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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1996 Commission file number: 0-14306
INTERCELL CORPORATION
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(Exact name of registrant as specified in its charter)
Colorado 84-0928627
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(State of other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
999 West Hastings Street, Suite 1750
Vancouver, B.C., Canada, V6C 2W2
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(Address and zip code of principal executive office)
Registrant's telephone number, including area code: (604) 684-1533
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of the close of trading on December 20, 1996, there were 17,364,750
common shares outstanding, 10,135,891 of which were held by non-affiliates. The
aggregate market value of the non-affiliated common shares, based on the average
closing bid and asked prices on December 20, 1996, was approximately
$41,177,000.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. BUSINESS
OVERVIEW
Intercell Corporation (the "Company") was incorporated under the laws of
Colorado on October 4, 1983, and was originally engaged in the marketing of
business and cellular telephone equipment. This business was discontinued and
all remaining assets of the Company were liquidated or otherwise abandoned
during 1991, and all obligations of the Company were paid or otherwise
satisfied.
From 1991 until the acquisition of Modern Industries, Inc., on July 7,
1995, which subsequently changed its name to Energy Corporation ("Energy"), the
Company was generally inactive and reported no operating revenues prior to the
former fiscal year ending December 31, 1994. During that time period, the
Company explored various new business and investment opportunities involving,
primarily, companies engaged in specialty lines of business in the wireless
communications and electronic technology industries.
On July 7, 1995, the Company purchased all of the assets and liabilities of
Energy. Energy's principal asset was its wholly owned subsidiary California
Tube Laboratory, Inc. ("CTL"). The transaction was accounted for as an
acquisition of the Company by Energy. As such the historical financial
statements contained herein reflect the financial statements of Energy. The
results of operations of the Company have been included only since the date of
acquisition. See "Financial Statements and Supplementary Data."
As a result of the acquisition of Energy and additional acquisitions made
during the 1996 fiscal year (see "-Recent Acquisitions and Transactions"), the
Company is currently engaged in three lines of business: (i) the design,
development and production of shielded cellular phone antennas (the "Antenna
Systems") that use the Company's proprietary antenna technology (the "Antenna
Technology") as well as the manufacture of miniature and non-miniature coils,
transformers and other electronic assemblies; (ii) manufacturing and rebuilding
specialty electron power tubes; and (iii) the design, development and production
of patented particle interconnect products ("Particle Interconnect Products")
that use the Company's patented particle interconnect technology (the "PI
Technology") and a proprietary trade secret electroplating process (the
"Proprietary Electroplating Process").
The Company's operations are or will be conducted by and through its wholly
owned subsidiaries, CTL, Cellular Magnetics, Inc. ("Cellular Magnetics"),
Intercell Wireless Corp. ("Intercell Wireless"), which was formed after the end
of the 1996 fiscal year, and Particle Interconnect Corporation ("PI Corp.").
Because the Antenna Technology and the PI Technology are in the development
stage, the Company does not anticipate operating revenues from such lines of
business until such time, if ever, as products developed using the Antenna
Technology
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and PI Technology are completed, developed, manufactured in commercial
quantities, available for commercial delivery, and accepted in the market place.
The statements contained in this report, if not historical, are forward-
looking statements and involve risks and uncertainties that could cause actual
results to differ materially from the results, financial or otherwise, or other
expectations described in such forward-looking statements. Therefore, forward-
looking statements should not be relied upon as a prediction of actual future
results or occurrences. In this regard, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations-General," "-Overview"
and "-Specific Trends and/or Uncertainties."
RECENT ACQUISITIONS AND TRANSACTIONS
ACQUISITION OF M.C. DAVIS
Effective September 30, 1996, the Company, through its wholly owned
subsidiary Cellular Magnetics, an Arizona corporation, merged with AC Magnetics,
Inc., an Arizona corporation doing business as M.C. Davis Company ("M.C.
Davis"), for an aggregate purchase price of $1,800,000, comprised of a cash
payment equal to $800,000 and the issuance of 277,778 shares of the Company's
restricted no par value common stock (the "Common Stock") at a fair value of
approximately $3.60 per share. M.C. Davis was acquired by the Company to
provide industrial engineering and production capabilities for the Antenna
Technology. M.C. Davis has production facilities located in Arizona City,
Arizona and Sonora, Mexico and has been engaged in the production of miniature
and subminiature electronic components since 1968.
PARTICLE INTERCONNECT TRANSACTION
On September 3, 1996, the Company completed the merger (the "PI Merger") of
Particle Interconnect Inc., a California corporation ("Particle California"),
with and into the Company's wholly owned Colorado subsidiary, Particle
Interconnect Corporation ("PI Corp."). The PI Merger resulted in PI Corp.
obtaining all of the properties, assets, liabilities and business operations of
Particle California, including the entire right, title and interest in and to
the improvements of seven United States patents and six patent applications
involving the PI Technology and the Proprietary Electroplating Process, except
the right to receive royalty payments from five companies that previously
obtained licenses to the PI Technology and certain know-how relating to its
electroplating application from Mr. Louis DiFrancesco, the inventor of the PI
Technology, or companies that he controlled. In exchange for the PI Technology
and the Proprietary Electroplating Process, the Company issued 1,400,000 shares
of restricted Common Stock to the shareholders of Particle California. The PI
Merger was accounted for as an immaterial pooling-of-interest. The Company
plans to incur expenditures of not less than $1,500,000 to develop and equip PI
Corp.'s new manufacturing facility in Colorado Springs, Colorado.
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RIGHT TO DUAL RESONANCE CELLULAR PHONE ANTENNA
On November 15, 1995, the Company entered into an agreement with Arizona
State University ("ASU") in connection with the development of a new form of
cellular phone antenna with certain features designed to reduce potential health
hazards that may be associated with electromagnetic signals and to increase
transmittal reception and range of cellular telephones. The Agreement required
the Company to pay to ASU a total amount of approximately $78,000. On June 5,
1996, Dr. El-Badawy El-Sharawy ("Dr. Sharawy"), a tenured professor of ASU,
assigned to the Company, on a royalty-free basis, his entire right, title and
interest in, and to improvements on his U.S. Patent application entitled "Dual
Resonance Antenna with Portable Telephone Therewith" (the "Dual Resonance
Application"), and any and all patent applications thereon for nominal
consideration. The Dual Resonance Application and additional patent extensions
thereon constitute the basis of the Antenna Technology.
The Company subsequently entered into a license agreement with the Arizona
Board of Regents, on behalf of ASU, under which the Company, as licensor,
granted to the Arizona Board of Regents, strictly for education and scientific
purposes, a non-exclusive right and license to publish, make, use and sell the
technology covered by the Dual Resonance Application and any patents that may
issue thereon for the life of the patent upon which no royalties need be paid.
The Company believes the grant of such license will have a minimal impact, if
any, on any revenues the Company may earn on the Antenna Technology. To the
extent the Company acquires the rights to any future antennas developed by ASU,
it will be required to pay ASU a royalty for the licensing rights on mutually
agreed upon terms and prices.
MISCELLANEOUS TRANSACTIONS
Arizcan Properties, Ltd. On March 13, 1996, Arizcan Properties, Ltd., a
wholly-owned subsidiary of the Company ("Arizcan"), entered into an agreement
with a group, including certain minority shareholders of the Company, to acquire
a 94-acre development property located in Pinal County, Arizona for a total
purchase price of $1,424,362. This transaction was completed on June 18, 1996.
As consideration, the Company issued 400,000 shares of restricted Common Stock
at a fair value of $2.50 per share, and made cash payments of $57,000. In
addition, Arizcan assumed first and second mortgages on the property totaling
$367,000. The Company acquired this property for the purpose of constructing a
manufacturing facility for the products developed under the Antenna Technology.
Due the Company's acquisition of M.C. Davis, this property is no longer required
for manufacturing purposes and it is currently being held for sale.
Asia Skylink Corp. On December 29, 1994, the Company executed an Asset
Purchase Agreement with Asia Skylink Corp., to acquire certain microwave
transmission and associated support equipment, in exchange for 210,000 shares of
the Company's Series A Preferred Stock (the "Series A Preferred Stock"). On
August 30, 1996, in return for the cancellation of all of the Series A Preferred
Stock outstanding, the Company re-assigned the microwave transmission and
associated support equipment to the original seller and paid the holders of the
Series A
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Preferred Stock an aggregate of $40,000 as storage charges for the period July
7, 1995 through August 30, 1996.
THE COMPANY'S ANTENNA TECHNOLOGY
OVERVIEW OF ANTENNA TECHNOLOGY
The Company has the rights to certain patent applications relating to new
antenna technology (the "Antenna Technology"), which the Company jointly
developed with the Telecommunications Research Center at ASU. The Antenna
Technology is designed to reduce actual or perceived potential health hazards
that may be associated with exposure to electromagnetic signals by using a
"shielded" antenna. The Antenna Technology has been tested in working
prototypes in cellular phones by ASU. These tests indicated a significant
reduction in radiation emissions caused by wireless devices, and cellular phones
in particular. The tests also indicated several other benefits including
increased range and reception, and improved battery life. In addition, the
Antenna Technology results in an antenna that is smaller in size and lighter in
weight than most antennas currently on the market.
The Company anticipates that the initial market for the Antenna Technology
will be the cellular telephone market, a part of the wireless communication
market.
ANTENNA TECHNOLOGY INDUSTRY BACKGROUND
General
The wireless communications industry is relatively young and is
characterized by continual change. Currently, the wireless communications
industry is experiencing significant worldwide growth. Contributing to this
growth are improvements in wireless communication products, such as cellular,
personal communication service networks, global satellite telephones and
wireless data systems.
Wireless Communication Market Segments and Technology
Cellular Communication Services. The market for cellular technology, a
subset of the wireless communications market, has materially increased in the
last decade, growing from approximately 92,000 subscribers in the United States
in 1983 to more than 33.5 million at the end of December 1995. The Company
believes that there are over 30 brand names and in excess of 70 models of
portable cellular phones for sale in the United States; however, there are only
approximately 18 manufacturers of cellular phones in the world and eight of
these manufacturers are original equipment manufacturers ("OEMs"). No one
company dominates the market and there are only two manufacturers with more than
10% of the market. Although industry revenue from the manufacture and sale of
cellular phones is expected by industry analysts to grow just .2% in the 1996
calendar year to approximately $6.27 billion, the number
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of cellular phones sold is expected by industry analysts to increase more than
15% to 16.6 million.
The cellular communications process begins by carving a service area into
small areas called cells, which can range from one mile in diameter to 20 miles
in diameter. Each cell is equipped with a radio transmitter and receiver, which
are connected through the cellular phone company's switching center to the local
phone network. Currently, cellular phones primarily transmit data through the
cellular phone antenna by means of analog transmission (the transmission of
information in continuous form by varying the modification of electrical
signals) and, to a lesser extent, through digital transmission (the conversion
of voice communications to computer binary language of zeros and ones, that are
then transmitted separately).
Personal Communications Services. New digital communication standards and
technologies are rapidly emerging to provide the performance improvements
necessary to address overcrowding of existing cellular systems and provide
increased performance of communication equipment including Personal
Communications Services ("PCS").
PCS is a term encompassing a wide range of wireless mobile technologies,
primarily two-way paging and cellular-like calling services that are transmitted
at lower power and higher frequencies than other cellular services. Unlike
current cellular technology, plans call for broadband PCS to be digital from the
start. Because PCS services are digital, it is expected that PCS telephone sets
will be smaller and lighter in weight than most cellular sets.
The Federal Communications Commission ("FCC") has stated that it expects
the PCS industry to compete with existing cellular and private advanced mobile
communications services, thereby yielding lower prices for existing users of
those services. In addition, the FCC has stated that it believes PCS service
will promote the development of a wide range of services and devices such as,
among others, smaller, lighter, multi-function portable phones; portable
facsimile and other imaging equipment; and multi-channel cordless phones. The
development of PCS services is also expected to permit the United States
industry to develop services and technologies for international markets.
Narrowband PCS, which operate in the 900-901 MHz, 930-931 MHz and 940-941
MHz range, will largely be used for advanced paging services, such as two-way
paging, in which a recipient can respond to a sender's message with a message of
his or her own, and voice messaging. The Company believes that, in the near
term, broadband PCS will consist of cellular-like services including new
categories of wireless voice and data transmissions over both local and wide
areas using low power, lightweight pocket phones and hand-held computers, all of
which require the use of an antenna.
Current Cellular Phone Technology
Operation of Cellular Phones and Related Potential Health Risk. Cellular
phones and their antennas must comply with a particular bandwidth (i.e., a range
of frequencies that can
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carry a signal without distortion) and directionality constraints. Conventional
cellular telephones operate over a relatively wide bandwidth of approximately
824 MHz to 896 MHz, or approximately 8% of the entire frequency. For a portable
telephone to communicate more than a few hundred feet, it must radiate a
substantial amount of L-band (approximately 915 MHz) or S-band electromagnetic
energy (approximately 2,000-3,500 MHz). A typical cellular portable telephone
transmits at a power level of around 600 microwatts. In normal use,
electromagnetic energy radiates from a cellular phone or portable telephone
antenna which is used in a position immediately adjacent to the user's head.
Electromagnetic energy in the L-band and S-band is absorbed by and may otherwise
influence organic matter, such as the human brain and other tissues. Research
has indicated that up to 50% of the energy radiated from a traditional antenna
can be absorbed by the body tissue of a user's head and hand.
Since many portable telephone users spend a significant amount of time
using portable telephones, the possibility exists for serious cumulative adverse
health effects to the extent that the electromagnetic energy is harmful to
cellular phone users. In this regard, there is growing concern both in the
scientific community and among the general public that cellular phone use could
be hazardous to the health of humans. In response to this concern, the Cellular
Telecommunications Industry Association commenced a multi-year, multi-million
dollar program to award grants to researchers who will investigate this issue.
In addition, certain cellular phone OEMs caution users in their advertisements
against prolonged usage of their cellular phones. To date, the Company is not
aware of any definitive studies that provide conclusive evidence on the
potential adverse health effect of electromagnetic energy on cellular phone
users.
Current Antenna Technology and Products
Existing cellular phones must meet weight, size and cost constraints in
attempting to limit the amount of electromagnetic energy radiated toward the
user's head and hand. For example, a cellular phone that uses a remote antenna
so that antenna emissions do not emanate from a location in close proximity to a
user's head or hand, would seriously diminish the convenience of the cellular
phone. Other technologies and techniques that might reduce radiation emission
solutions generally lead to increases in cellular phone cost, weight or require
excessively large antennas. For instance, many microstrip antennas (an antenna
that does not use wires like a conventional antenna, but rather transmits data
through a transmission line configuration which consists of a substrate (a
material that provides a supporting surface) in which a conductor over a
parallel ground plane is separated by a dielectric material) have been adapted
to various applications having L-band and S-band frequencies. Generally,
however, microstrip antennas are too heavy, costly, and fragile for use in
cellular and similar portable telephones. Attempts to modify a monopole antenna
by mounting it on a ground plane and applying a metallic shield coated with an
isotropic magnetic material have succeeded in reducing the emission of
electromagnetic radiation in the near field but have encountered the same
problems as microstrip antennas.
A more conventional technique of using shielding with a traditional antenna
design to decrease near-field radiation (radiation within a few feet of the
antenna) in one direction is
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generally not practicable because such a technique tends to narrow bandwidth.
Moreover, this technique limits the omnidirectional antenna patterns necessary
to ensure that the quality of communication service will not vary with the
direction a user faces at any given point in time when using a cellular phone.
THE COMPANY'S ANTENNA TECHNOLOGY
Characteristics of Company's Antenna Technology
The Company's Antenna Technology is designed to minimize the radiation
emitted toward the user in order to reduce potential health hazards that may be
associated with exposure to electromagnetic energy. The Company has installed
an external prototype cellular phone antenna that uses the Antenna Technology in
existing cellular phone models. Preliminary testing of the prototype antenna
showed that it reduced the amount of electromagnetic energy in the near field by
90% while in use. In such testing, there was also evidence of a significant
increase in transmittal reception and range of the signal and a demonstrable
extension of the life of the cellular phone battery.
Due to the novel nature of the Antenna Technology, the prototype antennas
the Company has developed are also physically smaller in size, lighter in
weight, and therefore should not require cellular phone OEMs to modify their
existing cellular phone antenna housing designs in order to use the Company's
Antenna Systems.
In addition, the Company believes that the simplicity, combined with the
size advantage, will enable it to manufacture the Antenna Systems at a cost
attractive to both consumers and OEMs. The Company also believes its Antenna
Systems will prove attractive to OEMs due to the continuing trend in lighter
weight and smaller cellular phones, which trend should continue as a result of
the emerging PCS market.
Operation of Technology
The Company's Antenna Technology reduces the electromagnetic energy
emanating toward the user primarily through the use of a conductive ground plane
attached to existing substrates in cellular phones. The ground plane reflects
the electromagnetic energy away from the user. The Company's antenna resonates
at two distinctly different frequencies above and below the required or target
bandwidth. The frequencies are spaced sufficiently apart so that, after
impedance (the total opposition to current flow), the subject bandwidth resides
between the two resonances. Neither lower nor higher resonances alone achieve
the desired impedance for the antenna throughout the bandwidth, while also
reducing the radio frequencies near the user and maintaining omnidirectionality
in distances farther away.
In addition, attaching the ground plane to existing substrates adds no
appreciable cost or weight to the cellular phone. Moreover, radiating elements
of the antenna are assembled from a relatively rigid conductive material that
can support its own shape, weight and condition
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without the use of additional structural substrates. As a result, the absence
of additional substrates reduces the weight of the antenna and, therefore,
reduces the weight of the cellular phones.
The Antenna Technology was designed to be used with both analog and digital
cellular phones and, therefore, if accepted in the market, should be also
available for use in the emerging PCS market.
COMPANY ANTENNA TECHNOLOGY STRATEGY
The Company intends to manufacture its Antenna Systems in two models, an
internal and an external unit. The internal version (which does not have an
external antenna application) will be used by cellular phone OEMs that design
new cellular phones or modify existing cellular phone designs to incorporate the
antenna internally (the "Internal Antenna"). The Company has designed the
Internal Antenna to minimize the amount of modification that cellular phone OEMs
will need to perform to use the Internal Antenna. The external version will
permit the cellular phone antenna to be used as an aftermarket "retrofit" on
existing cellular phones (the "External Antenna").
In order to bring the Antenna Technology to market as soon as practicable,
the Company will initially manufacture the External Antenna. The Company has
completed all documentation and specifications for the External Antenna and has
several prototypes in place. The Company intends to commence production of the
External Antenna in the 1997 fiscal year. In addition, the Company also plans
to manufacture prototypes of the Internal Antenna, which is less complex and
cheaper to manufacture, in the 1997 fiscal year.
While the safety of cellular phones is subject to question by consumers and
scientists, the Company believes there currently exists a marketing opportunity
for the development, manufacture and sale of its Antenna Systems. The Company
believes the overriding benefit of protection, whether perceived or
scientifically proven, will result in market demand for the Antenna Technology.
The Company also believes that the cellular phone industry will find the Antenna
Systems attractive due to their increased signal strength, range, and battery
life and their small and lightweight size.
ANTENNA TECHNOLOGY SALES AND MARKETING
Antenna Systems
The Company recently hired a full-time employee with substantial sales and
marketing experience in the cellular phone industry to be responsible for
managing and coordinating the development and marketing of the Antenna
Technology. Intercell Wireless, the Company's wholly-owned subsidiary, will be
responsible for the marketing, sale and distribution of the Antenna Systems.
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The Company is preparing to work with cellular service providers who are
interested in assessing the new technology for range, signal strength, and other
significant benchmarks. The Company has had discussions with cellular
manufacturers in Europe and the Asia-Pacific Rim region and is working on
establishing sales arrangements with distributors and expanding the production
facilities of Cellular Magnetics to accommodate additional production. The
Company has received requests for working phone models incorporating the
Company's technology from Telstar, the largest carrier and provider of cellular
technology in Australia, and Optus Communications, the second largest
telecommunications carrier in Australia operating a nation-wide cellular
network. Although the terms of the testing and evaluation have not been
formalized, both Telstar and Optus Communications expressed interest in
evaluating the Company's Antenna Systems to determine the compatibility of the
Antenna System with their respective technologies and for potential performance
enhancements The Company will also continue to work on prototypes for models
with several cellular phone OEMs. There can be no assurance that, after testing
and evaluations, any orders will be placed by Telstar or Optus Communications
with the Company or any other cellular service providers.
The Company also plans to exhibit prototypes of its Antenna Systems at
industry trade shows as well as other public events.
Other Electronic Assemblies
The Company will continue to market miniature and non-miniature coils,
transformers, surface mount coils and electronic assemblies previously produced
by M.C. Davis. The customer base for these products consists principally of
electronic companies that manufacture their own electronic equipment. The
Company intends to sell these products primarily in the Southwest region of the
United States.
PRODUCT DEVELOPMENT OF ANTENNA SYSTEMS
The Company is currently working on engineering designs to manufacture
additional prototypes of the External and Internal Antennas for use by cellular
phone OEMs. The Company also plans to continue the development of the Antenna
Technology in other markets, including the development of its "strip" antenna
system for use in specialty applications with exposure to extreme conditions,
such as those encountered in the military, and satellite communications. The
strip antenna is a form of micro-strip antenna that is currently being designed
using the Antenna Technology. The Company is designing the strip antenna to
transmit at 500MHz to 20GHz. The Company's system consists of combining
("stacking") several micro-strip antennas, which have a long range, at reduced
power, but which transmit only in a specified direction. Because antennas used
for satellite transmission and military use require omnidirectional transmission
and reception, the Company intends to stack its micro-strip antennas so that
the completed product has omnidirectional transmission and reception. The strip
antenna is currently in the development stage and the Company can provide no
assurances that it will operate as planned or will be accepted by the industry.
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MANUFACTURING OF ANTENNA SYSTEMS
The Company will manufacture its Antenna Systems and continue to produce
electronic assemblies at its 8,000 square foot manufacturing facility in Arizona
City, Arizona and its 8,600 square foot plant in Sonora, Mexico. The Company is
currently working on the fixtures and tooling required for the manufacture and
sale of the External Antenna. The Internal Antenna is less complex and easier
to manufacture and should not require substantial changes in the Company's
manufacturing facilities.
These manufacturing facilities will also manufacture the electronic
assemblies previously manufactured by M.C. Davis. The Company does not
anticipate that the manufacture of its Antenna Systems will affect the Company's
ability to continue to manufacture its electronic assembly products.
ANTENNA TECHNOLOGY COMPETITION
At present, the Company is not aware of any major OEMs that have indicated
a change in the conventional approach to power or emissions with respect to
their portable phones; however, there can be no assurances that such a change
may not be instituted in the future or that, in fact, such changes may not
currently be contemplated. Currently, cellular phone OEMs either manufacture
cellular phone antennas themselves or purchase such antennas from companies that
manufacture the antennas to their specifications. The Company believes that
many of these manufacturers have greater financial and other resources than the
Company. The Company is also aware of one development stage company that is
seeking to modify existing antenna technology with the intent of lowering
radiation emissions.
THE COMPANY'S ELECTRON TUBE PRODUCTS
OVERVIEW OF COMPANY'S ELECTRON TUBE BUSINESS
The Company manufactures and rebuilds a wide variety of electron power
tubes in numerous forms and models which service the frequency range of 200KHz
to 18GHz. Currently, the Company provides rebuilt and new electron tubes to a
wide variety of customers who use microwave technology in various types of
applications, including AM and VHF radio, television, linear accelerators,
radar, electron guns and industrial microwave and heating use. This line of
business will continue to be conducted by and through the Company's wholly owned
subsidiary, CTL. The Company believes that it is one of the more significant
domestic companies engaged in rebuilding electron power tubes in the United
States.
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ELECTRON TUBE INDUSTRY BACKGROUND AND TECHNOLOGY
General
Electron power tubes or electron tubes are enclosed tubes, in which
electrons act as the principal conductors of current between at least two
electrodes. Electron tubes fall into two categories, oscillators and
amplifiers. Oscillators are typically magnetrons and power grid tubes (triodes
and tetrodes) and amplifiers are klystrons and traveling wave tubes. Electron
power tubes are commonly identified by reference to the frequency band of the
electromagnetic spectrum (generally the L-band through KU-band) within which
they operate.
Electron tubes are used in a wide variety of products, including induction
heating and AM radio transmission using the 200KHz to the 5MHz range; VHF radio
and television and linear accelerators using the 5MHz to 600MHz range;
industrial microwave cooking and heating which use the 400MHz to 2.45GHz range;
and radar and electron guns using the 3GHz to 18GHz range. See "-The Company's
Electron Tube Products."
Electron and vacuum tubes are generally recognized as the dominant
technology for the generation of high power radio frequency ("RF") and
microwaves. Consequently, these tubes are used by many companies for widely
varying applications. The manufacturing and rebuilding of these units is a
significant industry.
The Company has focused on creating its own "niche" in this large industry.
Discussed below is relevant industry information for that segment of the
microwave technology in which the Company is engaged. The Company is not aware
of any industry trade associations or government statistics that describe the
electron tube industry segments in which the Company currently competes. The
information in the tables below is management's estimate of the world-wide
market for the industry segments in which the Company competes based on its
knowledge of industry needs and the activities of other competitors in the
industry. Accordingly, the information below should be considered a rough
approximation.
Magnetron Tubes
A "magnetron tube" is a vacuum tube in which the flow of electrons is
controlled by an exterior applied magnetic field to generate power at microwave
frequencies (400 MHz to 18 GHz). Magnetrons are generally categorized as either
Continuous Wave ("CW") or Pulse ("Pulse") units. CW magnetrons are used
primarily in heating and drying applications. Pulse magnetrons are used
primarily in measuring devices, such as radar and other applications.
New and rebuilt magnetron tubes are used in both commercial and military
radar units, high power industrial heating equipment and for medical and
industrial x-ray machines. The radar market consists of civilian weather radar
and military airborne and ground-based radar systems, among others. Industrial
heating magnetrons are used in food processing and drying systems at L-band
(approximately 915MHz) and S-band (approximately 2,000-3,500MHz)
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frequency levels. Microwave heating is used for food cooking, drying and
processing, wood glue drying, waste management, clothes drying, oil reclamation
and plasma generation for production of diamond films.
Magnetrons used in x-ray equipment typically operate in the S-band or X-
band frequency range, focusing a beam of electrons on a tungsten target, which
produces x-rays.
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Annual Rebuilt Market
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Radar $40 million
Medical $10 million
Industrial $ 3 million
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Klystron Tubes
A "klystron tube" is an electron tube in which bunching of electrons is
produced by electric fields, which are then used for the amplification of
microwave energy. Klystrons tubes (both external cavity and internal cavity)
are commonly used in UHF television transmission, medical and nonmedical
accelerators, and navigational equipment. Klystron tubes are rebuilt for
television broadcasting firms and are used to transmit data from the studio
transmitter to land-based receivers, such as television, and from satellite
uplinks to satellites for further transmission. Some types of clinical x-ray
machines use klystron tubes, which can also be rebuilt.
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Published
Annual Annual Approximate Company
New Units Units New Price/*/
Produced Rebuilt Price Rebuilt
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<S> <C> <C> <C> <C>
Television Broadcasting 2500 50 $40,000 $16,000
Transmission of Data 2000 10 $13,000 $ 6,000
Medical Use 200 or more 6 $40,000 $15,000
Navigation 400 or more 25 $12,000 $ 4,000
/*/Subject to change depending on prevailing market and other financial conditions.
</TABLE>
Power Grid Tubes
Power grid tubes, also known as triode or tetrode tubes, are used in the
steel industry for radio frequency ("RF") heating and welding of all types of
steel products. They are also used in radio and VHF television transmission,
environmental test equipment and as switch tubes in high voltage pulsers. A
"triode tube" is an electron tube with three electrodes: an anode, a
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cathode and a controlling grid; "tetrode tubes" are similar to triode tubes
except that they have four electrodes: an anode, cathode, a control grid and an
additional grid.
Annual Rebuilt Market
---------------------
Power Grid $20 million
Other Industry Products
An "electron gun" is an electron-emitting cathode with its surrounding
assembly for directing, controlling and forcing a stream of electrons to a
target. A "linear accelerator" is a device in which charged particles are
accelerated in a straight line by successive impulses from a series of
alternating electric fields. One of the principal uses of linear accelerators
is in the medical field for the generation of high energy x-rays for the
therapeutic treatment of tumors.
THE COMPANY'S ELECTRON TUBE PRODUCTS
The Company, through CTL, manufactures and rebuilds a wide variety of
electron tubes in numerous iterations and models which service the frequency
range of 200KHz to 18GHz with power levels of up to three million watts. The
Company's product lines operate within the following frequency bands: the L-band
400KHz to 2MHz; the S-band 2MHz to 3.5MHz; the C-band 4MHz to 7MHz; the X-band
7MHz to 1GHz and the KU-band 1.2GHz to 1.8GHz. The Company primarily
manufactures and rebuilds electron power tubes categorized as follows:
magnetrons (CW and Pulse), klystrons, power triodes and tetrodes, linear
accelerators and electron guns.
The Company offers warranties for its rebuilt electron tubes that meet or
exceed the original manufacturer's warranty. The rebuilt electron tubes can be
purchased for approximately one half the cost of a new tube and are often
technologically superior to a new tube due to the Company's analysis of the
reasons for failure of the original manufacturers technology, which analysis
often results in the usage of components incorporating the latest technological
improvements, designs and performance specifications. The Company also
manufactures new electron power tubes for use in the industry.
The Company rebuilds and manufactures new electron tubes in the following
industry segments:
Magnetrons
General. The Company believes that it is one of the major suppliers of L-
band (operating in the 915 MHz frequency range), CW Magnetrons in the world.
The Company services and sells magnetrons with power levels from 5 KW through 75
KW. It has developed its own 30 KW S-band (operating in the 2,000-3,500 MHz
frequency range), CW Magnetron,
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which is used primarily for industrial heating applications. The Company
believes that this product has the highest power rating at this frequency in the
industry.
The Company is not considered a major supplier in the medical x-ray market,
since such market is essentially dominated by two major companies, Varian/CPI
and Siemens. The electron power tubes utilized by Varian/CPI and Siemens
operate in the S-band frequency range. The Company does not manufacture
electron power tubes operating in the S-band frequency range for the medical x-
ray market. Consequently, the Company only offers repair services for the
electron power tubes used in such medical systems.
The Company, however, believes that it can effectively compete in the X-
band industrial and medical systems x-ray market (a relatively new, small and
growing market), where new tubes are being manufactured. To the knowledge of
the Company, it manufactures the only magnetron operating in the X-band
frequency range, which is used in x-ray machines for medical applications. The
Company supplies magnetron tubes, operating in the X-band frequency range, for
x-ray applications for companies such as Accuray and Schaumberg Research.
Rebuilding Process. The rebuilding of magnetrons includes an incoming cold
test involving a microwave reflectometer, a hot test, disassembly and inspection
of the internal structure. Generally at a minimum, and if required, the cathode
heater assembly is replaced. Other damaged sub-assemblies can be replaced
depending on the cost effectiveness of such a repair. This product line
accounted for approximately 83% of the Company's net revenues in fiscal year
1996. Approximately 41% of these net revenues are generated by the rebuilding
of magnetrons, with the remaining 42% derived from the manufacturing and sale of
new magnetrons.
Klystrons and Linear Accelerators
General. The Company's rebuilding program for Klystrons has, until
recently, been limited by a lack of suitable testing equipment. The Company has
recently obtained two test sets for klystron data transmission tubes and has
purchased a surplus television transmitter to test television klystrons. The
Company has entered into an agreement with a manufacturer of x-ray machines to
test the Company's rebuilt klystrons for the medical market. This line of
products accounted for less than 5% of the Company's net revenues in fiscal year
1996.
Rebuilding Process. The rebuilding process with respect to klystrons
includes opening the vacuum envelopes either by machining in the case of ceramic
insulator tubes or by cutting the glass on those tubes with glass insulators.
The grids are removed and salvaged and the cathodes are replaced. Typically,
cathodes are directly heated tungsten or thoriated tungsten filaments. These
are replaced and processed, the cleaned grids replaced and the envelope
resealed. Tubes are then pumped and baked for 48-hours, at which time they are
burned-in and tested. All klystron tubes are cleaned and finished in bright
nickel plate. Workmanship and material warranties prorated over 3,000 hours are
provided with every klystron tube. As with
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klystron tubes, in rebuilding linear accelerators, the electron gun is removed
and rebuilt, then the rebuilt unit is pumped, boiled and processed.
High Power and High Frequency Triodes and Tetrodes
The Company believes that it is one of the major rebuilders of high power
and high frequency triode and tetrode tubes in the world. These units are
available with power output ranging from 10KW up to 300KW. These units
comprised approximately 7% of the net revenues of the Company in fiscal year
1996.
Electron Guns
The Company rebuilds various sizes and powers of electron guns up to 120
KV, 20A gridded electron sources for research application. Rebuilt electron
guns are also used on rebuilt medical accelerators. The rebuilding of electron
guns typically requires the removal of the old cathode and heater structure and
the replacement with a new unit. The electron gun is rebuilt under vacuum
conditions.
COMPANY ELECTRON TUBE STRATEGY
The Company, as one of the largest rebuilders of electron tubes in the
industry, intends to continue to strengthen its reputation for quality, customer
service, warranty and the performance of its rebuilt electron tubes by
continuing to emphasize these business characteristics.
For magnetron tubes, the Company concentrates on markets where the unit
price is high and competition is the least. For power grid tubes (i.e., triode
and tetrode tubes), the Company concentrates on the high power, and more
expensive units where new tubes are no longer manufactured and rebuilding is
necessary to avoid replacement of large, expensive equipment. With the addition
of two new test sets for klystron tubes, the Company also intends to focus more
heavily on this segment of the market.
ELECTRON TUBE SALES AND MARKETING
The Company recently hired a full-time, experienced marketing employee to
increase the Company's existing market and to create new markets for its
products and services. The efforts of such employee, to date, have resulted in
an increase in new orders from existing and new customers.
CUSTOMERS
The Company currently has approximately 100 customers in its electron tube
business and has shipped over 25,000 electron tubes to 350 customers. The
Company's client base is comprised of industrial companies, commercial service
firms and government agencies in the
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United States, Canada, Mexico, Europe, Asia and Australia. The two largest
customers of the Company, Amana Refrigeration, Inc. and Ferrite Components
System, accounted for approximately 14% and 12%, respectively, of its annual
revenues for fiscal year 1996. The loss of any one such customer could have a
materially adverse effect on the business of the Company.
MANUFACTURING OF THE ELECTRON TUBES
The Company's existing 8,000 square foot manufacturing facility for its
electron tube business is currently operating at maximum capacity. In
recognition of these constraints, the Company has entered into an agreement with
the City of Watsonville, California for the lease, development and construction
of a 21,600 square foot manufacturing facility. Construction of this facility
began in March of 1996 with an expected final occupancy date in February 1997.
Initially, the Company will occupy approximately 12,000 square feet of the
building and will sublet the balance until such time as it requires the
additional space. Upon completion of the Watsonville manufacturing facility,
the Company intends to apply for ISO 9000 certification, which will enable it to
more effectively compete in overseas sales.
Since the Company is engaged in manufacturing and rebuilding of electron
tubes designed by major manufacturers of such tubes, the Company does not
experience and does not contemplate encountering any substantial difficulties
relating to the sources or availability of materials with which to conduct its
principal business operations. The components to remanufacture and rebuild
these tubes are commonly available from numerous sources.
BACKLOG OF ELECTRON TUBES
As of September 30, 1996, the Company's production backlog represented by
customer orders in its electron tube business was approximately $3,170,000. For
the preceding year ended (or equivalent) September 30, 1995, the Company had
approximately $1,300,000 in firm backlog. The Company anticipates completing
all production backlog during its current fiscal year. There is no guarantee,
however, that the Company will recognize sales from any or all of the backlog
orders.
ELECTRON TUBE COMPETITION
The Company is engaged in a very narrow segment of the microwave technology
industry, the rebuilding of electron and microwave tubes, and has attempted to
avoid direct competition with the major manufacturers of microwave products.
