, amend, alter or terminate any Contracts;
(d) Take or permit any act or omission constituting a breach or
default under any contract, indenture or agreement by which it or its properties
are bound;
(e) Fail to (i) preserve the possession and control of its
assets and business, (ii) keep in faithful service its present officers and key
employees, except for such employees, if any, hired by the Buyer, (iii) preserve
the goodwill of its customers, suppliers, agents, brokers and others having
business relations with it, and (iv) keep and preserve its business existing on
the date hereof until after the Closing Date;
(f) Fail to operate its business and maintain its books,
accounts and records in the customary manner and in the ordinary or regular
course of business and maintain in good repair its business premises, fixtures,
machinery, furniture and equipment;
(g) Enter into any leases, contracts, agreements or
understandings other than those entered into in the ordinary course of business
calling for payments which in the aggregate do not exceed $3,000.00 for each
such lease, contract, agreement or understanding; or
(h) Commit or agree to do any of the foregoing in the future.
5.3 Taxes. The Seller will, on a timely basis, file all tax returns
-----
for and pay any and all taxes which shall become due or shall have accrued (a)
on account of the operation of the business of the Seller or the ownership of
the Assets on or prior to the Closing Date or (b) on account of the sale of the
Assets (including a pro-rata portion of all personal property and excise taxes
payable with respect to the Assets by the Seller).
5.4 Communication with Customers and Suppliers.
------------------------------------------
(a) Unless instructed otherwise by the Buyer in writing, the
Seller will accept customer orders in the ordinary course of business and
consistent with past practice as the Buyer's agent for all products offered by
the Seller but expected to be shipped by the Buyer after the Closing Date.
(b) The Seller and the Buyer will cooperate in communication
with suppliers and customers to accomplish the transfer of the Assets to the
Buyer on the Closing Date.
5.5 Compliance with Laws. The Seller will comply with all laws and
--------------------
regulations which are applicable to it, its ownership of the Assets or to the
conduct of its business
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<PAGE>
and will perform and comply with all contracts, commitments and obligations by
which it is bound.
5.6 Continued Truth of Representations and Warranties of the Seller.
---------------------------------------------------------------
The Seller will not take any actions which would result in any of the
representations or warranties set forth in Section 2 hereof being untrue.
5.7 Continuing Obligation to Inform. From time to time prior to the
-------------------------------
Closing, the Seller will deliver or cause to be delivered to the Buyer
supplemental information concerning events subsequent to the date hereof which
would render any statement, representation or warranty in this Agreement or any
information contained in any Schedule inaccurate or incomplete in any material
respect at any time after the date hereof until the Closing Date.
5.8 Competing Offers. The Seller will not, directly or indirectly,
----------------
through any officer, director, agent or otherwise, solicit, initiate or
encourage submission of proposals or offers from any person relating to any
acquisition or purchase of all or a material portion of the Assets, or any
equity interest in, the Seller or any equity investment, merger, consolidation
or business combination with the Seller. The Seller shall promptly notify the
Buyer if any such proposal or offer, or any inquiry or contact with any person
with respect thereto, is made. The Seller acknowledges that any competing bid
for the Assets must include a non-refundable deposit in an amount not less than
Fifty Thousand Dollars ($50,000.00), to be credited toward the purchase price at
closing, in order to place such competing bid on an equal footing with this
Agreement.
6. Best Efforts to Obtain Satisfaction of Conditions
-------------------------------------------------
The Seller and the Buyer covenant and agree to use their best efforts
to obtain the satisfaction of the conditions specified in this Agreement.
7. Conditions to Obligations of the Buyer
--------------------------------------
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing, in the sole discretion of the Buyer:
7.1 Continued Truth of Representations and Warranties of the Seller;
---------------------------------------------------------------
compliance with Covenants and Obligations. The representations and warranties of
- ------------------------------------------
the Seller shall be true on and as of the Closing Date as though such
representations and warranties were made on and as of such date, except for any
changes permitted by the terms hereof or consented to in writing by the Buyer.
The Seller shall have performed and complied with all terms, conditions,
covenants, obligations, agreements and restrictions required by this Agreement
to be performed or complied with by it prior to or at the Closing Date.
7.2 Corporate Proceedings. All corporate and other proceedings
---------------------
required to be taken on the part of the Seller to authorize or carry out this
Agreement and to convey, assign, transfer and deliver the Assets shall have been
taken.
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<PAGE>
7.3 Governmental Approvals. All governmental agencies, departments,
----------------------
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Seller of the transactions contemplated by this
Agreement and the operation of the Seller's business by the Buyer shall have
consented to, authorized, permitted or approved such transactions, including the
Bankruptcy Court.
7.4 Consents of Lenders, Lessors and Other Third Parties. The Seller
----------------------------------------------------
shall have received all requisite consents and approvals of all lenders, lessors
and other third parties whose consent or approval is required in order for the
Seller to consummate the transactions contemplated by this Agreement, including
the Bankruptcy Order as required by Section 1.6(a), and including, without
limitation, those set forth on Schedule 2.3 attached hereto, which consents may
------------
be obtained through the Bankruptcy Order on notice to the parties listed
thereon.
7.5 Adverse Proceedings. No action or proceeding by or before any
-------------------
court or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Buyer to own or use the Assets after the Closing.
7.6 Board of Directors Approval. The Board of Directors of the
---------------------------
Seller shall have duly authorized the transactions contemplated by this
Agreement.
7.7 The Assets. Except for the Permitted Encumbrances and the
----------
Permitted Exceptions, at the Closing the Buyer shall receive good, clear, record
and marketable title to the Assets, free and clear of all liens, liabilities,
security interests and encumbrances of any nature whatsoever.
7.8 Update. The Seller shall have provided the Buyer with a true,
------
correct and complete list and amount, as of the Closing Date, of:
(a) the Inventory;
(b) the Fixed Assets;
(c) the Accounts Receivable, including an aging thereof;
(d) Intangible Property;
(e) all contracts, customer prepayments and unfilled customer
orders; and
(f) all shipments made during the period from the date of this
Agreement to the Closing Date, none of which information shall be materially
different from the information supplied by the Seller as of the date hereof on
Schedules 2.9, 2.10, 2.13, 2.15, 2.21 and 2.22 attached hereto.
- --------- --- ---- ---- ---- ----- ----
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7.9 Cross-License Agreement. On the Closing Date, Buyer and Seller
-----------------------
shall have entered into a Cross License Agreement substantially in the form
attached hereto as Exhibit A, and as specifically approved by the Bankruptcy
---------
Court.
7.10 Employment Agreements. On or prior to the Closing Date, the
---------------------
Buyer shall have executed employment agreements with Jack Frost, Michael
Blaylock, James Dechant, Mark Elless and Jianwei Huang.
7.11 Assignment of Insurance Policies. On or prior to the Closing
--------------------------------
Date, the Seller shall have assumed and assigned to the Buyer any and all
insurance policies extending warranty or products liability coverage to the
Seller for products manufactured by the Seller prior to the Closing Date or for
claims made on or prior to the Closing Date.
7.12 Assignment of Contracts. The Seller shall have assumed and
-----------------------
assigned to the Buyer the contracts listed on Schedule 2.15 hereto in accordance
with 11 U.S.C. Section 365.
7.13 Closing Deliveries. The Buyer shall have received at or prior
------------------
to the Closing each of the following documents:
(a) a bill of sale substantially in the form attached hereto as
Exhibit B;
- ---------
(b) such instruments of conveyance, assignment and transfer, in
form and substance satisfactory to the Buyer, as shall be appropriate to convey,
transfer and assign to, and to vest in, the Buyer, good, clear, record and
marketable title to the Assets, including but not limited to copies of Forms
UCC-3 filed with respect to liens listed in Schedule 2.4(i);
(c) all technical data, formulations, product literature and
other documentation relating to the Seller's business, all in form and substance
satisfactory to the Buyer;
(d) such contracts, files and other data and documents
pertaining to the Assets or the Seller's business as the Buyer may reasonably
request;
(e) copies of the general ledgers and books of account of the
Seller, and all federal, state and local income, franchise, property and other
tax returns filed by the Seller with respect to the Assets since inception;
(f) such certificates of the Seller's officers and such other
documents evidencing satisfaction of the conditions specified in Section 7 as
the Buyer shall reasonably request;
(g) a certificate of the Secretary of State of the State of New
Jersey as to the legal existence and good standing (including tax) of the Seller
in New Jersey and any other jurisdiction in which the Seller does business;
(h) certificates of the Secretary of the Seller attesting to
the incumbency of the Seller's officers, respectively, the authenticity of the
resolutions authorizing
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<PAGE>
the transactions contemplated by the Agreement, and the authenticity and
continuing validity of the charter documents delivered pursuant to subsection
2.1;
(i) the schedules listed in Subsection 7.9;
(j) evidence of compliance with all state and federal
environmental, occupational, work place disclosure and right to know laws;
(k) cross receipt executed by the Buyer and the Seller;
(l) documents and materials comprising and sufficient to
disclose and transfer to Buyer all Intangible Property;
(m) such other documents, instruments or certificates as
the Buyer may reasonably request; and
(n) an order from the Bankruptcy Court approving this
Agreement and the Cross License Agreement.