The manufacturing of new microwave products is dominated by several very large
companies in the United States and internationally. These companies, however,
have not chosen to dedicate their resources to the rebuilding of such products
or the manufacture of the electron tube the Company manufactures.
The principal competitors of the Company are relatively few, but have with
the Company, significant segments of the narrow market area in which the Company
competes.
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Principal among these competitors are Litton Industries, Varian Associates,
English Electric Valve and Burle Industries, Inc. Although there are a few
small competitors, management believes that, based upon the Company's latest
internal market information, it has the largest market share in certain product
lines, such as the CW magnetrons.
Because of its perceived reputation for quality, customer service, warranty
and the performance of its new and rebuilt units, the Company believes that it
offers a competitive advantage equal to or superior to what is otherwise
provided by its competitors.
PRODUCT DEVELOPMENT OF ELECTRON TUBES
Research and development activities to be conducted for the Company with
respect to electron tubes will be conducted through institutions or other firms
qualified to conduct such research and development activities as independent
contractors to the Company. To the extent that the Company does engage in
business activities which will require research and development, it will seek to
decrease such costs by entering into joint ventures or other types of business
relationships wherein the costs of research and development activities will be
paid for by other parties, who in consideration of such payments will enjoy
partial ownership or other rights relating to any technologies or products which
might develop from such research and development.
THE COMPANY'S PARTICLE INTERCONNECT TECHNOLOGY
OVERVIEW OF PARTICLE INTERCONNECT TECHNOLOGY
The Company proposes to pursue a new line of business involving the
development and manufacturing of high performance, low-cost interconnect
products. The Company's PI Technology utilizes patents procured and owned by
the Company for the production of electronic interconnect products. The
Company's Proprietary Electroplating Process will be used in the manufacture of
12" x 18" panels used to mount, package or attach electronic devices and other
products utilizing the PI Technology. This new line of business will be
conducted through the Company's wholly owned subsidiary, PI Corp.
PI TECHNOLOGY INDUSTRY BACKGROUND
Electronics Industry Trends
Over the past decade, consumers and OEMs have demanded electronic products
that provide a significant increase in performance accompanied by reduced size,
weight and cost. These factors have forced manufacturers to produce smaller,
lighter and higher performing components while reducing their costs in order to
remain competitive. New developments in printed circuit boards (including
flexible circuitry), integrated circuits ("ICs"), IC packaging techniques, and
new forms of interconnect assemblies for connecting the various electronic
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components, have contributed to the ability of electronic system manufacturers
to accomplish these objectives.
As these products have decreased in size and increased in complexity,
conventional techniques of connecting their components together have begun to
become inadequate. The conventional methods of interconnecting electronic
components in a rematable fashion have limits to the miniaturization the
electronic components can tolerate, while at the same time remaining cost
effective. The interconnect industry that serves the personal computer ("PC"),
automotive, communication and workstation markets is aggressively pursuing
technologies that will allow it to move to the next level of performance and
size.
Integrated Circuits
The Company believes that market trends in IC packaging will lead to
increased demand for emerging high density substrates. ICs have historically
been packaged by connecting the silicon die to a lead frame or by bonding the
silicon die to an interconnect substrate using fine wires. As ICs are becoming
increasingly powerful, they produce more heat and require a significantly
greater number of input/output ("I/O") electrical connections to attach the
silicon die, thus placing substantially greater demands on the IC packaging
materials. For instance, a typical IC five years ago required up to
approximately 80 I/O connections to the silicon die, whereas today typical ICs
require up to approximately 250 I/O connections. The Company believes that the
number of high density IC packages requiring more than the typical 250 I/O
connections to the silicon die increased from an estimated 240 million in 1990
to an estimated 777 million in 1995, based on published industry information.
Market demands are currently forcing certain IC toward 1,000 I/O connections.
Further, IC packaging demands arise when multiple silicon dies are integrated
into one powerful package, known as a "Multi Chip Module" or "MCM."
The international interconnect market in 1995 was estimated by an
independent research organization, to be $26.3 billion. The Company believes
that the typical integrated circuit package is a 40 billion unit per year
market. The market for the "Ball Grid Array" technology ("BGAs"), a product
line in which the Company intends to compete, is approximately 150 million units
per year (for both micro and mini BGA's).
The Company believes, based on interviews and contact with industry leaders
and experts, that the PI Technology has the potential and the capability to
solve this miniaturization problem and allow electronics manufacturers to move
to the next level of high-performance, low cost interconnect systems. The
advantage of PI Technology, in addition to providing increased performance and
reliability, is that it replaces the fragile leads which extend from the
perimeter of current IC packages, resulting in improved assembly yields and
reduced size.
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PI TECHNOLOGY-TECHNOLOGY AND PRODUCTS
General
Interconnect technology has not kept pace with micro-miniaturization in the
electronics industry. Thus, component packages and the connectors used to form
an electrical and/or mechanical interface between various components and
assemblies in electronic products are now the most expensive portion of such
products. Component packages, connectors, sockets, plugs and the like are also
the bulkiest and heaviest portion of such products.
Conventional interconnect technology complicates the electronic equipment
design and manufacturing processes by introducing special considerations into
such processes with regard to component placement, heat generation, power loss,
and signal propagation delay (the time it takes a signal to traverse a given
distance). These considerations have an adverse impact on potential gains in
performance being realized by new and emerging technologies.
Wiping Action Technology
Wiping Action Technology is still the prevailing means for interconnecting
electronic components. Wiping action interconnect technology (for example,
sockets, plugs, and needle pins) forms a temporary electrical interconnect and
thus readily allows the remating of various components and assemblies (for
example, when replacing a defective component, such as a random access memory
("RAM") chip in a personnel computer). A problem with using such technology is
that it is subject to the persistent formation of oxides (a non-conductive
material) along a contacting surface, which increases contact resistance. In
time, these oxides build up, hastening connection failure and thus equipment
failure.
Wiping action technology is only available in the form of various
connectors and sockets. These devices usually provide a contact surface formed
from a limited range of special metals, alloys, and other expensive materials,
as are suitable for maintaining a sliding connection. The devices themselves
have interfering electrical properties due to their size and orientation on a
circuit board, among others, and thus degrade signal propagation through the
interconnect (by introducing resistive, capacitive, and inductive components
into the signal path).
Wiping action technology provides high ohmic connections that produce
excessive and unwanted wear and heat, and therefore contribute to equipment
failure while wasting energy. The wiper mechanism, as in the case of a socket,
requires significant space on a circuit board. Thus, potential circuit
operating speeds are degraded due to propagation delays. In addition, sockets,
plugs, and similar interconnect devices are only available in a limited number
of configurations and materials. Thus, the evolution of electronic technology
is constrained by the limitations wiper interconnects impose upon a designer.
Additionally, wiper interconnects are unreliable in punishing environments
such as that in which a laptop computer is used. Wiper connections subject to
shock, intense vibration,
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temperature extremes, and/or high levels of contamination tend to induce
disruption in the continuity of connections made at a wiper interconnect. As
wiper interconnects are mechanical devices, they corrode and are subject to
wear. Thus, they have a limited useful life.
Identification of Problem
The Company and others in the industry are aware of the physical
constraints imposed upon the development of new products using existing
technologies. The problem is simple to identify and define, but difficult to
solve. As IC packages increase in I/O count and complexity while remaining
constant or decreasing in physical size, a challenge arose in accommodating this
complexity in a reliable, technically efficient fashion. Whether the package is
connected to the device via solder, adhesive or socket, the connection process
as I/O counts move ever higher becomes difficult to achieve.
Designers of rematable connections, however, find this issue especially
troubling. As pin counts rise, the amount of force the device to package
interface must support also rises. Using conventional contact technology like a
gold to gold wiping connection, contact force measures around 40 grams per
contact. When IC packages had I/O counts of 100, this force was easy to
accommodate, but as I/O counts move toward 1,000 and beyond, current contact
technologies are inadequate. For example, at 40 grams per contact, a 1,000 I/O
BGA socket must effectively accommodate 40 kg of force, equivalent to half the
weight of an average man.
Requiring a plastic substrate, barely 2 cm on a side to support half the
weight of a man is unreasonable, even with today's excellent plastic
technologies. Such force, concentrated in a small space contained by petroleum
based products that are almost always re-heated is very likely to fail because
of board warp, package warp, or outright physical failure.
This difficulty, when coupled with increasing intolerance from the market
to pay premium prices, presents today's socket manufacturer with an immense
task: create a socket that can:
. Accommodate very high I/O count devices.
. Receive high speed devices without seriously degrading their performance
(have as short a circuit path as possible).
. Be very low-cost.
The Company's Solution
The Company believes that its PI Technology provides a cost effective
solution to solving this industry-wide problem. As discussed below, Particle
Interconnect coating can establish reliable, rematable connections at only 10
grams of force. This means that only 10 kg versus 40 to 80 kg of force is
required to interconnect a 1,000 I/O IC socket with the underlying
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substrate. The Company believes this reduction in force may enable
manufacturers to connect complex ICs to products through the next several
generations of electronics.
Additionally, the connection pathway provided by a connection using PI
technology is exceptionally short and has very low resistance. These features
allow the connection of very high speed ICs without seriously degrading their
performance as conventional techniques sometimes do. Moreover, the Company
believes that it can apply the PI Technology using its Proprietary
Electroplating Process at a very low cost.
THE COMPANY'S PI TECHNOLOGY
Overview
Background. PI Technology was conceived in 1986, with the initial patent
thereon issued in 1987. A major aerospace firm took a special evaluation
contract in August 1988 to use the PI Technology for the development of the
Space Defense Initiative ("SDI") "Super Computer Program" and for use in other
portions of the SDI ("Star Wars") Programs. The results of the SDI Programs
demonstrated that the PI Technology could meet and surpass military IC packaging
and interconnect requirements, designated MIL-STD 883C and MIL-STD 38510, which
the Company believes are more stringent than the requirements in the commercial
marketplace.
The Company received the rights to seven patents and six patent
applications and the Proprietary Electroplating Process from Particle
California. See "Business-Recent Transactions." Five companies operate under
licenses from the Company to use the PI Technology. These licensee's are
utilizing the PI Technology to produce products that do not currently compete
with the Company's proposed Particle Interconnect Products; however, nothing in
the license agreements would prohibit these companies from doing so in the
future.
General. The PI Technology utilizes patents owned by the Company for
bonding and joining metal surfaces to enhance electronic connectivity and also
uses the Proprietary Electroplating Process to electroplate panels at an
anticipated lower cost than conventional manufacturing processes. The Company's
core product is similar to "conductive sandpaper" in appearance, and is formed
by attaching conductive diamond particles to a panel. The "conductive
sandpaper" creates a socket or connector for electronic devices, and replaces
the use of soldering to create such connections.
Operation of the Technology
PI Technology begins with sharp, metallized, doped diamond particles which
have been closely screened as to size. The particles are tightly classified in
sizes ranging from 10 microns to 125 microns, depending upon the end-product
application. Small particle size, 8 to 12 micron range, are for small pad
sizes, less than 5 mm in diameter and have a small amount of penetration.
Medium particle size, in the 20 to 30 micron range, are for medium pads sizes,
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5 mm to 100 mm in diameter, and have a medium amount of penetration. Large
particle size, 115 to 135 micron range, are for large pads sizes, greater than
100 mm in diameter, and have a large amount of penetration.
These electrically conductive diamond particles are attached onto contact
sites using standard masking and electroplating processes. The sharp, embedded
particles create a surface with many sharp points that make many parallel
electrical paths by penetrating though an oxide without requiring the wiping
action of conventional contacts. The Company believes that its non-wiping
action, oxide penetrating Particle Interconnect Products are capable of
penetrating surface contamination and oils to create a gas-tight electrical
contact.
The sharpness of the diamond particles concentrates insertion force
transmitted by a contact into a very small area or point. This gives the
diamond particle the force per square inch required to pierce oxides and other
contaminates on most surfaces without requiring large amounts of force on the
contact. Reliable, gas-tight connections can be made with PI Technology with as
little as 10 grams of force per contact. This low-level of force is sufficient
to drive the particles into the mating surface (for example a I/O pad on a
silicon die) and provide low contact resistance. Moreover, the diamond
particles do very little damage to the mating surface. This provides very long
remate life with very little degradation of the connection. Since there is no
wiping action, contact coatings stay intact.
The Company can apply these particles to many different substrates, both
flexible, rigid, metallic and non-metallic. This ability coupled with the very
low contact force gives the Company the capability to make very reliable
connectors out of materials that could collapse if exposed to the normally
required contact forces.
Proprietary Process of PI Technology Manufacturing
The Company's ability to compete on a cost-effective basis is driven by two
factors; the high-speed Proprietary Electroplating Process and a re-cycling,
pollution reduction process.
The Company believes it will be able to offer its Particle Interconnect
Products at costs competitive with conventional techniques because of its high
speed Proprietary Electroplating Process. This Proprietary Electroplating
Process allows the Company to electroplate at rates substantially higher than
industry standards while investing larger capital amounts in automated
equipment. Additionally, the Proprietary Electroplating Process uses fewer raw
materials and eliminates ancillary processes that cost competing technologies
both time and money.
The Company expects to additionally benefit from the Proprietary
Electroplating Process because the entire manufacturing operation is cleaner and
less environmentally hazardous with its recycling design, than existing plating
processes used in the electronics industry. Since electroplating is typically
an environmentally hostile process, the Company expects to gain advantages over
competitors by avoiding or minimizing the costs associated with the control,
removal and processing of these pollutants.
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COMPANY PI TECHNOLOGY STRATEGY
The PI Technology has application in many different industries where
electrical connections and interconnections are made. The Company initially has
selected the connector industry as its primary industry to potentially
penetrate. The PI Technology has been in use in the connector industry for
several years, mainly in test and burn-in socket applications by the Company's
licensees. There is a current demand in the connector industry for reliable
Ball Grid Array (BGA) and Land Grid Array (LGA) production sockets. The Company
believes the PI Technology offers immediate advantages for these products. As a
result, the Company has developed the following short term and long term
strategies.
The Company intends to initially focus on high speed electroplating of
conductive diamond particles. The primary objective is to provide this service
to numerous connector manufacturers, in competing and non-competing
applications. The Company intends to provide this service to companies in the
form of teaming/co-manufacturing agreements. The Company believes this approach
will provide it with the ability to penetrate the market utilizing existing
customer bases and reputations of established leaders in the connector industry.
In many cases the Company will attempt to establish long term strategic
alliances with these industry leaders to continue development and manufacture of
new products that will incorporate PI Technology.
The Company's initial product line will be a BGA production socket. The
Company expects to produce this socket in moderate quantities at its existing
facility and using domestic subcontractors, until co-manufacturing partner(s)
are able to produce in larger quantities. If or when this occurs, the Company
will attempt to expand with proposed partners into numerous other BGA and LGA
applications and new products as they are designed. As these business
relationships mature, the Company intends to begin expansion into other
industries in a similar fashion. The Company currently contemplates that some
of these industries will include the printed circuit board ("PCB") industry with
alternative interconnect attachment solutions, automotive electronics and the
utility power industry (splices and switches).
Sales and Marketing
Phase I Corporate Image. The Company, as an emerging Company with respect
to the design, manufacture, marketing and sales of its proposed Particle
Interconnect Products recognizes that it must become recognized in the industry.
Establishing a solid corporate image is and will continue to be a tactical
initiative. Manufacturers will not put their own production schedules and
reputations at risk with companies they feel are unstable regardless of how
revolutionary the product or service may be. This is exceptionally true in the
connector industry. The Company believes that it has been successful at
projecting an image acceptable to the industry as evidenced by the willingness
of industry leaders to enter teaming and strategic alliance discussions with the
Company prior to production. The Company will continue to use conventional
methods such as attending industry conventions, meeting with high-level
executives in the industry's leading companies and contacting key analysts in
the industry to enhance and
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stabilize the Company's corporate image. In the future the Company expects to
expand its efforts to include:
. Traveling to meet individually with key executives.
. Generating interest through the trade press and presentations at trade
shows.
. Exhibiting with display booths at certain industry trade shows.
. Publishing and publicizing test results as they become available.
The Company believes this approach will provide it with an image that will
enhance the formation of relationships with key industry leaders.
Phase II - Forming Strategic Alliances. The Company believes that
establishment of a sound business image and an appropriate level of exposure for
PI Technology in the market place is only the first step in successfully
penetrating the market through a strategic partner. To be successful with this
approach, the Company must select an appropriate partner, convince this partner
of the viability and advantages of the PI Technology at its Proprietary
Electroplating Process, negotiate a mutually beneficial agreement, and perform
on the agreement. There is no guarantee that the Company will be able to
accomplish these tasks.
In each industry in which the Company decides to compete, the Company will
select market leaders that have key characteristics such as:
. Significant market share and strong distribution channels.
. Manufacturing competencies that compliment that of the Company.
. A corporate culture that allows them to quickly respond to a new
technology.
. Sufficient capital and sales strength.
The Company is currently in preliminary discussions with two industry
leaders that satisfy all of the above criteria, however, there can be no
assurances given that any agreements will be consummated or, if consummated,
that any such agreements will be profitable to the Company.
Phase III - Penetrate Other Industries and Application Areas. Combinations
of the Company's intended strategies in Phases I and II above will be used in
Phase III to allow access to all the markets where PI Technology is potentially
viable. The steps the Company has taken and will take in the electronics
industry in Phases I and II, will be repeated in other industries in which the
Company may compete.
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PI TECHNOLOGY COMPETITION
Competition in the electronic connector market is fierce. The principal
competitive factors are product quality, performance, price and service.
Multinational companies with established manufacturing facilities and tremendous
economies compete with each other daily on both price and quality. The
Company's approach of supplying rather than competing with these large firms
means that it will not directly compete with such well established leaders. The
Company will face competition to its PI Technology primarily through the
development of competing technologies.
Technologies currently exist that offer features similar to the PI
Technology. These technologies include: dendrite crystals, gold dot technology,
fuzz button technology, elastromerics, z-axis conductive adhesives and others.
These technologies are currently produced by materials suppliers, flexible and
rigid PCB manufacturers, as well as electronics manufacturers who produce their
own materials and interconnect systems. Many of these competitors have
substantially greater financial and other resources than the Company. The
Company believes that each of these technologies has drawbacks that will not be
surmounted in the near future. In addition, the Company believes that each
technology currently has unacceptable limitations with regard to
electrical/mechanical performance, manufacturability or cost.
There is no assurance, however, that the market place will accept the PI
Technology and proposed Particle Interconnect Products. In connection with the
development of commercially saleable prototypes, the Company must successfully
complete a testing program for such products before they can be marketed.
Unforeseen technical problems arising out of such testing could adversely affect
the Company's ability to manufacture a commercially acceptable version of such
products.
The risk of organizations developing new and competitive technologies also
exists. The Company will continually monitor the technical environment to
identify these risks early and develop strategies to respond to them quickly.
PI TECHNOLOGY PRODUCT DEVELOPMENT
While the Company believes the area of quickest return and greatest initial
growth is in the electronics connector market, PI Technology has applications in
many other areas. These areas include:
. Direct IC attachment.
. Manufacture of complex PCB cards at low-costs.
. Multi-Chip Modules.
25
<PAGE>
. Heat Dissipation Products (Heat Sinks).
. High Voltage Splicing Products.
. High Voltage Contractors and Switches.
The Company will consider researching the potential of these markets and
develop appropriate manufacturing and penetration strategies for them, as
discussed in "-Company Strategy" above, whenever the electronic connector market
begins to show signs of maturation with declining profit margins, increased
competition and lack of opportunity.
GOVERNMENT REGULATION
The various business operations of the Company are subject to numerous
federal, state and local laws and regulations, including those relating to the
use and disposal of hazardous substances. Specifically, the operations of CTL
and PI Corp. involve the use and handling of environmentally hazardous
substances. The use of hazardous substances is subject to extensive and
frequently changing federal, state and local laws and substantial regulation
under these laws by governmental agencies, including the United States
Environmental Protection Agency, various state agencies and county and local
authorities acting in conjunction with federal and state authorities. Among
other things, these regulatory bodies impose restrictions to control air, soil
and water pollution. Furthermore, amendments to statutes and regulations and
the Company's expansion into new areas could require the Company to continually
modify or alter methods of operations at costs which could be substantial. The
Company believes that it is in substantial compliance with all material federal
and state laws and regulations governing its operations.
The Company believes that its Proprietary Electroplating Process will be
subject to less environmental regulation because the Company's Proprietary
Electroplating Process does not use a lead based interconnect technology and
generates very small quantities of hazardous waste. As a result, the Company
has applied for and anticipates receiving a zero percent (0%) emissions permit
from the EPA.
Compliance with federal and state environmental laws and regulations did
not have a material effect on the Company's capital expenditures, earnings or
competitive position during fiscal year ended September 30, 1996. Similarly,
capital expenditures to comply with such laws and regulations are not expected
to be material in the fiscal year ending September 30, 1997.
INTELLECTUAL PROPERTY
CELLULAR PHONE ANTENNAS AND PARTICLE INTERCONNECT TECHNOLOGY
The Company will rely on a combination of patents, patent applications,
trademarks, copyrights and trade secrets to establish and protect its
proprietary rights in the Antenna Technology and PI Technology and the
Proprietary Electroplating Process. The electron tube
26
<PAGE>
technology utilizes no intellectual property rights belonging to the Company.
The Company currently owns seven U.S. patents (which expire from February 14,
2006 to October 15, 2013) on the PI Technology and seven patent applications,
six related to the PI Technology and one relating to the Antenna Technology.
Prior to the Company's acquisition of Particle California, Mr. Louis
DiFrancesco, the inventor of the PI Technology, or companies he controlled,
granted two exclusive and three nonexclusive licenses to use the patents and
patent applications on the PI Technology to the following Companies: Exatron
Automatic Test Equipment Inc., with an exclusive license to use the PI
Technology for sockets for use in automatic test equipment; Acsist Associates
Inc., now known as Johnson-Matthey Laminates Division; MicroModule Systems Inc.,
with an exclusive license for thin film products; Multiflex Inc.; and Myers
Consulting Inc. Mr. DiFrancesco, and not the Company, will receive any royalty
payments or other compensation received under the terms of these licenses. In
addition, nothing prohibits these licensees from competing with the Company in
the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Trends and Uncertainties."
The Dual Resonance Application has been accepted for filing by the United
States Patent and Trademark Office. The Company has subsequently filed
extensions to the Dual Resonance Application to cover additional features made
available through the use of the Antenna Technology.
The Company also owns certain proprietary techniques and trade secrets
relating to a Proprietary Electroplating Process. The Company recognizes the
benefits associated with developing a portfolio of corporate intellectual
property, particularly during the new product development process, and is
pursuing patentability searches and activities on several technologies. There
can be no assurance that patents will be issued from any of the pending
applications, or that any claims allowed from existing or pending patents will
be sufficiently broad enough to protect the Company's technology. While the
Company intends to vigorously protect its intellectual property rights, there
can be no assurance that any patents held by the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. Litigation may be necessary to enforce
the Company's patents, patent applications, trade secrets, licenses and other
intellectual property rights, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business and results of
operations regardless of the final outcome of the litigation. Despite the
Company's efforts to maintain and safeguard its proprietary rights, there can be
no assurances that the Company will be successful in doing so or that the
Company's competitors will not independently develop or patent technologies that
are substantially equivalent or superior to the Company's technologies.
The telecommunications and interconnect industries are characterized by
uncertain and conflicting intellectual property claims. The Company has in the
past and may in the future
27
<PAGE>
become aware of the intellectual property rights of others that it may be
infringing, although it does not believe that it is infringing any third party
proprietary rights at this time. To the extent that it deems necessary, the
Company may license the right to use certain technology patented by others in
certain products that it manufactures. There can be no assurance that the
Company will not in the future be notified that it is infringing other patent
and/or intellectual property rights of third parties. In the event of such
infringement, there can be no assurance that a license to the technology in
question could be obtained on commercially reasonable terms, if at all, that
litigation will not occur or that the outcome of such litigation will not be
adverse to the Company. The failure to obtain necessary licenses or other
rights, the occurrence of litigation arising out of such claims or an adverse
outcome from such litigation could have a material adverse effect on the
Company's business. In any event, patent litigation is expensive, and the
Company's operating results could be materially adversely affected by any such
litigation, regardless of its outcome.
The Company also seeks to protect its trade secrets and proprietary
technology, in part, through confidentiality and non-competition agreements,
among other practices and procedures, with employees, consultants and other
parties. There can be no assurance that these agreements will not be breached,
that the Company will have adequate remedies for any breach, or that the
Company's trade secrets, such as the Proprietary Electroplating Process,will not
otherwise become known to or independently developed by others. In addition, the
laws of some foreign countries do not offer protection of the Company's
proprietary rights to the same extent as do the laws of the United States.
EMPLOYEES
As of September 30, 1996, the Company and its three active wholly owned
subsidiaries had 127 employees. None of the Company's employees is represented
by a labor union or is subject to a collective bargaining agreement. The
Company believes that its relations with its employees are satisfactory.
ITEM 2. PROPERTIES
PRINCIPAL EXECUTIVE OFFICES
The principal executive office of the Company is located at 999 West
Hastings Street, Suite 1750, Vancouver, B.C., Canada V6C 2W2. The Company
leases this office space pursuant to a lease that expires on July 31, 2001. The
monthly lease payments are $3,000.
PRINCIPAL CORPORATE OFFICES
The principal corporate office of the Company is located at 7201 E.
Camelback Road, Suite 250, Scottsdale, Arizona 85251. The Company leases this
office space. The monthly lease payments are approximately $3,500 pursuant to a
lease that expires July 31, 2001.
28
<PAGE>
PI CORP.
The Company conducts operations on a 10-acre site located at 3550 South
Marksheffel Road, Colorado Springs, Colorado. The building has 45,000 square
feet with 22,000 square feet currently allocated for production. The facility
also includes two 1000 square feet security vaults for storage of finished
products prior to shipping. The Company leases this facility pursuant to a
lease that expires on July 31, 1998. The monthly lease payments for the first
year are approximately $23,000, and approximately $23,500 for the remainder of
the term.
CELLULAR MAGNETICS
The Company will manufacture its Antenna Systems and continue to produce
electronic assemblies at its 8,000 square foot manufacturing facility in Arizona
City, Arizona and its 8,600 square foot plant in Sonora, Mexico. The Company
owns the land on which these facilities are located.
CTL
The Company's manufacturing facilities are presently located at 1305 17th
Avenue, Santa Cruz, California 95062. The current leased premises comprise
approximately 8,000 square feet at a monthly lease cost of approximately
$10,000. The Company has entered into a lease agreement dated June 16, 1995
with the City of Watsonville, California, for a new manufacturing facility
consisting of approximately 21,600 square feet. Construction of this facility
began in March 1996, with an anticipated final occupancy date of February 1997.
The Company will initially occupy approximately 12,000 square feet at the
facility and will sublet the remainder until such time as it requires additional
space. The lease is for a period of 15 years with an option to renew for 3
successive five-year terms. The total lease cost will be approximately $15,000
per month, exclusive of any sublease revenues.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings (other than routine litigation incidental to
the business) to which the Company (or any officer or director of the Company,
or any affiliate or owners of record or beneficially of more than 5% of the
common stock) to management's knowledge, is a party or to which the property of
the Company is subject, is pending and no such material proceedings are known by
management of the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no meetings of security holders during the period covered by
this report.
29
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is presently traded on the over-the-counter market on the
OTC Bulletin Board maintained by the National Association of Securities Dealers,
Inc. (the "NASD") The NASDAQ symbol for the Common Stock is "INCE." The
following table sets forth the range of high and low bid quotations for the
Common Stock of each full quarterly period during the fiscal year or equivalent
period for the fiscal periods indicated below. The quotations were obtained
from information published by the NASD and reflect interdealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions. The average for the closing bid and asked prices for the Common
Stock was $4.0625 on December 20, 1996.
<TABLE>
<CAPTION>
1995 Fiscal Year High Low
- ---------------------- ------- ------
<S> <C> <C>
December 31, 1994 $ 5.13 $ .25
March 31, 1995 3.69 .50
June 30, 1995 2.00 .625
September 30, 1995 .825 .625
1996 Fiscal Year
- ----------------------
December 31, 1995 $ 1.625 $.625
March 31, 1996 1.9375 1.00
June 30, 1996 5.75 2.00
September 30, 1996 5.50 2.75
</TABLE>
As of December 20, 1996, there were 272 record holders of its Common Stock.
Based upon information provided to the Company by persons holding securities
for the benefit of others, it is estimated that the Company has in excess of
3,200 beneficial owners of its Common Stock as of December 20, 1996.
DIVIDEND POLICY
While there are no restrictions prohibiting the Company from paying dividends
to its shareholders, the Company has not paid any cash dividends on its Common
Stock in the past and does not anticipate paying any dividends in the
foreseeable future. Earnings, if any, are expected to be retained to fund
future operations of the Company. There can be no assurance that the Company
will pay dividends at any time in the future.
30
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
The Company made the following unregistered sales of its securities from
October 1, 1995 through September 30, 1996./(1)(2)/
<TABLE>
<CAPTION>
TITLE OF
DATE OF SALE SECURITIES AMOUNT CONSIDERATION PURCHASER
- ------------ ---------- -------- ------------- ---------
<S> <C> <C> <C> <C>
1) 11/9/95 Options to Purchase 700,000 Agreement to serve as Gordon J. Sales
Common Stock, at Officers, Directors & Mark S. Pierce
an exercise price of Counsel to the Company Terry W. Neild
$.50 per share Corporate Advisors, Inc.
2) 11/9/95 Options to Purchase 265,000 Agreement to Continue 10 Employees of California Tube
Common Stock, at Employment at CTL and to Laboratories, Inc.;
an exercise price of provide consulting S. Wilde and Alan M. Smith
$.50 per share services to the Company
3) 12/22/95 Options to Purchase 716,180 Agreement to Provide 1. Communique Media Services, Ltd.
Common Stock, at Consulting Services to 2. Financial Power Network, Inc.
an exercise price of the Company 3. James O. Gray
$.50 per share 4. Admiral House
4) 2/1/96 Options to Purchase 800,000 Agreement to provide James O. Gray
Common Stock, at consulting services to L.L. Ross
an exercise price of the Company and for past Wendy S. Gobbett
$.75 per share for services of consultants
650,000 shares and
$1.25 per share for
150,000 shares
5) 3/3/96 Common Stock 96,606 Legal Services - valued Corporate Consultancy Services, Ltd.
at $39,751
6) 3/28/96 Common Stock 126,761 Contribution to ESOP California Tube Laboratory, Inc.
valued at $1.25 per Stock Bonus Employee Stock
share for $158,451.15 Ownership Plan & Trust
7) 3/29/96 Options to Purchase 550,000 Agreement to provide Quidquia Management
Common Stock, at consulting services to Rocha Holdings, Ltd.
an exercise price of the Company
$.50 per share for
300,000 shares and
$.75 per share for
250,000 shares
8) 5/9/96 Common Stock 400,000 Conveyance of Land, Sonora Station, Ltd.
Recorded at $1,000,000 Muriel J. Fulton
Barbara J. Drew
Darren Begley
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
9) 6/3/96 Options to Purchase 380,000 As consideration for past David Blank
Common Stock, at services as employees of James Martin
an exercise price of CTL Lance Mullins
$.50 per share Tony Wynn
10) 6/12/96 Options to Purchase 400,000 As consideration for Jeffrey Halbirt
Common Stock, at consulting services and as Alan M. Smith
an exercise price of an incentive to remain an
$.50 per share officer of the Company
11) 5/17/96 Common Stock 14,780 Legal Services - valued at Charmirathor, Inc.
$16,554
12) 7/10/96 Warrants to acquire 330,159 Services as Placement Swartz Investments, LLC.
Common Stock, at Agent
a price of $3.9375
per share
13) 9/3/96 Common Stock 1,400,000 Exchange of shares of Five (5) shareholders of Particle
Particle Interconnect, Inc. Interconnect, Inc.
in a Triangular Merger,
which was accounted for
as an immaterial pooling
of interests.
14) 10/8/96 Common Stock 277,778 Exchange of shares of Three (3) shareholders of
A.C. Magnetics, Inc. in A.C. Magnetics, Inc.
Triangular Merger, with a
total share value of
$1,000,000.
15) 9/3/96 Options to Purchase 800,000 Agreement to serve as Alan M. Smith
Common Stock, at Officers, Counsel or Corporate Advisors, Inc.
an exercise price of Consultant to Company 521508 B.C. Ltd.
$4.00 per share
16) 9/3/96 Options to Purchase 230,000 Agreement to serve as Certain employees of PI Corp.
Common Stock, at officers or employees of
an exercise price of the Company.
$4.00 per share
</TABLE>
_______________
/(1)/ The above information does not include the sale of 1,000 shares of the
Company's Series B Preferred Stock on July 10, 1996 made under Regulation S of
the Securities Act of 1933, as amended. This transaction was previously
reported in the Company's Current Report on Form 8-K dated July 10, 1996.
/(2)/ During the period commencing September, 1996 through December 31, 1996,
certain holders of the Series B Preferred Stock, pursuant to the Certificate of
Designation, converted a total of 677 shares of Series B Preferred Stock into
2,238,979 shares of Common Stock which were issued without registration pursuant
to the exemption provided by Regulation S.
32
<PAGE>
UNDERWRITERS
No underwriter was involved in any of the transactions described above, except
that Swartz Investments, LLC ("Swartz") was engaged as selling agent in
connection with the sale of the Company's Series B Preferred Stock and warrants
to acquire Common Stock and was paid compensation equivalent to 11% of the
aggregate funds raised therein. In addition, Swartz received warrants to
purchase Common Stock equal to 10% of the aggregate securities sold, assuming
that the holders of the Series B Preferred Stock and related warrants, converted
their Series B Preferred Stock or exercised their warrants at the Fixed
Conversion Price (as defined below).
EXEMPTION FROM REGISTRATION CLAIMED
All of the sales by the Company of its unregistered securities were made by
the Company in reliance upon Section 4(2) of the Securities Act of 1933, as
amended. All of the individuals who purchased the unregistered securities were
all known to the Company and its management, through pre-existing business
relationships, as long standing business associates, friends, employees,
relatives or members of the immediate family of management. All purchasers were
provided access to all material information which they requested and all
information necessary to verify such information and were afforded access to
management of the Company in connection with their purchases. All purchasers of
the unregistered securities acquired such securities for investment and not with
a view toward distribution, acknowledging such intent to the Company. All
certificates or agreements representing such securities that were issued
contained restrictive legends, prohibiting further transfer of the certificates
or agreements representing such securities, without such securities either being
first registered or otherwise exempt from registration in any further resale or
disposition.
TERMS OF WARRANT EXERCISE
The material terms of the warrants received by Swartz are set forth in Section
3 of the Warrant Agreement included as Exhibit 4.3 to this Report and provides
as follows:
Payment of Warrant Exercise Price.
----------------------------------
The Exercise Price ("Exercise Price") shall equal $3.9375 ("Initial
Exercise Price") or, if the Date of Exercise is more than one (1) year
after the Date of Issuance, the lesser of (i) the Initial Exercise Price or
(ii) the "Lowest Reset Price", as that term is defined below. The Company
shall calculate a "Reset Price" on each anniversary date of the Date of
Issuance which shall equal one hundred percent (100%) of the average
Closing Price of the Company's Common Stock for the five (5) trading days
ending on such anniversary date of the Date of Issuance. The "Lowest Reset
Price" shall equal the lowest Reset Price determined on an anniversary date
of the Date of Issuance preceding the Date of Exercise, taking into
account, as appropriate, any adjustments made pursuant to Section 5 of the
Warrant Agreement.
For purposes hereof, the term "Closing Price" shall mean the closing
price on the National Association of Securities Dealers Automated Quotation
System ("Nasdaq") Small Cap
33
<PAGE>
Market or OTC Bulletin Board, or if no longer traded on the Nasdaq Small
Cap Market or OTC Bulletin Board, the closing price on the principal
national securities exchange or the National Market System on which the
Common Stock is so traded and, if not available, the mean of the high and
low prices on the principal national securities exchange or the National
Securities Exchange on which the Common Stock is so traded.