8. Conditions to Obligations of the Seller
---------------------------------------
The obligations of the Seller under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing at the sole discretion of the Seller:
8.1 Continued Truth of Representations and Warranties of the Buyer;
--------------------------------------------------------------
Compliance with Covenants and Obligations. The representations and warranties of
- -----------------------------------------
the Buyer in this Agreement shall be true on and as of the Closing Date as
though such representations and warranties were made on and as of such date,
except for any changes consented to in writing by the Seller. The Buyer shall
have performed and complied with all terms, conditions, obligations, agreements
and restrictions required by this Agreement to be performed or complied with by
it prior to or at the Closing Date.
8.2 Corporate Proceedings. All corporate and other proceedings
---------------------
required to be taken on the part of the Buyer to authorize or carry out this
Agreement shall have been taken.
8.3 Governmental Approvals. All governmental agencies, departments,
----------------------
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Buyer of the transactions contemplated by this Agreement
shall have consented to, authorized, permitted or approved such transactions,
including the Bankruptcy Court.
8.4 Consents of Lenders, Lessors and Other Third Parties. The Buyer
----------------------------------------------------
shall have received all requisite consents and approvals of all lenders, lessors
and other third parties whose consent or approval is required in order for the
Buyer to consummate the transactions contemplated by this Agreement, including
the Bankruptcy Order as required by Section 1.6(a).
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<PAGE>
8.5 Adverse Proceedings. No action or proceeding by or before any
-------------------
court or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Seller to transfer the Assets.
8.6 Closing Deliveries. The Seller shall have received at or prior
------------------
to the Closing each of the following documents:
(a) such certificates of the Buyer's officers and such other
documents evidencing satisfaction of the conditions specified in this Section 8
as the Seller shall reasonably request;
(b) a certificate of the Secretary of State of the State of
Delaware as to the legal existence and good standing (including tax) of the
Buyer in Delaware;
(c) a certificate of the Secretary of the Buyer attesting to the
incumbency of the Buyer's officers, the authenticity of the resolutions
authorizing the transactions contemplated by this agreement, and the
authenticity and continuing validity of the charter documents delivered pursuant
to Subsection 3.1;
(d) cross receipt executed by the Buyer and the Seller; and
(e) such other documents, instruments or certificates as the
Seller may reasonably request.
9. Indemnification
---------------
9.1 By the Buyer and the Seller. The Buyer and the Seller each hereby
---------------------------
indemnifies and holds harmless the other party against all claims, damages,
losses, liabilities, costs and expenses (including, without limitation,
settlement costs and any legal, accounting or other expenses for investigating
or defending any actions or threatened actions) reasonably incurred by the Buyer
or the Seller in connection with each and all of the following:
(a) Any breach by the indemnifying party of any representation
or warranty in this Agreement;
(b) Any breach of any covenant, agreement or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement,
certificate or schedule furnished by the indemnifying party pursuant to this
Agreement or in connection with the transactions contemplated by this Agreement.
9.2 By the Seller. The Seller further agrees to indemnify and hold
-------------
harmless the Buyer from any and all claims, damages, losses, liabilities, costs
and expenses (including, without limitation, settlement costs and any legal,
accounting or other expenses for investigating
-20-
<PAGE>
or defending any actions or threatened actions) reasonably incurred by the
Buyer, in connection with each and all of the following:
(a) Any claims against, or liabilities or obligations of,
the Seller or against the Assets not specifically assumed by the Buyer pursuant
this Agreement;
(b) The failure of the Buyer to obtain the protections
afforded by compliance with the notification and other requirements of the bulk
sales laws in force in the jurisdictions in which such laws may be applicable to
either the Seller or the transactions contemplated by this Agreement;
(c) Any violation by the Seller of, or any failure by the
Seller to comply with, any law, ruling, order, decree, regulation or zoning,
environmental permit requirement applicable to the Seller, the Assets or its
business, whether or not any such violation or failure to comply has been
disclosed to the Buyer, including any costs incurred by the Buyer (i) in order
to bring the Assets into compliance with environmental laws as a consequence of
noncompliance with such laws on the Closing Date or (ii) in connection with the
transfer of the Assets;
(d) Any warranty claim or product liability claim relating
to (i) products manufactured or sold by the Seller prior to the Closing Date or
(ii) the Seller's business or operation prior to the Closing Date;
(e) Any tax liabilities or obligations of the Seller; and
(f) Any claims against, or liabilities or obligations of,
the Seller respect to obligations under Employee Plans not specifically assumed
by the Buyer pursuant to this Agreement.
9.3 Claims for Indemnification. Whenever any claim shall arise for
--------------------------
indemnification hereunder the party seeking indemnification (the "Indemnified
-----------
Party"), shall promptly notify the party from whom indemnification is sought
- -----
(the "Indemnifying Party") of the claim and, when known, the facts constituting
------------------
the basis for such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third-party, the notice to the Indemnifying Party shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by a third party for
which it is entitled to indemnification hereunder without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld,
unless suit shall have been instituted against it and the Indemnifying Party
shall not have taken control of such suit after notification thereof as provided
in Subsection 9.4 of this Agreement.
9.4 Defense by Indemnifying Party. In connection with any claim
-----------------------------
giving rise to indemnity hereunder resulting from or arising out of any claim or
legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
it acknowledges to the Indemnified Party in writing its obligations to indemnify
the
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<PAGE>
Indemnified Party with respect to all elements of such claim. The Indemnified
Party shall be entitled to participate in (but not control) the defense of any
such action, with its counsel and at its own expense. If the Indemnifying Party
does not assume the defense of any such claim or litigation resulting therefrom
within 30 days after the date such claim is (a) the Indemnified Party may defend
against such claim or litigation, in such manner as it may deem appropriate,
including, but not limited to, settling such claim litigation, after giving
notice of the same to the Indemnifying Party, on such terms as the Indemnified
Party may deem appropriate, and (b) the Indemnifying Party shall be entitled to
participate in (but not control) the defense of such action, with its counsel
and at its own expense. If the Indemnifying Party thereafter seeks to question
the manner in which the Indemnified Party defended such third party claim or the
amount or nature of any such settlement, the Indemnifying Party shall have the
burden to prove by a preponderance of the evidence that the Indemnified Party
did not defend or settle such third party claim in a reasonably prudent manner.
9.5 Payment of Indemnification Obligation. The Seller hereby agrees
-------------------------------------
that any claim for indemnification by the Buyer under this Section 9 or under
any other provision of this Agreement may, at the Buyer's option, be set off
against the Buyer's obligation to make payments of the purchase price set forth
in Subsection 1.3. All indemnification by the Buyer or the Seller hereunder (to
the extent not satisfied in the manner specified in the preceding sentence)
shall be effected by payment of cash or delivery of a cashier's or certified
check in the amount of the indemnification liability.
9.6 Survival of Representations; Claims for Indemnification. All
-------------------------------------------------------
representations and warranties made by the parties herein or in any instrument
or document furnished in connection herewith shall survive the Closing and any
investigation at any time made by or on behalf of the parties hereto. All such
representations and warranties shall expire on the second anniversary of the
Closing Date, except for claims, if any, asserted in writing prior to such
second anniversary, which shall survive until finally resolved and satisfied in
full. All claims and actions for indemnity pursuant to this Section 9 for
breach of any representation or warranty shall be asserted or maintained in
writing by a party hereto on or prior to the expiration of such two-year period.
Notwithstanding anything to the contrary in this Section 9, Buyer shall not be
entitled to receive, and the Seller shall not be obligated to pay, the first
$5,000 in the aggregate of indemnity obligations otherwise payable by Seller to
Buyer pursuant to this Section 9.
10. Post-Closing Agreements
-----------------------
The Seller agrees that from and after the Closing Date:
10.1 Proprietary Information.
-----------------------
(a) The Seller shall hold in confidence, and use its best
efforts to have all of its officers, directors and personnel hold in confidence,
all knowledge and information of a secret or confidential nature with respect to
the business of the Seller and shall not disclose, publish or make use of the
same without the consent of the Buyer, except to the extent that such
information shall have become public knowledge other than by breach of this
Agreement by the Seller.
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<PAGE>
(b) The Seller agrees that the remedy at law for any breach of
this Subsection 10.1 would be inadequate and that the Buyer shall be entitled to
injunctive relief in addition to any other remedy it may have upon breach of any
provision of this Subsection 10.1.
10.2 No Solicitation or Hiring of Former Employees. Except as
---------------------------------------------
provided by law, for a period of three (3) years after the Closing Date, the
Seller shall not solicit any person who was an employee of the Seller on the
Closing Date to terminate his employment with the Buyer or to become an employee
of the Seller or hire any person who was such an employee on the date hereof or
on the Closing Date.
10.3 Non-Competition Agreement.
-------------------------
(a) For a period of three (3) years after the Closing Date,
neither the Seller nor any Affiliate thereof shall (i) manufacture, market or
sell any product or service (except for nutritional supplement products or
services) which has the same or substantially the same form, function and
primary application as any existing or proposed product or service manufactured
or provided by the Seller on or prior to the Closing Date or (ii) engage in any
business competitive with the business of the Seller (except as such business
directly pertains to nutritional supplement products and services) as conducted
on the date hereof or on the Closing Date, in the United States or any other
country in which the Seller conducted its business during the two years prior to
the Closing Date.