Payment of the Exercise Price may be made by either of the following,
or a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, certified check or cashiers check or wire
transfer; or
(ii) Cashless Exercise: surrender of the Warrant at the principal
office of the Company together with notice of cashless election, in which
event the Company shall issue Holder a number of shares of Common Stock
computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to
Holder.
Y = the number of shares of Common Stock for which the Warrant
is being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes hereof, the "Market Price" shall be defined as the
average closing price of the Common Stock for the five (5)
trading days prior to the Date of Exercise of the Warrant (the
"Average Closing Price"), as reported by the National
Association of Securities Dealers Automated Quotation System
("NASDAQ"), or it the Common Stock is not traded on NASDAQ,
the price in the over-the-counter market; provided, however,
that if the Common Stock is listed on a stock exchange, the
Market Price shall be the average Closing on such exchange. If
the Common Stock is/was not traded during the five (5) trading
days prior to the Date of Exercise, then the closing price for
the last publicly traded day shall be deemed to be the closing
price for any and all (if applicable) days during such five
(5) trading day period.
B = the Exercise price.
34
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
On December 4, 1995, the Company changed its fiscal year end from December
31, 1995 to September 30, 1995 due to the acquisition of the assets and
liabilities of Energy on July 7, 1995 for 5,412,191 shares of Common Stock,
which represented 52% of the Common Stock outstanding at that time. As a result,
for accounting purposes, Energy was considered the acquiring corporation and the
comparative information presented herein represents that of Energy prior to July
7, 1995 and Energy and the Company subsequent to such date. See "-Recent
Acquisitions and Transactions," the Company's Consolidated Financial Statements
and Notes thereto included elsewhere herein, and "Financial Statements and
Supplementary Data-Notes to Consolidated Financial Statements."
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and Notes thereto included elsewhere herein. The Consolidated Statements of
Operations data presented below for the fiscal year ended September 30, 1996,
the eleven months ended September 30, 1995 and the fiscal year ended October 31,
1994 and the Consolidated Balance Sheet data as of September 30, 1996 have been
derived from the Company's Consolidated Financial Statements included herein.
The Consolidated Financial Statements as of and for the fiscal year ended
September 30, 1996 and the eleven months ended September 30, 1995 were audited
by KPMG Peat Marwick, LLP, independent public accountants. The Consolidated
Financial Statements, as of and for the fiscal year ended October 31, 1994 were
audited by Mark Shelley, CPA, independent public accountant. The Statements of
Operations data set forth below for the years ended October 31, 1993 and 1992
and the Balance Sheet data set forth below at October 31, 1994, 1993 and 1992
are derived from audited financial statements not included herein.
35
<PAGE>
<TABLE>
<CAPTION>
Year Eleven Year Year Year
Ended Months Ended Ended Ended Ended
9/30/96 9/30/95/(1)/ 0/31/94 10/31/93 10/31/92
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Total net sales $ 3,405,000 $3,768,000 $2,066,000 $ 60,000 $ 0
Costs & expenses 8,688,000 5,089,000 2,428,000 142,000 43,000
Net loss (5,283,000) (1,321,000) (362,000) (82,000) (43,000)
Net loss per common share $(0.45) $(0.18) $(0.08) $(0.04) $N/A
Weighted average
Number of common
shares outstanding 11,779,787 7,391,275 4,828,007 2,066,979 1,781,880
At period end:
Current assets $10,625,000 $1,796,000 $1,499,000 $ 4,000 $ 0
Current liabilities 2,060,000 1,799,000 1,621,000 82,000 149,000
Working capital (deficit) 8,565,000 (3,000) (122,000) (78,000) (149,000)
Total assets 13,826,000 3,069,000 3,141,000 51,000 0
Long-term debt 86,000 48,000 48,000 175,000 0
Stockholders' equity $11,680,000 $1,222,000 $1,472,000 $ (206,000) $ (149,000)
Cash dividends per
common share 0 0 0 0 0
_______________
/(1)/ On December 4, 1995, the Company changed its fiscal year end from December 31, 1995 to September 30, 1995. The
comparative information presented herein represents that of Modern Industries, Inc. which was deemed to be the acquiring
company in the July 7, 1995 transaction.
</TABLE>
36
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data" and the "Financial Statements and Supplementary
Data."
The statements contained in this report, if not historical, are forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, and involve risks and uncertainties that could cause actual
results to differ materially from the results, financial or otherwise, or other
expectations described in such forward-looking statements. These risks and
uncertainties that may affect the operations, performance, development and
results of the Company's business include those, among others, discussed under
"Trends and Uncertainties" below. Any forward looking statement or statements
speak only as of the date on which such statement was made, and the Company
undertakes no obligation to update any forward looking statement or statements
to reflect events or circumstances after the date on which such statement is
made or to reflect the occurrence of unanticipated events. Therefore, forward-
looking statements should not be relied upon as a prediction of actual future
results.
From 1991 through the fiscal year ended December 31, 1994, the Company was
generally inactive and reported no operating revenues. In July 1995, the
Company completed the acquisition of Energy and its wholly owned subsidiary CTL.
See "Business-Overview." The Company has substantially expanded the scope of
its business and revised its business strategy subsequent to the Energy
transaction through the acquisition of certain patents, patent applications and
proprietary technology relating to the Antenna Technology and the PI Technology.
During this time, the Company has been engaged primarily in directing,
supervising and coordinating the Company's activities in the continuing
development of its new lines of business, in addition to the recruitment of
management and technical personnel and raising new capital to fund its
operations.
The primary asset acquired in the Energy transaction, its wholly owned
subsidiary CTL, continued to generate positive cash flows in the 1996 fiscal
year, although sales decreased 9.6% over the 1995 fiscal year. This decrease in
sales was primarily attributable to a change in product mix, the delayed timing
of certain orders in the fourth quarter of 1996 and production capacity
constraints at CTL's current manufacturing facilities. CTL anticipates moving
to new production facilities in February of 1997, which the Company believes
will eliminate the production capacity constraints.
On November 15, 1995, the Company entered into a research and development
agreement with ASU for the development of the Antenna Technology. To date the
Company has developed several working prototypes of the External Antenna and
anticipates commencing commercial production of both the External Antenna and
Internal Antenna in the 1997 fiscal
37
<PAGE>
year. There can be no assurance, however, that the Company will commence
production in 1997 or thereafter.
On September 30, 1996, the Company formed a wholly owned subsidiary,
Cellular Magnetics, which acquired all the assets and liabilities of M.C. Davis
in exchange for 277,778 shares of Common Stock valued at $1,000,000 and $800,000
in cash. While the Company had initially considered constructing its own
manufacturing facility, this acquisition, accounted for by the purchase method
of accounting, provides the Company with both a facility for the immediate
production of its Antenna Technology and an established manufacturing facility.
The Company intends to continue to produce the miniature and subminiature
electronic components previously produced by M.C. Davis and does not anticipate
that the production of the Antenna Technology will significantly impact its
ability to manufacture these electronic assemblies.
To further diversify the Company's operations and to capitalize on a new
and emerging technology, the Company formed a wholly owned subsidiary, PI Corp.,
which merged with Particle California. The Company exchanged 1,400,000 shares
of Common Stock for all of the outstanding stock of Particle California. The
transaction was accounted for as an immaterial pooling-of-interest as the prior
operations of Particle California are not material to the Company's consolidated
financial position, results of operations or cash flows. Accordingly, the
consolidated financial statements for periods prior to the date of acquisition
have not been restated, except for loss per common share information. From the
date of the merger, PI Corp. has been engaged primarily in the construction of
production capabilities at its plant and the continuing development of the
technology. PI Corp. expects to commence commercial production in 1997.
On July 7, 1996, the Company completed an offering pursuant to Regulation S
under the Securities Act (the "Regulation S Offering") of 1,000 shares of its
Series B Preferred Stock, with attached warrants, pursuant to which it received
net proceeds of $8,900,000. To further improve the Company's working capital
position, the Company completed a Regulation D private offering to institutional
investors on December 15, 1996, of 525 shares of its Series C Preferred Stock,
no par value, pursuant to which it received net proceeds of $4,672,500. See
"-Liquidity and Capital Resources" below.
RESULTS OF OPERATIONS
Fiscal Year Ended September 30, 1996 compared to Fiscal Year Ended
September 30, 1995 (Eleven Months).
Net Sales. Net sales, which are derived solely from the operations of CTL,
decreased 9.6% in 1996 to $3,405,000 from $3,768,000 in 1995. This decrease in
sales is generally due to a combination of a change in the Company's product mix
and the delayed timing of significant orders which were originally planned for
the fourth quarter of 1996, but were not placed until the end of the 1996
calendar year.
38
<PAGE>
In the 1996 fiscal year, net sales of new magnetrons totaled $1,436,000,
accounting for 42% of sales, compared with $1,455,000 or 39% of net sales in
1995. Net revenues from rebuilding of magnetrons decreased from $1,848,000 or
49% of net sales in 1995 to $1,403,000 or 41% of net sales in 1996. This shift
in sales mix was due primarily to the Company's focus on new and more complex
tube types such as certain Pulse magnetrons in an attempt to broaden the
Company's product line and a slow down in orders for rebuilt magnetrons for the
food processing industry in the last two quarters of 1996. It is anticipated
that the sales mix experienced in the final six months of fiscal 1996 will
continue for the foreseeable future.
The Company obtained a significant contract for the manufacture of new and
rebuilt Pulse magnetrons in June of 1996. However, the initial order under this
contract was not placed until September, 1996. As a result, sales were not
recorded under this contract until the first quarter of fiscal 1997, resulting
in a significant increase in sales in the first quarter of 1997 over the final
quarter of 1996.
In conjunction with the changes in sales mix noted above, the Company
experienced a decrease in gross margins to 17% in the 1996 fiscal year from 23%
in 1995. This decrease was due to the increased development time and costs
associated with the new and more complex tube types now being constructed by the
Company. In particular, direct labor costs increased to 34% of net sales in
1996 compared to 30% in 1995, while direct materials costs increased to 26% in
1996 from 25% in 1995. The Company anticipates that gross margins will improve
in the 1997 fiscal year as development of these new tube types is now complete
and production should therefore become more efficient.
In addition to the above, the Company's current electron tube manufacturing
facility is operating at maximum capacity. The Company believes that its move
to the new Watsonville manufacturing facility in February, 1997 should satisfy
the Company's production needs for the foreseeable future. The Company
anticipates that it may experience minor disruptions in production due to the
movement of equipment and the familiarization of employees with the new
manufacturing facility, which disruptions are not expected to have a material
impact on the Company's operations.
Allowance for Doubtful Accounts. The Company's allowance for doubtful
accounts increased from $81,000 in 1995 to $255,000 in 1996. This increase is
primarily a result of the return of certain Pulse magnetrons, a new product of
the Company, for which rework was requested by the purchasers. The Company does
not believe that similar returns will occur in the future.
Selling, General and Administrative Expense. Selling, general and
administrative ("SGA") expenses increased 331.5% from $1,317,000 in 1995 to
$5,683,000 in 1996. This increase is primarily attributable to an increase in
compensation expense of $3,686,000 resulting from the vesting of stock options
to purchase an aggregate of 4,841,000 shares of Common Stock granted to the
Company's officers, directors, employees and consultants in 1996 at exercise
prices below the fair value of the Common Stock on the date of grant. The
Company
39
<PAGE>
recorded deferred compensation expense of $4,017,000 based on these grants. The
options were granted as an incentive to such persons at a time when the Company
did not have sufficient funds to otherwise compensate such persons. In the
future, the Company does not intend to grant stock options in the amounts
granted in 1996 or at less than the fair value of the Common Stock on the date
of grant.
In addition to the above, SGA expenses increased in 1996 due to higher
legal and audit costs ($387,000 in 1996 compared to $102,000 in 1995) associated
with the Company's acquisitions, financings and compensation arrangements, and
increased compensation paid to management and administrative personnel.
In the 1997 fiscal year, it is anticipated that sales and marketing
expenses will increase considerably over 1996 levels. In 1996, sales and
marketing expenses were limited to costs associated with CTL's operations. In
1997, significant costs will be incurred in order to bring the Company's Antenna
Systems and Particle Interconnect Products to market. In addition, the Company
intends to significantly expand its marketing activities for its electron tube
products in an effort to capture a larger share of the market.
Research and Development. Research and development expenses increased from
- -0- in 1995 to $88,000 in 1996. This increase was attributable entirely to
costs associated with research and development of the Company's Antenna Systems.
It is anticipated that research and development activities will materially
increase in 1997 as the Company continues to develop its Antenna Technology and
the PI Technology.
Interest Income and Expense. The Company earned interest income of $36,000
in 1996 compared to -0- in 1995. This increase was due to the investment in
Treasury Bills of undeployed cash resources realized through the sale of its
Series B Preferred Stock. The Company anticipates that interest income will
increase in 1997 as undeployed funds, including those raised through the sale of
its Series C Preferred Stock, will continue to be invested in low risk interest
bearing securities.
Interest expense increased to $90,000 in 1996 compared to $88,000 in 1995
due to continued bank financing and outstanding notes payable to related
parties. The Company repaid these financings and notes with the proceeds
received from the Series B Preferred Stock financing and does not currently
anticipate obtaining further debt financing.
Net Operating Loss Carryforwards for Tax Purposes. As of September 30,
1996 the Company had a net operating loss carryover for federal and California
income tax purposes of approximately $7,376,000 and $3,463,000 respectively.
The federal net operating losses expire from 2007 to 2011. The California net
operating losses expire from 2000 to 2001. The benefit of these net operating
loss carryforwards has not been recorded by the Company as it is uncertain that
the Company will generate sufficient income in future periods to utilize the
loss carryforwards.
40
<PAGE>
Eleven Months Ended September 30, 1995 compared to Fiscal Year Ended
October 31, 1994.
On July 7, 1995, the Company acquired all of the assets and assumed all of
the liabilities of Energy through the issuance of 5,412,191 shares of Common
Stock. The principal asset acquired in this transaction was all of the issued
and outstanding common stock of CTL. Energy had acquired its investment in CTL
on May 1, 1994. In accordance with generally accepted accounting principles,
the results of operations disclosed in the Company's audited consolidated
financial statements include CTL's operations for the eleven-month period ended
September 30, 1995 for the 1995 fiscal year and for the six-month period ended
October 31, 1994 for the comparative 1994 fiscal year.
Net Sales and Gross Margins. The Company's net sales of $3,768,000, which
are attributable entirely to the operations of CTL, increased 82% in the 1995
fiscal year compared to net sales of $2,066,000 in 1994. This increase was due
primarily to the inclusion in the financial statements of eleven months of CTL's
operations in the 1995 fiscal year compared to only six months in fiscal 1994 as
described above. Monthly sales in both the 1995 and 1994 fiscal years averaged
approximately $340,000 due to capacity limitations at CTL's manufacturing
facilities.
Although CTL's average monthly sales remained constant in the 1995 and 1994
fiscal years, the Company experienced a decline in gross margins on sales of
electron tubes to 23% of net sales in 1995 from 42% in 1994. This decrease was
due primarily to increased costs associated with the development and manufacture
of new types of tubes. In addition, the Company sold a greater percentage of
new tubes relative to rebuilt tubes in the 1995 fiscal year compared to 1994.
As new tubes carry a lower gross margin than rebuilt tubes, an overall decline
in gross margins was experienced.
Selling, General and Administrative Expenses. SGA expenses increased by
11% in the 1995 fiscal year due to increased consulting, legal and audit costs
associated with the Energy transaction and the Company's financing activities.
Interest Expense. Interest expense increased to $88,000 in 1995 from
$3,000 in 1994 primarily due to an increase in notes payable to former owners of
CTL and other third parties.
Loss on Investments. During fiscal 1995, the Company purchased
approximately 15% of the outstanding stock of American Microcell for 712,571
shares of common stock at a deemed price of approximately $0.70 per share, or
$500,000. American Microcell was engaged in the research and development of
improved technologies for cellular phones. However, American Microcell proved
unsuccessful in its efforts to finance continuing development of the
technologies acquired, and the rights to these technologies reverted to the
original developers. Accordingly, the Company wrote off its investment in
American Microcell in fiscal 1995.
41
<PAGE>
In addition, the Company sold certain microwave technology rights to a
related party for a note in the face amount of $1,250,000. Due to concerns
about collectibility, the Company reserved the remaining carrying value of
$250,000 in fiscal 1995. In addition, related deferred development costs
totalling $44,631 were written off in fiscal 1995. Losses on investments in
fiscal 1994 were not significant.
Net Operating Loss Carryforwards for Tax Purposes. As of September 30,
1995 the Company had a net operating loss carryover for federal and California
income tax purposes of approximately $1,083,000 and $317,000 respectively. The
federal net operating losses expire from 2007 to 2010. The California net
operating losses expire in 2000. The benefit of these net operating loss
carryforwards has not been recorded by the Company as it is uncertain that the
Company will generate sufficient income in future periods to utilize the loss
carryforwards.
Fiscal 1994 compared to Fiscal 1993
On May 1, 1994, Energy acquired all of the issued and outstanding common
shares of CTL for 762,031 shares of Energy's common stock (valued at $1,069,140)
and notes payable to two major stockholders of CTL for $955,860. In addition,
Energy bought out an employment contract with a former owner of CTL for 222,572
shares of Energy common stock (valued at $312,272). From the date of
acquisition of CTL to October 31, 1994, the Company's net sales were $2,066,462.
For the 1994 fiscal year, the Company incurred a net loss of $362,102.
Prior to the acquisition of CTL, Energy had been engaged in the development
of technologies designed to enhance the production of hydrocarbons from oil
properties. Subsequent to the acquisition of CTL, Energy incurred no additional
costs or revenues relating to the development of these technologies. As
discussed above, this technology was sold in the 1995 fiscal year in exchange
for certain royalty payouts and a note in the face amount of $1,250,000 bearing
interest at 6%. Due to concerns about collectibility, this note was fully
reserved as of September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had cash and cash equivalents on hand
of $4,224,000 as compared to $57,000 at September 30, 1995. This increase in
working capital was primarily due to net proceeds of $8,900,000 received from
the issuance of Series B Preferred Stock and warrants and the proceeds of
$1,342,000 received from sales of Common Stock. In addition, the Company
acquired $167,000 in connection with its acquisition of Particle California and
M.C. Davis and realized proceeds of $174,000 on the sale of property. These
proceeds were used to finance the Company's operating activities of $1,697,000,
to repay bank debt of $190,000 and other debt totalling $994,000, and to acquire
property, plant, equipment and other assets of $472,000.
The Company acquired assets comprised of working capital and property,
plant and equipment, and recorded related goodwill and other intangibles,
totalling $1,649,000 in 1996 as
42
<PAGE>
a result of the business combinations of M.C. Davis and PI Corp. In addition,
the Company acquired land in exchange for 400,000 shares of the Company's common
stock valued at $1,000,000, the assumption of mortgages of $367,000 and
acquisition costs of $57,000. The Company also disposed of equipment held for
resale through the return and cancellation of its Series A Preferred Stock for
which it recognized neither a gain or loss, except for $40,000 in storage costs.
As a result of the transactions described above and the Series C Preferred
Stock financing, the Company believes that current and known future capital
resources will be adequate to fund its operations in the near term. The Company
also believes that sales of its Antenna Systems and Particle Interconnect
Products, both anticipated to commence in the 1997 fiscal year, in combination
with the sales of the electronic assemblies of Cellular Magnetics and the
operations of CTL will provide sufficient funds to meet the Company's capital
requirements for the next two years. At this time, the Company does not intend
to raise additional capital through the sale of additional capital stock or
through the issuance of debt.
In the 1997 fiscal year, the Company expects to make capital expenditures
of approximately $1,700,000. These expenditures will be made on CTL's new
manufacturing facility in Watsonville, California, establishing PI Corp.'s
initial full production line and facility in Colorado Springs, Colorado and
purchasing new equipment for the Company's manufacturing plants in Arizona City,
Arizona and Sonora, Mexico in connection with the manufacture of the Antenna
Systems.
TRENDS AND UNCERTAINTIES
As a result of its activities in 1996, the Company believes that it has
positioned itself for long term success through the acquisition of M.C. Davis
and by obtaining the rights to the Antenna Technology, the PI Technology and the
Proprietary Electroplating Process. The Company's activities in fiscal 1997
will focus on bringing these new technologies to market and on expanding the
existing markets for its electron tube products and the electronic assemblies
previously manufactured by M.C. Davis. However, the future operating results of
the Company are subject to certain trends and uncertainties within the
industries in which the Company is operating and within the Company itself.
OVERVIEW
In general, due to the Company's change of business purpose, the Company
has a limited operating history that is relevant to its current business. The
Company does not anticipate producing significant operating revenues until such
time, if ever, as products developed using the Antenna Technology and PI
Technology are completely developed, manufactured in commercial quantities and
available for commercial delivery, and accepted in the marketplace. There can
be no assurance that the Company's technology and products, if developed and
manufactured, will be able to compete successfully in the marketplace and/or
generate significant revenue. The Company anticipates incurring significant
costs in connection with the
43
<PAGE>
development of its technologies and proposed products and there is no assurance
that the Company will achieve significant revenues to offset anticipated
operating costs. Included in such costs are research and development expenses,
marketing costs, increased capital expenditures for the expansion of its
manufacturing facilities and the research and development of its products, and
general and administrative expenses.
Inasmuch as the Company will continue to have high levels of operating
expenses and will be required to make significant expenditures in connection
with its continued research and development activities, the Company anticipates
that such losses will continue until such time, if ever, as the Company is able
to generate sufficient revenues to exceed its total costs of operation.
SPECIFIC TRENDS AND/OR UNCERTAINTIES
The Company is currently attempting to expand its customer base for its
electron tube business by and through the development of new products and
increased marketing activities. At this time, it is uncertain whether the
Company will be able to create new markets for its products. In addition, the
response of larger competitors in the electron tube markets to the Company's
increased marketing activities is not determinable.
The Company also faces uncertainty over the effects of business slowdowns
relating to the move to its new electron tube manufacturing facilities. While
the Company believes that the impact of this move will be minimal, unanticipated
difficulties may arise, which could result in a negative impact on the Company's
operations.
The acceptance of the Antenna Technology and Antenna Systems by cellular
phone users and OEMs has not yet been tested. While the Company has received
significant expressions of interest from third parties for the Antenna
Technology, the existence and extent of market opportunities for its Antenna
Systems is unknown. In addition, the response of competitors to the marketing
of the Antenna Systems is unknown at this time.
The Company's PI Technology is currently in the development stage and the
marketability of the PI products has not yet been tested. The PI Technology is
currently being utilized by third parties in limited applications under licenses
granted from Louis DiFrancesco, the developer of the PI Technology or from
companies he previously controlled such as Particle California. The wide spread
acceptance of the PI Technology and the Particle Interconnect Products by the
market has yet to be tested by the Company. In addition, no prediction can be
made as to competitive responses in the market place should the PI Technology
and the Particle Interconnect Products prove successful. Moreover, the
licensees of the PI Technology could compete directly with the Company in the
markets it intends to enter. If such licensees desire to do so, Mr. Louis
DiFrancesco, and not the Company, would receive any increase in royalty payments
due to such success.
44
<PAGE>
The Company is operating in three diverse businesses with different
operating and management requirements. As the operations of the Company expand
there will be a requirement for increased management expertise. The Company is
currently seeking to expand its management complement, particularly in the
marketing field, to cope with the anticipated growth in the Company's
operations.
PENDING ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets to Be Disposed Of," ("SFAS No. 121") which establishes
methods for determining when an impairment of long-lived assets has occurred and
for measuring the impairment of long-lived assets. The implementation of SFAS
No. 121 in the Company's 1997 fiscal year is not expected to have a material
effect on the Company's consolidated results of operations or financial
condition.
The FASB also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") which encourages, but does not require,
employers to adopt a fair value method of accounting for employee stock-based
compensation, and which requires increased stock-based compensation disclosures
in lieu of expense recognition. The Company expects to continue to use the
intrinsic value-based method of Accounting as allowed under SFAS No. 123. The
implementation of SFAS No. 123 in the Company's 1997 fiscal year is not expected
to have a material effect on the Company's reported consolidated results of
operations or financial position.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related financial information
required to be filed are indexed on page F-2 and are incorporated herein.
ITEM 9. CERTIFIED PUBLIC ACCOUNTANTS
In connection with the audits of the Company's Consolidated Financial
Statements for the year ended September 30, 1996, the eleven-month period ended
September 30, 1995 and the year ended October 31, 1994, there were no
disagreements or reportable conditions between the Company and either KPMG Peat
Marwick LLP or Mark Shelley, CPA on accounting or financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and significant employees of the Company
are as follows:
<TABLE>
<CAPTION>
Name and Age Position Period of Service
------------ -------- -----------------
<S> <C> <C>
Gordon J. Sales (59) Director, President and Chief July 7, 1995 to Present
Executive Officer
Terry W. Neild (56) Director and Executive Vice July 7, 1995 to Present and
President Director since October 23,
1996 to Present
Alan M. Smith (45) Director, Secretary, Treasurer July 7, 1995 to Present and
and Chief Financial Officer Director since June 1996 to
Present
Theodore A. Waibel (59) Director November 22, 1996 to Present
Charles E. Bauer, Ph.D. (46) Director November 22, 1996 to Present
Steven D. Clark (38) President of PI Corp. October 22, 1996 to Present
Lawrence DiFrancesco (48) Executive Vice President and September 3, 1996 to Present
Chief Operations Officer of PI
Corp.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Patricia H. Grihalva (52) Chief Financial Officer and September 3, 1996 to Present
Assistant Secretary of PI Corp.
Jerry W. Tooley (53) President and Chief Executive October 14, 1996 to Present
Officer of Cellular Magnetics
David Putnam (50) Chief Financial Officer of October 14, 1996 to Present
Cellular Magnetics
James D. Martin (40) Vice President, CTL February, 1977 to Present
Anthony P. Wynn (53) Vice President, CTL January, 1979 to Present
David E. Blank (62) Vice President, CTL July, 1989 to Present
</TABLE>
The directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. The officers are
elected by the Board of Directors at its annual meeting immediately following
the shareholders' annual meeting and hold office until they resign or are
removed from office. There are no family relationships that exist between any
director, executive officer, significant employee or person nominated or chosen
by the Company to become a director or executive officer. The Company has not
established an executive committee of the Board of Directors or any committee
that would serve similar functions such as an audit, incentive compensation or
nominating committee.
In connection with its merger with Particle California, the Company agreed to
appoint Lawrence DiFrancesco to the Board of Directors and elected Louis
DiFrancesco as Chief Technical Officer of Particle Interconnect. Mr. Lawrence
DiFrancesco subsequently resigned from the Board of Directors on October 23,
1996. Mr. Louis DiFrancesco resigned as Chief Technical Officer of PI Corp. and
now serves as a paid consultant to PI Corp.
In connection with the Company's purchase of assets from Energy, Mr. Sales was
appointed as Director and Chief Executive Officer of the Company and Messrs.
Neild and Smith were appointed as officers of the Company.
BIOGRAPHICAL INFORMATION ON OFFICERS AND DIRECTORS AND SIGNIFICANT EMPLOYEES
GORDON J. SALES. Mr. Sales has been President, Chief Executive Officer and a
Director of the Company since July 7, 1995. In addition, he has been President
and Chief Executive Officer of the Company's subsidiaries, CTL and Particle
Interconnect, since May 1, 1994 and September 3, 1996, respectively. Mr. Sales
also has been President, Chief Executive Officer and a Director of Energy since
March of 1993. Prior to his association with the Company, its parent and
subsidiary, Mr. Sales was involved in the building supply, forest products and
real estate industries. During the years 1977 to 1993, Mr. Sales was President
of his privately owned holding company, which had interests in truck parts
manufacturing, wood fibre processing and commercial real estate development.
Mr. Sales devotes substantially all of his professional time to the business
affairs of the Company.
47
<PAGE>
TERRY W. NEILD. Mr. Neild became an Executive Vice President of the Company
on July 7, 1995 and was appointed to the Board of Directors on October 23, 1996.
From August 1, 1993 to September 26, 1995, he served as President and Chief
Operating Officer of Energy. Prior to that time Mr. Neild was self-employed as
a business and financial consultant. Mr. Neild is a Certified Management
Accountant. Mr. Neild served as Chairman and Chief Executive Officer of Clearly
Canadian Beverage Corp. ("Clearly Canadian") from February 1986 to March 1989,
and as Chairman and Chief Executive Officer of Clearly Canadian's majority
shareholder, Camfrey Resources, Ltd., from March 1989 to February 1990. Mr.
Neild has been a Director of Baywest Capital Corp., MacNeill International
Corp., North American Contractors, Ltd., Barwell Development Corp., and Crest
Realty and Development Ltd. Mr. Neild devotes substantially all of his
professional time to the business affairs of the Company.
ALAN M. SMITH. Mr. Smith has been Secretary and Chief Financial Officer of
the Company since July 7, 1995 and a director since June 12, 1996. Mr. Smith is
a Chartered Accountant practicing in Vancouver, British Columbia, Canada. Mr.
Smith established a financial consulting practice in Vancouver, Canada in 1985
and in 1990 obtained his license to practice as an independent accountant. He
has been a member of the Institute of Chartered Accountants of Ontario since
1978 and of the Institute of Chartered Accountants of British Columbia since
1981. Mr. Smith devotes substantially all of his professional time to the
business affairs of the Company.
THEODORE A. WAIBEL. Mr. Waibel has served as a director of the Company since
November 22, 1996. Mr. Waibel has been the President and Chief Executive
Officer of T.A.W. Vehicle Concepts, Inc. (an importer of magnesium wheels for
race cars) since March 1996. From March 1991 to March 1996, Mr. Waibel was the
President and Chief Executive Officer of TVX, Inc. (a high technology company
that has developed the placement of a camera on a computer chip for security
applications).
From July 1980 through February 1991, Mr. Waibel was President and Chief
Executive Officer of Ultrak, Inc. (NASDAQ: ULTK), a company he co-founded in
1980. From July 1975 until June 1980, he was Executive Vice President of
Marketing for Alarm Device Manufacturing Co., ADEMCO Division of Pittway
Corporation, Tyosset, New York which had purchased Sontrix, Inc., a public
company co-founded by Mr. Waibel. From October 1969 through July 1975, Mr.
Waibel served as President of Sontrix, Inc., Boulder, Colorado, which developed
a new very successful multi-head ultrasonic system for the security market.
Mr. Waibel is past National Director of the American Electronics Association,
a past member of the Dean's Advisory Council to Dean Firman of the University of
Denver and founded the Alarm Industry Telecommunications Committee in
Washington, D.C.
Mr. Waibel received his BS/BA from the University of Denver with a major in
marketing in 1967.
48
<PAGE>
CHARLES E. BAUER, PH.D. Dr. Bauer has served as a director of the Company
since November 22, 1996. Dr. Bauer has been the Managing Director of TechLead
Corporation, an international consulting firm, since 1990. During his career,
Dr. Bauer has served as Director, Research and Technology of MicroLithics
Corporation, Golden, Colorado. At MicroLithics Corporation, Dr. Bauer was
responsible for a variety of technology programs with the Coors Advanced
Electronics Group, including, MicroLithics Coors Electronic Packaging Company,
two internal research groups of the Coors Ceramic Company and a joint venture
with W. R. Grace & Company. From 1978 through 1989 he was employed by
Tektronix, Incorporated, Beaverton, Oregon, in various capacities as a Material
Scientist/Engineer, Materials Science/Engineering Manager, Engineering
Scientific Manager, Bipolar Products Packaging Unit Manager and Integrated
Circuit Packaging Operations Manager.
Dr. Bauer received his BS in Materials Science and Engineering from Stanford
University in 1972, his MS in Metallurgical Engineering from Ohio State
University in 1975, his PhD in Materials Science and Engineering from Oregon
Graduate Center, Beaverton, Oregon in 1980 and his MBA from the University of
Portland in 1988.
Dr. Bauer has served as Assistant Adjunct Professor in Mechanical Engineering
and Business Administration with the University of Portland, as an Associate
Professor (visiting) in Mechanical Engineering with Florida International
University, Miami, Florida and is currently associated as Assistant Adjunct
Professor, with dual appointment in Mechanical Engineering and Electrical and
Computing Engineering with the University of Colorado. He is currently
Director, Industrial Relations for the Center for Advance Manufacturing and
Packaging of Microwave, Optical and Digital Electronics for the University of
Colorado.
Dr. Bauer served as the President of the Rocky Mountain Chapter, the
Microelectronic Society (ISHM) (1995-96). He has received the Fellow of Society
Award of ISHM (1993) and served as National Technical Vice President (1988-90).
Dr. Bauer is a Director and the Secretary of the Surface Mount Technology
Association (SMTA) and is currently serving as President of the Rocky Mountain
Chapter (1995-96). Dr. Bauer has been a member of the following professional
societies: ASM International (ASM) since 1971, International Electronics
Packaging Society (IEPS) since 1983 and Institute of Electronic and Electrical
Engineering (IEE) since 1993.
Dr. Bauer holds one U.S. Patent on Multilayer Interconnect Circuitry and has
five Patent Applications pending, relating to interconnect circuitry and
packaging. Dr. Bauer has published over 50 technical papers and presentations
in journals and conferences around the world. He founded and is currently
General Chair of Pan Pacific Microelectronics Symposium and Chip Scale Packaging
Advanced Technology Workshop.
SIGNIFICANT EMPLOYEES. The Company considers the following officers of its
subsidiaries as significant employees of the Company
49
<PAGE>
STEVEN D. CLARK. Mr. Clark has served as President of PI Corp. since October
22, 1996. Prior thereto, Mr. Clark worked on the B2 Bomber program as a project
manager in charge of new business acquisitions with Northrop Grumman Corporation
from 1981 to 1996. In addition, Mr. Clark has served as a consultant in the
development of the PI Technology for the past ten years.
LAWRENCE DIFRANCESCO. Mr. DiFrancesco has served as Director, Executive Vice
President and Chief Operating Officer of PI Corp. since September 3, 1996 and he
served as a Director of the Company from September 3, 1996 to October 23, 1996.
From March 1995 through May 1996, Mr. DiFrancesco was employed as an engineer
with Sheldahl Inc., Northfield, Minnesota, a large manufacturer of flex
circuits. From March 1994 through March 1995, Mr. DiFrancesco was employed by
Particle California, working jointly with his brother, Louis DiFrancesco, in the
further development of the PI Technology and the Proprietary Electroplating
Process. From December 1992 through March 1994, he was employed at Exatron-
Accist Associates where he served as Program Coordinator and Process Engineer
for the development of a new, high density, fine pitch, surface mount
interconnect technology. From July 1992 through December 1992, he was employed
as an Engineer with Logical Services, Inc. From 1982 to 1991, he served as a
Project Leader for Hughes Aircraft Company where his responsibilities related to
high volume manufacturing operations.
Mr. DiFrancesco is the co-developer of the PI Technology and the Proprietary
Electroplating Process. He served as the Senior Scientist for Particle
California in an advisory capacity or as an employee from 1991 until September
3, 1996 when it assigned the PI Technology and the Proprietary Electroplating
Process to the Company.
Mr. DiFrancesco received an AAE Electronic Technology degree from Chabot
College, Hayward, California and a Bachelor of Science degree in Electrical
Engineering from Cal Poly, San Luis Obispo, California.
PATRICIA H. GRIHALVA. Ms. Grihalva has been the Chief Financial Officer of
Particle Interconnect since September 3, 1996. Ms. Grihalva has been a
Certified Public Accountant since 1971. She served in a managerial position,
responsible for business valuation and consulting services, litigation support
services and general tax and accounting practice for Carothers & Ito, Certified
Public Accountants, from 1990 to 1996.
JERRY W. TOOLEY. Mr. Tooley has served as President and Chief Executive
Officer of Cellular Magnetics since October 14, 1996. Prior thereto, Mr. Tooley
served as the President of M.C. Davis.
DAVID PUTNAM. Mr. Putnam has served as the Chief Financial Officer of
Cellular Magnetics since October 14, 1996. Prior thereto, Mr. Putnam served as
Vice President and Treasurer of M.C. Davis.
50
<PAGE>
JAMES D. MARTIN, VICE PRESIDENT, CTL. Mr. Martin has been employed by CTL
since February, 1977 and has served as Vice President of CTL since 1993. He has
worked in every department of CTL from production and sales to customer service.
Mr. Martin provides technical support to customers in this highly technical
business and organizes and runs production lines for rebuilding triodes,
cyclotrons and medical linear accelerators.
ANTHONY P. WYNN, VICE PRESIDENT, CTL. Mr. Wynn has served as Vice President
of CTL since January, 1979. Mr. Wynn is a design engineer responsible for
developing a 50kw L-band Magnetron and rebuilds high power magnetrons,
cyclotrons, triodes, medical linear accelerators, electron guns and ion pumps.
He has worked with English Electric Valve Co. (U.K.) and Litton Industries
(U.S.) as a professional microwave engineer in the magnetron tube divisions.
DAVID E. BLANK, VICE-PRESIDENT, CTL. Mr. Blank has been Vice-President of
Engineering at CTL since July, 1989. A graduate of Brunel College, London
University, England and a member of the Institute of Mechanical Engineers, he
has worked in senior engineering positions with Varian Associates, EEV Inc.'s
Relmag Division of Litton Industries. He has designed and developed numerous
magnetrons at various power levels during his career.
51
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning compensation
paid by the Company to the Chief Executive Officer ("CEO") and any other
executive officer whose total annual salary and bonus exceeded $100,000 for the
fiscal year ended September 30, 1996 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------- ------------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options (#) Compensation($)
- --------------------------- ------ --------- -------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Gordon J. Sales, President 1996 $105,917 -0- 700,000/(2)/ -0-
and Chief Executive Officer 1995 -0- -0- 500,000/(2)/ $82,265/(1)/
Alan M. Smith, Director, 1996 93,371 -0- 550,000/(3)/ -0-
Secretary, Treasurer and 1995 15,000 -0- -0- 40,000/(4)/
Chief Financial Officer
Terry W. Neild, Director 1996 40,000 -0- 700,000/(2)/ -0-
and Executive Vice 1995 -0- -0- 500,000/(2)/ -0-
President
________________
/(1)/ Received as compensation as an officer of CTL.
/(2)/ An option to purchase 500,000 shares of Common Stock was originally granted to Messrs. Sales and Neild on July 7, 1995
at an exercise price of $.625 per share. On November 9, 1995 these options were repriced at an exercise price of $.50 per
share. Concurrently, an option to purchase an additional 200,000 shares of Common Stock was granted by the Company to
Messrs. Sales and Neild at the same exercise price. Messrs. Sales and Neild each subsequently transferred options to
purchase 50,000, of the 200,000 shares originally granted, on November 11, 1996 to Alan M. Smith as a gift.
/(3)/ Mr. Smith received additional options to purchase 150,000 shares of Common Stock from Messrs. Sales, Neild and the
Company's general counsel. These options have not been included in the above table as the options were not granted by the
Company.
/(4)/ Received as compensation as a consultant to Energy Corporation and CTL.
</TABLE>
The foregoing compensation table does not include certain fringe
benefits made available on a nondiscriminatory basis to all Company
employees such as group health insurance, dental insurance, long-term
disability insurance, vacation and sick leave. In addition, the Company
makes available certain non-monetary benefits to its executive officers
with a view to acquiring and retaining qualified personnel and
facilitating job performance. The Company considers such benefits to be
ordinary and incidental business costs and expenses. The aggregate value
of such benefits in the case of each executive officer listed in the
above table, which cannot be precisely ascertained but which is less than
10% of the cash compensation paid to each such executive officer, is not
included in such table.
52
<PAGE>
OPTION GRANTS TABLE
The following table provides information relating to the grant of
stock options to the Company's executive officers during the fiscal year ended
September 30, 1996.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM/(1)/
- --------------------------------------------------------------------------------------- -------------------------------------
PERCENT
OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES FAIR MARKET
OPTIONS IN FISCAL EXERCISE VALUE ON EXPIRATION
NAME GRANTED(#) YEAR/(3)/ PRICE($/SH) GRANT DATE/(2)/ DATE 0% ($) 5% ($) 10% ($)
- ----------------- ------------ ---------- ---------- --------------- ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gordon J. Sales 200,000/(4)/ 4.1% .50 .625 11/9/2005 $25,000 $103,760 $223,760
500,000/(4)/ 10.3% .50 .625 7/7/2005 62,500 259,400 559,400
Alan M. Smith 50,000 4.1% .50 .625 11/9/2005 6,250 25,940 55,940
300,000 6.2% .50 4.860 6/12/2006 654,000 1,113,270 1,813,110
200,000 4.1% 4.00 4.750 9/3/2006 150,000 748,500 1,660,500
Terry W. Neild 200,000/(4)/ 4.1% .50 .625 11/9/2005 25,000 103,760 223,760
500,000/(4)/ 10.3% .50 .625 7/7/2005 62,500 259,400 559,400
</TABLE>
_________________
/(1)/ Potential realizable value is based on an assumption that the stock price
of the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the ten-year option term. These numbers
are calculated based on the requirements promulgated by the Securities and
Exchange Commission and do not reflect the Company's estimate of future stock
price growth which may or may not occur.
/(2)/ Computed based on the average closing bid and asked prices on the date the
options were granted.
/(3)/ All options granted were immediately exercisable on the date of grant.
/(4)/ An option to purchase 500,000 shares of Common Stock was originally
granted to Messrs. Sales and Neild on July 7, 1995 at an exercise price of $.625
per share. On November 9, 1995 these options were repriced at an exercise price
of $.50 per share. Concurrently, an option to purchase an additional 200,000
shares of Common Stock was granted by the Company to Messrs. Sales and Neild at
the same exercise price.
/(5)/ The Company granted options to other officers, directors, consultants and
employees, including employees of the Company's subsidiaries, to purchase an
aggregate of 4,841,180 shares of Common Stock during fiscal 1996.
53
<PAGE>
AGGREGATED OPTION EXERCISE AND FISCAL YEAR-END OPTION TABLE
The following table provides information relating to the exercise of stock
options during the fiscal year ended September 30, 1996 by the Company's
executive officers and the 1996 fiscal year-end value of unexercised options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR,
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FY-END/(1)/ AT FY-END($)/(1)/
------------- -------------
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ----------------- ------------------ ------------- --------------- -------------
<S> <C> <C> <C> <C>
Gordon J. Sales -0- -0- 650,000/0/(2)/ $2,315,625/0
Alan M. Smith 200,000 $687,500/(3)/ 150,000/0 534,375/0
200,000/0 12,500/0
Terry W. Neild -0- -0- 650,000/0/(2)/ 2,315,625/0
</TABLE>
______________
/(1)/ The average of the closing bid and asked price of the Common Stock on
December 20, 1996 ($4.0625) was used to calculate the option value.
/(2)/ The holders transferred 50,000 out of an original 200,000 stock options
issued to them on November 9, 1995 to Alan M. Smith at no cost.
/(3)/ The market value of the Common Stock on the date of exercise, June 27,
1996, minus the exercise price of $.50 per share. The average of the closing
bid and asked price of the Common Stock on June 27, 1996 was $3.9375.
DIRECTOR COMPENSATION
An option to purchase 100,000 shares of Common Stock was originally granted
to Mark S. Pierce on July 7, 1995 at an exercise price of $.625 per share. On
November 7, 1995 these options were repriced at an exercise price of $.50 per
share. Concurrently, an option to purchase an additional 100,000 shares of
Common Stock was granted by the Company to Mr. Pierce at the same exercise
price. Mr. Pierce resigned as an officer of the Company effective July 7, 1995
and as a director of the Company on June 12, 1996.
In the future, the Company's Board of Directors intends to pay its non-
employee directors $1,500 for their attendance at each regular or special
meeting of the Board of Directors and award each non-employee director options
to purchase 100,000 shares of Common Stock, which options shall vest 25,000
shares per year for each full year served as a director of the Company.
54
<PAGE>
EMPLOYMENT AGREEMENTS
On September 1, 1996, the Company entered into certain employment
agreements (the "Employment Agreements"), with Gordon J. Sales to serve as
President and Chief Executive Officer of the Company, Alan M. Smith to serve as
Chief Financial Officer of the Company, and Terry W. Neild to serve as Executive
Vice President of the Company (collectively, the "Employees" and individually an
"Employee"). The Employment Agreements are for a period of sixty months
beginning September 1, 1996 and ending August 31, 2001. Any extension or
renewal of the Employment Agreements must occur at least three months prior to
the end of the initial term or any renewal term and absent mutual agreement of
the parties, the failure to conclude such extension or renewal by such date
shall be deemed notice to the Company and the Employee, that the relevant
Employment Agreement shall not be extended. Under each Employment Agreement,
each Employee will be paid an annual salary of $120,000 ("Annual Salary") for
the first year which amount will be increased to $180,000, $240,000, $270,000
and $300,000 on September 1, 1997, 1998, 1999 and 2000, respectively. Each
Employee also is entitled to participate in the Company's bonus and stock option
plans and participate in the customary employee benefits programs maintained by
the Company, including health, life and disability insurance to the extent
provided to other senior executives of the Company.
The Company or an Employee may terminate the applicable Employment
Agreement at any time with or without cause. In the event the Company
terminates an Employment Agreement for cause or an Employee terminates his
Employee Agreement without cause, all of such Employee's rights to compensation
would cease upon the date of his termination. If the Company terminates an
Employment Agreement without cause or the Employee terminates his Employment
Agreement for cause (which is limited to the Company's failure to pay the
Employee his monthly compensation) the Company will pay to the Employee, within
15 days of the effective date of such termination, all compensation and other
benefits that would have accrued and/or been payable to the Employee during the
full term of the Employment Agreement.
In the event of a change in control of the Company, each Employee is be
entitled to receive a lump sum payment equal to $400,000, if the change of
control occurs prior to August 31, 1999, and $430,000 if the change of control
occurs thereafter. A change of control shall be deemed to have occurred when,
as a result of any type of corporate reorganization, execution of proxies,
voting trusts or similar arrangements, a person or group of persons (other than
incumbent officers, directors and principal shareholders) acquires sufficient
control to elect more than a majority of the Board of Directors. The Employment
Agreements also include a non-compete and non-disclosure provisions in which
each Employee agrees not to compete with or disclose confidential information
regarding the Company and its business, during the term of the Employment
Agreement and for a period of one year thereafter.
Additional Employment Agreements. The Company has entered into an
employment agreement with the Company's general counsel under terms
substantially similar to those discussed above. The Company, through its wholly
owned subsidiaries, has also entered into
55
<PAGE>
employment agreements with the following individuals, among others, Steven
Clark, Lawrence DiFrancesco, Patricia Grihalva, Jerry W. Tooley and David
Putnam.
COMPENSATION PURSUANT TO PLANS
STOCK OPTION PLANS
The Company has one stock option plan entitled the Intercell Corporation
1995 Compensatory Stock Option Plan (the "1995 Plan") under which options to
purchase 4,841,180 shares of Common Stock were granted to directors, officers,
employees and consultants of the Company and its subsidiaries in the 1996 fiscal
year.
EMPLOYEE STOCK OWNERSHIP PLAN
In 1988, CTL established an Employee Stock Ownership Plan (the "ESOP") and
a related trust for substantially all of its employees. To participate in the
ESOP, employees of CTL must have worked at least 1,000 hours during the year and
must be employed at the end of the ESOP year. Participants do not vest until
their third year of employment and then vest 20% per year through year seven.
Employer contributions are voluntary and are generally based on a percentage of
eligible payroll, limited to 15%. The contributions for 1995 and 1994 were
approximately $158,000 and $247,000, respectively, and were recognized as
compensation expense. The Company discontinued the ESOP in 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a compensation committee, all decisions on the
compensation of executive officers and directors of the Company are made by the
full Board of Directors. In the preceding fiscal year the following members of
the Board of Directors participated in discussions involving the compensation of
executive officers of the Company: Messrs. Sales, Neild, Smith and Pierce.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, and the
rules thereunder require the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and to furnish the Company with copies.
Based solely on its review of the copies of the Section 16(a) forms
received by it, or written representations from certain reporting persons, the
Company believes that, during the last fiscal year, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten-percent
beneficial owners were complied with except that Alan M. Smith failed to timely
file a report on Form 4 reporting the grant of an option to purchase 50,000
shares of Common Stock on November 9, 1995 until June 1996.
56
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of outstanding shares of Common Stock as of December 20, 1996, by (i)
each person known by the Company to own beneficially five percent or more of the
outstanding shares of Common Stock, (ii) the Company's directors, Chief
Executive Officer and executive officers whose total compensation exceeded
$100,000 for the last fiscal year, and (iii) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Name and Address of Percentage of
Beneficial Owner Number of Shares Class/(6)/
- ------------------- ---------------- -----
<S> <C> <C>
Energy Corporation
999 West Hastings St., Suite 1750
Vancouver, B.C., V6C 2W2 5,412,191/(1)/ 31.17%
Gordon J. Sales, Chief Executive Officer
999 West Hastings St., Suite 1750
Vancouver, B.C., V6C 2W2 1,383,334/(1)(2)/ 7.97
Terry W. Neild, Executive Vice President
7201 E. Camelback Rd., Suite 250
Scottsdale, AZ 85251 1,383,334/(2)/ 7.97
Alan M. Smith, Chief Financial Officer
999 West Hastings St., Suite 1750
Vancouver, B.C., V6C 2W2 850,000/(3)/ 4.89
Cheri L. Perry
3236 Jellison Street
Wheat Ridge, CO 80033 1,351,340/(4)/ 7.78
Theodore A. Waibel, Director
890 S. Coors Drive
Lakewood, CO 80228 -0-/(5)/
Charles E. Bauer, Director
31321 Island Drive
Evergreen, CO 80439 -0-/(5)/
All officers and directors as a group
(5 persons) 3,616,668 21.69
</TABLE>
57
<PAGE>
_______________
/(1)/ Mr. Sales is President and a Director of Energy but does not beneficially
own any shares of common stock of Energy. Accordingly, the Company does not
believe Mr. Sales is the beneficial owner of the shares of Common Stock held by
Energy. Mr. Sales disclaims beneficial ownership thereof and, consequently, its
ownership is not attributed to or included in his ownership. Energy currently
acts as a holding company, whose only assets is the Common Stock which is being
held for distribution to Energy's shareholders.
/(2)/ Includes 650,000 shares of Common Stock subject to presently exercisable
stock options held by Messrs. Sales and Neild. The options are exercisable at
$0.50 per share and expire July 7, 2005 with respect to 500,000 shares and
November 9, 2005 with respect to 150,000 shares. The holders transferred 50,000
out of an original 200,000 stock options issued to them on November 9, 1995 to
Alan M. Smith at no cost.
/(3)/ Includes 500,000 shares of Common Stock subject to presently exercisable
stock options held by Mr. Smith. The options are exercisable at $0.50 per share
and which expire on June 12, 2006 with respect to 150,000 shares; $0.50 per
share and which expire on November 9, 2005 with respect to 150,000 shares
(transferred to him, at no cost by certain other shareholders) and at $4.00 per
share and which expire on October 21, 2006 with respect to 200,000 shares.
/(4)/ Includes 850,000 shares of Common Stock subject to presently exercisable
stock options held by such individual. The options are exercisable at $0.50 per
share and which expire on July 7, 2005 with respect to 500,000 shares and on
November 9, 2005 with respect to 150,000 shares; and at $4.00 per share and
which expire on October 21, 2006 with respect to 200,000 shares.
/(5)/ The ownership indicated does not include options granted effective
November 22, 1996 to acquire up to one hundred thousand (100,000) shares of the
Common Stock at $4.00 per share. The options vest at the rate of twenty-five
thousand (25,000) shares per year for each year served as a director. As the
options are not presently exercisable, the option holder is not considered to be
the beneficial owner of the shares of Common Stock underlying the Options. The
Options have a term expiring on November 22, 2006.
/(6)/ Based upon 17,364,750 shares issued and outstanding on December 20, 1996.
58
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GRANT OF STOCK OPTIONS
On September 3, 1996, the Company granted options to purchase 400,000
shares of Common Stock, with an exercise price of $4.00 per share, to 521,508
B.C. Ltd. ("B.C. Ltd.") in return for which B.C. Ltd. agreed to promote the sale
of the Company's products and services in Canada. B.C. Ltd. is 521508 B.C.
Ltd., which has its own management, is beneficially owned by the adult children
of Mr. Gordon J. Sales and by the father-in-law of Mr. Terry W. Neild. Both Mr.
Sales and Mr. Neild disclaim any direct or indirect beneficial ownership of or
interest in 521508 B.C. Ltd.
PLAN OF DISTRIBUTION
On July 8, 1996, Energy, which does not currently conduct any operations
and whose only assets consist of the Company's Common Stock and the Company
entered into a certain Plan of Liquidating Dissolution (the "Plan"). The Plan
was approved by a majority of the shareholders of Energy on October 21, 1996 in
accordance with the provisions of the Delaware General Corporation Law. Under
the Plan, the Company has agreed to register the shares of Common Stock issued
to Energy over a period of three years. The 5,412,191 shares of Common Stock
owned by Energy will be distributed to the beneficial owners of the shares of
common stock of Energy as of July 8, 1996, pro-rata as follows: 902,032 on each
of January 31 and April 30, 1997, January 30 and April 30, 1998 and January 31
and April 30, 1999.
The Blonde Bear Trust, the beneficiary of which is the spouse of Alan M.
Smith, the Company's Director, Secretary, Treasurer and Chief Financial Officer,
and Messrs. James D. Martin, Anthony P. Wynn and David E. Blank, significant
employees of the Company, own shares of Energy and will receive approximately
32,500, 20,000, 20,000 and 20,000 shares of Common Stock, respectively, in the
distribution.
NOTES PAYABLE
As of September 30, 1996, the Company had an outstanding promissory note
due to Jerry W. Tooley, the Chief Financial Officer of Cellular Magnetics in the
amount of $80,000 with an interest rate of 8%, due annually. The promissory
note was issued as part of the consideration paid for the purchase of M.C. Davis
consummated on September 30, 1996. This note was repaid in October 1996.
The Company has noninterest bearing notes payable totaling $800,000 due to
the former owners of M.C. Davis in consideration for the purchase of M.C. Davis
consummated on September 30, 1996. These notes were repaid in October 1996. See
also Note 11 to the Company's Consolidated Financial Statements and Notes
thereto included elsewhere herein.
59
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report.
1. FINANCIAL STATEMENTS. See Index to Financial Statements on page
F-2 of this Report.
2. FINANCIAL STATEMENT SCHEDULES. See Index to Financial Statements
on page F-2 of this Report. All other schedules are omitted
since they are not required, are inapplicable, or the required
information is included in the financial statements or notes
thereto.
3. EXHIBITS. The following is a complete list of exhibits filed as
part of this Form 10-K. Exhibit numbers correspond to the
numbers in the Exhibit Table of Item 601 of Regulation S-K.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1* Agreement and Plan of Reorganization, dated July 7, 1995, between the
Company and Modern Industries, Inc.
2.2/(3)/ Plan and Agreement of Merger dated September 3, 1996, by and
between Particle Interconnect, Inc., Particle Interconnect Corporation
and the Company.
2.3/(4)/ Agreement and Plan of Merger dated October 14, 1996, by and
between AC Magnetics, Inc., doing business as M.C. Davis Company,
Cellular Magnetics, Inc. and the Company.
3.1* Articles of Incorporation of the Company, and all amendments thereto,
as amended.
3.2* Bylaws of the Company.
4.1* Form of Common Stock Certificate.
4.2 Certificate of Designation for Series B Preferred Stock is included in
the Company's Articles of Incorporation filed as Exhibit 3.1 and
incorporated herein by reference.
4.3/(1)/ Specimen of Warrant attached to Series B Preferred Stock.
60
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.4 Certificate of Designation for Series C Preferred Stock is included in
the Company's Articles of Incorporation filed as Exhibit 3.1 and is
incorporated herein by reference.
4.5* Form of Warrant attached to Series C Preferred Stock.
4.6* Specimen of Registration Rights Agreement for Series B Preferred
Stock.
4.7* Specimen of Registration Rights Agreement for Series C Preferred
Stock.
4.8* Plan of Liquidating Dissolution of Energy Corporation dated July 8,
1996.
10.1/(2)/ 1995 Compensatory Stock Option Plan.
10.2* Assignment Agreement dated September 3, 1996, assigning certain
Patents and Patent Applications and trade secrets relating to the PI
Technology to the Company, as assignee, and Particle Interconnect,
Inc. as assignor.
10.3* Assignment Agreement dated June 5, 1996, assigning the Patent
Application for the Antenna Technology to the Company, as assignee,
and El-Badawy Amien El-Sharaway, as assignor.
10.4* Employment and Non-Disclosure Non-Competition Agreement, dated
September 1, 1996, between Gordon J. Sales and the Company.
10.5* Employment and Non-Disclosure Non-Competition Agreement, dated
September 1, 1996, between Alan M. Smith and the Company.
10.6* Employment and Non-Disclosure Non-Competition Agreement, dated
September 1, 1996 between Terry W. Neild and the Company.
10.7* Employment and Non-Disclosure Non-Competition Agreement, dated October
22, 1996 between Steven D. Clark and PI Corp.
10.8* Employment and Non-Disclosure Non-Competition Agreement, dated
September 1, 1996 between Lawrence DiFrancesco and PI Corp.
10.9* Employment and Non-Disclosure Non-Competition Agreement, dated
September 1, 1996 between Patricia H. Grihalva and PI Corp.
61
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.10* Employment and Non-Disclosure Non-Competition Agreement, dated October
8, 1996 between Jerry W. Tooley and Cellular Magnetics.
10.11* Employment and Non-Disclosure Non-Competition Agreement, dated October
8, 1996 between David Putnam and Cellular Magnetics.
11* Statement regarding Computation of Per Share Earnings.
21* Subsidiaries of the Company.
23.1* Consent of KPMG Peat Marwick LLP
23.2* Consent of Mark Shelley, CPA
27* Financial Data Schedule.
_________________
* Filed herewith.
/(1)/ Incorporated by reference to the Company's Current Report on Form 8-K
dated July 10, 1996.
/(2)/ Incorporated by reference to the Company's Current Registration Statement
on Form S-8, Registration No. 333-604, effective January 24, 1996.
/(3)/ Incorporated by reference to the Company Current Report on Form 8-K dated
September 3, 1996.
/(4)/ Incorporated by reference to the Company Current Report on Form 8-K dated
October 14, 1996.
(b) Reports on Form 8-K:
1. Form 8-K dated July 10, 1996 regarding the sale of the Company's
Series B Preferred Stock pursuant to Regulation S.
2. Form 8-K dated September 3, 1996 regarding the acquisition of Particle
Interconnect, Inc.
3. Form 8-K dated October 14, 1996 regarding the acquisition of AC
Magnetics, Inc. which was effective September 30, 1996.
4. Form 8-K/A filed December 13, 1996 containing pro forma financial
information on the acquisition of AC Magnetics, Inc.
5. Form 8-K dated December 16, 1996 regarding the sale of 525 shares of
Series C Preferred Stock.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERCELL CORPORATION, (a Colorado
corporation)
Date: January 9, 1997 By /s/ Gordon J. Sales
----------------------------------------------
Gordon J. Sales, Director, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and the capacities and on the dates indicated.
Date: January 9, 1997 By /s/ Gordon J. Sales
----------------------------------------------
Gordon J. Sales, Director, Chief Executive
Officer and President
Date: January 9, 1997 By /s/ Alan M. Smith
----------------------------------------------
Alan M. Smith, Director, Chief Financial
and Accounting Officer and Secretary
Date: January 9, 1997 By /s/ Terry W. Neild
----------------------------------------------
Terry W. Neild, Director and Executive
Vice President
63
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements
September 30, 1996 and 1995 and October 31, 1994
(With Independent Auditors' Reports Thereon)
F-1
<PAGE>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INTERCELL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Reports......................................................... F-3, F-4
Consolidated Balance Sheets - September 30, 1996 and September 30, 1995................... F-5
Consolidated Statements of Operations - Year ended September 30, 1996, Eleven-month
period ended September 30, 1995 and the Year ended October 31, 1994...................... F-6
Consolidated Statements of Stockholders' Equity (Deficit) - Year ended September 30,
1996, Eleven-month period ended September 30, 1995 and the Year ended
October 31, 1994......................................................................... F-7
Consolidated Statements of Cash Flows - Year ended September 30, 1996, Eleven-month
period ended September 30, 1995 and the Year ended October 31, 1994...................... F-8
Notes to Consolidated Financial Statements................................................ F-9
Schedule II - Valuation and Qualifying Accounts........................................... F-24
</TABLE>
The remaining schedules for which provision is made in Regulation S-X are
not required under the instructions contained therein, are inapplicable, or
the information required is included in the financial statements or
footnotes.
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Intercell Corporation:
We have audited the accompanying consolidated balance sheets of Intercell
Corporation and subsidiaries (the Company), formerly Modern Industries, Inc. and
subsidiaries, as of September 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year ended
September 30, 1996, and for the eleven-month period ended September 30, 1995.
In connection with our audits of the aforementioned consolidated financial
statements, we also have audited the financial statement schedule as listed in
Item 14(a)2 of this Form 10-K. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audit 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Intercell
Corporation and subsidiaries as of September 30, 1996 and 1995, and the results
of their operations and their cash flows for the year ended September 30, 1996,
and for the eleven-month period ended September 30, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
San Jose, California
December 6, 1996
F-3
<PAGE>
MARK SHELLEY, CPA
110 S. Mesa Drive #31
Mesa, Arizona 85210
(602) 833-4054
INDEPENDENT AUDITOR'S REPORT
The Shareholders and Board of Directors
Intercell Corporation:
I have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows for the year ended October 31, 1994 of
Intercell Corporation and subsidiary, formerly Modern Industries, Inc. and
subsidiaries, (the Company). These consolidated financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these consolidated financial statements based on my audit.
I have conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows for the year ended October 31, 1994 of Intercell Corporation and
subsidiary in conformity with generally accepted accounting principles.
This updated report above and corresponding financial statements do not
include the balance sheet of the Company as of October 31, 1994. This balance
sheet is not required to be included in the current 1996 filings. This balance
sheet was included in previous filings of the Company. At those times an
unqualified opinion was given for the October 31, 1994 balance sheet.
/s/ Mark Shelley CPA
March 14, 1995
Updated December 31, 1996
F-4
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
---------------------------
Assets 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,224,000 57,000
Short-term investments 3,063,000 -
Accounts receivable, less allowance for returns
and doubtful accounts of $255,000 and $81,000
in 1996 and 1995, respectively 746,000 637,000
Inventories 1,066,000 773,000
Prepaid expenses and other current assets 102,000 79,000
Investment land held for sale 1,424,000 -
Equipment held for sale - 250,000
----------- ----------
Total current assets 10,625,000 1,796,000
Property, plant, and equipment, net 1,418,000 885,000
Goodwill and other intangible assets, net 1,583,000 388,000
Other assets 200,000 -
----------- ----------
$13,826,000 3,069,000
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Loan payable to bank $ - 190,000
Note payable 266,000 71,000
Notes payable to related parties 932,000 495,000
Current portion of long-term debt 120,000 2,000
Accounts payable and accrued liabilities 742,000 829,000
Accounts payable to related parties - 212,000
----------- ----------
Total current liabilities 2,060,000 1,799,000
Long-term debt, less current portion 86,000 48,000
Commitments
Stockholders' equity:
Convertible preferred stock; 10,000,000 shares authorized:
Series A; 210,000 shares issued and outstanding
as of September 30, 1995 - 250,000
Series B; 787 shares issued and outstanding
as of September 30, 1996 (liquidation preference
of $10,225 per share) 5,533,000 -
Warrants to acquire common stock 1,870,000 -
Common stock; no par value; 100,000,000 shares authorized;
15,734,229 and 10,409,244 shares outstanding, respectively 12,187,000 3,109,000
Deferred compensation (331,000) -
Accumulated deficit (7,579,000) (2,137,000)
----------- ----------
Total stockholders' equity 11,680,000 1,222,000
----------- ----------
$13,826,000 3,069,000
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Eleven-month
Year ended period ended Year ended
September 30, September 30, October 31,
1996 1995 1994
-------------- -------------- ------------
<S> <C> <C> <C>
Net sales $ 3,405,000 3,768,000 2,066,000
Cost of goods sold 2,830,000 2,884,000 1,208,000
----------- ---------- ---------
Gross profit 575,000 884,000 858,000
Selling, general, and
administrative expenses 5,683,000 1,317,000 1,182,000
Research and development 88,000 - -
----------- ---------- ---------
Operating loss (5,196,000) (433,000) (324,000)
Other income (expense):
Interest income 36,000 - -
Interest expense (90,000) (88,000) (3,000)
Loss on investments - (795,000) -
Other (33,000) (3,000) (16,000)
----------- ---------- ---------
(87,000) (886,000) (19,000)
----------- ---------- ---------
Loss before income taxes (5,283,000) (1,319,000) (343,000)
Income taxes - 2,000 19,000
----------- ---------- ---------
Net loss $(5,283,000) (1,321,000) (362,000)
=========== ========== =========
Net loss per common share $(.45) (.18) (.08)
=========== ========== =========
Weighted average number of shares of
common stock outstanding 11,779,787 7,391,275 4,828,007
=========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Year ended September 30, 1996, eleven-month period ended
September 30, 1995, and year ended October 31, 1994
<TABLE>
<CAPTION>
Warrants
Convertible to
preferred stock acquire Common stock Additional
----------------------- common ----------------- paid-in Deferred
Shares Amount Stock Shares Amount capital Compensation
------- ------ ----- ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of October 31,
1993 - $ - - 2,352,081 $ 7,000 242,000 -
Conversion of debt to
equity - - - 676,777 2,000 473,000 -
Shares issued in exchange
for prepaid promotion - - - 35,637 - 50,000 -
Shares issued in exchange
for consulting services - - - 14,255 - 20,000 -
Acquisition of California
Tube Laboratory, Inc. - - - 762,031 2,000 1,067,000 -
Employment contract buy out - - - 222,572 1,000 311,000 -
Shares issued in exchange
for microwave technology - - - 178,188 500 250,000 -
Shares issued in exchange
for services - - - 178,188 500 69,000 -
Purchase of treasury stock - - - - - (206,000) -
Net loss - - - - - - -
-------- ----------- --------- ---------- ----------- ---------- ------------
Balances as of October 31,
1994 - - - 4,419,729 13,000 2,276,000 -
Shares issued in lieu of
interest payment to
related party - - - 17,819 - 13,000 -
Shares issued in exchange
for investment in
American Microcell - - - 712,751 2,000 498,000 -
Shares issued in private
placement - - - 85,530 - 60,000 -
Contribution to ESOP - - - 176,362 1,000 246,000 -
Conversion of additional
paid-in capital to common
stock - - - - 3,093,000 (3,093,000) -
Acquisition of Intercell 210,000 250,000 - 4,997,053 - - -
Net loss - - - - - - -
-------- ----------- --------- ---------- ----------- ---------- ------------
Balances as of September
30, 1995 210,000 250,000 - 10,409,244 3,109,000 - -
Repurchase of shares of
Series A preferred stock (210,000) (250,000) - - - - -
Shares of Series B
preferred stock and
warrants
issued in private
placement,
net of issuance costs of
$1,100,000 1,000 7,030,000 1,870,000 - - - -
Shares issued in exchange
for land - - - 400,000 1,000,000 - -
Contribution to ESOP - - - 126,761 158,000 - -
Shares issued to effect
business combination with
Particle Interconnect,
Inc. treated as an
immaterial pooling - - - 1,400,000 8,000 - -
Deferred compensation
related to stock option
grants - - - - 4,017,000 - (4,017,000)
Amortization of deferred
compensation - - - - - - 3,686,000
Exercise of stock options - - - 2,295,180 1,342,000 - -
Conversion of Series B
preferred stock to common
stock (213) (1,497,000) - 588,880 1,497,000 - -
Shares issued in exchange
for services - - - 236,386 56,000 - -
Shares to be issued for
acquisition of M.C. Davis - - - 277,778 1,000,000 - -
Net loss - - - - - - -
-------- ----------- --------- ---------- ----------- ---------- -------------
Balances as of September
30, 1996 787 $ 5,533,000 1,870,000 15,734,229 $12,187,000 - (331,000)
======== =========== ========= ========== =========== ========== =============
</TABLE>
Total
stockholders'
Accumulated equity
deficit (deficit)
----------- -------------
Balances as of October 31, 1993 (454,000) (205,000)
Conversion of debt to equity - 475,000
Shares issued in exchange for
prepaid promotion - 50,000
Shares issued in exchange for
consulting services - 20,000
Acquisition of California Tube
Laboratory, Inc. - 1,069,000
Employement contract by out - 312,000
Shares issued in exchange for
microcave technology - 250,500
Shares issued in exchange for services - 69,500
Purchase of treasury stock - (206,000)
Net loss (362,000) (362,000)
------------ -------------
Balances as of October 31, 1994 (816,000) 1,473,000
Shares issued in lieu of interest
payment to related party - 13,000
Shares issued in exchange for
investment in American Microcell - 500,000
Shares issued in private placement - 60,000
Contribution to ESOP - 247,000
Conversion of additional paid-in
capital to common stock - -
Acquisition of Intercell - 250,000
Net loss (1,321,000) (1,321,000)
------------ -------------
Balances as of September 30, 1995 (2,137,000) 1,222,000
Repurchase of shares of Series A
preferred stock - (250,000)
Shares of Series B preferred stock
and warrants issued in private placement,
net of issuance costs of $1,100,000 - 8,900,000
Shares issued in exchange for land - 1,000,000
Contribution to ESOP - 158,000
Shares issued to effect business
combination with Particle Interconnect, Inc.
treated as an immaterial pooling (159,000) (151,000)
Deferred compensation related to stock
option grants - -
Amortization of deferred compensation - 3,686,000
Exercise of stock options - 1,342,000
Conversion of Series B preferred stock
to common stock - -
Shares issued in exchange for services - 56,000
Shares to be issued for acquisition
of M.C. Davis - 1,000,000
Net loss (5,283,000) (5,283,000)
--------------- -------------
Balances as of September 30, 1996 (7,579,000) 11,680,000
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Eleven-month
Year ended period ended Year ended
September 30, September 30, October 31,
1996 1995 1994
-------------- -------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(5,283,000) (1,321,000) (362,000)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 59,000 97,000 136,000
Loss on investments 795,000 102,000
Loss on sale of property 36,000 - -
Common stock issued for interest, services 56,000 13,000 -
Accrual of ESOP contributions - 158,000 247,000
Amortization of deferred compensation 3,686,000 - -
Changes in operating assets and liabilities:
Accounts receivable 47,000 (167,000) 119,000
Inventories (28,000) (275,000) (208,000)
Prepaid expenses and other current assets 21,000 32,000 -
Accounts payable and accrued liabilities (79,000) 344,000 326,000
Accounts payable to re1ated parties (212,000) 123,000 -
---------- --------- ---------
Net cash (used in) provided by operating
activities (1,697,000) (201,000) 360,000
---------- --------- ---------
Cash flows from investing activities:
Acquisition of property, plant, and equipment (273,000) (31,000) (19,000)
Acquisition of land (57,000) - -
Other assets (142,000) 9,000 (8,000)
Cash acquired in connection with acquisitions 167,000 - 262,000
Purchase of short-term investments (3,063,000) - -
Proceeds from sale of property 174,000 - -
----------- ---------- --------
Net cash (used in) provided by investing activities (3,194,000) (22,000) 235,000
----------- ---------- --------
Cash flows from financing activities:
Proceeds from (payments on) loan payable to bank (190,000) 190,000 -
Payments on notes payable to related parties (495,000) (460,000) -
Proceeds from notes payable - 110,000 -
Payments on note payable (4,017,000) (71,000) (40,000) -
Proceeds from issuance of Series B preferred
stock and warrants 8,900,000 - -
Stockholders' repayment - - (175,000)
Proceeds from sale of common stock 1,342,000 60,000 -
Repayments of long-term debt (428,000) - -
----------- ---------- --------
Net cash provided by (used in) financing activities 9,058,000 (140,000) (175,000)
----------- ---------- --------
Net increase (decrease) in cash and cash equivalents 4,167,000 (363,000) 420,000
----------- ---------- --------
Cash and cash equivalents beginning of year/period 57,000 420,000 -
----------- ---------- --------
Cash and cash equivalents end of year/period $ 4,224,000 57,000 420,000
=========== ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1996 and 1995 and October 31, 1994
(1) DESCRIPTION OF BUSINESS
General
Intercell Corporation (the Company or Intercell), is a Colorado corporation
that invests in companies in the technology industries.