(b) The parties hereto agree that the duration and geographic
scope of the non-competition provision set forth in this Subsection 10.3 are
reasonable. In the event that any court determines that the duration or the
geographic scope, or both, are unreasonable and that such provision is to that
extent unenforceable, the parties hereto agree that the provision shall remain
in full force and effect for the greatest time period and in the greatest area
that would not render it unenforceable. The parties intend that this non-
competition provision shall be deemed to be a series of separate covenants, one
for each and every county of each and every state of the United States of
America and each and every political subdivision of each and every country
outside the United States of America where this provision is intended to be
effective. The Seller agrees that damages are an inadequate remedy for any
breach of this provision and that the Buyer shall, whether or not it is pursuing
any potential remedies at law, be entitled to equitable relief in the form of
preliminary and permanent injunctions without bond or other security upon any
actual or threatened breach of this non-competition provision.
10.4 Sharing of Data.
---------------
(a) The Seller shall have the right for a period of three years
following the Closing Date to have reasonable access to such books, records and
accounts, including financial and tax information, correspondence, production
records, employment records and other similar information as are transferred to
the Buyer pursuant to the terms of this Agreement for the limited purposes of
concluding its involvement in the business of the Seller prior to the Closing
Date and for complying with its obligations under the Bankruptcy Code and under
applicable securities, tax, environmental, employment or other laws and
regulations. The Buyer shall have the right for a period of four years following
the Closing Date to have reasonable access to those books, records and accounts,
including financial and tax information,
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<PAGE>
correspondence, production records, employment records and other records which
are retained by the Seller pursuant to the terms of this Agreement to the extent
that any of the foregoing relates to the business of the Seller transferred to
the Buyer hereunder or is otherwise needed by the Buyer in order to comply with
its obligations under applicable securities, tax, environmental, employment or
other laws and regulations.
(b) The Seller and the Buyer agree that from and after the
Closing Date they shall cooperate fully with each other to facilitate the
transfer of the Assets from the Seller to the Buyer and the operation thereof by
the Buyer.
10.5 Use of Name. The Seller agrees to cease the use of the name
-----------
"Phytotech, Inc." or any derivation thereof by the date which occurs two full
calendar months after the Closing Date, and agrees to only use such name or
derivation in the interim as to those matters for which it has received consent
from the Buyer.
10.6 Cooperation in Litigation. Each party hereto will fully
-------------------------
cooperate with the other in the defense or prosecution of any litigation or
proceeding already instituted or which may be instituted hereafter against or by
such party relating to or arising out of the conduct of the business of the
Seller prior to or after the Closing Date (other than litigation arising out the
transactions contemplated by this Agreement). The party requesting such
cooperation shall pay the out-of-pocket expenses (including legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with providing
such cooperation, but shall not be responsible to reimburse the party providing
such cooperation for such party's time spent in such cooperation or the salaries
or costs of fringe benefits or similar expenses paid by the party providing such
cooperation to its officers, directors, employees and agents while assisting in
the defense or prosecution of any such litigation or proceeding.
10.7 Product Claims and Returns. Seller shall be responsible for
--------------------------
customer claims relating to services rendered by Seller prior to the Closing
Date, and customer claims relating to, or returns of, products of Seller which
(a) were sold and shipped by the Seller prior to the Closing Date, (b) were in
the finished goods inventory of the Seller as of the Closing Date, or (c) were
work in process and more than fifty percent (50%) completed by the Closing Date.
If a customer makes a claim or seeks a return and, in the judgment of the Buyer,
the claim or return is proper, Buyer shall replace or repair, as the case may
be, the services rendered or product purchased at the Buyer's then generally
prevailing prices and labor rates. Such repairs or returns shall be for the
account of Seller and Seller shall promptly reimburse Buyer for the amounts
thereof in excess of reserves for such items included in the Closing Balance
Sheet.
10.8 Seller Services. The Seller will cooperate with reasonable
---------------
requests of the Buyer following the date of this Agreement and post-closing,
including providing to Buyer reasonable access to certain employees, and
equipment and facilities set forth on Schedule 1.1 attached hereto, that are
useful to the Buyer in the Business. From time to time, at the Buyer's request,
the Seller may make available such employees and furnish the use of such
equipment and facilities to the Buyer at a price equal to Seller's cost plus a
fifteen percent profit.
11. Termination of Agreement
------------------------
-24-
<PAGE>
11.1 Termination by Lapse of Time. This Agreement shall terminate at
----------------------------
5:00 p.m., E.S.T. on June 11, 1999, if the transactions contemplated hereby have
not consummated, unless such date is extended by the written consent of all of
the parties hereto.
11.2 Termination by Agreement of the Parties. This Agreement may be
---------------------------------------
terminated by the mutual written agreement of the parties hereto. In the event
of such termination by agreement, the Buyer shall have no further obligation or
liability to the Seller under this Agreement and the Seller shall have no
further obligation or liability to the Buyer under this Agreement.
11.3 Termination by Reason of Breach. This Agreement may be
-------------------------------
terminated by the Seller, if at any time prior to the Closing there shall occur
a breach of any of the representations, warranties or covenants of the Buyer or
the failure by the Buyer to perform any condition or obligation hereunder, and
may be terminated by the Buyer, if at any time prior to the Closing there shall
occur a breach of any of the representations, warranties or covenants of the
Seller or the failure of the Seller to perform any condition or obligation
hereunder.
12. Transfer and Sales Tax
----------------------
12.1 Notwithstanding any provisions of law imposing the burden of
such taxes on the Seller or the Buyer, as the case may be, the Seller shall be
responsible for and shall pay (a) all sales, use and transfer taxes, and (b) all
governmental charges, if any, upon the sale or transfer of any of the Assets
hereunder. If the Seller shall fail to pay such amounts on a timely basis, the
Buyer may pay such amounts to the appropriate governmental authority or
authorities, and the Seller shall promptly reimburse the Buyer for any amounts
so paid by the Buyer.
13. Brokers
-------
13.1 For the Seller. The Seller represents and warrants that it has
--------------
not engaged any broker or finder or incurred any liability for brokerage fees,
commissions or finder's fees in connection with the transactions contemplated by
this Agreement. The Seller agrees to indemnify and hold harmless the Buyer
against any claims or liabilities asserted against it by any person acting or
claiming to act as a broker or finder on behalf of the Seller.
13.2 For the Buyer. The Buyer agrees to pay all fees, expenses and
-------------
compensation owed to any person, firm or corporation who has acted in the
capacity or broker or finder on its behalf in connection with the transactions
contemplated by this Agreement. The Buyer agrees to indemnify and hold harmless
the Seller against any claims or liabilities asserted against it by any person
acting or claiming to act as a broker or finder on behalf of the Buyer.
14. Notices
-------
Any notices or other communications required or permitted hereunder
shall be sufficiently given if delivered personally or sent by telex, federal
express, registered or certified mail, postage prepaid, addressed as follows or
to such other address of which the parties may have given notice:
-25-
<PAGE>
To the Seller: Phytotech, Inc.
One Deer Park Drive, Suite I
Monmouth Junction, NJ 08852
Office: 732/438-0900
Fax: 732/438-1209
Attention: Burt D. Ensley, President
With a copy to: Ravin, Greenberg & Marks, P.A.
101 Eisenhower Parkway
Roseland, NJ 07068
Office: 973/226-1500
Fax: 973/226-6888
Attention: Larry Lesnik, Esq.
To the Buyer: Edenspace Systems Corporation
11604 Rolling Meadow Drive
Great Falls, VA 22066
Office: 703/406-0036
Fax: 703/406-0036
Attention: Bruce W. Ferguson, President
With a copy to: Hale and Dorr LLP
1455 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Office: 202/942-8400
Fax: 202/942-8484
Attention: David Sylvester, Esq.
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally; or (b) three
business days after being sent, if sent by registered or certified mail.
15. Successors and Assigns
----------------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, including any
trustee appointed by the Bankruptcy Court, except that the Buyer and the Seller
may not assign their respective obligations hereunder without the prior written
consent of the other party; provided, however, that the Buyer may assign this
Agreement, and its rights and obligations hereunder, to a subsidiary or
affiliate. Any assignment in contravention of this provision shall be void. No
assignment shall release the Buyer from any obligation or liability under this
Agreement.
16. Entire Agreement; Amendments; Attachments
-----------------------------------------
(a) This Agreement, all Schedules and Exhibits hereto, and all
agreements and instruments to be delivered by the parties pursuant hereto
represent the entire
-26-
<PAGE>
understanding and agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior oral and written and all
contemporaneous oral negotiations, commitments and understandings between such
parties. The Buyer and the Seller, by the consent of their respective Boards of
Directors, or officers authorized by such Boards, may amend or modify this
Agreement, in such manner as may be agreed upon, by a written instrument
executed by the Buyer and the Seller.
(b) If the provisions of any Schedule or Exhibit to this
Agreement are inconsistent with the provisions of this Agreement, the provision
of the Agreement shall prevail. The Exhibits and Schedules attached hereto or to
be attached hereafter are hereby incorporated as integral parts of this
Agreement.