Acquisition of Modern Industries, Inc.
In July 1995, Intercell entered into an Agreement and Plan of
Reorganization with Modern Industries, Inc. (Modern) a Delaware
Corporation. The Company issued 5,412,191 shares of common stock to Modern
in exchange for all of the assets and liabilities of Modern and its wholly
owned subsidiary, California Tube Laboratory, Inc. (CTL).
The 5,412,191 shares issued to Modern represented approximately 52% of the
Company's outstanding common stock upon completion of the transaction. As
such, the transaction was treated for financial reporting purposes as a
purchase of Intercell by Modern. The assets of Intercell have been
recorded at their estimated fair value at the date of acquisition and
Intercell's results of operations have been included in the consolidated
statements of operations subsequent to the date of the acquisition.
Modern's historical share amounts have been adjusted on a retroactive basis
in a manner similar to a reverse stock split.
Acquisition of California Tube Laboratory, Inc.
In May 1994, Modern acquired all of the issued and outstanding shares of
CTL for 762,031 shares of its common stock (valued at $1,069,000) and notes
payable to two major stockholders of CTL for $956,000. Modern also bought
out an employment contract with a former owner of CTL for 222,572 shares of
Modern common stock (valued at $311,000).
CTL is an electronic parts manufacturer located in Northern California.
CTL manufactures, rebuilds, and repairs magnetrons, klystrons, high power
triodes and tetrodes, electron guns, and linear accelerators for customers
located primarily in the United States.
Acquisition of Particle Interconnect, Inc.
In September 1996, Intercell formed a wholly owned subsidiary, Particle
Interconnect Corp. (PI Corp.), a Colorado corporation, which merged with
Particle Interconnect, Inc. (Particle), a California corporation. Particle
is engaged in the development and manufacturing of particle-coated
substrates for integrated circuits and is located in Colorado Springs,
Colorado. The Company exchanged 1,400,000 shares of Intercell common stock
for all of the outstanding stock
(Continued)
F-9
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
of Particle. The transaction was accounted for by the pooling-of-interest
method of accounting. The results of operations of Particle are not
material to the Company's consolidated financial position, results of
operations, and cash flows. Accordingly, the consolidated financial
statements for periods prior to the date of acquisition have not been
restated, except for loss per common share information. The weighted
average number of shares of common stock outstanding and loss per common
share has been restated for all periods presented to reflect the 1,400,000
shares of common stock issued in the transaction.
Acquisition of A.C. Magnetics, Inc.
On September 30, 1996, Intercell formed a wholly owned subsidiary, Cellular
Magnetics Inc., an Arizona corporation, which acquired all the assets and
liabilities of A.C. Magnetics, Inc. dba M.C. Davis, Co. Inc. (M.C. Davis)
in exchange for 277,778 shares of Intercell common stock (valued at
$1,000,000) and $800,000 in cash. M.C. Davis is a manufacturer and
distributor of electrical devices and equipment with manufacturing
facilities near Phoenix, Arizona, and in the province of Sonora, Mexico.
The transaction was accounted for by the purchase method of accounting.
The results of operations for M.C. Davis have not been included in the
Company's consolidated results of operations as the transaction occurred on
the last day of Intercell's fiscal year. The total purchase price of
$1,800,000 has been allocated to the net assets acquired based on their
relative fair values as follows:
Current assets $ 544,000
Property, plant, and equipment 383,000
Goodwill and other intangibles 1,223,000
Current liabilities (293,000)
Other liabilities assumed (57,000)
----------
Total purchase price $1,800,000
==========
The following table presents unaudited pro forma results of operations as
if the acquisition had occurred on November 1, 1994. These pro forma
results have been prepared for comparative purposes only and do not purport
to be indicative of what would have occurred had the acquisition been made
at the beginning of 1995, or indicative of results which may occur in the
future.
1996 1995
---------- ---------
Net sales $5,164,000 5,471,000
Operating loss 5,323,000 531,000
Net loss 5,427,000 1,451,000
Net loss per common share .45 .20
(Continued)
F-10
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Change in Fiscal Year
During the eleven-month period ended September 30, 1995, Intercell changed
its fiscal year-end to September 30. Previously, Intercell had an October
31 year-end. The accompanying consolidated financial statements include
the results of operations and cash flows of Intercell for the year ended
September 30, 1996, the eleven-month period ended September 30, 1995, and
the year ended October 31, 1994.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
Use of Estimates
The preparation of consolidated 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 consolidated financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Cash Equivalents and Short-Term Investments
Cash equivalents are highly liquid investments with a maturity of less than
three months at the date of purchase. Short-term investments consist of
certificates of deposit and short-term debt securities with maturities
greater than three months and less than one year. As of September 30, 1996,
the Company's investments consisted of U.S. government treasury bills of
$3,925,000 and certificates of deposit of $126,000. As of September 30,
1996, investment securities of $988,000 and $3,063,000 are classified as
cash equivalents and short-term investment, respectively.
Investments in debt securities are classified as "available for sale."
Such investments are recorded at fair value, as determined from quoted
market prices, and the cost of securities sold is determined based on the
specific identification method. Unrealized gains and losses, if any, are
reported as a component of stockholders' equity. Unrealized gains and
losses were not significant for any period presented.
Revenue Recognition
Revenues are recognized when earned, generally upon product shipment.
Provision is made for estimated customer returns and warranty costs at the
time of sale.
(Continued)
F-11
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Inventories
Inventories generally are stated at the lower of cost (first in, first out)
or market. Costs incurred in the manufacture of new tubes is recorded on a
standard cost basis, which approximates the first-in, first-out method,
with the costs of raw materials, labor, and overheads adjusted periodically
when actual costs change. Each tube repair is unique and is costed out on
a specific item basis with costs accumulated as incurred. Tubes rebuilt
for the U.S. government follow governmental cost allocation guidelines.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation expense is
provided by use of the accelerated and straight-line methods over the
estimated useful lives of the assets, generally 5 to 12 years for
furniture, equipment, and vehicles and 31 years for buildings.
Goodwill and Other Intangibles
Goodwill and other intangibles, which include costs in excess of fair value
of net assets of businesses acquired, proprietary technology, and trade
names are being amortized over 3 to 15 years using the straight-line
method. The Company periodically evaluates the carrying amount of its
intangibles to determine whether any impairment of the assets has occurred
based on estimated undiscounted future cash flows. This evaluation
necessarily involves significant management judgment and actual results
could differ from the estimates and forecasts used. There were no
adjustments to the carrying value of intangible assets resulting from these
evaluations in 1996, 1995, and 1994. Accumulated amortization amounted to
$61,000 and $28,000 as of September 30, 1996 and 1995, respectively.
Income Taxes
Income taxes are accounted for by the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized.
(Continued)
F-12
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Net Loss Per Common Share
Net loss per common share is computed using the weighted average number of
common shares and dilutive common equivalent shares outstanding during each
period presented. Common equivalent shares consist of stock options that
are computed using the treasury stock method.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting, for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. SFAS No. 121 will be effective for fiscal years beginning after
December 15, 1995, and requires long-lived assets to be evaluated for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company will adopt
SFAS No. 121 in fiscal 1997 and does not expect its provisions to have a
material effect on the Company's consolidated results of operations.
FASB also has issued SFAS No. 123, Accounting for Stock-Based Compensation.
SFAS No. 123 will be effective for fiscal years beginning after December
15, 1995, and will require that the Company either recognize in its
consolidated financial statements costs related to its employee stock-based
compensation plans, such as stock option and stock purchase plans, or make
pro forma disclosures of such costs in a footnote to the consolidated
financial statements.
The Company expects to continue to use the intrinsic value-based method of
Accounting Principles Board Opinion No. 25, as allowed under SFAS No. 123,
to account for all of its employee stock-based compensation plans.
Therefore, in its consolidated financial statements for fiscal 1997, the
Company will make the required pro forma disclosures in a footnote to the
consolidated financial statements. SFAS No. 123 is not expected to have a
material effect on the Company's consolidated results of operations or
financial position.
(3) BALANCE SHEET COMPONENTS
Inventories
A summary of inventories follows:
September 30,
-----------------
1996 1995
---- ----
Raw materials $ 422,000 296,000
Work in process 453,000 477,000
Finished goods 191,000 -
---------- -------
$1,066,000 773,000
========== =======
(Continued)
F-13
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Property, Plant, and Equipment
A summary of property, plant, and equipment follows:
September 30,
-----------------
1996 1995
---- ----
Furniture and fixtures $ 339,000 76,000
Equipment and machinery 845,000 690,000
Land and buildings 282,000 230,000
Leasehold improvements 71,000 -
Vehicles 23,000 -
---------- -------
1,560,000 996,000
Less accumulated depreciation 142,000 111,000
---------- -------
$1,418,000 885,000
========== =======
Accounts Payable and Accrued Liabilities
A summary of accounts payable and accrued liabilities follows:
September 30,
-----------------
1996 1995
---- ----
Accounts payable $ 376,000 208,000
Warranty reserves 130,000 130,000
Accrued employee compensation 191,000 153,000
Accrued ESOP contribution - 158,000
Other liabilities 45,000 180,000
---------- -------
$ 742,000 829,000
========== =======
(4) SUPPLEMENTAL CASH FLOW INFORMATION
For the year ended September 30, 1996, and the eleven-month period ended
September 30, 1995, cash paid by the Company for interest was $87,000 and
$15,000, respectively. Cash paid by the Company for interest in 1994 was
not significant.
(Continued)
F-14
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of noncash investing and financing activities follows:
<TABLE>
<CAPTION>
Eleven-month
Year ended period ended Year ended
September 30, September 30, October 31,
1996 1995 1994
------------- ------------- -----------
<S> <C> <C> <C>
Shares issued in acquisition of Intercell -$250,000 -
Shares issued in exchange for investment in
American Microcell - 500,000 -
Shares issued in exchange for microwave technology - 250,000 -
Contribution to ESOP 158,000 247,000 -
Shares issued in lieu of interest payment to
related party - 13,000 -
Shares issued in acquisition of CTL - - 2,025,000
Conversion of debt to equity - - 475,000
Shares issued in exchange for prepaid promotion - - 140,000
Employment contract buy out - - 311,000
Shares issued in exchange for microwave technology - - 250,000
Shares issued in exchange for services 56,000 - -
Net assets acquired in business combinations 1,649,000 - -
Shares issued in exchange for land 1,000,000 - -
Debt assumed in land acquisition 367,000 - -
Shares to be issued for acquisition of M.C. Davis 1,000,000 - -
Debt incurred in acquisition of M.C. Davis 800,000 - -
Deferred compensation related to stock option grants 4,017,000 - -
Repurchase of shares of Series A preferred stock 250,000 - -
Conversion of Series B preferred stock to
common stock 1,497,000 - -
</TABLE>
(5) EQUIPMENT HELD FOR SALE
On December 29, 1994, Intercell executed an Asset Purchase Agreement with
Asia Skylink Corp. to acquire microwave transmission and associated support
equipment in exchange for 210,000 shares of Series A redeemable convertible
preferred stock. In August 1996, the shares were returned to the Company,
and the equipment was returned to Asia Skylink, Corp. No gain or loss was
recognized by the Company in connection with the reversal of this
transaction.
(6) BANK BORROWINGS
Loan Payable to Bank
In June 1995, the Company obtained a revolving loan for up to $500,000
based on a percentage of eligible assets. This loan expires on December
31, 1996, bears interest at the bank's base rate (8.25% as of September 30,
1996) plus 1/2% for administration fees and an additional 6%, and is
secured by all assets of the Company.
(Continued)
F-15
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Long-Term Debt
Long-term debt is summarized as follows:
September 30,
----------------
1996 1995
---- ----
Note payable to bank; interest at
prime plus 2%; due April 4, 1997;
collateralized by various assets;
repaid in October 1996 $100,000 -
Note payable; noninterest bearing;
due June 1998; collateralized
by building 47,000 -
Note payable to bank; interest at
9.75%; due in 36 monthly payments
of $481; collateralized by a vehicle;
repaid in October 1996 15,000 -
Note payable to bank; interest at
9.75%; due May 2008; secured by
real property; repaid in April 1996 - 50,000
Other 44,000 -
-------- ------
206,000 50,000
Less current portion 120,000 2,000
-------- ------
Long-term debt, net $ 86,000 48,000
======== ======
Future maturities of long-term debt as of September 30, 1996,
are as follows:
Year ending
September 30,
-------------
1997 $120,000
1998 86,000
--------
Total $206,000
========
(Continued)
F-16
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) STOCKHOLDERS' EQUITY
Preferred Stock
As of September 30, 1996 and 1995, the Company is authorized to issue
10,000,000 shares of preferred stock.
In December 1994, the Company issued 210,000 shares of Series A redeemable
convertible preferred stock (Series A preferred) in exchange for microwave
transmission equipment. During 1996, the Series A preferred shares were
surrendered to and canceled by the Company in exchange for the return of
the microwave transmission equipment (see Note 5).
In July 1996, the Company issued 1,000 shares of Series B redeemable
convertible preferred stock (Series B preferred) and detachable warrants
for proceeds of $8,900,000 (net of issuance costs of $1,100,000). Each
share of Series B preferred stock is convertible into common stock at the
exchange rate in effect at the time of the conversion, as described in the
preferred stock agreements, and is subject to appropriate adjustment for
common stock splits, stock dividends, and other similar transactions.
Conversion of the Series B preferred is automatic upon the expiration of
three years from the original date of issuance. The Series B preferred
contain a liquidation preference equal to the original issue price plus 10%
of the original issue price per annum to the date of liquidation. Series B
preferred shares are not entitled to voting rights.
Each share of Series B preferred is accompanied by a detachable warrant to
purchase a number of shares of common stock of the Company equal to 30% of
the original aggregate purchase price of the shares of Series B preferred
divided by a fixed conversion rate of $3.9375 per share, exercisable 105
days after original issuance. As of September 30, 1996, warrants to
acquire 1,092,063 shares of common stock were outstanding. The warrants
will expire if not exercised by July 1, 2001.
Stock Options
In July 1995, Intercell established a Compensatory Stock Option Plan (the
Plan) and reserved 5,000,000 shares of common stock for issuance under the
Plan. In June 1996, an additional 2,000,000 shares were reserved for
issuance under the Plan. Incentive stock options can be granted under the
Plan, at prices not less than 110% of the fair market value of the stock at
the date of grant, and nonqualified options can be granted at not less than
50% of the stock's fair market value at the date of grant or the date the
exercise price of any such option is modified. All stock options expire 10
years from the date of grant.
(Continued)
F-17
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of stock option activity under the Plan follows:
Options outstanding
Shares ---------------------
available Price
for grant Shares per share
----------- ---------- ---------
Balances as of July 1995 5,000,000 - $
Options granted (1,600,000) 1,600,000 0.50
---------- ---------- -----------
Balances as of September 30, 1995 3,400,000 1,600,000 0.50
Additional shares authorized 2,000,000 - -
Options granted (4,841,000) 4,841,000 0.50 - 4.00
Options canceled 150,000 (150,000 0.50
Options exercised - (2,295,000) 0.50 - 2.00
---------- ---------- -----------
Balances as of September 30, 1996 709,000 3,996,000 0.50 - 4.00
========== ==========
As of September 30, 1996, options to purchase approximately 3,366,000
shares of common stock were exercisable.
The Company recorded deferred compensation of $4,017,000 for the difference
between the exercise price and the fair value of the common stock related
to stock options granted in 1996. Certain of the options vested
immediately and, therefore, the related compensation expense of $3,686,000
was recorded at the grant date. The remaining deferred compensation will
be amortized over the vesting period of the options, generally four years.
(8) EMPLOYEE STOCK OWNERSHIP PLAN
CTL has established an Employee Stock Ownership Plan (the Employee Plan)
and a related trust for substantially all of its eligible employees. To
participate in the Employee Plan, employees must have worked at least 1,000
hours during the year and must be employed at the end of the plan year.
Participants do not vest until their third year of employment and then vest
20% per year through year seven. Employer contributions are voluntary and
generally are based on a percentage of eligible payroll, limited to 15%.
In 1995, the Company elected to contribute 126,761 shares of the Company's
common stock valued at $158,000 to the Employee Plan. The Employee Plan
was terminated in 1996, and, as such, the Company has not made any
additional contributions.
(Continued)
F-18
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) PURCHASE OF AMERICAN MICROCELL
During fiscal 1995, the Company acquired approximately 15% of the
outstanding stock of American Microcell in exchange for 712,751 shares of
common stock at a deemed value of approximately $0.70 per share. American
Microcell was engaged in the research and development of improved
technologies for cellular phones. However, American Microcell proved
unsuccessful in its efforts to finance continuing development of
technologies acquired, and the rights to these technologies reverted to the
original developers. Accordingly, the Company's investment in American
Microcell has been written off as a charge to income in the accompanying
1995 consolidated statement of operations.
(10) ADVANCES TO INTERPRETEL, INC.
In anticipation of a merger, the Company advanced $100,000 to Interpretel,
Inc. in January 1995. The proposed merger was not completed and
Interpretel, Inc. repaid $45,000 of the advance and will issue 100,000
shares of Wavetech, Inc. common stock to the Company in fiscal 1997.
(11) RELATED PARTY TRANSACTIONS
Notes Payable
As of September 30, 1995, the Company had an outstanding promissory note
due to a former owner of CTL in the amount of $495,000, bearing interest at
8%. The note was repaid during fiscal 1996.
As of September 30, 1996, the Company had an outstanding promissory note
due to a former owner and current president of M.C. Davis in the amount of
$80,000, bearing interest at 8%, due December 15, 1996. The note was
repaid in October 1996.
As of September 30, 1996, the Company had an outstanding promissory note
due to a former owner of Particle in the amount of $52,000, bearing
interest at 8%, due on demand.
The Company has noninterest bearing notes payable totaling $800,000 due to
the former owners of M.C. Davis in consideration for the purchase of M.C.
Davis consummated on September 30, 1996 (see Note 1). The notes were paid
in full in October 1996.
Purchase of Land
During April 1996, the Company entered into an agreement with a related
party whereby in exchange for 400,000 shares of the Company's common stock
(valued at $1,000,000) and assumption of mortgages of $367,000, the Company
acquired development land located in Arizona. In connection with the
exchange, the Company incurred acquisition costs of $57,000.
(Continued)
F-19
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The land, including acquisition costs, is recorded on the accompanying 1996
consolidated balance sheet as investment land held for sale.
Purchase and Sale of Microwave Technology
In June 1994, the Company purchased one half of the rights to a technology
that utilizes microwaves to enhance the production of oil wells for 178,188
shares of its common stock. The Company already owned the one half interest
in the technology. In January 1995, the Company sold these rights to
Reland International, Inc. (Reland) for certain royalty payouts and a note
receivable with a face amount of $1,250,000, bearing interest at 6%, with
accrued interest payable annually on or before January 15 of each year, and
principal payable on or before January 16, 2000. Due to concerns about
collectibility, this note and related accrued interest was written off as a
charge to income in the accompanying 1995 consolidated statement of
operations.
Operating Leases
CTL leases its principal facility on a month-to-month basis from a
significant stockholder. Monthly rental payments for the facility lease are
$10,000, and the lease expires in August 1999. The Company paid rent
related to this lease of $118,000, $106,000, and $29,000, during 1996,
1995, and 1994, respectively.
The Company leases a facility in Vancouver, Canada, from a executive and
director of the Company with monthly rental payments of $3,000. The lease
expires in August 2001.
(12) COMMITMENTS
Operating Leases
The Company leases office space, manufacturing facilities, and certain
equipment under various operating lease agreements. Future minimum lease
payments under noncancelable leases as of September 30, 1996, are as
follows:
Year ending
September 30,
-------------
1997 $ 513,000
1998 475,000
1999 262,000
2000 254,000
Thereafter 2,048,000
----------
Total $3,552,000
==========
(Continued)
F-20
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Rent expense under operating leases was approximately $277,000, $145,000,
and $116,000 during 1996, 1995, and 1994, respectively.
Litigation
The Company is subject to various legal proceedings and claims. In the
opinion of management, the ultimate liability with respect to these actions
will not materially affect the Company's consolidated financial position or
results of operations.
(13) INCOME TAXES
Income tax expense in 1996 was not significant. In 1995 and 1994, income
tax expense was $2,000 and $19,000, respectively.
Income tax expense differed from amounts computed by applying the federal
statutory income tax rate of 34% to pretax loss as a result of the
following:
Eleven-month
Year ended period ended Year ended
September 30, September 30, October 31,
1996 1995 1994
------------- ------------- -----------
Computed "expected" tax benefit $ (1,616,000) (448,000) (117,000)
State income taxes (442,000) 2,000 19,000
Change in valuation allowance 1,912,000 249,000 117,000
Net operating loss carryforwards
for state purposes not available
for future utilization 146,000 142,000 -
Other - 57,000 -
------------- ------------- ------------
$ 2,000 19,000
============= ============= ============
(Continued)
F-21
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets are as follows:
1996 1995
---- ----
Deferred tax assets:
Stock options $ 688,000 -
Net operating loss carryovers 1,610,000 398,000
Allowance for returns and
doubtful accounts 47,000 35,000
---------- ----------
2,345,000 433,000
Less valuation allowance 2,345,000 433,000
---------- ----------
Net deferred tax assets $ - -
========== =========
The change in the valuation allowance was an increase of $1,912,000 and $164,000
in fiscal 1996 and 1995, respectively. The valuation allowance applies primarily
to those temporary differences that are expected to be deductible at a point in
the future when taxable income is uncertain.
Since the Company is entitled to a deduction for federal and state tax purposes
resulting from the exercise of nonqualified stock options and employees' early
dispositions of stock acquired through incentive stock options, a portion of the
deferred tax asset, when recognized by a reduction of the valuation allowance,
will be credited to additional paid-in capital. As of September 30, 1996,
approximately $1,262,000 of the deferred asset will be credited to additional
paid-in capital when recognized.
As of September 30, 1996, the Company had a net operating loss carryover for
federal and California income tax purpose of approximately $7,376,000 and
3,463,000, respectively. The federal net operating losses expire from 2007 to
2011. The California net operating losses expire from 2000 to 2001. The
difference between the federal and California loss carryforwards results
primarily from a 50% limitation on California net operating losses.
The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose
substantial restrictions on the utilization of net operating loss carryforwards
in the event of an ownership change, as defined by Internal Revenue Code,
Section 382. Federal loss carryforwards of approximately $439,000 are subject to
an annual limitation of approximately $176,000. Any unused annual limitation can
be carried forward and added to the succeeding years annual limitation, subject
to the expiration dates discussed above.
(Continued)
F-22
<PAGE>
INTERCELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statments
(14) SIGNIFICANT CUSTOMER AND INDUSTRY SEGMENT INFORMATION
Two customers individually accounted for 10% or more of the Company's net
sales in 1996, 1995, and 1994. Sales and the related receivable
percentages to these customers as of September 30, 1996 and 1995, and
October 31, 1994 are summarized as follows:
Percentage of Percentage of
net sales accounts receivables
------------------ --------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
Customer A 14% 15% 22% 6% 9% 15%
Customer B 12% 12% 35% 11% 12% 17%
As of and through September 30, 1996, substantially all of the Company's
net sales and gross profits from operations have been generated by CTL.
As of September 30, 1996 and 1995, identifiable assets of CTL and M.C.
Davis, a business purchased by Intercell in September 1996, were as
follows:
1996 1995
---- ----
CTL $3,371,000 3,950,000
M.C. Davis 2,150,000 -
(15) SUBSEQUENT EVENT (UNAUDITED)
In December 1996, the Company issued 525 shares of no par value Series C
preferred stock (Series C preferred) and detachable warrants in a private
placement for $4,672,500 (net of issuance costs of $577,500).
Each share of Series C preferred is convertible into common stock at the
exchange rate in effect at the time of the conversion, as described in the
preferred stock agreements, and is subject to appropriate adjustment for
common stock splits, stock dividends, and other similar transactions.
Conversion of the Series C preferred is automatic upon the expiration of
three years from the original date of issuance. The Series C preferred are
junior to the Company's Series B preferred shares and contain a liquidation
preference equal to the original issue price plus 8% of the original issue
price per annum to the date of liquidation. Series C preferred shares are
not entitled to voting rights.
Shares of Series C preferred purchased in excess of certain quantities as
described in the preferred stock agreements, or purchased in addition to
previous purchases of Series B preferred shares are accompanied by
detachable warrants to purchase a number of shares of common stock of the
Company equal to between 25% and 50% of the original aggregate purchase
price of the Series C preferred shares divided by a fixed conversion rate
of $3.25 per share, exercisable 105 days after original issuance.
(Continued)
F-23
<PAGE>
INTERCELL CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Balance at Charged to
Beginning Costs and Balance at
Classification of Year Expenses Deductions End of Year
-------------- ---------- ----------- ----------- -----------
Allowance for returns and
doubtful accounts
Year ended October 31, 1994 $ -- $ 15 $ -- $ 15
==== ==== ==== ====
Eleven months ended
September 30, 1995 $ 15 $ 81 $(15) $ 81
==== ==== ==== ====
Year ended September 30, 1996 $ 81 $174 $ -- $255
==== ==== ==== ====
F-24
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1* Agreement and Plan of Reorganization, dated July 7, 1995, between
the Company and Modern Industries, Inc.
2.2/(3)/ Plan and Agreement of Merger dated September 3, 1996, by and
between Particle Interconnect, Inc., Particle Interconnect
Corporation and the Company.
2.3/(4)/ Agreement and Plan of Merger dated October 14, 1996, by and
between AC Magnetics, Inc., doing business as M.C. Davis Company,
Cellular Magnetics, Inc. and the Company.
3.1* Articles of Incorporation of the Company, and all amendments
thereto, as amended.
3.2* Bylaws of the Company.
4.1* Form of Common Stock Certificate.
4.2 Certificate of Designation for Series B Preferred Stock is
included in the Company's Articles of Incorporation filed as
Exhibit 3.1 and incorporated herein by reference.
4.3/(1)/ Specimen of Warrant attached to Series B Preferred Stock.
4.4 Certificate of Designation for Series C Preferred Stock is
included in the Company's Articles of Incorporation filed as
Exhibit 3.1 and is incorporated herein by reference.
4.5* Form of Warrant attached to Series C Preferred Stock.
4.6* Specimen of Registration Rights Agreement for Series B Preferred
Stock.
4.7* Specimen of Registration Rights Agreement for Series C Preferred
Stock.
4.8* Plan of Liquidating Dissolution of Energy Corporation dated
July 8, 1996.
10.1/(2)/ 1995 Compensatory Stock Option Plan.
10.2* Assignment Agreement dated September 3, 1996, assigning certain
Patents and Patent Applications and trade secrets relating to the
PI Technology to the Company, as assignee, and Particle
Interconnect, Inc. as assignor.
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.3* Assignment Agreement dated June 5, 1996, assigning the Patent
Application for the Antenna Technology to the Company, as
assignee, and El-Badawy Amien El-Sharaway, as assignor.
10.4* Employment and Non-Disclosure Non-Competition Agreement, dated
September 1, 1996, between Gordon J. Sales and the Company.
10.5* Employment and Non-Disclosure Non-Competition Agreement, dated
September 1, 1996, between Alan M. Smith and the Company.
10.6* Employment and Non-Disclosure Non-Competition Agreement, dated
September 1, 1996 between Terry W. Neild and the Company.
10.7* Employment and Non-Disclosure Non-Competition Agreement, dated
October 22, 1996 between Steven D. Clark and PI Corp.
10.8* Employment and Non-Disclosure Non-Competition Agreement, dated
September 1, 1996 between Lawrence DiFrancesco and PI Corp.
10.9* Employment and Non-Disclosure Non-Competition Agreement, dated
September 1, 1996 between Patricia H. Grihalva and PI Corp.
10.10* Employment and Non-Disclosure Non-Competition Agreement, dated
October 8, 1996 between Jerry W. Tooley and Cellular Magnetics.
10.11* Employment and Non-Disclosure Non-Competition Agreement, dated
October 8, 1996 between David Putnam and Cellular Magnetics.
11* Statement regarding Computation of Per Share Earnings.
21* Subsidiaries of the Company.
23.1* Consent of KPMG Peat Marwick LLP
23.2* Consent of Mark Shelley, CPA
27* Financial Data Schedule.
_________________
* Filed herewith.
/(1)/ Incorporated by reference to the Company's Current Report on Form 8-K
dated July 10, 1996.
/(2)/ Incorporated by reference to the Company's Current Registration Statement
on Form S-8, Registration No. 333-604, effective January 24, 1996.
/(3)/ Incorporated by reference to the Company Current Report on Form 8-K dated
September 3, 1996.
/(4)/ Incorporated by reference to the Company Current Report on Form 8-K dated
October 14, 1996.
<PAGE>
EXHIBIT 2.1
-----------
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization, ("Agreement") dated as of the
7th day of July, 1995 among Intercell Corporation and Modern Industries, Inc.
WITNESSETH
Whereas, the parties hereto desire that stock of Intercell Corporation be
exchanged with Modern Industries, Inc., for assets of Modern Industries, Inc.,
on the date and at the time provided for herein (the "Effective Date"); and
Whereas, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
transaction contemplated;
Now, therefore, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained, the parties hereby
agree as follows;
ARTICLE I
EXCHANGE
1.1 EXCHANGE
Subject to the terms and conditions herein on July 7, 1995, at 10:00 a.m.,
or at such other time as Intercell Corporation and Modern Industries, Inc.,
shall designate, Intercell Corporation shall deliver to Modern Industries, Inc.
the stock of Intercell Corporation herein described and Modern Industries, Inc.
shall deliver to Intercell Corporation the assets of Modern Industries, Inc.
herein described.
1.2 RIGHTS AND PREFERENCES OF INTERCELL CORPORATION STOCK
The rights and preferences of Intercell Corporation Stock transferred to
the Stockholders of Modern Industries, Inc. shall be as follows:
5,412,191 common restricted no par value shares, as described in the
Articles of Incorporation of Intercell Corporation
1.3 ASSETS TO BE TRANSFERRED-LIABILITIES TO BE ASSUMED
The assets to be transferred by Modern Industries, Inc. pursuant to this
Agreement are set forth in EXHIBIT "A" attached hereto and the liabilities to be
assumed are set forth in EXHIBIT "B" attached hereto. Intercell Corporation may
waive the production of all Schedules Annexes and Exhibits requested of Modern
Industries, Inc. herein and accept in lieu thereof the Financial Statements of
Modern Industries, Inc., along with copies of all supporting audit work papers
and supporting documentation. It is specifically understood that the principal
<PAGE>
asset of Modern Industries, Inc., is its 100% subsidiary California Tube
Laboratory, Inc., which is conveyed and delivered hereby to Intercell
Corporation.
1.4 CHANGE OF NAME
Modern Industries, Inc. agrees to change its name at closing and to assign to
Intercell Corporation said name if requested by Intercell Corporation.
1.5 ESCROW AND BULK SALES ACT
Modern Industries, Inc., shall assure Intercell Corporation, in form acceptable
to counsel to Intercell Corporation, that Modern Industries, Inc., has complied
with applicable provisions, if any, of the Bulk Sales Act of the California
Uniform Commercial Code.
ARTICLE II
MODERN INDUSTRIES, INC., REPRESENTATIONS
2.1 REPRESENTATIONS AND WARRANTIES OF MODERN INDUSTRIES, INC.
Modern Industries, Inc. represents and warrants to Intercell Corporation as of
the date hereof and on the Effective Date as follows:
(a) GOOD STANDING. Modern Industries, Inc. is a corporation duly organized
and validly existing in good standing under the laws of the State of Delaware,
and it is duly authorized, qualified and licensed under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in all States wherein it conducts business. Modern Industries, Inc.,
has one wholly owned subsidiary: California Tube Laboratory, Inc.
(b) STOCKHOLDERS AND STOCK. The authorized capital stock of Modern
Industries, Inc. consists of 45,000,000 shares of Common Stock, $0.001 par
value, of which 15,186,763 shares are issued and outstanding (the Modern
Industries, Inc. stock); and 5,000,000 Preferred Shares, of which none are
issued and outstanding.
(c) FINANCIAL STATEMENTS. Modern Industries, Inc. has delivered to Intercell
Corporation copies of the following financial statements of Modern Industries,
Inc. and the Subsidiaries of Modern Industries, Inc. (EXHIBIT "C")
(1) Consolidated Balance Sheet as of October 31, 1994 (hereinafter
referred to as "Modern Industries, Inc.'s Balance Sheet Date");
(2) Consolidated Profit and Loss Statement for the Twelve month period
ended on Modern Industries, Inc.'s Balance Sheet Date;
(3) Consolidated Balance Sheet and Profit and related Financial Statements
on January 31, 1995.
<PAGE>
Except as and only to the extent expressly disclosed on a statement signed by
Modern Industries, Inc. and identified as being delivered pursuant to this
Section, such financial statements have been prepared in accordance with
generally accepted accounting principles, applied on a consistent basis
throughout the periods indicated. Except as and only to the extent expressly
disclosed on a statement signed by and identified as being delivered pursuant to
this Section, Modern Industries, Inc.'s Balance Sheets present fairly the
financial condition of Modern Industries, Inc. and the Subsidiaries of Modern
Industries, Inc. as of the dates indicated thereon and such Profit and Loss
Statements present fairly the results of operations of Modern Industries, Inc.
and the Subsidiaries of Modern Industries, Inc. for the periods indicated
thereon.
(d) ACCOUNT RECEIVABLE. Modern Industries, Inc. has delivered to Intercell
Corporation an accurate list (SCHEDULE C-1) as of the Balance Sheet Date of the
accounts and notes receivable of Modern Industries, Inc. and each Subsidiary of
Modern Industries, Inc. Except to the extent of the reserve for bad debts
reflected thereon, to the best knowledge of Modern Industries, Inc., such
accounts and notes are collectible in the amount shown on SCHEDULE C-1.
(e) PERMITS. Modern Industries, Inc. has delivered to Intercell Corporation an
accurate list and summary description (SCHEDULE C-2) as of Modern Industries,
Inc.'s Balance Sheet Date of all permits, licenses, franchises, certificates,
trademarks, trade names, patents, patent applications and copyrights (excluding
only radio and usual motor vehicle licenses) of a material nature owned or held
by Modern Industries, Inc. and each Subsidiary of Modern Industries, Inc., all
of which are upon the knowledge and belief of Modern Industries, Inc. thought to
be now valid and in good standing.
(f) FIXED ASSETS. Modern Industries, Inc. has delivered to Intercell
Corporation an accurate list and a substantially complete description (SCHEDULE
C-3) as of Modern Industries, Inc.'s Balance Sheet Date of all the fixed assets
of Modern Industries, Inc. and each Subsidiary of Modern Industries, Inc.,
including true and correct copies of leases on properties on which are situated
buildings, warehouses, workshops, garages and other structures used in the
operation of the business of Modern Industries, Inc. Substantially all of the
trucks, machinery and equipment of Modern Industries, Inc. and Subsidiaries of
Modern Industries, Inc. are in reasonably good working order and condition to
the knowledge and belief of Stockholders of Modern Industries, Inc.
Such leases are in full force and effect and constitute valid and binding
agreements of the parties thereto in accordance with their respective terms.
Except as indicated on SCHEDULE C-3, since Modern Industries, Inc.'s Balance
Sheet Date, neither Modern Industries, Inc. nor any Subsidiary of Modern
Industries, Inc. has acquired or sold or otherwise disposed of any fixed assets,
except in the ordinary course of business. All fixed assets used either by
Modern Industries, Inc. or any Subsidiary of Modern Industries, Inc. in the
operation of its business are either owned by Modern Industries, Inc. or the
Subsidiary of Modern Industries, Inc. or leased under an agreement reflected on
a schedule hereto.
<PAGE>
(g) ASSETS. Modern Industries, Inc. has delivered to Intercell Corporation a
substantially accurate list (SCHEDULE C-4) as of Modern Industries, Inc.'s
Balance Sheet Date of all properties and assets of Modern Industries, Inc. and
each Subsidiary of Modern Industries, Inc. other than those shown on SCHEDULE C-
1,C-2 and C-3. Except as indicated on SCHEDULE C-4, since the Balance Sheet
Date, neither Modern Industries, Inc. nor any Subsidiary of Modern Industries,
Inc. has acquired or sold or otherwise disposed of any of such properties or
assets except in the ordinary course of business.
(h) SUBSIDIARY. Modern Industries, Inc., has delivered to Intercell
Corporation, a certificate representing 100% ownership of its subsidiary
California Tube Laboratory, Inc.
(i) CONTRACTS. Modern Industries, Inc. has delivered to Intercell Corporation
an accurate complete list (SCHEDULE C-5) as of Modern Industries, Inc.'s Balance
Sheet Date of all material contracts and agreements to which Modern Industries,
Inc. and each Subsidiary of Modern Industries, Inc. are parties or by which they
or any of their property are bound (including, but not limited to, joint venture
or partnership agreements, contracts with any labor organizations, loan
agreements, bonds, mortgages, liens, pledges or other security agreements). For
purposes only of providing a convenient frame of reference for listing contracts
and agreements pursuant to this Subsection, a "material" contract or agreement
shall be deemed to mean and include any contract or agreement singularly or in
the aggregate (in the case of a series of similar or substantially similar
contracts or agreements) which provides for a "face", "fixed", or liquidated
monetary obligation or benefit equal to or in excess of $1,000; in the event no
fixed monetary amount is provided for, such contract or agreement shall be
listed in any event. To the knowledge and belief of Modern Industries, Inc.,
none of such contracts or agreements contain covenants or restrictions which
unduly burden or restrict Modern Industries, Inc. or the Subsidiaries of Modern
Industries, Inc. in the ordinary course of its or their business. Except to the
extent set forth on SCHEDULE C-5 Modern Industries, Inc. and each Subsidiary of
Modern Industries, Inc. have complied with all material commitments and
obligations under all such contracts and agreements set forth in this section
which they were obligated to comply with or perform as the Effective Date.
(j) TITLE. To the knowledge and belief of Modern Industries, Inc., each of
Modern Industries, Inc. and each Subsidiary of Modern Industries, Inc. all have
good and marketable title to all properties, assets and leasehold estates, real
and personal, to be transferred pursuant to this Agreement including those
reflected on SCHEDULE C-1 through C-5 (except as since sold or otherwise
disposed of in the ordinary course of business), subject to no mortgage pledge,
lien, conditional sales agreement, encumbrance or charge, except for:
(1) Liens reflected on SCHEDULE C-6 as securing specified liabilities
(with respect to which no default exists); and
(2) Liens for current taxes and assessments not in default; and
(3) Liens arising by operation of law of which, except to the extent
disclosed on C-6 of Modern Industries, Inc. has no knowledge of any such liens
existing.
<PAGE>
ARTICLES III
COVENANTS OF MODERN INDUSTRIES, INC.
3.1 COVENANTS OF MODERN INDUSTRIES, INC. PRIOR TO CLOSING
Between the date of this Agreement and the Closing Date:
(a) Modern Industries, Inc. will afford to the officers and authorized
representatives of Intercell Corporation access to the plants, properties, books
and records of Modern Industries, Inc. and will furnish Intercell Corporation
with such additional financial and operating data and other information as to
the business and properties of Modern Industries, Inc. as Intercell Corporation
may from time to time reasonably request.
(b) Modern Industries, Inc. and its Subsidiaries will:
(1) Carry on their business in substantially the same manner as they have
heretofore and not introduce any material new method of management, operation or
accounting;
(2) Maintain their properties and facilities in as good working order and
condition as at present, ordinary wear and tear excepted;
(3) Perform all their material obligations under agreements relating to
or affecting their assets, properties and rights;
(4) Keep in full force and effect present insurance policies or other
comparable insurance coverage; and
(5) Use their best efforts to maintain and preserve their business
organization intact, retain their present employees and maintain their
relationships with suppliers, customers and other having business relations with
them.
(c) Modern Industries, Inc. will not without the prior written consent of
Intercell Corporation:
(1) Declare or pay any dividend or make any distribution in respect of
its stock whether now or hereafter outstanding, or purchase, redeem or otherwise
acquire or retire for value any shares of its stock;
(2) Enter into any contract or commitment or incur or agree to incur any
liability or make any capital expenditures except in the normal course of
business;
(3) Increase the compensation payable or to become payable to any
officer, employee or agent, or make any bonus payment to any such person; or
(4) Create, assume or permit to exist any mortgage, pledge or other lien
or encumbrance upon any assets or properties whether now owned or hereafter
acquired; or
(5) Sell, assign, lease or otherwise transfer or dispose of any property
or equipment except in the normal course of business.
(6) ADOPT RESOLUTIONS APPROVING OR IMPLEMENTING A PLAN OF DISSOLUTION OR
LIQUIDATION OR ADOPT RESOLUTIONS APPROVING OR IMPLEMENTING A DISTRIBUTION OF THE
SHARES OF INTERCELL CORPORATION RECEIVED HEREUNDER, ON OR BEFORE ONE YEAR FROM
THE CLOSING DATE HEREOF; AND IF THEREAFTER CONTEMPLATED TO BE ADOPTED SHALL BE
ADOPTED ONLY WITH THE CONSENT OF INTERCELL CORPORATION.
<PAGE>
Modern Industries, Inc., further covenants that it shall provide to Intercell
Corporation the financial statements which are required under Form 8-K and
Regulation S-X, as made applicable by Form 8-K, within the time limitations
provided therein.
ARTICLES IV
CONDITIONS TO THE OBLIGATIONS OF MODERN INDUSTRIES, INC.
4.1 CONDITIONS
The obligations of Modern Industries, Inc. hereunder are, at its option,
subject to the satisfaction, on or prior to the Effective Date of the following
conditions:
(a) TRUE REPRESENTATIONS. The representations and warranties of Intercell
Corporation contained in this Agreement shall be true on and as of the Effective
Date with the same effect as though such representations and warranties had been
made on and as of such date; each and all of the agreements of Intercell
Corporation to be performed on or before the Closing Date pursuant to the terms
thereof shall have been performed; and Intercell Corporation shall have
delivered to Modern Industries, Inc. a certificate dated the Closing Date and
signed by it to all such effects.
(b) AUTHORIZATION. Intercell Corporation has obtained the legally required
approval of this Agreement and the transaction herein contemplated by its Board
of Directors and Shareholders (if required); and that such approval has been
obtained in compliance with all existing laws, to the best of its knowledge; and
that its officers have been authorized to enter into and execute this Agreement
as a valid, binding and enforceable Agreement.
ARTICLE V
REPRESENTATIONS OF INTERCELL CORPORATION
5.1 REPRESENTATIONS AND WARRANTIES OF INTERCELL CORPORATION
Intercell Corporation represents and warrants to Modern Industries, Inc. as of
the date hereof and as of the Effective Date as follows:
(a) GOOD STANDING. Intercell Corporation is a Corporation duly organized and
validly existing in good standing under the laws of the State of Colorado, and
it is duly authorized, qualified and licensed under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted. The character and
location of the assets now owned or regularly leased by Intercell Corporation in
the conduct of its business and the nature of the business as now transacted by
it does not require qualification as a foreign corporation in any jurisdiction
at the present time.
<PAGE>
(b) STOCKHOLDERS AND STOCK. The authorized capital stock of Intercell
Corporation consists of 100,000,000 shares of Common Stock, no par value, of
which 4,997,053 shares are issued and outstanding (the "Intercell Corporation
Stock"); and Preferred Stock, Series A of par value $10.00 of which 210,000
shares are authorized, issued and outstanding. EXHIBIT "D" hereto contains a
complete and accurate list of all the Stockholders of Intercell Corporation and
the number of shares held by each free and clear of all liens, encumbrances and
claims of every kind. Each share of Intercell Corporation is duly and validly
authorized and issued, fully paid and nonassessable, and was not issued in
violation of the preemptive right of any Stockholder. No option, warrant, call
or commitment of any kind obligates Intercell Corporation to issue any of its
capital stock exists as otherwise disclosed, in writing, to Modern Industries,
Inc.
(c) FINANCIAL STATEMENTS. Intercell Corporation has delivered to Modern
Industries, Inc. copies of the following financial statements of Intercell
Corporation EXHIBIT "D":
(1) Balance Sheet as of December 31, 1994, (hereinafter referred to as
"Intercell Corporation's Balance Sheet Date");
(2) Profit and Loss Statement for the Twelve month period ended
on Intercell Corporation's Balance Sheet Date;
(3) Balance Sheets for the threeand six months ended March 31, 1995 and
June 30, 1995 and related Financial Statements.
Except as and only to the extent expressly disclosed on a statement signed by
Intercell Corporation and identified as being delivered pursuant to this
Section, such financial statements have been prepared in accordance with general
accepted accounting principles, applied on a consistent basis throughout the
periods indicated. Except as and only to the extent expressly disclosed on a
statement signed by Intercell Corporation and identified as being delivered
pursuant to this Section, Intercell Corporation's Balance Sheets present fairly
the financial condition of Intercell Corporation as of the dates indicated
thereon and such Profit and Loss Statements present fairly the results of
operations of Intercell Corporation for the periods indicated thereon and comply
with all material commitments and obligations under all such contracts and
agreements set forth in this section which they were obligated to comply with
or perform as of the Effective Date.
(d) TITLE. To the knowledge and belief of Intercell Corporation has good and
marketable title to all properties, assets and leasehold estates, real and
personal, owned and used in its business, and which is material to the operation
of its business.
ARTICLE VI
COVENANTS OF INTERCELL CORPORATION
6.1 COVENANTS OF INTERCELL CORPORATION PRIOR TO CLOSING
Between the date of this Agreement and the Closing Date:
(a) Intercell Corporation will afford to the officers and authorized
representative of Modern Industries, Inc. access to the plants, properties,
books and records of Intercell
<PAGE>
Corporation and will furnish Modern Industries, Inc. with such additional
financial and operating data and other information as to the business and
properties of Intercell Corporation as Modern Industries, Inc. may from time to
time reasonably request.
(b) Intercell Corporation will:
(1) Carry on its business in substantially the same manner as they have
heretofore and not introduce any material new method of management, operation or
accounting;
(2) Maintain its properties and facilities in as good working order and
condition as at present, ordinary wear and tear excepted;
(3) Perform all its material obligations under agreements relating to or
affecting its assets, properties and rights;
(4) Keep in full force and effect present insurance policies or other
comparable insurance coverage; and
(5) Use its best efforts to maintain and preserve its business
organization intact, retain its present employees and maintain its relationships
with suppliers, customers and others having business relations with it.
ARTICLES VII
CONDITIONS TO THE OBLIGATIONS OF INTERCELL CORPORATION
7.1 CONDITIONS
The obligations of Intercell Corporation hereunder are, at its option, subject
to the satisfaction, on or prior to the Effective Date of the following
conditions:
(a) TRUE REPRESENTATIONS. The representations and warranties of Modern
Industries, Inc. contained in this agreement shall be true on and as of the
Effective Date with the same effect as though such representations and
warranties had been made on and as of such date; each and all of the agreements
of Modern Industries, Inc. to be performed on or before the Closing Date
pursuant to the terms hereof shall have been performed; and Modern Industries,
Inc. shall have delivered to Intercell Corporation a certificate dated the
Closing Date and signed by it to all such effects.
(b) AUTHORIZATION. Modern Industries, Inc. has obtained the legally required
approval of this Agreement and the transaction herein contemplated by its Board
of Directors and Shareholders; that such approval has been obtained in
compliance with all existing laws, to the best of its knowledge; and that its
officers have been authorized to enter into and execute this Agreement as a
valid, binding and enforceable Agreement.
ARTICLE VIII
GENERAL
8.1 ADDITIONAL INSTRUMENTS
<PAGE>
The parties hereto shall deliver or cause to be delivered on the Effective
Date, and at such other times and places as shall be reasonably agreed on, such
additional instruments as any party may reasonably request for the purpose of
carrying out this Agreement. Intercell Corporation and Modern Industries, Inc.
will cooperate and use their best efforts to have the present officers,
directors and employees of Intercell Corporation and Modern Industries, Inc.
cooperate on and after the Effective Date in furnishing information, evidence,
testimony and other assistance in connection with any actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to the Effective Date.
8.2 ENTIRE AGREEMENT
This Agreement (including all EXHIBITS, SCHEDULES and APPENDICES hereto) and
the documents delivered pursuant hereto constitute the entire agreement and
understanding between the parties hereto and supersede any prior agreement and
understanding relating to the subject matter of this agreement. This Agreement
may be assigned modified or amended only by a duly authorized written instrument
executed by the parties hereto.
8.3 COUNTERPARTS
This agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute but one and the same instrument. It shall not be necessary that any
single counterpart hereof be executed by all parties hereto so long as at least
one counterpart is executed by each party.
8.4 NOTICES
Any notice or communication required or permitted hereunder shall be
sufficiently given if sent by first class mail, postage prepaid:
(a) Intercell Corporation
Mark Pierce, President
4740 E. Sunrise Drive
Box 333
Tucson, AZ 85718
(b) Modern Industries, Inc.
Gordon J. Sales, Chief Executive Officer
4455 E. Camelback Rd. E-160
Phoenix, AZ 85018
8.5 SURVIVORSHIP
All warranties, covenants, representations and guarantees shall survive the
closing and execution of the documents contemplated by this Agreement. The
parties hereto in executing, and in carrying out the provisions of this
Agreement are relying solely on the representations, warranties and agreements
contained in this Agreement or in any writing delivered pursuant to
<PAGE>
provisions of this Agreement or at the closing of the transactions herein
provided for and not upon any representation, warranty, agreement, promise or
information, written or oral, made by any person other than as specifically set
forth herein or therein.
8.7 LAW
This Agreement shall be construed in accordance with the laws of the State of
Colorado.
In witness whereof, the parties have executed this agreement as of the day and
year first above written.
Intercell Corporation
By: /s/ Mark S. Pierce
-------------------
Mark S. Pierce, President
Modern Industries, Inc.
By: /s/ Gordon J. Sales
--------------------
Gordon J. Sales,
Chief Executive Officer
<PAGE>
STATE OF COLORADO
County of Denver
On this 7th day of July, 1995, before me personally came Mark S. Pierce, to me
known, who being by me duly sworn, did depose and say that he/she is the
President of Intercell Corporation, the corporation described in and which
executed the foregoing instrument, and that he/she signed his/her name thereto
by order of the board of directors of said corporation.
/s/ Debra Dee Eagzwood
-----------------------
Notary Public, Denver County,
State of Colorado
My Commission Expires: 12/2/95
STATE OF COLORADO
County of Denver
On this 7th day of July, 1995, before me personally came Gordon J. Sales, to
me known, who being by me duly sworn, did depose and say that he/she is the
President of Modern Industries, Inc., the corporation described in and which
executed the foregoing instrument, and the he/she signed his/her name thereto by
order of the board of directors of said corporation.
/s/ Debra Dee Eagzwood
-----------------------
Notary Public, Denver County,
State of Colorado
My Commission Expires: 12/2/95
<PAGE>
Exhibit 3.1
-----------
ARTICLES OF INCORPORATION
OF
INTERCELL CORPORATION
KNOW ALL MEN BY THESE PRESENT: That the undersigning incorporator being a
natural person of the age of eighteen years or more and desiring to form a body
corporate under the laws of the State of Colorado does hereby sign, verify and
deliver in duplicate to the Secretary of State of the State of Colorado these
Articles of Incorporation:
ARTICLE I
---------
Name
----
The name of the corporation shall be: Intercell Corporation.
ARTICLE II
----------
Period of Duration
------------------
This corporation shall exist in perpetuity, from and after the date of filing
these Articles of Incorporation with the Secretary of State of the State of
Colorado unless dissolved according to law.
ARTICLE III
-----------
Objects and Purposes
--------------------
The objects and purposes for which the said corporation is organized and the
nature of the business to be carried on by it are as follows:
1. To engage in the communications business and to carry on any business or
activity related thereto.
2. In general to carry on any lawful business or activity and to have and
exercise all of the powers and rights conferred by the laws of the State of
Colorado upon corporations formed under such laws.
ARTICLE IV
----------
Capital
-------
The aggregate number of shares which this corporation shall have authority to
issue is Fifty Million (50,000,000) shares of no par value common stock, which
shares shall be designated "Common Stock".
<PAGE>
1. Dividends. Dividends in cash, property or shares of the corporation may
----------
be paid upon the Common Stock, as and when declared by the board of directors,
out of funds of the corporation to the extent and in the manner permitted by
law.
2. Distribution in Liquidation. Upon any liquidation, dissolution or
----------------------------
winding up of the corporation, and after paying or adequately providing for the
payment of all its obligations, the remainder of the assets of the corporation
shall be distributed, either in cash or in kind, pro rata to the holders of the
Common Stock. The board of directors may, from time to time, distribute to the
shareholders in partial liquidation, out of stated capital or capital surplus of
the corporation, a portion of its assets, in cash or property, in the manner
permitted and upon compliance with limitations imposed by law.
3. Voting Rights; Cumulative Voting. Each outstanding share of Common Stock
---------------------------------
shall be entitled to one vote and each fractional share of Common Stock shall be
entitled to a corresponding fractional vote on each matter submitted to a vote
of shareholders. Cumulative voting shall not be allowed in the election of
directors of the corporation.
4. Denial of Pre-emptive Rights. No holder of any shares of the
-----------------------------
corporation, whether now or hereafter authorized, shall have any pre-emptive or
preferential right to acquire any shares or securities of the corporation,
including shares or securities held in the treasury of the corporation.
5. Restrictions on Transfer. The Corporation shall have the right to impose
-------------------------
restrictions on the transfer, disposition, encumbrance, or bequethal of any or
all classes of its shares of stock.
ARTICLE V
---------
Right of Directors to Contract with Corporation
-----------------------------------------------
No contract or other transaction between the corporation and one or more of
its directors or any other corporation, firm, association, or entity in which
one or more of its directors are directors or officers or are financially
interested shall be either void or voidable solely because of such relationship
or interest or solely because such directors are present at the meeting of the
board of directors or a committee thereof which authorizes, approves, or
ratifies such contract or transaction or solely because their votes are counted
for such purpose if:
(a) The fact of such relationship or interest is disclosed or known to
the board of directors or committee which authorizes, approves, or ratifies
the contract or transaction by a vote or consent sufficient for the purpose
without counting the votes or consents of such interested directors; or
(b) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve, or ratify
such contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and reasonable to the
corporation.
<PAGE>
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the board of directors or a committee thereof which
authorizes, approves, or ratifies such contract or transaction.
ARTICLE VI
----------
Corporate Opportunity
---------------------
The officers, directors and other members of management of this corporation
shall be subject to the doctrine of "corporate opportunities" only insofar as it
applies to business opportunities in which this corporation has expressed an
interest as determined from time to time by this corporation's board of
directors as evidenced by resolutions appearing in the corporation's minutes.
Once such areas of interest are delineated, all such business opportunities
within such areas of interest which come to the attention of this corporation
shall be disclosed promptly to this corporation and made available to it. The
board of directors may reject any business opportunity presented to it and
thereafter any officer, director or other member of management may avail himself
of such opportunity. Until such item as this corporation, through its board of
directors, has designated an area of interest, the officers, directors and other
members of management of this corporation shall be free to engage in such areas
of interest on their own and this doctrine shall not limit the rights of any
officer, director or other member of management of this corporation to continue
a business existing prior to the time that such area of interest is designated
by the corporation. This provision shall not be construed to release any
employee of this corporation (other than officer, director or member of
management) from any duties which he may have to this corporation.
ARTICLE VII
-----------
Indemnification of Directors, Officers and Others
-------------------------------------------------
This Corporation may indemnify each director, officer, and any employee,
fiduciary or agent of the corporation, his heirs, executors and administrators,
against expenses reasonable incurred or any amounts paid by him in connection
with any action, suit or proceeding to which he may be made a party by reason of
his being or having been a director, officer, employee, fiduciary or agent of
the corporation to the full extent permitted by the laws of the State of
Colorado now existing or as such laws may hereafter be amended.
ARTICLE VIII
------------
Shareholder Voting
------------------
A majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders.
When, with respect to any action to be taken by shareholders of this
Corporation, the laws of Colorado require the vote or concurrence of the holders
of two-thirds of the outstanding shares, of the shares entitled to vote thereon,
or of any class or series, such action may be taken by the vote or concurrence
of a majority of such shares or class or series thereof.
<PAGE>
ARTICLE IX
----------
Severability
------------
Should any clause, paragraph, line, sentence, or other part of this instrument
be declared invalid and ineffective, such finding shall not be deemed to affect
the reminder of these Articles of Incorporation so long as such remaining part
reasonably effectuates the intent and purposes expressed herein.
ARTICLE X
---------
Registered Office and Registered Agent
--------------------------------------
The address of the initial registered office of the corporation is P.O. Box
1645, Pleasantview, Colorado 81331 and the name of the initial registered agent
at such address is John Williams. Either the registered office or the
registered agent may be changed in the manner permitted by law.
ARTICLE XI
----------
Initial Board of Directors
--------------------------
The number of directors of the corporation shall be fixed by the bylaws of the
corporation except the initial board of directors of the corporation shall
consist of six directors. The names and addresses of the persons who shall
serve as directors until the first annual meeting of shareholders or until their
successors are elected and shall qualify are as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
John Williams P.O. Box 1534
Pleasantview, CO 81331
Michael Lancaster P.O. Box 1587
Pleasantview, CO 81331
Hershel Oliver 20911 Highway 666
Yellowjacket, CO 81335
Renay Neely P.O. Box 22
Cahone, CO 81320
C.E. Honaker 27229 Highway 666
Pleasantview, CO 81331
Lloyd Hartle P.O. Box 1525
Pleasantview, CO 81331
</TABLE>
<PAGE>
ARTICLE XII
-----------
Incorporator
------------
The name and address of the incorporator is as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Russell C. Cline Suite 201 - Right Bank Building
1041 Blake Street
Denver, CO 80202
</TABLE>
IN WITNESS WHEREOF, the above named incorporator has signed these Articles of
Incorporation this 4th day of October, 1983.
/s/ Russel C. Cline
--------------------
Russel C. Cline
STATE OF COLORADO )
)ss.
COUNTY OF DENVER )
I, the undersigned, a Notary Public, hereby certify that on the 4th day of
October, 1983, personally appeared before me Russell C. Cline, who being by me
first duly sworn, declared that he is the person who signed the foregoing
document as incorporator, that it was his free and voluntary act and deed, and
that the statements therein contained are true.
WITNESS my hand and official seal.
My commission expires: January 27, 1985
/s/ Roxanne L. Owens
---------------------
Roxanne L. Owens
Notary Public
Right Bank Building
1401 Blake St., Suite 201
Denver, Colorado 80202
(NOTARIAL SEAL)
<PAGE>
ARTICLES OF AMENDMENT TO
THE ARTICLES OF INCORPORATION
OF
INTERCELL CORPORATION
Pursuant to the provisions of Section 7-2-109 of the Colorado Corporation
Code, the undersigned corporation adopts the following Articles of Amendment to
its Articles of Incorporation:
FIRST: The name of the corporation is Intercell Corporation.
SECOND: The following amendment of the Articles of Incorporation was
adopted by the shareholders of the Corporation on March 9, 1984, in the manner
prescribed by the Colorado Corporation Code:
Article IV is amended to read as follows:
ARTICLE IV
----------
Capital
-------
The aggregate number of shares which this Corporation shall have authority
to issue is Eighty Million (80,000,000) shares of no par value common stock,
which shares shall be designated "Common Stock".
1. Dividends. Dividends in cash, property or shares of the
----------
corporation may be paid upon the Common Stock, as and when declared by the
board of directors, out of funds of the Corporation to the extent and in
the manner permitted by law.
2. Distribution in Liquidation. Upon any liquidation, dissolution or
----------------------------
winding up of the Corporation, and after paying or adequately providing for
the payment of all its obligations, the remainder of the assets of the
Corporation shall be distributed, either in cash or in kind, pro rata to
the holders of the Common Stock. The board of directors may, from time to
time, distribute to the shareholders in partial liquidation, out of stated
capital or capital surplus of the Corporation, a portion of its assets, in
cash or property, in the manner permitted and upon compliance with
limitations imposed by law.
3. Voting Rights; Cumulative Voting. Each outstanding share of
---------------------------------
Common Stock shall be entitled to one vote and each fractional share of
Common Stock shall be entitled to a corresponding fractional vote on each
matter submitted to a
<PAGE>
vote of shareholders. Cumulative voting shall not be allowed in the
election of directors of the Corporation.
4. Denial of Pre-emptive Rights. No holder of any shares of the
-----------------------------
Corporation, whether now or hereafter authorized, shall have any pre-
emptive or preferential right to acquire any shares or securities of the
Corporation, including shares or securities held in the treasury of the
Corporation.
5. Restrictions on Transfer. The Corporation shall have the right to
-------------------------
impose restrictions on the transfer, disposition, encumbrance, or
bequeathal of any or all classes of its shares of stock.
THIRD: The number of shares of the Corporation outstanding at the time of
such adoption was 100,000 and the number of shares entitled to vote thereon was
100,000.
FOURTH: The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows:
<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
No par value common stock 100,000
</TABLE>
FIFTH: The number of shares voted for the amendment to Article IV was
100,000 and the number of shares voted against such amendment was 0.
SIXTH: The number of shares of each class entitled to vote thereon as a
class voted for and against such amendment, respectively was:
<TABLE>
<CAPTION>
Number of Shares Voted
Class For Against
----- -------------- --------------------
<S> <C> <C>
No par value common stock 100,000 -0-
</TABLE>
SEVENTH: The manner, if not set forth in such amendment, in which any
exchange, reclassification or cancellation of issued shares provided for in the
amendment shall be effected is as follows:
Not Applicable.
EIGHTH: The manner in which such amendment effects a change in the amount of
stated capital, and the amount of stated capital as changed by such amendment,
is as follows:
No Change.
DATED: March 23, 1984
<PAGE>
INTERCELL CORPORATION
By: /s/ William B. Fulks
---------------------
William B. Fulks, President
By: /s/ Karen Petit
----------------
Karen Petit, Secretary
STATE OF COLORADO )
)ss.
COUNTY OF MONTEZUMA )
Before me, Kay D. Herrmann, a Notary Public in and for said county and state,
personally appeared William B. Fulks and Karen Petit, who acknowledged before me
that he is the President and she is the Secretary, respectively, of Intercell
Corporation, a Colorado corporation, and that they signed the foregoing Articles
of Amendment as their free and voluntary act and deed for the uses and purposes
therein set forth, and that the facts contained therein are true.
In Witness Whereof, I have here unto set my hand and seal this 23rd day of
March, 1984.
My Commission Expires: 8/19/87
/s/ Kay D. Herrmann
--------------------
Notary Public
Address: 14755 Highway 666
Dolores, CO 81323
(Notarial Seal)
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF INTERCELL CORPORATION
Pursuant to the provisions of Section 7-2-109 of the Colorado Corporation
Code, the undersigned corporation adopts the following Articles of Amendment to
its Articles of Incorporation as amended.
First: The name of the Corporation is Intercell Corporation.
Second: The following amendment of the Articles of Incorporation were adopted
by a vote of shareholders of the Corporation on September 19, 1987 in the manner
prescribed by the Colorado Corporation Code.
The Articles of Incorporation are amended by adding new Article XIII which
shall read as follows:
ARTICLE XIII
LIMITATION OF DIRECTOR LIABILITY
No director shall be personally liable to this Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to this Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) pursuant to Section 7-5-114 of the Colorado
Corporation Code, or (iv) for any transaction from which the director derived
an improper personal benefit. No amendment to or repeal of this Article XIII
shall apply to or have any effect on the liability or alleged liability of any
director of this Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal.
Third: The number of shares voted for the amendment were sufficient for
approval.
Fourth: The amendment does not provide for an exchange, reclassification or
cancellation of issued shares nor does it effect a change in the amount of
stated capital.
Dated: December 15, 1987
INTERCELL CORPORATION
By /s/ William B. Fulks
---------------------
William B. Fulks, President
<PAGE>
By /s/ Renay Neely
----------------
Renay Neely, Secretary
STATE OF COLORADO )
) SS
COUNTY OF MONTEZUMA )
I, the undersigned, a Notary Public, hereby certify that on the 22nd day of
September 1987, personally appeared before me William B. Fulks and Renay Neely,
President and Secretary respectively, who being by me first duly sworn, declared
that they are the persons who signed the foregoing document, that it was their
free and voluntary act, and deed and the statements therein contained are true.
WITNESS my hand and official seal.
My commission expires: January 15, 1989
/s/ Karen K. Petit
-------------------
Karen K. Petit, Notary Public
Address: 15442 County Road "CC"
Pleasant View, CO 81331
(N O T A R I A L S E A L)
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF INTERCELL CORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the undersigned
corporation adopts the following Articles of Amendment to its Articles of
Incorporation.
First: The name of the Corporation is Intercell Corporation.
Second: The following amendment of the Articles of Incorporation were adopted
by a vote of shareholders of the Corporation on December 14, 1992, as prescribed
by the Colorado Corporation Code.
Third: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the amendment
shall be effected, are as follows: Not Applicable.
Fourth: The manner in which such amendment effects a change in the amount of
stated capital, and the amount of stated capital as changed by such amendment,
are as follows: NO CHANGE.
Such amendment was adopted by a vote of the shareholders. The number of
shares voted for the amendment was sufficient for approval.
SEE EXHIBIT A ATTACHED HERETO AND SPECIFICALLY
INCORPORATED HEREIN BY REFERENCE
INTERCELL CORPORATION
By /s/ Unlegible
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__________, President
By /s/ Laura W. Hilton
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Laura W. Hilton, Secretary
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Exhibit A
ARTICLES OF AMENDMENT TO
THE ARTICLES OF INCORPORATION
FOR
INTERCELL CORPORATION
The fourth article shall be amended in its entirety to read as follows:
FOURTH:
(a) Classes of Shares. The outstanding proprietary interest of the
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Corporation is hereby reverse split on the basis of one share in exchange for
each 150 shares now outstanding. The proprietary interest of the Corporation
shall thereafter be divided into two classes of stock, which are collectively
referred to herein as "Shares." The first is a class of common stock, no par
value per share, and the second a class of preferred stock, also no par value
per share. (An individual share within the respective classes of stock shall be
referred to appropriately as either a "Common Share" or a "Preferred Share.")
The Corporation has the authority to issue 100,000,000 Common Shares and
10,000,000 Preferred Shares. The authority of the Corporation to issue shares
may be limited by resolution of the board of directors of the Corporation (the
"Board of Directors"). Shares may be issued from time to time for such
consideration in money or property (tangible or intangible) or labor or services
actually performed as the Board of Directors may determine in their sole
judgment and without the necessity of action by the holders of Shares. Common
Shares may not be issued in series. Shares may not be issued until paid for
and, when issued, are nonassessable. Fractional Shares may not be issued by the
Corporation and, in the event fractional shares are or may become outstanding,
the Corporation shall redeem said shares at the then market price.
(b) Preferred Shares. The designation, preferences, relative rights, and
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limitations of Preferred Shares are as follows:
(i) Issuance in Series. The Board of Directors is authorized to act by
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resolution, subject to limitations prescribed by the laws of the Sate of
Colorado, the Articles of Incorporation, the Bylaws of the Corporation (the
"Bylaws"), and previous resolutions by the Board of Directors limiting this
authorization, to provide for the issuance of Preferred Shares in series. To
exercise this authority the Board of Directors must first designate the series
so established, and, secondly, fix and determine the relative rights,
preferences, and limitations of the Preferred Shares in the series established
to the extent not fixed and determined by these Articles of Incorporation. The
extent of this authority, with respect to each series established, is to be
determined by reference to the "Colorado Corporation Code," articles 1 through
10, inclusive, of title 7, Colorado Revised States, as amended. Without
limiting the generality of the foregoing, this authority includes fixing and
determining the following:
1. the number of Preferred Shares which may be issued under the
series established, and the designation of such series;
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2. the rate of dividend on Preferred Shares of that series, if any,
the time of payment of dividends, whether dividends shall be cumulative, and, if
cumulative, the date from which dividends shall begin accruing;
3. whether Preferred Shares of that series may be redeemed, and, if
redeemable, the redemption price, terms, and conditions of redemption;
4. whether to establish a sinking fund or make other provisions for
the redemption or purchase of Preferred Shares of that series;
5. the amount payable per Preferred Share of that series in the
event of the dissolution, liquidation, or winding up of the Corporation, whether
voluntarily or involuntarily;
6. voting powers, if any, of the series; and
7. whether the series shall have conversion privileges, and, if
convertible, the terms and conditions upon which Preferred Shares of that series
shall be convertible, including, without limitation, the provision, if any, for
adjustment of the conversion rate and the payment of additional amounts by
holders of such shares upon the exercise of this privilege.
Irrespective of the limitations set forth in subsection (i)1. of this Section
(b), the Board of Directors may, at any time after the number of Preferred
Shares authorized under a series has been established, authorize the issuance of
additional Preferred Shares of the same series or reduce the number of Preferred
Shares authorized under such series.
All Preferred Shares shall be identical to each other in all respects, except
as those relative rights, preferences, and limitations established by the Board
of Directors pursuant to its authority as determined by reference to the
Colorado Corporation Code and as established in subsections (i)1 through (i)7 ,
inclusive, of this Section (b), as to which there may be variations between
series.
(ii) Dividend Rights. The holders of Preferred Shares are entitled to
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receive when, as, and if declared by the Board of Directors in its sole
discretion, but only out of funds available therefor under the laws of the State
of Colorado, cumulative, partially cumulative, and non-cumulative dividends, as
the case may be. Dividends may be paid in such cash, property, or Preferred
Shares of the same series (including Preferred Share of the same series held as
treasury Preferred Shares) as the Board of Directors in its sole discretion may
determine upon the date fixed and at the intervals determined by the Board of
Directors. Dividends will accrue, if cumulative or partially cumulative,
whether or not earned or declared from the date or dates determined by the Board
of Directors. Full dividends on the Preferred Shares of all series for all past
periods and for the then current period must be paid, or declared and a sum
sufficient for such payment be set apart, before any dividends may be declared
or paid upon or set apart for, or before any other distribution may be declared
or made in respect of, the Common Shares. Accruals of dividends shall not bear
interest.
As long as Preferred Shares are outstanding, the Corporation shall not
declare, set apart for payment, pay any dividends (other than dividends payable
in Common Shares), make any distribution on any Common Shares, redeem, purchase
or to otherwise acquire, or permit any
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subsidiary to purchase, or otherwise acquire any Common Shares if at the time of
making such declaration, payment, distribution, redemption, purchase, or
acquisition the Corporation is in default with respect to any dividend payable
on, or any obligation to redeem or retire, Preferred Shares. Notwithstanding
the foregoing, however, the Corporation may at any time (i) redeem, purchase, or
otherwise acquire Common Shares in exchange for, or out of the net cash proceeds
from the sale of Common Shares and (ii) acquire Common Shares that are held by
firms or corporations acquired by the Corporation, whether by merger,
consolidation, purchase of assets, exchange of securities, or otherwise.
(iii) Redemption. On the sole authority and option of the Board of Directors
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the Corporation may redeem all or any part of any series of Preferred Shares
outstanding upon the terms (including redemption price) and conditions, in the
manner, and upon such notice as is determined by the Board of Directors. No
redemption may be made, however, until all dividends accrued to the redemption
date on all series of Preferred Shares have been paid, or until declared and a
sum sufficient in amount set aside for such payment. If less than all the
Preferred Shares of a series are to be redeemed on any one date set for
redemption, the shares designated for redemption may be in such amount ant
determined by such method, whether by lot, pro rata or otherwise, and subject to
such other provisions as the Board of Directors may from time to time determine
in it s sole discretion.