17. Expenses
--------
Except as otherwise expressly provided herein, the Buyer and the
Seller shall each pay their own expenses in connection with this Agreement and
the transactions contemplated hereby.
18. Legal Fees
----------
In the event that legal proceedings are commenced by the Buyer against
Seller, or by the Seller against the Buyer, in connection with this Agreement or
transactions contemplated hereby, the party or parties which do not prevail in
such proceedings shall pay the reasonable attorneys' fees and other costs and
expenses, including investigation costs, incurred by the prevailing party in
such proceedings.
19. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
of the State of Delaware.
20. Section Headings
----------------
The section headings are for the convenience of the parties and in no
way alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
21. Severability
------------
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
22. Counterparts
------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which shall be one and the
same document.
-27-
<PAGE>
23. Third Party Beneficiaries
-------------------------
Nothing in this Agreement, expressed or implied, is intended or shall
be construed to confer upon or give to any person, firm, corporation, or legal
entity, other than the parties, any rights, remedies, or other benefits under or
by reason of this Agreement.
[Remainder of Page Intentionally Left Blank]
-28-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
SELLER:
PHYTOTECH, INC., D.I.P.
ATTEST:
/s/Alexander Baltovski /s/Burt D. Ensley
- ---------------------- --------------------------------
Alexander Baltovski, Burt D. Ensley,
Chief Financial Officer President
BUYER:
EDENSPACE SYSTEMS CORPORATION
ATTEST:
/s/Heather R. Sandiford /s/Bruce W. Ferguson
- ----------------------- --------------------------------
Heather R. Sandiford, Bruce W. Ferguson,
Treasurer President
-29-
<PAGE>
Schedule 1.1
Excluded Assets
I. Nutriceutical Inventory
A. 250kg of selenium
B. 250kg of chronium
C. Approximately 10,000 lbs. of Indian Mustard seeds stored at CD
Warehouse, 1818 Minnesota Avenue, Billings, Montana 59101
D. Approximately 200 lbs. of Indian Mustard seeds stored at Phytotech
E. Seeding trays, racks, timers, tools and other materials relating to
mutriceutical production
II. Computers
A. All computers relating to the administrative functions of Phytotech
1. Gateway GP6-300 used by Alex Baltovski
2. Gateway GP6-233 used by Kathy Makowski
3. Gateway Laptop
(These are all leased.)
4. Proteva computer
5. Printers and hookups (HP Laser6P, Apple printer, HP Ink Jet
855ce)
6. Apple Macintosh computers
7. Gateway P5-133 in Lab
8. Compaq with Packard Bell monitor
III. A. Patents Related to Nutritional Supplements
Title Patent Number Country
- ----- ------------- -------
NONE
B. Applications Related to Nutritional Supplements
Title Application Number Country
- ----- ------------------ --------
Nutritional Supplements 09/041,355 USA
Nutritional Supplements 60/089,821 USA
Nutritional Supplements US99/05433 WIPO PCT
Nutritional Supplements 09/187,608 USA
<PAGE>
IV. Other
A. All furniture and fixtures
B. HPLC
C. Roof Greenhouse
D. Ovens in the Labs
E. ICP and computer
F. Copy machine
G. File cabinets used to store nutriceutical or administrative files
H. Overhead projection equipment, television and VCR
I. Telephone systems
J. Refrigerators and microwave ovens
K. All leasehold improvements
L. Net operating losses and other tax attributes of the Seller
M. Proceeds of any claim, cause of action, lawsuit, claim or demand
including but not limited to those arising under the Bankruptcy
Code Sections 544, 547, 548 and 550.
Total Value on the Seller's Books: Approximately $90,000
- ---------------------------------
<PAGE>
Schedule 2.3
Third Party Consents
I. The Seller's Board of Directors
II. United States Bankruptcy Court for the District of New Jersey
III. The entities listed on Schedule 2.15 Contracts hereto as required pursuant
to the applicable contracts, which consents may be obtained through the
Bankruptcy Order on notice to the parties listed thereon.
<PAGE>
Schedule 2.4(ii)
Permitted Encumbrances
Exclusive License Agreement, dated March 16, 1999, between Phytotech, Inc.
and Consolidated Growers & Processors, Inc. for the exclusive use of hemp.
Consolidated Growers & Processors, Inc.
P.O. Box 2228
Monterey, CA 93942-2228
Attention: Ms. Susan. Brana (888-333-4246)
<PAGE>
Schedule 2.4(i)
Encumbrances
Secured Lien Holders:
- --------------------
1. Burt P. Ensley
2. Philip J. Whitcome
3. Abraham H. Nechemie
4. Union D'Etudes et D'Investissements
5. Milton C. Dunsey and Donna M. Dunsey
6. Allison Gushee Molkenthin & Steve Mark Molkenthin
7. Teruko Terry Miyamoto
8. Joseph Gery & Karen M. Gery
9. William Toshio Matsuyama
10. Harold E. Anderson
11. Frank Martusciello
12. Charles Beals
13. William Lightbody
14. Arthur Gaucher & Claire Gaucher
15. Samuel P. Willits
16. Seymour Wasserstrum
17. Gerard C. Smith & Michael G. Smith
18. Carl M. Smith
19. John K. Lingo
20. Dave Pollak
21. H. Richard Butker & Judith M. Butker
22. Jon R. Lind
23. James B. Douglas
24. William C. Gates
25. David L. Spence
26. John R. Manis, M.D. & John R Manis, P.C.
27. Watts Investments, Inc.
28. Christina Tranberg
29. Ron Tepner and Joy Tepner
<PAGE>
Schedule 2.6
Undisclosed Liabilities
None.
<PAGE>
Schedule 2.8
Insurance
1. United Capital Insurance - Product and General Liability
Szerlip & Co., Inc. 288 Main Street, Millburn, New Jersey 07041
2. Pemequid - Workers Comp
390 Rt. 10, W. Millbrook Pk N., Randolph, New Jersey 07869
3. Unum - Disability
38223 Treasury Center, Chicago, Illinois 60694-3200
4. Standard Insurance - Life
P.O. Box 5705, Portland, Oregon 97228-5705
5. Nylcare Health Plans
One Liberty Plaza, Mail Drop 11-1, New York, New York 10006
<PAGE>
Schedule 2.9
Inventory
General lab equipment, chemicals, irrigation, timers, tools and other materials
relating to phytoremediation.
1-(10 cell) rhizofiltration system
5-6 50 lb bags Piper Sudan grass
9 50 lb bags of Sorghum Sudan
3 50 lb bags of sunflower (cv. 187)
5, 25-50 lb bags misc. Brassica species/cultivars
2- 55 gal drums of Triton-X 100
2- 55 gal drums (one open) Acetic Acid
1 55 gal drum KEDTA (less than 1/2 full)
1 partial container of HEDTA powder
rototiller (small)
1 large roll of burlap
1 roll of heavy, coated fence
10 50 lb bags of zinc sulfate
7 50 lb bags of manganese
1 50 lb bag Ferrous sulfate (partial bag)
3 50 lb bags of citric acid
10+ bags of pelletized lime
Approximately 5,000 lbs of Indian Mustard seeds stored at CD Warehouse,
1818 Minnesota Avenue, Billings, Montana 59101
Total Value on the Seller's Books: Approximately $25,000
- ---------------------------------
<PAGE>
Schedule 2.10
Equipment and Fixed Assets
Atomic Absorption Spectrometer 3100
Planting drill (purchased from Stanton Equipment, stored with EnviroScopes)
Soil Library
Nitons (2)
1 battery charger
1 postal scale
50+ Irrometer soil moisture meters, various sizes
50+ Irrometer lysimeters (for sampling of water in soil), various sizes
25 (Approx.) shelving units
6 back pack sprayers
2 gas cans
1 spreader
2 pumps
3 hard rakes
1 large rake
2 soft rakes
3 pitch forks
3 small shovels
4 large tarps
2 electric hedge trimmers
miles of hose (various sizes)
boxes and boxes of pvc pipes, couplers, "Ts", connectors, etc.
Misc. tolls, pvc glue, cutters, hand pruners, marking flags, etc.
2- pancake geiger counters
50+ 1' x 2' black rhizofiltration trays
PC's for phytoremediation employees
All Computers relating to the Business
File cabinets used to store files relating to the Business
All other equipment and fixed assets used in the Business
Total Value on the Seller's Books: Approximately $25,000
- ---------------------------------
<PAGE>
Schedule 2.11
Change in Condition
None.
<PAGE>
Schedule 2.13
Accounts Receivable
See attached list of current Accounts Receivable.
<PAGE>
PHYTOTECH, INC.
A/R Aging Summary
As of May 14, 1999
<TABLE>
<CAPTION>
Current 1-30 31 - 61 - *90 TOTAL
--------- --------- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
ABCO Laboratories, Inc. 0.00 0.00 0.00 0.00
ARMY SBIR
97028 42,765.20 0.00 0.00 0.00 0.00 42,765.20
--------- --------- ---- ---- ---- ---------
Total ARMY SBIR 42,765.20 0.00 0.00 0.00 0.00 42,765.20
Carlson Environmental, Inc. 0.00 13,000.00 0.00 0.00 0.00 13,000.00
DOE 0.00 0.00 0.00 0.00
DOE SBIR 0.00 0.00 0.00 0.00
Ecological Formulae 0.00 0.00 0.00 0.00
FLORIDA STATE UNIVERSITY
09002 0.00 11,000.00 0.00 0.00 0.00 11,000.00
--------- --------- ---- ---- ---- ---------
Total FLORIDA STATE UNIVERSITY 0.00 11,000.00 0.00 0.00 0.00 11,000.00
VERSAR, INC. 0.00 6,000.00 0.00 0.00 0.00 6,000.00
VARIOUS-R 0.00 0.00 0.00 0.00 0.00
--------- --------- ---- ---- ---- ---------
TOTAL 42,765.02 38,008.00 0.00 0.00 0.00 72,765.20
========= ========= ==== ==== ==== =========
</TABLE>
* Greater than
<PAGE>
Schedule 2.15
Contracts
1. SBIR phase II with DOD
US Army ARDEC
Building 321
Picatinny Arsenal, NJ 07806-5000
Attention: Mr. Per Arienti AMSRA AR UEA
973/724-3544
2. Dredge Spoils Project
Rutgers, The State University
Biotech Center for Agricultural & Environmental Studies
59 Dudley Road
Foran Hall Cook College
New Brunswick, NJ 08901-8250
Attention: MS. Judy Snow, Mr. Roger Grillo
732/932-8165
3. Florida State University
Institute for Central & Eastern European Cooperative
Environmental Research.
Tallahassee, FL 32310-3700
Attention: Mr. John Moerlins
850/222-3249
4. Fort Greely
Bristol Environmental Services Corporation
201 - East 56th Avenue, Suite 301
Anchorage, Alaska 99518
Attention: Mr. Michael Torpy
907/563-0013
5. Fort Dix
Concurrent Technologies Corporation
1450 Scalp Avenue
Johnstown, PA 15904
Attention: Ms. Lee Ann Unger
814/269-2481
6. Brookhaven National Laboratory
Long Island, NY
<PAGE>
7. Tampa Electric
Tampa Electric Company
702 Franklin Street, Plaza 3
Tampa, FL 33602
Attention: Ms. Susan Mueller
8. Ensign Bickford
10 Mill Pond Lane
Simsbury, CA 06070-0007
Attention: Ms. Dorothy T. Hammett
860/843-2843
9. TRC Environmental
Danbury, CT
Attention: Ms. Paola
10. Chicago Carlson Environmental
Carlson Environmental, Inc.
312 West Randolph Street
Chicago, IL 60606
Attention: Mr. Edward E. Garske, CHMM VP Operations
11. Versar (Sacramento)
Versar, Inc.
7844 Madison Avenue
Suite 167
Fair Oaks, CA 95628
Attention: Mr. Tim Berger/Mr. Larry Klieneke
12. Conestoga Rovers & Associates
11100 Metro Airport Center Drive
Suite 160
Romulus, MI 48174
Attention: Mr. Frederick W. Blicke, P.E.
734/942-0909
13. Consolidated Growers & Processors, Inc.
P.O. Box 2228
Monterrey, CA 93942-2228
Attention: Ms. Susan Brana
888/333-4246
[See Attached Revenue Sheet].
<PAGE>
Schedule 2.19
Customer List
1. SBIR phase II with DOD
US Army ARDEC
Building 321
Picatinny Arsenal, NJ 07806-5000
Attention: Mr. Per Arienti AMSRA AR UEA
973/724-3544
2. Dredge Spoils Project
Rutgers, The State University
Biotech Center for Agricultural & Environmental Studies
59 Dudley Road
Foran Hall-Cook College
New Brunswick, NJ 08901-8250
Attention: Ms. Judy Snow, Mr. Roger Grillo
732/932-8165
3. Florida State University
Institute for Central & Eastern European Cooperative
Environmental Research
Tallahassee, FL 32310-3700
Attention: Mr. John Moerlins
850/222-3249
4. Adak Project
Bristol Environmental Services Corporation
201 - East 56th Street, Suite 301
Anchorage, Alaska 99518
Attention: Mr. Michael Torpy
907/563-0013
5. Fort Dix
Concurrent Technologies Corporation
1450 Scalp Avenue
Johnstown, PA 15904
Attention: Ms. Lee Ann Unger
814/269-2481
6. MSE, Inc.
P.O. Box 4078
Butte, Montana 59702
<PAGE>
7. General Electric
P.O. Box 780, M/C J-26
Wilmington, NC 28402
Tampa, FL 33602
Attention: Ms. Susan Mueller
8. Magic Marker
Rutgers, The State University
Biotech Center for Agricultural & Environmental Studies
59 Dudley Road
Foran Hall- Cook College
New Brunswick, NJ 08901-8250
Attention: Ms. Judy Snow, Mr. Roger Grillo
732/932-8165
9. Parsons Engineering
8000 Center Park Drive
Suite 200
Austin, TX 78754
Attention: Ms. Roxanne Powers
10. Norfolk Southern Corporation
Environmental Protection Department
110 Franklin Road S.E.
Roanoke, VA 24042-0013
11. Ensign Bickford
Ensign Bickford
10 Mill Pond Lane
Simsbury, CA 06070-0007
Attention: Ms. Dorothy T. Hammnett
860/843-2843
12. Conestoga Rovers & Associates
11100 Metro Airport Center Drive
Suite 160
Romulus, MI 48174
Attention: Mr. Frederick W. Blicke, P.E.
734/942-0909
13. Consolidated Growers & Processors, Inc.
P.O. Box 2228
Monterrey, CA 93942-2228
Attention: Ms. Susan Brana
888/333-4246
<PAGE>
14. United Technologies, Inc.
M/S 503
Hartford, CT 06101
Attention: Mr. Rick Meyer
15. Tampa Electric
Tampa Electric Company
702 Franklin Street, Plaza 3
Tampa, FL 33602
Attention: Ms. Susan :Mueller
16. USDA
Department of Health & Human Services
Grants Management Branch
Cooperative State Research Education and Extension Service - USDA
Stop 7745
Washington, DC 20250-2245
Attention: Mr. Charles F. Cleland
17. Roy F. Westin, Inc.
2125 University Park Drive, Suite 270
Okemos, Michigan 48864-397474
Attention: Mr. Brian Sedgewick
18. Chicago Carlson Environmental
Carlson Environmental, Inc.
312 West Randolph Street
Chicago, IL 60606
Attention: Mr. Edward E. Garske, CHVM VP Operations
19. Versar (Sacramento)
Versar, Inc.
7844 Madison Avenue
Fair Oaks, CA 95628
Attention: Mr. Tim Berger / Mr. Larry Klieneke
20. Versar, Inc.
6850 Versar Center
Springfield, VA 22151
703/750-3000
<PAGE>
Schedule 2.20
Suppliers
1. Chemplex Chemicals, Inc.
International Blvd., Suite 400
Mahwah, NJ 07495-N00
Attention: Mr. Neil Mahr
201/512-8788
2. Fisher Scientific
52 Fadem Road
Springfield, NJ 07081
800/766-7000
3. McMaster Carr
Dayton, New Jersey
Attention:
732/329-6666
4. VWR Scientific Products
P.O. Box 640169
Pittsburgh, PA 15264-0169
Attention:
Telephone:
5. Sigma Aldrich
P.O. Box 18817B
St. Louis, MO 63160
Attention:
800/521-8956
Subcontractors
1. Enviroscapes
P.O. Box 1262
Woodbridge, NJ 07095
Attention:
732/636-6407
2. Greenlane
Lambs Road
Sewell, New Jersey
Attention: Mr. Eric Eisenhart
609/589-4461
<PAGE>
3. Advanced Environmental Technical Services
3100 Hedley Street
Philadelphia, PA 19137
Attention:
215/289-3700
<PAGE>
Schedule 2.21
Prepayments and Deposits
$45,000 Prepayment by Tampa Electric Co.
<PAGE>
Schedule 2.22
Intangible Property
I. Patents
A. Patents Owned by Phytotech Related to Phytoremediation
<TABLE>
<CAPTION>
Title Patent Number Country
- ----- ------------- -------
<S> <C> <C>
Method for Removing Soluble Metals from 5,393,426 USA
an Aqueous Phase
Phytoremediation of Metals 5,364,451 USA
Phytoremediation of Metals 5,785,735 USA
Method for Removing Soluble Metals from 678262 Australia
an Aqueous Phase
Method for Removing Soluble Metals from 692162 Australia
an Aqueous Phase
</TABLE>
B. Patents Related to Phytoremediation Owned by Rutgers Which are the
Subject of the Exclusive License Agreement Between Phytotech, Inc. and Rutgers,
The State University of New Jersey Dated May, 1997, of Which Phytotech's
Interest is Being Assigned to Edenspace.