Preferred Shares of any series which have been redeemed (whether by sinking
fund or otherwise) shall have the status of authorized and unissued Preferred
Shares, unless the Board of Directors in its sole discretion cancels such
shares. Preferred Shares which have been redeemed, unless canceled, may be
reissued as a part of the series of which they were originally a part, or may be
reclassified and reissued as part of a new series of Preferred Shares created by
resolution of the Board of Directors or as part of any other series of Preferred
Shares.
(iv) Liquidation Rights. In the event of any liquidation, dissolution, or
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winding up of the Corporation, whether voluntarily or involuntarily, which
results in any distribution of the assets of the Corporation to its
Shareholders, the holders of Preferred Shares then outstanding shall be entitled
to an amount per share equal to that amount fixed by the Board of Directors upon
the initial issuance of the Preferred Share of the series of which the Preferred
Shares in question are a part before any distribution of the assets of the
Corporation may be made to or set apart for the holders of Common Shares.
If assets of the Corporation distributable to the holder of Preferred Shares
are insufficient for the payment to them of the full preferential amount
described above, such assets shall be distributed ratably among the holders of
the Preferred Shares of all series in accordance with the amounts which would be
payable on such distribution if all sums payable were discharged in full unless
the Board of Directors upon the initial issuance of any series of Preferred
Shares has provided otherwise. After payment in full of the preferential
amounts required to be paid to the holders of the Preferred Shares than
outstanding, the holder of Common Share shall be entitled, to the exclusion of
the holders of Preferred Shares, to share in all remaining assets of the
Corporation in accordance with their respective interests unless the Board of
Directors upon the initial issuance of any series of Preferred Shares, or
otherwise, has provided otherwise.
For purposes of this article and any statement filed pursuant to law setting
forth the designation, description, and term of any series of Preferred Shares
the voluntary sale, lease,
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exchange, or transfer (for cash, securities or other consideration) of all or
substantially all of the property or assets of the Corporation to, or its
consolidation or merger with, any other corporation or corporations shall not be
deemed to be a liquidation, dissolution, or winding up of the Corporation,
voluntarily or involuntarily.
(v) Voting Rights. Except as otherwise provided by the laws of the State of
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Colorado or subsection (i)6 of this Section (b), the holders of Preferred Share
of all series shall not have the right to vote at any meeting of Shareholders in
respect to any matter upon which the vote of Shareholders is required.
Except as otherwise provided by the laws of the State of Colorado, these
Articles of Incorporation, the Bylaws, or the Board of Directors acting pursuant
to the authority set forth in subsection (i) of Section (b) and for so long as
any Preferred Shares are outstanding, the Corporation shall not:
1. without the affirmative vote or written consent of the holders of at
least 50% of the then outstanding Preferred Shares voting separately by class
without regard to series (a) create any class of stock ranking prior to the
Preferred Shares as to dividends or liquidation, (b) increase the authorized
number of shares of any such class of stock, or (c) alter or change any of the
provisions hereof so as to adversely affect the preferences or the special
rights or powers given to the preferred Shares; or
2. without the affirmative vote or written consent of the holders of at
least 50% of the then outstanding shares of all series of Preferred Shares
voting separately as a series, alter or change any of the provisions hereof or
in the resolution adopted by the Board of Directors providing for the issuance
of a series, if such series has been issued and Preferred Shares of that series
are then outstanding, so adversely to affect the preferences, special rights, or
powers to such series.
(vi) Conversion Rights. The holders of Preferred Shares shall have such
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rights as are set forth by the Board of Directors in its resolution authorizing
the issuance of the series of which such Preferred Shares are a part to convert
their shares into any other class or series of Shares at such price or prices or
at such rates of exchange and with such adjustments as shall be determined by
the Board of Directors. Preferred Shares so converted shall have the status of
authorized and unissued Preferred Shares and may be reissued as part of the
series of which they were originally a part, or may be reclassified and reissued
as part of a new series of Preferred Shares to be created by resolution of the
Board of Directors or as part of any other series of Preferred Shares.
(c) General Provisions. Subject to the foregoing provisions, such dividends
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(either in cash, Shares or otherwise) as may be determined by the Board of
Directors in its sole discretion may be declared and paid on the Common Shares
from time to time in accordance with the laws of the State of Colorado; however,
Preferred Shares shall not be entitled to participate in any such dividends
whether payable in cash, Shares, or otherwise.
(d) Voting. Each record holder of Common Shares (and to the extent, if any,
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provided by the laws of the State of Colorado or by the Board of Directors
acting pursuant to the authority set forth in Section (b)(i)6 of this article
each record holder of Preferred Shares) shall have one vote on each matter
submitted to a vote for each Share standing in his name on the books of the
Corporation. Unless otherwise required under the laws of the State of Colorado,
these
<PAGE>
Articles of Incorporation, the Bylaws, or the resolution of the Board of
Directors creating any series of Preferred Shares, no matter submitted to a
Shareholder vote shall require the approval of a class or series of Shares.
(e) Quorum. At all meetings of Shareholders, one-third (1/3) of the Shares
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entitled to vote at such meeting, whether represented in person or by proxy,
shall constitute a quorum and at any meeting at which a quorum is present the
affirmative vote of a majority of the Shares represented at such meeting and
entitled to vote on the subject matter shall be the act of the Shareholders.
(f) Distributions to Shareholders. Distributions to liquidate, dissolve, or
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wind up the Corporation may be made, after paying or adequately providing for
the payment of all the debts and liabilities of the Corporation, from the assets
of the Corporation to the holders of Shares in the order of priority established
by the laws of the State of Colorado, these Articles of Incorporation, the
Bylaws, and the resolutions of the Board of Directors in providing for the
issuance of Shares by class or series. In addition, the Board of Directors may
from time to time distribute to the holders of Shares in partial liquidation out
of either capital or capital surplus of the Corporation a portion of the assets
of the Corporation in cash or property, subject to any limitations imposed by
the laws of the State of Colorado, these Articles of Incorporation, the Bylaws,
and any resolution of the Board of Directors in providing for the issuance of
Shares by class or series. Further, dividends in cash, property, or Shares may
be paid, as, when, and if declared by the Board of Directors in its sole
discretion out of funds of the Corporation to the extent and in the manner
prescribed by the laws of the State of Colorado, these Articles of
Incorporation, the Bylaws, and the resolutions of the Board of Directors in
providing for the issuance of Shares by class or series.
(g) Stock Rights and Options. The Corporation is authorized to create and
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issue, whether or not in connection with the issuance and sale of any of the
Shares or other securities of the Corporation, rights or options entitling the
holders thereof to purchase Shares or other securities from the Corporation.
These rights and options shall be evidenced in such manner as the Board of
Directors approves and must set forth the terms upon which, the time within
which, the Shares and the number of Shares acquirable, and the price at which
the options or rights may be exercised.
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SERIES A: NON-DIVIDEND BEARING, REDEEMABLE CONVERTIBLE
PREFERRED STOCK
CERTIFICATE SETTING FORTH RESOLUTIONS
BY
THE BOARD OF DIRECTORS
FOR INTERCELL CORPORATION
(PURSUANT TO THE COLORADO CORPORATION CODE)
We, the undersigned, as the President and Secretary of Intercell Corporation,
a Colorado corporation, the Articles of Incorporation of which are on file in
the office of the Secretary of State for the State of Colorado, DO EACH HEREBY
CERTIFY AND VERIFY: that the Board of Directors of Intercell Corporation, in
accordance with said articles and pursuant to the laws of the State of Colorado,
duly adopted on December 29, 1994, the preambles and resolutions attached
hereto.
IN WITNESS WHEREOF: we have set our hands and the corporate seal this 29th
day of December, 1994.
INTERCELL CORPORATION
(SEAL) /s/ Mark Pierce
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Mark Pierce, President
/s/ Tracy Landry
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Tracy Landry, Secretary
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UNANIMOUS CONSENT IN LIEU OF SPECIAL MEETING
BOARD OF DIRECTORS
FOR
INTERCELL CORPORATION
Pursuant to the provisions of Section 7-5-108, Colorado Revised Statues, as
amended ("C.R.S.") - which provide that action required or permitted by the
"Colorado Corporation Code" to be taken at a meeting of the board of directors
of a Company may be taken without a meeting with the same force and effect as a
unanimous vote of said board if the action is (i) evidenced by one or more
written consents describing the action taken, (ii) signed by each director and
(iii) delivered to the secretary of the Company for filing with the corporate
records - the undersigned, constituting all of the members of the board for
Intercell Corporation (the "Board of Directors" and the "Company,"
respectively), do hereby waive any and all notice which may be required to be
given with respect to a meeting of the Board of Directors and do hereby take,
ratify, confirm and approve the following action to be effective as of December
29, 1994:
WHEREAS, the Articles of Incorporation governing the Company (the "Articles of
Incorporation") permit the issuance of preferred shares in series with such
designations, preferences and relative participating, optional, or other rights
and qualifications, limitations and restrictions as may be fixed by the Board of
Directors, including, without limitation, the rate of dividends and redemption
and conversion prices, all of which are to be determined after giving
consideration to the financial and general condition of the Company and to the
condition of the securities' markets existing at the time of issuance;
WHEREAS, the holder of certain personal property which the Company wishes to
acquire has indicated its willingness and desire to accept preferred equity in
the Company solely in consideration for the sale of said property; and
WHEREAS, the directors deem it advisable to issue a new series of preferred
stock at this time to accomplish the aforesaid acquisition, having carefully
investigated the financial and general condition of the Company and the relation
of the condition of the Company to the condition of the securities' market, and
have determined that it is in the best interests of the Company to establish a
new series of preferred stock to be denominated "SERIES A: NON-DIVIDEND BEARING,
REDEEMABLE, CONVERTIBLE PREFERRED STOCK," with the attributes set forth in this
resolution;
NOW THEREFORE, BE IT:
RESOLVED, that the Board of Directors hereby authorizes the Company to issue
in exchange for those assets held by Asia Skylink, Inc., Two Hundred Ten
Thousand (210,000) shares of its "SERIES A: NON-DIVIDEND BEARING, CONVERTIBLE,
REDEEMABLE, PREFERRED STOCK" at a price of $10.00 per share, which series shall
have the following features:
(a) DIVIDENDS - the series shall be not be entitled to receive any dividends;
(b) CONVERSION - the aforesaid holder shall be entitled to convert from time
to time and at any time all or any part of its shares into common shares of
the Company at a conversion price of $10.00 per share of such common stock
beginning upon issuance
<PAGE>
of this series, which shall also, upon exercise, entitle the holder to the
receipt of one Class A Common Stock Purchase Warrant;
(c) REDEMPTION - the Company may redeem from time to time and at any time all
or any part of the series upon the payment of $10.00 per share, less any
previous distributions by the Company thereon;
(d) LIQUIDATION PREFERENCE - the series shall not be entitled to a liquidation
preference over any other series of preferred stock of the Company, but shall
be entitled to a liquidation preference of $10.00 per share over the common
shares of the Company;
(e) SINKING FUND - the series shall have no sinking fund provisions;
(f) VOTING RIGHTS - the series shall carry no voting powers; and
(g) ADDITIONAL PROVISIONS - the series shall be issued, upon compliance with
the laws of the State of Colorado, in accordance with those terms set forth on
Exhibit A hereto, which is specifically incorporated herein by this reference
and adopted as the act of the Company:
RESOLVED FURTHER, that the aforesaid warrants shall have such terms and
conditions applicable to them as set forth in Schedule 1 to Exhibit A;
RESOLVED FURTHER, that the President and Secretary are hereby authorized and
directed to cause to be filed under corporate seal such certificates as shall be
requisite to the end that the stock and warrants shall be issued as aforesaid
said; and
RESOLVED FINALLY, that the President be and he hereby is, authorized to (i)
effectuate, to the extent necessary and appropriate, those actions taken hereby,
(ii) issue certificates for the shares and warrants, (iii) prepare a form of
certificate for the shares and warrants in accordance with the above resolution
and (iv) provide for filing all necessary documentation with the Secretary of
State for the Sate of Colorado, applicable state securities authorities and the
United States Securities and Exchange Commission.
This consent may be signed in any one or more counterparts, all of which when
taken together shall constitute the same, and when signed by all of the
directors of the Company, may be certified by any proper officer as having been
unanimously adopted by the Board of Directors on the effective date first set
forth above.
/s/ Mark S. Pierce
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Mark S. Pierce
<PAGE>
EXHIBIT A
PREFERRED STOCK PROVISIONS
SERIES A: NON-DIVIDEND BEARING, REDEEMABLE, CONVERTIBLE
The Series A: Non-Dividend Bearing, Redeemable, Convertible Preferred Stock
(the "Preferred Stock") shall consist of one (1) series of Two Hundred Ten
Thousand (210,000) shares with each share to be identical to every other in all
respects. The "Capital Amount" for the Preferred Stock is $2,100,000 and the
Capital Amount per share is $10.00, irrespective of the Company's allocation of
the Capital Amount to stated and/or paid-in-capital. The following sets forth
the provisions of the Preferred Stock.
PART 1: DIVIDENDS
The Preferred Stock shall not be entitled to any dividends.
PART 2: CONVERSION
(2.10) CONVERSION PRICE. The Capital Amount evidenced by the Preferred Stock
from time to time may be converted in whole of in part at any time and from time
to time into common stock at the sole option of the holder of the Preferred
Stock at the price of $10.00 per common share. If converted prior to
redemption, the holder shall also be entitled to receive, in addition to one
share of common stock, a "CLASS A COMMON STOCK PURCHASE WARRANT," the terms and
conditions of which are set forth on Schedule 1 attached hereto.
(2.02) EXERCISE PROCEDURE. Any share shall be deemed to have been exercised
when the Company shall have received the certificate evidencing such shares
appropriately endorsed to reflect conversion thereof; whereupon the Company
shall forthwith issue the shares of common stock and warrant to which the
exercising shareholder is entitled.
(2.03) RESERVATION OF SHARES. The Company shall at all times reserve and keep
available for the purpose of effecting the conversion of the Preferred Stock the
full number of shares of common stock then deliverable upon the conversion of
all shares of then outstanding Preferred Stock.
(2.04) FRACTIONAL SHARES. No fractional share of common stock shall be issued
upon conversion, but, instead of any fraction of a share which would otherwise
be issuable, the Company shall pay to the holder an amount equal to the book
value allocable to the fractional share of common stock which would have
otherwise been issued, as determined using Generally Accepted Accounting
Principles.
(2.05) PAYMENT OF TAXES. The Company shall pay any and all taxes that may be
required in respect of the issuance or delivery of common stock and warrants on
conversion. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of common stock or warrants in a name other than that in which the shares
converted were registered, and no such issuance or delivery shall be made unless
and until the person requesting such has paid to the Company
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the amount of any such tax, or has established to the satisfaction of the
Company that such tax has been paid.
(2.06) REGISTRATION, APPROVAL AND LISTING. If any shares of common stock or
warrants required to be issued upon conversion of Preferred Stock shall require
registration with or approval by any governmental authority under any federal or
state law, or listing on any national securities exchange before such shares or
warrants may be issued, the holder shall, at his own expense, cause the
accomplishment of the same. The Company in such event shall, as expeditiously
as possible, assist the holder in his efforts and shall use its best efforts and
shall use its best efforts, again at the holder's expense, to cause such shares
to be duly registered of approved, as the case may be.
(2.07) DELIVERY OF NEW CERTIFICATES. Certificates for common stock and
warrants acquired upon conversion shall be delivered to the holder named therein
within 15 days after exercise and delivery to the Company thereof. Unless all
shares of Preferred Stock are converted or redeemed, the Company shall, within
the aforesaid period, prepare a new certificate, substantially identical to that
surrendered, representing the balance of the shares previously represented which
have not been converted.
PART 3: REDEMPTION
(3.01) OPTIONAL REDEMPTION. All or any part of the Preferred Stock may be
redeemed by the Company in its sole and exclusive discretion at any time and
from time to time by payment of the Capital Amount per share to be redeemed.
The Preferred Stock may no be redeemed until such time as the "market price"
(average of inside bid and asked price) has been $12.50 or more for twenty
consecutive trading days prior to the mailing of the redemption notice.
(3.02) REDEMPTION NOTICE. Before making any redemption under this part, the
Company shall mail to each record holder at his address a written notice
stating: (i) the number of shares of Preferred Stock held of record by such
holder which the Company proposes to redeem; (ii) the date on which the Company
proposes to pay the Capital Amount per share for the shares to be redeemed;
(iii) the Capital Amount to be paid for each share redeemed; and (iv) the place
at which the shares to be redeemed may be surrendered in exchange for the amount
due. The Company shall provide such notice at least 30, but no more than 90,
days prior to the established redemption date, except that the holders of
Preferred Stock may waive such notice. The Company shall not be obligated to
pay the redemption price until the shares to be redeemed are tendered and until
the redemption date. Redemption shall be deemed to have occurred on the earlier
of delivery to the Company of the Preferred Stock to be redeemed or the date set
for redemption.
(3.03) DETERMINATION OF NUMBER OF EACH HOLDER'S SHARES TO BE REDEEMED. Unless
all shares of Preferred Stock are redeemed, each record holder shall share on a
pro rata basis with all other holders of Preferred Stock in any redemption.
(3.04) REDEMPTION PRICE. For each share of Preferred Stock which shall be
redeemed by the Company, the Company shall be obligated to pay to the record
holder an amount equal to the Capital Amount allocated to each such share. Each
holder of Preferred Stock shall be entitled to receive at any time after the
redemption date the full Capital Amount per share at the redemption date upon
surrender by the holder at the Company's principal executive office
<PAGE>
of the certificate representing the shares duly endorsed in blank or accompanied
by an appropriate form of assignment duly endorsed in blank.
(3.05) ALLOCATION OF PARTIAL REDEMPTION PAYMENTS AMONG HOLDERS OF PREFERRED
STOCK. If at any time the Company shall elect to redeem only a portion of the
Capital Amount then outstanding, each holder of Preferred Stock shall have the
right to have redeemed his pro rata portion.
(3.06) REDEEMED CUMULATIVE PREFERRED STOCK TO BE CANCELED OR RETURNED TO
TREASURY. The Company, by resolution of its Board of Directors, may, in its
sole discretion, either cancel or return to treasury any shares of Preferred
Stock redeemed or for any other reason acquired.
PART 4: LIQUIDATION
The Preferred Stock shall be entitled to preferential liquidation rights over
any other series of preferred stock previously or which may subsequently be
issued by the Company. The Preferred Stock shall be entitled to preferential
liquidation rights over the common stock, but only the extent of the Capital
Amount then outstanding.
PART 5: SINKING FUND
The Preferred Stock shall not be entitled to the establishment of any sinking
fund.
PART 6: VOTING RIGHTS
Except as otherwise provided by the Colorado Corporation Code and such other
laws as may be or become applicable, the entire voting power for the election of
directors and for all other purposes shall be exclusively vested in the holders
of Common Stock or such other or subsequently authorized and issued series of
preferred stock as such rights are granted or may accrue to. In the event that
holders of Preferred Stock may become entitled to vote, the Preferred Stock is
not entitled to cumulative voting, nor is it entitled to any preemptive or
similar rights. Further, each share is entitled to one (1) vote on each matter
submitted to a vote and to which it is entitled to vote.
PART 7: ADJUSTMENT OF CONVERSION PRICE AND SHARES
The Conversion Price shall be subject to adjustments as follows:
(7.01) If the Company shall issue any shares of common stock as a share
dividend or shall subdivide the number of outstanding shares of common stock
into a greater number of shares of common stock into a greater number of shares,
the conversion price per share shall be reduced proportionately and the number
of shares acquirable shall be increased proportionately. Conversely, if the
Company shall reduce the number of shares of commons stock outstanding by
combining such shares into a smaller number of shares, the conversion price per
share shall be increased proportionately and the number of shares of common
stock purchasable shall be decreased proportionately.
(7.02) Notwithstanding the provisions of this Part 7, no adjustments of the
conversion price shall be made whereby such price is adjusted in an amount less
the $.10 or until the aggregate of such adjustments shall equal or exceed $.10.
<PAGE>
(7.03) No adjustment of the conversion price shall be made as a result of or
in connection with (i) the issuance of common stock pursuant to options,
warrants, and/or share purchase agreements outstanding or in effect on the date
hereof, (ii) the establishment of additional option or warrant plans of the
Company, the modification, renewal or extension of any plan now in effect or
hereafter created, or the issuance of common stock on exercise of any options
pursuant to such plans, (iii) the issuance of common stock in connection with an
acquisition, consolidation, recapitalization or merger of any type, (iv)
compensation or similar arrangements for officers, employees, contractors,
consultants or agents of the Company or any subsidiary or (v) the issuance of
common stock in private or public offerings.
(7.04) Before taking any action which would cause an adjustment reducing the
conversion price below the then par value of the common stock issuable upon
conversion of the Preferred Stock, the Company shall take any corporate action
which may, in the opinion of its counsel, be necessary in order that the Company
may validly and legally issue fully paid and non-assessable shares of common
stock at the adjusted conversion price.
PART 8: ADDITIONAL PROVISIONS.
The Preferred Stock may be subordinated in any respect to the terms and
provisions of the common stock and to the terms and provisions of any other
series of the Company's preferred stock which may be issued and become
outstanding subsequent to the Preferred Stock, unless specifically provided to
the contrary above.
SCHEDULE 1
CLASS A WARRANT PROVISIONS
The Class A Common Stock Purchase Warrants shall consist of one (1) series of
Two Hundred Ten Thousand (210,000) warrants, with each warrant to be identical
to every other in all respects. The following sets forth the provisions of the
warrants.
PART 1: EXERCISE
(1.01) EXERCISE PRICE. The warrants in their entirety only may be exercised
beginning December 29, 1995, through and including January 19, 1996. The
warrants may not be exercised in part. Every Two and One-Tenth (2 1/10) warrant
may be exercised upon the payment of $5.50 per warrant to acquire one common
share.
(1.02) EXERCISE PROCEDURE. Any warrants shall be deemed to have been
exercised when the Company shall have received the certificate evidencing such
appropriately endorsed to reelect conversion thereof; whereupon the Company
shall forthwith issue the shares of common stock to which the exercising
shareholder is entitled.
(1.03) RESERVATION OF SHARES. The Company shall at all times reserve and keep
available for the purpose of effecting the exercise of the warrants the full
number of shares of common stock then deliverable upon the conversion of all
warrants then outstanding.
(1.04) FRACTIONAL SHARES. No Fractional share of common stock shall be issued
upon exercise of the warrants, but, instead of any fraction of a share which
would otherwise be
<PAGE>
issuable, the Company shall pay to the holder an amount equal to the book value
allocable to the fractional share of common stock which would have otherwise
been issued, as determined using Generally Accepted Accounting Principles.
(1.05) PAYMENT OF TAXES. The Company shall pay any and all taxes that may be
required in respect of the issuance or delivery of common stock on exercise.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of common stock
in a name other than that in which the warrants converted were registered, and
no such issuance or delivery shall be made unless and until the person
requesting such has paid to the Company the amount of any such tax, or has
established to the satisfaction of the Company that such tax has been paid.
(1.06) REGISTRATION, APPROVAL AND LISTING. If any shares of common stock
required to be issued upon exercise of the warrants shall require registration
with or approval by any governmental authority under any federal or state law,
or listing on any national securities exchange before such shares may be issued,
the holder shall, at his own expense, cause the accomplishment of the same. The
Company in such event shall, as expeditiously as possible, assist the holder in
his efforts and shall use its best efforts, again at the holder's expense, to
cause such shares to be duly registered or approved, as the case may be.
(1.07) DELIVERY OF NEW CERTIFICATES. Certificates for common stock acquired
upon exercise shall be delivered to the holder named therein within 15 days
after exercise and delivery to the Company thereof.
PART 2: REDEMPTION
The Company is not entitled to redeem the Warrants.
PART 3: LIQUIDATION
The warrants shall be not be entitled to any liquidation rights. If the
Company liquidates during the period in which the warrants are outstanding, the
warrants will simply cease to exist.
PART 4: VOTING RIGHTS
The warrants shall not be entitled to any voting rights.
PART 5: ADJUSTMENT OF EXERCISE PRICE AND SHARES
The Exercise Price shall be subject to adjustment as follows:
(5.01) If the Company shall issue any shares of common stock as a share
dividend or shall subdivide the number of outstanding shares of common stock
into a greater number of shares, the exercise price per share shall be reduced
proportionately and the number of shares acquirable shall be increased
proportionately. Conversely, if the Company shall reduce the number of shares
of common stock outstanding by combining such shares into a smaller number of
shares, the exercise price per share shall be increased proportionately and the
number of shares of common stock purchasable shall be decreased proportionately.
<PAGE>
(5.02) Notwithstanding the provisions of this Part 7, no adjustments of the
exercise price shall be made whereby such price is adjusted in an amount less
that $.10 or until the aggregate of such adjustments shall equal or exceed $.10.
(5.03) No adjustment of the exercise price shall be made as a result of or in
connection with (i) the issuance of common stock pursuant to options, warrants,
and/or share purchase agreements outstanding or in effect on the date hereof,
(ii) the establishment of additional option or warrant plans of the Company, the
modification, renewal or extension of any plan now in effect or hereafter
created, or the issuance of common stock on exercise of any options pursuant to
such plans, (iii) the issuance of common stock in connection with an
acquisition, consolidation, recapitalization or merger of any type, (iv)
compensation or similar arrangements for officers, employees, contractors,
consultants or agents of the Company or any subsidiary or (v) the issuance of
common stock in private or public offerings.
(5.04) Before taking any action which would cause an adjustment reducing
the conversion price below the then par value of the common stock issuable upon
exercise of the warrants, the Company shall take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of common stock
at the adjusted exercise price.
<PAGE>
CERTIFICATE OF DESIGNATION OF
SERIES B PREFERRED STOCK
OF
INTERCELL CORPORATION
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is
Intercell Corporation, a Colorado corporation.
2. The certificate of incorporation of the Company authorize the issuance
of Ten Million (10,000,000) shares of preferred stock, no par value per share,
and expressly vests in the Board of Directors of the Company the authority
provided therein to issue any or all of said shares in one (1) or more series
and by resolution or resolutions to establish the designation and number and to
fix the relative rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series B issue of Preferred Stock:
RESOLVED, that one thousand (1,000) of the Ten Million (10,000,000)
authorized shares of Preferred Stock of the Company shall be designated Series B
Preferred Stock, no par value per share, and shall possess the rights and
preferences set forth below:
Section 1. Designation and Amount. The shares of such series shall have
----------------------
no par value and shall be designated as Series B Preferred Stock (the "Series B
Preferred Stock") and the number of shares constituting the Series B Preferred
Stock shall be one thousand (1,000). The Series B Preferred Stock shall be
offered at a purchase price of Ten Thousand Dollars ($10,000) per share (the
"Original Series B Issue Price"), with a ten percent (10%) per annum accretion
rate as set forth herein.
Section 2. Rank. The Series B Preferred Stock shall rank: (i) junior to
----
any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series B Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the Company's
Common Stock, no par value per share ("Common Stock"); (iii) prior to any
existing class or series of preferred stock ("Existing Preferred Stock"); (iv)
prior to any class or series of capital stock of the Company hereafter created
not specifically ranking by its terms senior to or on parity with any Series B
Preferred Stock of whatever subdivision (collectively, with the Common Stock and
the Existing Preferred Stock, "Junior Securities"); and (v) on parity with any
class or series of capital stock of the Company hereafter created specifically
ranking by its terms on parity with the Series B Preferred Stock ("Parity
Securities") in each case as to distributions of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary (all
such distributions being referred to collectively as "Distributions").
<PAGE>
Section 3. Dividends. The Series B Preferred Stock will bear no
---------
dividends, and the holders of the Series B Preferred Stock ("Holders") shall not
be entitled to receive dividends on the Series B Preferred Stock.
Section 4. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the Holders of shares of Series B
Preferred Stock shall be entitled to receive, immediately after any
distributions to Senior Securities required by the Company's Certificate of
Incorporation or any certificate of designation, and prior in preference to any
distribution to Junior Securities but in parity with any distribution to Parity
Securities, an amount per share equal to the sum of (i) the Original Series B
Issue Price for each outstanding share of Series B Preferred Stock and (ii) an
amount equal to ten percent (10%) of the Original Series B Issue Price per annum
for the period that has passed since the date that, in connection with the
consummation of the purchase by Holder of shares of Series B Preferred Stock
from the Company, the escrow agent first had in its possession funds
representing full payment for the shares of Series B Preferred Stock (such
amount being referred to herein as the "Premium"). If upon the occurrence of
such event, and after payment in full of the preferential amounts with respect
to the Senior Securities, the assets and funds available to be distributed among
the Holders of the Series B Preferred Stock and Parity Securities shall be
insufficient to permit the payment to such Holders of the full preferential
amounts due to the Holders of the Series B Preferred Stock and the Parity
Securities, respectively, then the entire assets and funds of the Company
legally available for distribution shall be distributed among the Holders of the
Series B Preferred Stock and the Parity Securities, pro rata, based on the
respective liquidation amounts to which each such series of stock is entitled by
the Company's Certificate of Incorporation and any certificate(s) of designation
relating thereto.
(b) Upon the completion of the distribution required by subsection
4(a), if assets remain in this Company, they shall be distributed to holders of
Junior Securities in accordance with the Company's Certificate of Incorporation
including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition of all
or substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 4; provided further that an event described in the prior clause that the
Holder does not elect to treat as a liquidation and a consolidation, merger,
acquisition, or other business combination of the Company with or into any other
company or companies shall not be treated as a liquidation, dissolution or
winding up within the meaning of this Section 4, but instead shall be treated
pursuant to Section 5(f) hereof.
(d) In the event that, immediately prior to the closing of a
transaction described in Section 4(c) which would constitute a liquidation
event, the cash distributions required by Section 4(a) or Section 6 have not
been made, the Company shall either: (i) cause such closing to be postponed
until such cash distributions have been made, or (ii) cancel such transaction,
in which event the rights of the Holders of Series B Preferred Stock shall be
the same as existing immediately prior to such proposed transaction.
<PAGE>
Section 5. Conversion. The record Holders of this Series B Preferred
----------
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each record Holder of Series B Preferred Stock
shall be entitled (at the times and in the amounts set forth below) and subject
to the Company's right of redemption set forth in Section 6(a), at the office of
the Company or any transfer agent for the Series B Preferred Stock (the
"Transfer Agent"), to convert (in multiples of one (1) share of Preferred Stock)
as follows: (x) up to one-third (1/3) of the shares of Series B Preferred Stock
initially issued to such Holder at any time beginning forty-five (45) days
following the date of the last closing of a purchase and sale of Series B
Preferred Stock that occurs pursuant to the offering of the Series B Preferred
Stock by the Company (the "Last Closing Date") and at any time thereafter, (y)
up to an additional one-third (1/3) of the shares of Series B Preferred Stock
initially issued to such Holder at any time beginning seventy-five (75) days
following the Last Closing Date and at any time thereafter, and (z) all
remaining Series B Preferred Stock held by such Holder at any time beginning
one hundred five (105) days following the Last Closing Date (each of the time
periods referenced in subclauses (x), (y) and (z) is hereinafter referred to
singularly as a "Conversion Gate") at the office of the Company or any Transfer
Agent for the Series B Preferred Stock, into that number of fully-paid and non-
assessable shares of Common Stock of the Company calculated in accordance with
the following formula (the "Conversion Rate"):
Number of shares issued upon conversion of one (1) share of Series B Preferred
Stock =
(.10) (N/365) (10,000) + 10,000
-------------------------------
Conversion Price
where,
N= the number of days between (i) the date that, in connection with the
consummation of the initial purchase by Holder of shares of Series B Preferred
Stock from the Company, the escrow agent first had in its possession funds
representing full payment for the shares of Series B Preferred Stock for which
conversion is being elected, and (ii) the applicable Date of Conversion (as
defined in Section 5(c)(iv) below) for the shares of Series B Preferred Stock
for which conversion is being elected, and
Conversion Price = the lesser of (x) 100% of the average Closing Bid Price,
as that term is defined below, for the five (5) trading days ending on June 26,
1996, which amount is equal to $ 3.9375 (the "Fixed Conversion Price"), or (y)
85% of the average Closing Bid Price, as that term is defined below, of the
Company's Common Stock for the five (5) trading days immediately preceding the
Date of Conversion, as defined below (the "Variable Conversion Price").
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price on the Nasdaq Small Cap Market, or if not traded on the Nasdaq Small
Cap Market, the closing bid price on the principal national securities exchange
or the National Market System on which the Common Stock is so traded and if not
available, the mean of the high and low prices on the principal national
securities exchange or the National Market System on which the Common Stock is
so traded.
<PAGE>
(b) Conversion at Market Price. Notwithstanding the limitations on
conversion set forth above, each record Holder of Series B Preferred Stock shall
be entitled to convert, subject to the Company's right of redemption set forth
in section 6(a), the Preferred Stock (in multiples of one (1) share of Preferred
Stock) prior to the applicable Conversion Gate (but no earlier than forty-five
(45) days following the Last Closing Date), at the office of the Transfer Agent,
into that number of fully-paid and non-assessable shares of Common Stock of
Company calculated in accordance with the Conversion Rate set forth above;
provided, however, that, for purposes of the conversion pursuant to this
subsection 4(b), the Conversion Price shall equal the Closing Bid Price of the
Company's Common Stock on the trading day immediately prior to the Date of
Conversion.
(c) Mechanics of Conversion. In order to convert Series B Preferred
Stock into full shares of Common Stock, the Holder shall (i) fax, on or prior to
11:59 p.m., New York City time (the "Conversion Notice Deadline") on the date of
conversion, a copy of the fully executed notice of conversion ("Notice of
Conversion") to the Company at the office of the Company or its designated
transfer agent (the "Transfer Agent") for the Series B Preferred Stock stating
that the Holder elects to convert, which notice shall specify the date of
conversion, the number of shares of Series B Preferred Stock to be converted,
the applicable conversion price and a calculation of the number of shares of
Common Stock issuable upon such conversion (together with a copy of the front
page of each certificate to be converted) and (ii) surrender to a common courier
for delivery to the office of the Company or the Transfer Agent, the original
certificates representing the Series B Preferred Stock being converted (the
"Preferred Stock Certificates"), duly endorsed for transfer; provided, however,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless either the Preferred
Stock Certificates are delivered to the Company or its Transfer Agent as
provided above, or the Holder notifies the Company or its Transfer Agent that
such certificates have been lost, stolen or destroyed (subject to the
requirements of subparagraph (i) below). Upon receipt by Company of a facsimile
copy of a Notice of Conversion, Company shall immediately send, via facsimile,
a confirmation of receipt of the Notice of Conversion to Holder which shall
specify that the Notice of Conversion has been received and the name and
telephone number of a contact person at the Company whom the Holder should
contact regarding information related to the Conversion. In the case of a
dispute as to the calculation of the Conversion Rate, the Company shall promptly
issue to the Holder the number of Shares that are not disputed and shall submit
the disputed calculations to its outside accountant via facsimile within three
(3) days of receipt of Holder's Notice of Conversion. The Company shall cause
the accountant to perform the calculations and notify Company and Holder of the
results no later than forty-eight (48) hours from the time it receives the
disputed calculations. Accountant's calculation shall be deemed conclusive
absent manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series B Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity or security reasonably satisfactory
to the Company, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Company shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date. However, Company shall
not be obligated to re-issue such lost or stolen Preferred Stock Certificates if
Holder contemporaneously requests Company to convert such Series B Preferred
Stock into Common Stock.
(ii) Delivery of Common Stock Upon Conversion. The Transfer Agent or
the Company (as applicable) shall, no later than the close of business on the
second (2nd) business
<PAGE>
day (the "Deadline") after receipt by the Company or the Transfer Agent of a
facsimile copy of a Notice of Conversion and receipt by Company or the Transfer
Agent of all necessary documentation duly executed and in proper form required
for conversion, including the original Preferred Stock Certificates to be
converted (or after provision for security or indemnification in the case of
lost or destroyed certificates, if required), issue and surrender to a common
courier for either overnight or (if delivery is outside the United States) two
(2) day delivery to the Holder at the address of the Holder as shown on the
stock records of the Company a certificate for the number of shares of Common
Stock to which the Holder shall be entitled as aforesaid.
(iii) No Fractional Shares. If any conversion of the Series B
Preferred Stock would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion,
in the aggregate, shall be the next lower number of shares.