<TABLE>
<CAPTION>
Title Patent Number Country
- ----- ------------- -------
<S> <C> <C>
Method for Removing Soluble Metals from 5,876,484 USA
an Aqueous Phase
</TABLE>
C. Patents Related to Phytoremediation Jointly Owned by Phytotech and
Rutgers Which are Subject to the Exclusive License Agreement Between Phytotech,
Inc. and Rutgers, The State University of New Jersey Dated May, 1997 at Reduced
Royalty Rates Pursuant to the Bankruptcy Stipulation and Consent Order Between
Phytotech, Edenspace, and Rutgers, The State University of New Jersey, of Which
Phytotech's Interest is Being Assigned to Edenspace.
<TABLE>
<CAPTION>
Title Patent Number Country
- ----- ------------- -------
<S> <C> <C>
Phytorernediation of Metals Using Seedlings 5,728,300 USA
Phytoremediation of Metals Using Seedlings 5,853,576 USA
</TABLE>
<PAGE>
D. Patent Applications Owned by Phyiotech Related to Phytoremediation
<TABLE>
<CAPTION>
Title Patent Number Country
- ----- ------------- -------
<S> <C> <C>
Method for Removing Soluble Metals 950678 Belarus
from an Aqueous Phase
Method for Removing Soluble Metals 2,163,666 Canada
from an Aqueous Phase
Method for Removing Soluble Metals 2,163,665 Canada
from an Aqueous Phase
Method for Removing Soluble Metals 94919315.5 European Patent
from an Aqueous Phase Office
Method for Removing Soluble Metals 94920059.6 European Patent
from an Aqueous Phase Office
Method for Removing Soluble Metals 109653 Israel
from an Aqueous Phase
Method for Removing Soluble Metals 944092 Mexico
from an Aqueous Phase
Method for Removing Soluble Metals 96100539 Russian
from an Aqueous Phase Federation
Method for Removing Soluble Metals 95125101 Ukraine
from an Aqueous Phase
Phytoremediation of Metals 2,163,665 Canada
Phytoremediation of Metals 109654 Israel
Phytoremediation of Metals 944088 Mexico
Inducing Hyperaccumulation of Metals 24242/97 Australia
in Plant Shoots
Inducing Hyperaccumulation of Metals 2,249,353 Canada
in Plant Shoots
Inducing Hyperaccumulation of Metals 97919929.6 European Patent
in Plant Shoots Office
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Inducing Hyperaccumulation of Metals 126312 Israel
in Plant Shoots
Inducing Hyperaccumulation of Metals 987735 Mexico
in Plant Shoots
Inducing Hyperaccumulation of Metals 98119145 Russian Federation
in Plant Shoots
Inducing Hyperaccumulation of Metals 98105528 Ukraine
in Plant Shoots
</TABLE>
E. Patent Applications Owned by Rutgers Related to Phytoremediation Which
are the Subject of the Exclusive License Agreement Between Phytotech, Inc. and
Rutgers, The State University of New Jersey Dated May, 1997, of Which
Phytotech's Interest is Being Assigned to Edenspace.
<TABLE>
<CAPTION>
Title Patent Number Country
- ----- ------------- -------
<S> <C> <C>
Conversion of Metal Oxidation States 08/333,143 USA
through Phytoreduction
Method for Removing Soluble Metals EA-97-0328U Eurasian Patent
from an Aqueous Phase Office
Method for Removing Soluble Metals 96912794.3 European Patent
from an Aqueous Phase Office
Method for Removing Soluble Metals P0325630 Poland
from an Aqueous Phase
Method for Removing Soluble Metals 08/443,154 USA
from an Aqueous Phase
</TABLE>
F. Patent Applications Related to Phytoremediation Jointly Owned by
Phytotech and Rutgers Which are Subject to the Exclusive License Agreement
Between Phytotech, Inc. and Rutgers, The State University of New Jersey Dated
May, 1997 at Reduced Royalty Rates Pursuant to the Bankruptcy Stipulation and
Consent Order Between Phytotech, Edenspace, and Rutgers, The State University of
New Jersey, of Which Phytotech's Interest is Being Assigned to Edenspace.
<TABLE>
<CAPTION>
Title Patent Number Country
- ----- ------------- -------
<S> <C> <C>
Inducing Hyperaccumulation. of Metals 08/621,138 USA
in Plant Shoots
</TABLE>
<PAGE>
60/027,127
G. Patent Applications Subject to Determination of Ownership Through
Arbitration Proceedings Under Section 0(5) of the Bankruptcy Stipulation and
Consent Order Between Phytotech, Edenspace, and Rutgers, The State University of
New Jersey.
Title Patent Number Country
- ----- ------------- -------
Phytoremediation of Metals 09/040,755 USA
II. Other licenses to use patents related to the Business
III. Databases, including databases of field and greenhouse results, related to
the Business
IV. Trade secrets related to the Business
V. Proposals, reports, planning documents, applications, correspondence,
software, computer files, related to the Business
VI. The name, service mark and trademark "PHYTOTECH"
<PAGE>
Exhibit 8.3
-----------
PATENT CROSS-LICENSE AGREEMENT
Between
EDENSPACE SYSTEMS CORPORATION
and
PHYTOTECH, INC, D.I.P.
-i-
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
PRELIMINARY STATEMENT..................................................... 1
1. Definitions..................................................... 1
1.1 Affiliate.................................................. 1
1.2 Nutriceutical Patents...................................... 2
1.3 Phytoremediation Patents................................... 2
2. Grant........................................................... 2
2.1 License-Phytoremediatoin Patents........................... 2
2.2 License-Nutriceutical Patents.............................. 2
3. Representations and Warranties.................................. 3
3.1 By Seller.................................................. 3
3.2 By Buyer................................................... 3
4. Term of the Agreement; Default and Termination.................. 4
4.1 Term....................................................... 4
5. Miscellaneous................................................... 4
5.1 Assignment................................................. 4
5.2 Governing Law.............................................. 4
5.3 Counterparts............................................... 4
5.4 Waiver..................................................... 4
5.5 Entire Agreement........................................... 5
5.6 Severability............................................... 5
5.7 Notices.................................................... 5
5.8 No Joint Venture........................................... 6
5.9 Further Assurances......................................... 6
5.10 Trademarks................................................. 6
5.11 Attorneys' Fees............................................ 7
5.12 Headings................................................... 7
5.13 Export Control............................................. 7
</TABLE>
-i-
<PAGE>
PATENT CROSS-LICENSE AGREEMENT
------------------------------
This Patent Cross-License Agreement (the "Agreement") is made and
entered into effective as of May 24, 1999 (the "Effective Date"), by and between
Edenspace Systems Corporation, a Delaware corporation with its principal office
at 11720 Sunrise Valley Drive, Reston, Virginia 20191 ("Buyer"), and Phytotech,
Inc., D.I.P., a New Jersey corporation with its principal office at One Deer
Park Drive, Suite I, Monmouth Junction, New Jersey 08852 ("Seller") in its
capacity as Debtor-in-Possession in Bankruptcy Case No. 99-550905/KF pending in
the U.S.B.C. for the District of New Jersey (the "Bankruptcy Court").
PRELIMINARY STATEMENT
---------------------
Buyer owns or has the right to license the Phytorernediation Patents
(as hereinafter defined) which pertain to phytoremediation and, possibly, to
nutritional supplement products, subject to the terms and conditions of this
Agreement. Seller owns or has the right to license the Nutriceutical Patents
(as hereinafter defined) which pertain to nutritional supplement products, and,
possibly to phytoremediation subject to the terms and conditions of this
Agreement. Buyer desires to license, and Seller desires to obtain a license to
use, the Phytoremediation Patents. Seller desires to license, and Buyer desires
to obtain a license to use, the Nutriceutical patents.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Definitions
1.1 "Affiliate" means an incorporated or unincorporated entity, wherever
----------
organized, which controls, is controlled by or is under common control with
Buyer or Seller as the context
<PAGE>
of usage indicates. For this purpose, "control" means the direct or indirect
legal, equitable or factual power to select a majority of the members of, or
otherwise to direct the decisions made by, the directors or other governing
authorities of an organization (determined without regard to events of default
of fiduciary obligations which might limit or restrict exercise of such power).
1.2 "Nutriceutical Patents" means every United States and foreign patent
----------------------
that is owned by Seller, or which Seller has the right to license, as well as
all patents issued on or claiming priority from an application filed prior to
ninety (90) days after the Effective Date, including but not limited to any
later filed continued prosecution, continuations, substitutions, divisionals
thereof, and any reissues or reexaminations of such patents. The Nutriceutical
Patents include, but are not limited to, the patents, and any patents issuing
from any patent application, listed in Schedule A.
1.3 "Phytoremediation Patents" means every United States and foreign
------------------------
patent that is owned by Buyer or which Buyer has the right to license (but
excluding patents that are solely or jointly owned by Rutgers, the State
University of New Jersey) as a result of the Asset Purchase Agreement between
Buyer and Seller dated May 24, 1999. The Phytoremediation Patents include, but
are not limited to, the patents and any patents issuing from any patent
application listed in Schedule B.
2. Grant
2.1 License-Phytoremediation Patents. Buyer grants to Seller under the
--------------------------------
Phytoremediation Patents an exclusive, irrevocable, transferable, royalty-free,
worldwide license, with the right to sublicense, to make, have made, use,
import, offer for sale, sell, have sold and otherwise dispose of, any and all
products and services anywhere in the world solely for purposes directly related
to nutritional supplements.
-2-
<PAGE>
2.2 License-Nutriceutical Patents. Seller grants to Buyer under the
-----------------------------
Nutriceutical patents, an exclusive, irrevocable, transferable, royalty-free,
worldwide license with the right to sublicense, to make, have made, use, import,
offer for sale, sell, have sold and otherwise dispose of, any and all products
and services anywhere in the world solely for purposes directly related to
phytoremediation.
3. Representations and Warranties
3.1 By Seller. Seller represents and warrants to Buyer as follows:
------
3.1.1 Subject to Bankruptcy Court approval, the execution and
delivery of this Agreement on behalf of Seller, and Seller's performance of its
obligations under this Agreement, have been duly authorized by all necessary
corporate action and will not violate any provision of the charter or by-laws of
Seller.
3.1.2 Subject only to Bankruptcy Court approval and any other
required governmental consents or approvals, Seller's performance of its
obligations under this Agreement is not in conflict with, and will not result in
a breach of or constitute a default under, any other contract, instrument, rule
of law or order of any court or government agency to which Seller is a party or
by which Seller or its property is bound, nor will it result in the imposition
or creation of any lien on any property owned by Seller.
3.1.3 Seller has given all required notices and obtained all
licenses, permits, consents, approvals and authorizations from third parties as
are required in order to enable Seller to perform its obligations under this
Agreement, including all consents and approvals required to permit it to license
the Nutriceutical Patents and to enable Buyer to enjoy all the rights and
benefits thereof.
3.2 By Buyer. Buyer represents and warrants to Seller as follows:
--------
-3-
<PAGE>
3.2.1 The execution and delivery of this Agreement on behalf of Buyer
and Buyer's performance of its obligations under this Agreement, have been
authorized by all necessary corporate action and will not violate any provision
of the charter or by-laws of Buyer.
3.2.2 Subject only to any required governmental consents or
approvals, Buyer's performance of its obligations under this Agreement is not in
conflict with, and will not result in a breach of or constitute a default under,
any contract, instrument, rule of law or order of any court or government agency
to which Buyer is a party or by which Buyer is bound, nor will it result in the
imposition or creation of any lien on any property owned by Buyer.
4. Term of the Agreement; Default and Termination
4.1 Term. This Agreement and the rights, licenses and privileges granted
----
hereunder shall extend for the entire unexpired life of each patent licensed
pursuant to this Agreement. Notwithstanding the foregoing, upon the expiration,
invalidation or unenforceability of any patent included in the Phytorernediation
Patents or the Nutriceutical Patents, all rights and obligations under this
Agreement shall terminate with respect to that particular patent.
5. Miscellaneous
5.1 Assignment. This Agreement may not be assigned or otherwise
----------
transferred by Buyer or Seller without the prior written consent of the other
party, which shall not be unreasonably withheld or delayed, except that it may
be assigned to an acquiror of all or substantially all the assets, business or
stock of a party. Any other attempted assignment or transfer, by operation of
law or otherwise, without such consent shall be void.
5.2 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of Delaware without regard to its
conflicts of law provisions.
-4-
<PAGE>
5.3 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement, and a signature of any party to any counterpart shall
be deemed to be the signature to any and may be appended to any other
counterpart.
5.4 Waiver. Any waiver of a right under this Agreement must be in writing
------
executed by or on behalf of the waiving party. Any waiver of a particular
default shall constitute a waiver of such default only and not of any other
default by the nonwaiving party (whether similar or dissimilar in nature). Any
waiver of a specific right or remedy under this Agreement shall constitute a
waiver or such right only and not of any other remedy of the waiving party under
this Agreement.
5.5 Entire Agreement. This Agreement, and the Asset Purchase Agreement,
----------------
all Schedules and Exhibits thereto and all agreements and instruments to be
delivered by the parties pursuant thereto represent the entire understanding
between the parties hereto with respect to the subject matter hereof and
supersede all prior oral and written and all contemporaneous oral negotiations,
commitments and understandings between such parties.
5.6 Severability. If any provision of this Agreement or the application
------------
thereof to any person or circumstances shall, for any reason and to any extent,
be invalid or unenforceable, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby, but rather shall be enforced to the greatest extent permitted by law.
5.7 Notices. Any notice required or desired to be given by a party hereto
-------
in connection with or arising out of this Agreement shall be in writing and,
except as otherwise provided below, shall be deemed to have been given either
(i) when delivered by private courier
-5-
<PAGE>
service with receipt of delivery or (ii) five (5) days after being deposited in
certified or registered mail, postage prepaid, to the parties at the address set
forth below or at such other address as a party may designate by written notice
to the other party from time to time.
If to Buyer to: Phytotech, Inc., or its successor in interest
One Deer Park Drive, Suite I
Monmouth Junction, NJ 08852
Telephone No. (732) 438-0900
Facsimile No. (732) 438-1209
Attention: Dr. Burt Ensley
With a copy to: Ravin, Greenberg and Marks, P.C.
101 Eisenhower Parkway
Roseland, NJ 07068
Telephone No. (973) 226-1500
Facsimile No. (973) 226-6888
Attention: Larry Lesnik, Esq.
If to Seller to: Edenspace Systems Corporation
11604 Rolling Meadow Drive
Great Falls, VA 22066
Telephone No. (703) 406-0036
Facsimile No. (703) 406-0036
Attention: Bruce W. Ferguson
With a copy to: Jenner & Block
One IBM Plaza
Chicago, IL 60611
Telephone No. (312) 222-9350
Facsimile No. (312) 527-0484
Attention: Stanley A. Schlitter, Esq.
5.8 No Joint Venture. Nothing contained in this Agreement shall be
-----------------
construed as creating a joint venture or partnership between the parties hereto.
Except as otherwise expressly provided, neither party is by virtue of this
Agreement authorized as an agent, employee or legal representative of the other
party, and their status is, and at all times will continue to be, that of
-6-
<PAGE>
independent contractors with respect to each other. Neither party shall have,
or shall hold itself out as having, any power or authority to bind or commit the
other.
5.9 Further Assurances. Each party agrees to cooperate fully with the
------------------
other party and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested by
the other party, to better evidence and reflect the transactions contemplated
hereby, and to carry into effect the intents and purposes of this Agreement.
5.10 Trademarks. No right is granted by this Agreement to either party to
----------
use any registered or unregistered trademark or trade name of the other party.
5.11 Attorneys' Fees. The prevailing party in any action or proceeding to
---------------
enforce or interpret any part of this Agreement shall be entitled to recover its
reasonable attorneys' fees and costs.
5.12 Headings. Headings and captions are for convenience only and are not
--------
to be used in the interpretation of this Agreement.
5.13 Export Control. Each party will comply with all applicable export
--------------
control laws, restrictions and regulations of any United States or foreign
agency or authority and will not export or re-export or allow the export or re-
export of any product, technology or information it obtains or learns pursuant
to this Agreement (or any direct product thereof) in violation of any such laws,
restrictions or regulations.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
-7-
<PAGE>
EDENSPACE SYSTEMS CORPORATION PHYTOTECH, INC., DIP, or its
successor in interest
By: /s/Bruce W. Ferguson By: /s/Burt D. Ensley
--------------------------- ---------------------------
Bruce W. Ferguson Dr. Burt Ensley, President
-8-
<PAGE>
SCHEDULE A
1.1 PATENTS OWNED BY PHYTOTECH RELATED TO NUTRITIONAL SUPPLEMENTS
Title Patent Number Country
- ----- ------------- -------
NONE
1.2 PATENT APPLICATIONS OWNED BY PHYTOTECH RELATED TO NUTRITIONAL SUPPLEMENTS
Title Application Number Country
- ----- ------------------ -------
Nutritional Supplements 60/089,821 USA
2.1 PATENTS JOINTLY OWNED WITH RUTGERS RELATED TO NUTRITIONAL SUPPLEMENTS
Title Application Number Country
- ----- ------------------ -------
NONE
2.2 PATENT APPLICATIONS JOINTLY OWNED WITH RUTGERS RELATING TO NUTRITIONAL
SUPPLEMENTS
Title Application Number Country
- ----- ------------------ -------
Nutritional Supplements 09/041,355 USA
Nutritional Supplements US99/05433 WIPO PCT
3.1 PATENT APPLICATIONS SUBJECT TO ARBITRATION UNDER 0(5) OF THE STIPULATION
AND CONSENT ORDER BETWEEN PHYTOTECH, EDENSPACE, AND RUTGERS
Title Application Number Country
- ----- ------------------ -------
Nutritional Supplements 09/187,608 USA
<PAGE>
SCHEDULE B
1.1 PATENTS OWNED BY EDENSPACE RELATED TO PHYTOREIVIEDIATION
Title Patent Number Country
- ----- ------------- -------
Method for Removing Soluble 5,393,426 USA
Metals from an Aqueous Phase
Phytoremediation of Metals 5,364,451 USA
Phytoremediation of Metals 5,785,735 USA
Method for Removing Soluble 678262 Australia
Metals from an Aqueous Phase
Method for Removing Soluble 692162 Australia
Metals from an Aqueous Phase
1.2 PATENT APPLICATIONS OWNED BY EDENSPACE RELATED TO PHYTOREIVIEDIATION
Title Application Number Country
- ----- ------------------ -------
Method for Removing Soluble 950678 Belarus
Metals from an Aqueous Phase
Method for Removing Soluble 2,163,666 Canada
Metals from an Aqueous Phase
Method for Removing Soluble 2,163,665 Canada
Metals from an Aqueous Phase
Method for Removing Soluble 94919315.5 European Patent
Metals from an Aqueous Phase Office
Method for Removing Soluble 94920059.6 European Patent
Metals from an Aqueous Phase Office
Method for Removing Soluble 109653 Israel
Metals from an Aqueous Phase
<PAGE>
Title Application Number Country
- ----- ------------------ -------
Method for Removing Soluble 94 4092 Mexico
Metals from an Aqueous Phase
Method for Removing Soluble 96100539 Russian Federation
Metals from an Aqueous Phase
Method for Removing Soluble 95125101 Ukraine
Metals from an Aqueous Phase
Phytoremediation of Metals 2,163,665 Canada
Phytoremediation of Metals 109654 Israel
Phytoremediation of Metals 94 4088 Mexico
Inducing Hyperaccumulation of 24242/97 Australia
Metals in Plant Shoots
Inducing Hyperaccumulation of 2,249,353 Canada
Metals in Plant Shoots
Inducing Hyperaccumulation of 97919929.6 European Patent
Metals in Plant Shoots Office
Inducing Hyperaccumulation of 126312 Israel
Metals in Plant Shoots
Inducing Hyperaccumulation of 987735 Mexico
Metals in Plant Shoots
Inducing Hyperaccumulation of 98119145 Russian Federation
Metals in Plant Shoots
Inducing Hyperaccumulation of 98105528 Ukraine
Metals in Plant Shoots
2.1 PATENT APPLICATIONS SUBJECT TO ARBITRATION UNDER 0(5) OF THE STIPULATION
AND CONSENT ORDER BETWEEN PHYTOTECH, EDENSPACE, AND RUTGERS
Title Application Number Country
- ----- ------------------ -------
Phytoremediation of Metals 09/040,755 USA
-2-
<PAGE>
ASSIGNMENT OF EXECUTORY CONTRACTS AGREEMENT
-------------------------------------------
THIS ASSIGNMENT OF EXECUTORY CONTRACTS AGREEMENT (hereinafter referred to
as this "Agreement"), made this 4th day of June 1999 between Phytotech, Inc.,
D.I.P. a New Jersey Corporation having an address of One Deer Park Drive,
Monmouth Junction, New Jersey 08852 (hereafter the "Assignor") and Edenspace
Systems Corporation, a Delaware Corporation having an address of 11604 Rolling
Meadow Drive, Great Falls, Virginia 22066 (hereafter referred to as "Assignee").
W I T N E S S E T H:
RECITALS:
A. Assignor is a party to certain executory contracts with non-debtor
parties as more particularly described in Schedule 2.19 of a May 24, 1999 Asset
Purchase Agreement between the Assignor and the Assignee, a copy of which
Schedule is attached hereto as Exhibit "A".
B. Assignor filed a voluntary petition in bankruptcy with the United
States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court")
on May 19, 1999 and this Agreement has been expressly authorized by a June 22,
1999 Bankruptcy Court order approving the assumption and assignment of the
aforesaid executory contracts.
NOW, THEREFORE, in consideration of good and valuable consideration,
receipt of which is hereby acknowledged, the parties agree as follows:
1. ASSIGNMENT. Assignor hereby sells, transfers and assigns to Assignee
----------
any and all of Assignor's right, title and interest in, to and under the
executory contracts referenced on attached Exhibit A, which assignment has been
duly authorized by the entry of a Bankruptcy Court Order approving the
Assignor's assumption and assignment thereof.
2. ACCEPTANCE. Assignee hereby accepts the foregoing sale, assignment and
----------
transfer of the executory contracts referenced on attached Exhibit "A" and
agrees to assume all responsibility of the Assignor under such contracts arising
after the date hereof.
BINDING AGREEMENT
-----------------
This Agreement shall be binding upon the successors and assigns of the
parties hereto. The parties agree to execute and deliver such further and
additional instruments and agreements and other documents as may be reasonably
necessary to evidence or carry out the provisions of this Agreement. This
Agreement is made pursuant to the terms, provisions and conditions of the
aforesaid Asset Purchase Agreement between the Assignor and Assignee.
IN WITNESS WHEREOF, each of the parties hereto have caused this Assignment
of Executory Contracts Agreement to be executed as of the date and year first
set forth above.
<PAGE>
Witness:
Assignor: PHYTOTECH, INC., D.I.P.
/s/ By: /s/ Burt D. Ensley
- ------------------------------ ---------------------------------------
Burt D. Ensley, President
Witness: Assignee: EDENSPACE SYSTEMS CORPORATION
/s/ By: /s/ Bruce W. Ferguson
- ------------------------------ ---------------------------------------
Bruce W. Ferguson/President
-2-
<PAGE>
BILL OF SALE
------------
This Bill of Sale dated June ___, 1999 is executed and delivered by
Phytotech, Inc., D. I. P., a New Jersey corporation (the "Seller"), to Edenspace
Systems Corporation, a Delaware corporation (the "Buyer"). All capitalized
words and terms used in this Bill of Sale and not defined herein shall have the
respective meanings ascribed to them in the Asset Purchase Agreement dated May
24, 1999 between the Seller and the Buyer (the "Agreement").
WHEREAS, pursuant to the Bankruptcy Order and the Agreement, the Seller has
agreed to sell, transfer, convey, assign and deliver to the Buyer certain of the
assets and business of the Seller as set forth in the Agreement;
NOW, THEREFORE, for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Seller hereby agrees as
follows:
1. The Seller hereby sells, transfers, conveys, assigns and delivers to
the Buyer, its successors and assigns, to have and to hold forever, the Assets,
including Inventory; the Accounts Receivable; all prepaid expenses, customer
prepayments and other similar assets of the Seller existing on the date hereof,
including the cash represented by such assets; the Contract Rights; all books,
records and accounts, correspondence, production records, technical, accounting,
manufacturing and procedural manuals, customer lists, employment records,
studies, reports or summaries relating to any environmental conditions or
consequences of any operation, present or former, as well as all studies,
reports or summaries relating to any environmental aspect or the general
condition of the Assets and any confidential information which has been reduced
to writing relating to or arising out of the business of the Seller; all rights
of the Seller under express or implied warranties from suppliers of the Seller;
all rights of the Seller under express or implied warranties from suppliers of
the Seller; the Fixed Assets; all of the Seller's right, title and interest in
the Intangible Property and all goodwill associated therewith. Notwithstanding
the foregoing, the Assets to be transferred to the Buyer under this Bill of Sale
shall not include those assets listed on Schedule 1.1 attached to the Agreement,
------------
which is incorporated herein by reference.
2. The Seller hereby covenants and agrees that it will, at the request of
the Buyer and without further consideration, execute and deliver, and will cause
its employees to execute and deliver, such other instruments of sale, transfer,
conveyance and assignment, and take such other action as may reasonably be
necessary to more effectively sell, transfer, convey, assign and deliver to, and
vest in, the Buyer, its successors and assigns, good, clear, record and
marketable title to the Assets hereby sold, transferred, conveyed, assigned and
delivered, or intended so to be, and to put the Buyer in actual possession and
operating control thereof, to assist the Buyer in exercising all rights with
respect thereto and to carry out the purpose and intent of the Agreement.
3. The Seller does hereby irrevocably constitute and appoint the Buyer,
its successors and assigns, its true and lawful attorney, with full power of
substitution, in its name or
<PAGE>
otherwise, and on behalf of the Seller, or for its own use, to claim, demand,
collect and receive at any time and from time to time any and all assets,
properties, claims, accounts and other rights, tangible or intangible, hereby
sold, transferred, conveyed, assigned and delivered, or intended so to be, and
to prosecute the same at law or in equity and, upon discharge thereof, to
complete, execute and deliver any and all necessary instruments of satisfaction
and release.
4. This sale, transfer, conveyance and assignment has been executed and
delivered by the Seller in accordance with the Agreement and is expressly made
subject to those liens, claims or encumbrances which are Permitted Encumbrances.
5. The Seller, by its execution of this Bill of Sale, and the Buyer, by
its acceptance of this Bill of Sale, each hereby acknowledges and agrees that
neither the representations and warranties nor the rights and remedies of any
party under the Agreement shall be deemed to be enlarged, modified or altered in
any way by this instrument.
[Remainder of Page Intentionally Left Blank]
-2-
<PAGE>
IN WITNESS WHEREOF, the Seller and the Buyer have caused this instrument to
be duly executed under seal as of and on the date first above written.
SELLER:
PHYTOTECH, INC., D.I.P,
/s/ Burt D. Ensly
--------------------------------------------
Burt D. Ensley
President
ATTEST: /s/ Alexander Baltovski
------------------------------
Alexander Balfovski
Chief Financial Officer
ACCEPTED:
BUYER:
EDENSPACE SYSTEMS CORPORATION
/s/ Bruce W. Ferguson
- -------------------------------------
Bruce W. Ferguson
President
-3-