(iv) Date of Conversion. The date on which conversion occurs (the
"Date of Conversion") shall be deemed to be the date set forth in such Notice of
Conversion, provided (i) that the advance copy of the Notice of Conversion is
faxed to the Company before 11:59 p.m., New York City time, on the Date of
Conversion, and (ii) that the original Preferred Stock Certificates representing
the shares of Series B Preferred Stock to be converted are surrendered by
depositing such certificates with a common courier, as provided above, and
received by the Transfer Agent or the Company as soon as practicable after the
Date of Conversion. The person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record Holder or Holders of such shares of Common Stock on the Date of
Conversion.
(d) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Series B Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
Series B Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series B Preferred Stock, the Company will
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(e) Automatic Conversion. Each share of Series B Preferred Stock
outstanding on the date which is three (3) years after the Last Closing Date
automatically shall be converted into Common Stock on such date at the
Conversion Rate then in effect (calculated in accordance with the formula in
Section 5(a) above), and the date which is three (3) years after the Last
Closing Date shall be deemed the Date of Conversion with respect to such
conversion.
(f) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock Split,
Stock Dividend, Etc. If, prior to the conversion of all of the Series B
Preferred Stock, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, or other similar event, the Fixed Conversion
Price shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a combination or reclassification of shares, or
other similar event, the Fixed Conversion Price shall be proportionately
increased.
<PAGE>
(ii) Adjustment to Variable Conversion Price. If, at any time when
any shares of the Series B Preferred Stock are issued and outstanding, the
number of outstanding shares of Common Stock is increased or decreased by a
stock split, stock dividend, or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any conversion of the Series B Preferred Stock, then the Variable
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
all five (5) trading days immediately preceding the Date of Conversion.
(iii) Adjustment Due to Merger, Consolidation, Etc. If, prior to
the conversion of all Series B Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities of the Company or another entity or
there is a sale of all or substantially all the Company's assets or there is a
change of control transaction not deemed to be a liquidation pursuant to section
4(c), then the Holders of Series B Preferred Stock shall thereafter have the
right to receive upon conversion of Series B Preferred Stock, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such stock,
securities and/or other assets which the Holder would have been entitled to
receive in such transaction had the Series B Preferred Stock been converted
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holders
of the Series B Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the Conversion
Price and of the number of shares issuable upon conversion of the Series B
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any securities thereafter deliverable upon the exercise hereof.
The Company shall not effect any transaction described in this subsection
5(f)(iii) unless (a) it first gives thirty (30) business days prior notice of
such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holder shall be
entitled to convert its shares of Series B Preferred Stock into Common Stock)
and (b) the resulting successor or acquiring entity (if not the Company) assumes
by written instrument the obligations of the Company under this Certificate of
Designation including this subsection 5(f)(iii).
(iv) No Fractional Shares. If any adjustment under this Section 5(f)
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion shall be the next
lower number of shares.
Section 6. Redemption by Company.
---------------------
(a) Company's Right to Redeem Upon Receipt of Notice of Conversion.
If the Conversion Price of the Company's Common Stock is less than the Fixed
Conversion Price (as defined in Section 5(a)), at the time of receipt of a
Notice of Conversion pursuant to Section 5, the Company shall have the right, in
its sole discretion, to redeem in whole or in part any Series B Preferred Stock
submitted for conversion, immediately prior to and in lieu of conversion
("Redemption Upon Receipt of Notice of Conversion"). If the Company elects to
redeem some, but not all, of the Series B Preferred Stock submitted for
conversion, the Company shall redeem from among the Series B Preferred Stock
submitted by the various shareholders for conversion on the
<PAGE>
applicable date, a pro-rata amount from each such Holder so submitting Series B
Preferred Stock for conversion.
(i) Redemption Price Upon Receipt of a Notice of Conversion. The
redemption price per share of Series B Preferred Stock under this Section 6(a)
shall be calculated in accordance with the following formula ("Redemption
Rate"):
[[(.10)(N/365) (10,000)] + 10,000] x Closing Bid Price on Date of Conversion
---------------------------------------
Conversion Price
where,
"N," "Date of Conversion," "Closing Bid Price" and "Conversion Price" shall
have the same meanings as defined in Section 5.
(ii) Mechanics of Redemption Upon Receipt of Notice of Conversion.
The Company shall effect each such redemption by giving notice of its election
to redeem, by facsimile, by 5:00 p.m. New York City time the next business day
following receipt of a Notice of Conversion from a Holder, and the Company shall
provide a copy of such redemption notice by overnight or two (2) day courier, to
(A) the Holder of the Series B Preferred Stock submitted for conversion at the
address and facsimile number of such Holder appearing in the Company's register
for the Series B Preferred Stock and (B) the Company's Transfer Agent. Such
redemption notice shall indicate whether the Company will redeem all or part of
the Series B Preferred Stock submitted for conversion and the applicable
redemption price.
(b) Company's Right to Redeem at its Election. At any time,
commencing twelve (12) months and one (1) day after the Last Closing Date, the
Company shall have the right, in its sole discretion, to redeem ("Redemption at
Company's Election"), from time to time, any or all of the Series B Preferred
Stock; provided (i) Company shall first provide thirty (30) business days
advance written notice as provided in subparagraph 6(b)(ii) below (which can be
given beginning thirty (30) business days prior to the date which is twelve (12)
months and one (1) day after the Last Closing Date), and (ii) that the Company
shall only be entitled to redeem Series B Preferred Stock having an aggregate
Stated Value (as defined below) of at least One Million Five Hundred Thousand
Dollars ($1,500,000). If the Company elects to redeem some, but not all, of the
Series B Preferred Stock, the Company shall redeem a pro-rata amount from each
Holder of the Series B Preferred Stock.
(i) Redemption Price At Company's Election. The "Redemption Price
At Company's Election" shall be calculated as a percentage of Stated Value, as
that term is defined below, of the Series B Preferred Stock redeemed pursuant to
this Section 6(b), which percentage shall vary depending on the date of
Redemption at Company's Election (as defined below), and shall be determined as
follows:
<TABLE>
<CAPTION>
Date of Notice of Redemption at Company's Election % of Stated Value
- -------------------------------------------------- -----------------
<S> <C>
12 months and 1 day to 18 months following Last Closing Date 130%
18 months and 1 day to 24 months following Last Closing Date 125%
24 months and 1 day to 30 months following Last Closing Date 120%
30 months and 1 day to 36 months following Last Closing Date 115%
</TABLE>
<PAGE>
For purposes hereof, "Stated Value" shall mean the Original Series B Issue
Price (as defined in Section 4(a)) of the shares of Series B Preferred Stock
being redeemed pursuant to this Section 6(b), together with the accrued but
unpaid Premium (as defined in Section 4(a)).
(ii) Mechanics of Redemption at Company's Election. The Company
shall effect each such redemption by giving at least thirty (30) business days
prior written notice ("Notice of Redemption At Company's Election") to (A) the
Holders of the Series B Preferred Stock selected for redemption, at the address
and facsimile number of such Holder appearing in the Company's Series B
Preferred stock register and (B) the Transfer Agent, which Notice of Redemption
At Company's Election shall be deemed to have been delivered three (3) business
days after the Company's mailing (by overnight or two (2) day courier, with a
copy by facsimile) of such Notice of Redemption At Company's Election. Such
Notice of Redemption At Company's Election shall indicate (i) the number of
shares of Series B Preferred Stock that have been selected for redemption, (ii)
the date which such redemption is to become effective (the "Date of Redemption
At Company's Election") and (iii) the applicable Redemption Price At Company's
Election, as defined in subsection (b)(i) above. Notwithstanding the above,
Holder may convert into Common Stock pursuant to section 5, prior to the close
of business on the Date of Redemption at Company's Election, any Series B
Preferred Stock which it is otherwise entitled to convert, including Series B
Preferred Stock that has been selected for redemption at Company's election
pursuant to this subsection 6(b); provided, however, that the Company shall
still be entitled to exercise its right to redeem upon receipt of a Notice of
Conversion pursuant to section 6(a).
(c) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Redemption Notice and
begin the redemption procedure under Sections 6(a) and 6(b) unless it has:
(i) the full amount of the redemption price in cash, available in
a demand or other immediately available account in a bank or similar financial
institution; or
(ii) immediately available credit facilities, in the full amount of
the redemption price with a bank or similar financial institution; or
(iii) an agreement with a standby underwriter willing to purchase
from the Company a sufficient number of shares of stock to provide proceeds
necessary to redeem any stock that is not converted prior to redemption; or
(iv) a combination of the items set forth in (i), (ii) and (iii)
above, aggregating the full amount of the redemption price.
(d) Payment of Redemption Price.
(i) Each Holder submitting Preferred Stock being redeemed under
this Section 6 shall send their Series B Preferred Stock Certificates so
redeemed to the Company or its Transfer Agent, and the Company shall pay the
applicable redemption price to that Holder within five (5) business days of the
Date of Redemption at Company's Election. The Company shall not be obligated to
deliver the redemption price unless the Preferred Stock Certificates so redeemed
are delivered to the Company or its Transfer Agent, or, in the event one (1) or
more certificates have been lost, stolen, mutilated or destroyed, unless the
Holder has complied with Section 5(c)(i).
<PAGE>
(ii) If Company elects to redeem pursuant to Section 6(a) hereof,
and Company fails to pay Holder the redemption price within the time frame as
required by this Section 6(d), then Company shall issue shares of Common Stock
to any such Holder who has submitted a Notice of Conversion in compliance with
Section 5(c) hereof. The shares to be issued to Holder pursuant to this
provision shall be the number of shares determined using a Conversion Price (as
defined in Section 6 hereof) that equals the lesser of (i) the Conversion Price
on the date Holder sends its Notice of Conversion to Company or Transfer Agent
via facsimile or (ii) the Conversion Price on the date the Transfer Agent issues
Common Stock pursuant to this Section 6(d)(ii). The issuance of such shares
shall not affect the Company's liability for damages, if any, to the Holder
resulting from its failure to redeem.
(e) Blackout Period. Notwithstanding the foregoing, the Company may
not either send out a redemption notice or effect a redemption pursuant to
Section 6(b) above during a Blackout Period (defined as a period during which
the Company's officers or directors would not be entitled to buy or sell stock
because of their holding of material non-public information), unless the Company
shall first disclose the non-public information that resulted in the Blackout
Period; provided, however, that no redemption shall be effected until at least
ten (10) days after the Company shall have given the Holder written notice that
the Blackout Period has been lifted.
Section 7. Advance Notice of Redemption.
----------------------------
(a) Holder's Right to Elect to Receive Notice of Cash Redemption
by the Company. Holder shall have the right to require Company to provide
advance notice stating whether the Company will elect to redeem Holder's shares
of Series B Preferred Stock in cash, pursuant to the Company's redemption rights
discussed in Section 6(a).
(b) Mechanics of Holder's Election Notice. Holder shall send notice
("Election Notice") to the Company and such other person(s) as the Company may
designate, via facsimile, Holder's intention to require Company to disclose that
if Holder were to exercise his, her or its right of conversion (pursuant to
Section 5) whether Company would elect to redeem a specific number of shares of
Holder's Series B Preferred Stock for cash in lieu of issuing Common Stock.
Company is required to disclose to Holder what action Company would take over
the subsequent twenty (20) business day period, including the date of such
Election Notice, as further discussed in subsection 7(c).
(c) Company's Response. Upon receipt by the Company of a facsimile
copy of an Election Notice, Company shall immediately send, via facsimile, a
confirmation of receipt of the Election Notice to Holder, which shall specify
that the Election Notice has been received and the name and telephone number of
a contact person at the Company whom the Holder should contact regarding
information related to the requested advance notice. Thereafter, the Company
must respond by the close of business on the next business day following receipt
of Holder's Election Notice (1) via facsimile and (2) by depositing such
response with an overnight or two (2) day courier. The Company's response must
state whether it would redeem the shares, in whole or in part, or allow
conversion into shares of Common Stock without redemption. If Company does not
respond to Holder within one (1) business day via facsimile and overnight or two
(2) day courier, Company shall be required to issue to Holder Common Stock upon
Holder's conversion within the subsequent twenty (20) business day period of
Holder's Election Notice. However, if the Company's Common Stock price
decreases so that under the Conversion Rate Company would be required to
<PAGE>
issue more than an additional ten percent (10% ) of shares of Common Stock than
Holder was entitled to receive at the time Holder sent Company its Election
Notice, then Company shall no longer be bound to convert Holder's Preferred
Stock into Common Stock but may elect to redeem for cash.
Section 8. Voting Rights. The Holders of the Series B Preferred Stock
-------------
shall have no voting power whatsoever, except as otherwise provided by the
Colorado Business Corporation Act ("Colorado Law"), and no Holder of Series B
Preferred Stock shall vote or otherwise participate in any proceeding in which
actions shall be taken by the Company or the shareholders thereof or be entitled
to notification as to any meeting of the shareholders.
Notwithstanding the above, Company shall provide Holder with notification
of any meeting of the shareholders regarding any major corporate events
affecting the Company. In the event of any taking by the Company of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire any share of any class or any other
securities or property (including by way of merger, consolidation or
reorganization), or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail a notice to Holder, at least ten (10) days prior
to the record date specified therein, of the date on which any such record is to
be taken for the purpose of such dividend, distribution, right or other event,
and a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under Colorado Law the vote of the Holders of the Series
B Preferred Stock, voting separately as a class, is required to authorize a
given action of the Company, the affirmative vote or consent of the Holders of
at least a majority of the shares of the Series B Preferred Stock represented at
a duly held meeting at which a quorum is present or by written consent of a
majority of the shares of Series B Preferred Stock (except as otherwise may be
required under Colorado Law) shall constitute the approval of such action by the
class. To the extent that under Colorado Law the Holders of the Series B
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one (1) class, each share of Series B Preferred Stock shall
be entitled to a number of votes equal to the number of shares of Common Stock
into which it is then convertible using the record date for the taking of such
vote of stockholders as the date as of which the Conversion Price is calculated.
Holders of the Series B Preferred Stock also shall be entitled to notice of all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Company's by-
laws and applicable statutes.
Section 9. Protective Provision. So long as shares of Series B Preferred
--------------------
Stock are outstanding, the Company shall not without first obtaining the
approval (by vote or written consent, as provided by Colorado Law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Series B Preferred Stock, and at least seventy-five percent (75%) of the then
outstanding Holders:
(a) alter or change the rights, preferences or privileges of the
Series B Preferred Stock or any Senior Securities so as to affect adversely the
Series B Preferred Stock; provided,
<PAGE>
however, that no such change may be approved at any time on or prior to the
fortieth (40th) day following the Last Closing Date unless such change is
unanimously approved by all Holders;
(b) create any new class or series of stock having a preference over
or on parity with the Series B Preferred Stock with respect to Distributions (as
defined in Section 2 above) or increase the size of the authorized number of
Series B Preferred; or
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series B Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
In the event Holders of at least seventy-five percent (75%) of the then
outstanding shares of Series B Preferred Stock and at least seventy-five percent
(75%) of the then outstanding Holders agree to allow the Company to alter or
change the rights, preferences or privileges of the shares of Series B Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series B Preferred
Stock, then the Company will deliver notice of such approved change to the
Holders of the Series B Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) business days to convert pursuant to the terms of
this Certificate of Designation as they exist prior to such alteration or change
(notwithstanding the forty-five (45) day, seventy-five (75) day, and one hundred
five (105) day holding requirements set forth in Section 5(a) hereof), or
continue to hold their shares of Series B Preferred Stock provided, however,
that the Dissenting Holders may not convert anytime on or before the fortieth
(40th) day following the Last Closing Date.
Section 10. Status of Converted or Redeemed Stock. In the event any
-------------------------------------
shares of Series B Preferred Stock shall be converted or redeemed pursuant to
Section 5 or Section 6 hereof, the shares so converted or redeemed shall be
canceled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Company as Series B
Preferred Stock.
Section 11. Preference Rights. Nothing contained herein shall be
-----------------
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of Preferred Stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Series B Preferred
Stock.
Signed on July 10, 1996
By: /s/ Gordon Sales
-----------------------
Gordon Sales, President
<PAGE>
CERTIFICATE OF DESIGNATION OF
SERIES C PREFERRED STOCK
OF
INTERCELL CORPORATION
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is
Intercell Corporation, a Colorado corporation.
2. The certificate of incorporation of the Company authorizes the
issuance of Ten Million (10,000,000) shares of preferred stock, no par value per
share, and expressly vests in the Board of Directors of the Company the
authority provided therein to issue any or all of said shares in one (1) or more
series and by resolution or resolutions to establish the designation and number
and to fix the relative rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series C issue of Preferred Stock:
RESOLVED, that Six Hundred (600) of the Ten Million (10,000,000) authorized
shares of Preferred Stock of the Company shall be designated Series C Preferred
Stock, no par value per share, and shall possess the rights and preferences set
forth below:
Section 1. Designation and Amount. The shares of such series shall have
----------------------
no par value per share and shall be designated as Series C Preferred Stock (the
"Series C Preferred Stock") and the number of shares constituting the Series C
Preferred Stock shall be Six Hundred (600). The Series C Preferred Stock shall
be offered at a purchase price of Ten Thousand Dollars ($10,000) per share (the
"Original Series C Issue Price"), with an eight percent (8%) per annum accretion
rate as set forth herein.
Section 2. Rank. The Series C Preferred Stock shall rank: (i) junior to
----
the Company's Series B Preferred Stock and any other class or series of capital
stock of the Company hereafter created specifically ranking by its terms senior
to the Series C Preferred Stock (collectively, the "Senior Securities"); (ii)
prior to all of the Company's Common Stock, no par value per share ("Common
Stock"); (iii) prior to any class or series of capital stock of the Company
hereafter created not specifically ranking by its terms senior to or on parity
with any Series C Preferred Stock of whatever subdivision (collectively, with
the Common Stock, "Junior Securities"); and (iv) on parity with any class or
series of capital stock of the Company hereafter created specifically ranking by
its terms on parity with the Series C Preferred Stock ("Parity Securities") in
each case as to distributions of assets upon liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary (all such distributions
being referred to collectively as "Distributions").
Section 3. Dividends. The Series C Preferred Stock will bear no
---------
dividends, and the holders of the Series C Preferred Stock ("Holders") shall not
be entitled to receive dividends on the Series C Preferred Stock.
<PAGE>
Section 4. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Company ("Liquidation Event"), either voluntary or involuntary, the Holders of
shares of Series C Preferred Stock shall be entitled to receive, immediately
after any distributions to Senior Securities required by the Company's
Certificate of Incorporation or any certificate of designation, and prior in
preference to any distribution to Junior Securities but in parity with any
distribution to Parity Securities, an amount per share equal to the sum of (i)
the Original Series C Issue Price for each outstanding share of Series C
Preferred Stock and (ii) an amount equal to eight percent (8%) of the Original
Series C Issue Price per annum for the period that has passed since the date
that, in connection with the consummation of the purchase by Holder of shares of
Series C Preferred Stock from the Company, the escrow agent first had in its
possession funds representing full payment for the shares of Series C Preferred
Stock (such amount being referred to herein as the "Premium"). If upon the
occurrence of such event, and after payment in full of the preferential amounts
with respect to the Senior Securities, the assets and funds available to be
distributed among the Holders of the Series C Preferred Stock and Parity
Securities shall be insufficient to permit the payment to such Holders of the
full preferential amounts due to the Holders of the Series C Preferred Stock and
the Parity Securities, respectively, then the entire assets and funds of the
Company legally available for distribution shall be distributed among the
Holders of the Series C Preferred Stock and the Parity Securities, pro rata,
based on the respective liquidation amounts to which each such series of stock
is entitled by the Company's Certificate of Incorporation and any certificate(s)
of designation relating thereto.
(b) Upon the completion of the distribution required by subsection
4(a), if assets remain in this Company, they shall be distributed to holders of
Junior Securities in accordance with the Company's Certificate of Incorporation
including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition of all
or substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which any person
or entity acquires more than fifty percent (50%) of the voting power of the
Company (a "Change of Control") shall be deemed to be a Liquidation Event as
defined in Section 4(a); provided further that (i) a consolidation, merger,
acquisition, or other business combination of the Company with or into any other
publicly traded company or companies shall not be treated as a Liquidation Event
as defined in Section 4(a), but instead shall be treated pursuant to Section
5(e)(iii) hereof, and (ii) a consolidation, merger, acquisition, or other
business combination of the Company with or into any other non-publicly traded
company or companies shall be treated as a Liquidation Event as defined in
Section 4(a). The Company shall not effect any transaction described in
subsection 4(c)(ii) unless it first gives thirty (30) business days prior notice
of such transaction (during which time the Holder shall be entitled to
immediately convert any or all of its shares of Series C Preferred Stock into
Common Stock at the Conversion Price, as defined below, then in effect, which
conversion shall not be subject to the conversion restrictions set forth in
Section 5(a)).
(d) In the event that, immediately prior to the closing of a
transaction described in Section 4(c) which would constitute a Liquidation
Event, the cash distributions required by Section 4(a) or Section 6 have not
been made, the Company shall either: (i) cause such closing to be postponed
until such cash distributions have been made, or (ii) cancel such transaction,
in which
<PAGE>
event the rights of the Holders of Series C Preferred Stock shall be the same as
existing immediately prior to such proposed transaction.
Section 5. Conversion. The record Holders of this Series C Preferred
----------
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each record Holder of Series C Preferred Stock
shall be entitled to convert the aggregate Series C Preferred Stock initially
issued to such Holder i) at the Fixed Conversion Price (as defined below), at
any time after the date that is four (4) months after the date of the Last
Closing and ii) at the Variable Conversion Price (as defined below), at the
times and in the amounts as follows:
<TABLE>
<CAPTION>
No. of Months Percentage of Series C Preferred Stock Initially
After the Last Closing Date Issued to such Holder Available for Conversion
- --------------------------- ------------------------------------------------
<S> <C>
4 months 20%
5 months 40%
6 months 60%
7 months 80%
8 months 100%
</TABLE>
provided, however, that a Holder may not convert more than twenty-five percent
(25%) of the aggregate number of shares of Preferred Stock initially issued to
such Holder at the Variable Conversion Price in any given one month period,
beginning on the date that is four (4) months following the Last Closing Date
and beginning the same day of each subsequent month thereafter until the date
that is eight (8) months following the Last Closing Date (the "Monthly
Conversion Limit"). Subsequent to the date that is eight (8) months following
the Last Closing Date, there shall be no restrictions on the number of shares of
Series C Preferred Stock convertible into Common Stock.
As used herein, "Last Closing Date" shall mean the date of the last closing
of a purchase and sale of the Series C Preferred Stock that occurs pursuant
to the offering of the Series C Preferred Stock by the Company.
The date that is four (4) months following the Last Closing Date and the
same day of each subsequent monthly period referenced above are hereinafter
referred to singularly as a "Conversion Gate" and collectively as
"Conversion Gates". At the applicable Conversion Gate and at any time
thereafter, the percentage of the aggregate Series C Preferred Stock
initially issued to such Holder which is available for conversion as set
forth above is convertible into that number of fully-paid and non-
assessable shares of Common Stock of the Company calculated in accordance
with the following formula (the "Conversion Rate"):
Number of shares issued upon conversion of one (1) share of Series C
Preferred Stock =
(.08) (N/365) (10,000) + 10,000
-------------------------------
Conversion Price
where,
<PAGE>
N= the number of days between (i) the date that, in connection with the
consummation of the initial purchase by Holder of shares of Series C Preferred
Stock from the Company, the escrow agent first had in its possession funds
representing full payment for the shares of Series C Preferred Stock for which
conversion is being elected, and (ii) the applicable Date of Conversion (as
defined in Section 5(b)(iv) below) for the shares of Series C Preferred Stock
for which conversion is being elected, and
Conversion Price = the lesser of (x) $3.25 (the "Fixed Conversion Price"),
or (y) 85% of the average Closing Bid Price, as that term is defined below, of
the Company's Common Stock for the five (5) trading days immediately preceding
the Date of Conversion, as defined below (the "Variable Conversion Price").
For purposes hereof, any Holder which acquires shares of Series C Preferred
Stock from another Holder (the "Transferor") and not upon original issuance from
the Company shall be entitled to exercise its conversion right as to the
percentages of such shares specified under Section 5(a) in such amounts and at
such times such that the number of shares eligible for conversion by such Holder
at any time shall be in the same proportion that the number of shares of Series
C Preferred Stock acquired by such Holder from its Transferor bears to the total
number of shares of Series C Preferred Stock originally issued by the Company to
such Transferor (or its predecessor Transferor).
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price as reported by the OTC Bulletin Board or the Nasdaq Small Cap Market
or the Nasdaq National Market, or if not traded on the OTC Bulletin Board or the
Nasdaq Small Cap Market or the Nasdaq National Market, the closing bid price on
the over the counter market, the principal national securities exchange or the
National Market System on which the Common Stock is so traded and if not
available, the mean of the high and low prices on the over the counter market,
including but not limited to the Bulletin Board or the Pink Sheets, the
principal national securities exchange or the National Market System on which
the Common Stock is so traded.
(b) Mechanics of Conversion. In order to convert Series C Preferred
Stock into full shares of Common Stock, the Holder shall (i) fax, on or prior to
11:59 p.m., New York City time (the "Conversion Notice Deadline") on the Date of
Conversion (as defined below), a copy of the fully executed notice of conversion
("Notice of Conversion") to the Company and to First Union National Bank, the
custodian of the Common Stock (the "Custodian") stating that the Holder elects
to convert, which notice shall specify the date of conversion, the number of
shares of Series C Preferred Stock to be converted, the applicable conversion
price and a calculation of the number of shares of Common Stock issuable upon
such conversion (together with a copy of the front page of each certificate to
be converted) and (ii) surrender to a common courier for delivery to the office
of the Company or the Custodian, the original certificates representing the
Series C Preferred Stock being converted (the "Preferred Stock Certificates"),
duly endorsed for transfer; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless either the Preferred Stock Certificates are
delivered to the Company or the Custodian as provided above, or the Holder
notifies the Company or the Custodian that such certificates have been lost,
stolen or destroyed (subject to the requirements of subparagraph (i) below).
Upon receipt by Company of a facsimile copy of a Notice of Conversion, Company
shall immediately send, via facsimile, a confirmation of receipt of the Notice
of Conversion to Holder
<PAGE>
which shall specify that the Notice of Conversion has been received and the name
and telephone number of a contact person at the Company whom the Holder should
contact regarding information related to the Conversion. In the case of a
dispute as to the calculation of the Conversion Rate, the Company shall promptly
issue or cause the Custodian to issue to the Holder the number of shares that
are not disputed and shall submit the disputed calculations to its outside
accountant via facsimile within three (3) days of receipt of Holder's Notice of
Conversion. The Company shall cause the accountant to perform the calculations
and notify Company, Custodian and Holder of the results no later than forty-
eight (48) hours from the time it receives the disputed calculations.
Accountant's calculation shall be deemed conclusive absent manifest error. All
Notices of Conversion shall be irrevocable.
(i) Lost or Stolen Certificates. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series C Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity or security reasonably satisfactory
to the Company, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Company shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date. However, Company shall
not be obligated to re-issue such lost or stolen Preferred Stock Certificates if
Holder contemporaneously requests Company to convert such Series C Preferred
Stock into Common Stock.
(ii) Delivery of Common Stock Upon Conversion. The Company
either:
(x) shall use its best efforts to cause the Custodian, no
later than the close of business on the following business day, and, in any
event, shall cause the Custodian, no later than the close of business on the
second (2nd) business day after receipt by the Company or the Custodian of a
facsimile copy of a Notice of Conversion (the "Custodian's Deadline"), to
surrender to a common courier for overnight delivery to the Company's transfer
agent (the "Transfer Agent") a certificate or certificates for the number of
shares of Common Stock to which the Holder shall be entitled as aforesaid and
shall cause the Transfer Agent to countersign the Common Stock certificate(s)
which it receives from the Custodian and, no later than the close of business on
the business day following the day it receives the Common Stock certificate(s)
and receives written confirmation from the Custodian or the Company that the
Custodian or the Company has received all necessary documentation duly executed
and in proper form required for conversion, including the original Preferred
Stock Certificates to be converted (or after provision for security or
indemnification in the case of lost or destroyed certificates, if required)(the
"Transfer Agent's Deadline"), to surrender such Common Stock certificate(s) to a
common courier for either overnight or (if delivery is outside the United
States) two (2) day delivery to the Holder at the address of the Holder as shown
on the stock records of the Company (or to such other address as the Holder
shall provide in writing), or
(y) shall use its best efforts to cause its Transfer Agent,
no later than the close of business on the following business day, and, in any
event shall cause its Transfer Agent, no later than the close of business on the
second (2nd) business day (the "Deadline"), after receipt by the Company or the
Custodian of a facsimile copy of a Notice of Conversion and receipt by the
Company or the Custodian of all necessary documentation duly executed and in
proper form required for conversion, including the original Preferred Stock
Certificates to be converted (or after provision for security or indemnification
in the case of lost or
<PAGE>
destroyed certificates, if required), to issue and surrender for either
overnight or (if delivery is outside the United States) two (2) day delivery to
the Holder at the address of the Holder as shown on the stock records of the
Company (or to such other address as the Holder shall provide in writing) a
countersigned certificate for the number of shares of Common Stock to which the
Holder shall be entitled as aforesaid.
(iii) No Fractional Shares. If any conversion of the Series C
Preferred Stock would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion,
in the aggregate, shall be the next lower number of shares.
(iv) Date of Conversion. The date on which conversion occurs
(the "Date of Conversion") shall be deemed to be the date set forth in such
Notice of Conversion, provided (i) that the advance copy of the Notice of
Conversion is faxed to the Company or the Custodian before 11:59 p.m., New York
City time, on the Date of Conversion, and (ii) that the original Preferred Stock
Certificates representing the shares of Series C Preferred Stock to be converted
are surrendered by depositing such certificates with a common courier, for
delivery to the Company or the Custodian as provided above, as soon as
practicable after the Date of Conversion. The person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record Holder or Holders of such shares of
Common Stock on the Date of Conversion.
(c) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Series C Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
Series C Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series C Preferred Stock, the Company will
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(d) Automatic Conversion. Each share of Series C Preferred Stock
outstanding on the date which is three (3) years after the Last Closing Date or,
if not a business day, the first business day thereafter ("Termination Date")
automatically shall either (i) be converted ("Automatic Conversion") into Common
Stock on such date at the Conversion Rate then in effect (calculated in
accordance with the formula in Section 5(a) above), and the Termination Date
shall be deemed the Date of Conversion with respect to such conversion or, at
the Company's option, (ii) be redeemed ("Automatic Redemption") by the Company
for cash in an amount equal to the Stated Value (as defined in Section 6(b)(i)
below) of the shares of Series C Preferred Stock being redeemed. If the Company
elects to redeem, the Company shall send to the Holders of outstanding Series C
Preferred Stock notice (the "Automatic Redemption Notice") on the fifth (5th)
day immediately preceding the Termination Date, via facsimile of its intent to
effect an Automatic Redemption of the outstanding Series C Preferred Stock. If
the Company does not send such notice to Holder on such date, an Automatic
Conversion shall be deemed to have occurred. If an Automatic Conversion occurs,
the Company and the Holders shall follow the applicable conversion procedures
set forth in this Certificate of Designation; provided, however, that the
Holders are not required to send the Notice of Conversion contemplated by
Section 5(b). If the Company elects to redeem, each Holder of
<PAGE>
outstanding Series C Preferred Stock shall send their certificates representing
the Series C Preferred Stock to the Company within five (5) days of the date of
receipt of the Automatic Redemption Notice from the Company, and the Company
shall pay the applicable redemption price to each respective Holder within five
(5) days of the receipt of such certificates. The Company shall not be
obligated to deliver the redemption price unless the certificates representing
the Series C Preferred Stock are delivered to the Company, or, in the event one
or more certificates have been lost, stolen, mutilated or destroyed, unless the
Holder has complied with Section 5(b)(i). If the Company elects to redeem under
this Section 5(d) and the Company fails to pay the Holders the redemption price
within five (5) days of the Termination Date as required by this Section 5(d),
then an Automatic Conversion shall be deemed to have occurred and, upon receipt
of the Preferred Stock Certificates, the Company shall immediately deliver to
the Holders the certificates representing the number of shares of Common Stock
to which the Holders would have been entitled upon Automatic Conversion.
(e) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock Split,
Stock Dividend, Etc. If, prior to the conversion of all of the Series C
Preferred Stock, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, or other similar event, the Fixed Conversion
Price shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a combination or reclassification of shares, or
other similar event, the Fixed Conversion Price shall be proportionately
increased.
(ii) Adjustment to Variable Conversion Price. If, at any time
when any shares of the Series C Preferred Stock are issued and outstanding, the
number of outstanding shares of Common Stock is increased or decreased by a
stock split, stock dividend, or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any conversion of the Series C Preferred Stock, then the Variable
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
all five (5) trading days immediately preceding the Date of Conversion.
(iii) Adjustment Due to Merger, Consolidation, Etc. If, prior to
the conversion of all Series C Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities of the Company or another entity or
there is a sale of all or substantially all the Company's assets or there is a
Change of Control deemed not to be a Liquidation Event pursuant to section 4(c),
then the Holders of Series C Preferred Stock shall thereafter have the right to
receive upon conversion of Series C Preferred Stock, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities and/or
other assets which the Holder would have been entitled to receive in such
transaction had the Series C Preferred Stock been converted immediately prior to
such transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holders of the Series C Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for the adjustment of the Conversion Price and of the number of
shares issuable upon conversion of the Series C Preferred Stock) shall
thereafter be applicable, as nearly as may be practicable in relation to any
securities thereafter deliverable upon the exercise hereof. The Company shall
not effect any transaction described in this subsection 5(e)(iii) unless (a) it
first gives thirty (30) business days prior notice of
<PAGE>
such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holder shall be
entitled to convert its shares of Series C Preferred Stock into Common Stock)
and (b) the resulting successor or acquiring entity (if not the Company) assumes
by written instrument the obligations of the Company under this Certificate of
Designation including this subsection 5(e)(iii).
(iv) No Fractional Shares. If any adjustment under this Section
5(e) would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion shall be the next
lower number of shares.
Section 6. Redemption by Company.
---------------------
(a) Company's Right to Redeem Upon Receipt of Notice of Conversion.
If the Conversion Price of the Company's Common Stock is less than the Fixed
Conversion Price (as defined in Section 5(a)), at the time of receipt of a
Notice of Conversion pursuant to Section 5, the Company shall have the right, in
its sole discretion, to redeem in whole or in part any Series C Preferred Stock
submitted for conversion at the Redemption Rate (as defined below), immediately
prior to and in lieu of conversion ("Redemption Upon Receipt of Notice of
Conversion"). If the Company elects to redeem some, but not all, of the Series
C Preferred Stock submitted for conversion, the Company shall redeem from among
the Series C Preferred Stock submitted by the various shareholders for
conversion on the applicable date, a pro-rata amount from each such Holder so
submitting Series C Preferred Stock for conversion.
(i) Redemption Price Upon Receipt of a Notice of Conversion.
The redemption price of Series C Preferred Stock under this Section 6(a) shall
be calculated as follows ("Redemption Rate"):
Redemption Rate = Stated Value x 117.6%
where,
"Stated Value" shall have the same meaning as defined in Section 6(b)(i)
below.
(ii) Mechanics of Redemption Upon Receipt of Notice of
Conversion. The Company shall effect each such redemption by giving notice to
the Holder and to the Custodian of its election to redeem, by facsimile, by 5:00
p.m. New York City time the next business day following receipt of a Notice of
Conversion from a Holder, and the Company shall provide a copy of such
redemption notice by overnight or two (2) day courier, to (A) the Holder of the
Series C Preferred Stock submitted for conversion at the address and facsimile
number of such Holder appearing in the Company's register for the Series C
Preferred Stock and (B) the Custodian. Such redemption notice shall indicate
whether the Company will redeem all or part of the Series C Preferred Stock
submitted for conversion and the applicable redemption price.
(b) Company's Right to Redeem at its Election. At any time,
commencing twelve (12) months and one (1) day after the Last Closing Date, the
Company shall have the right, in its sole discretion, to redeem ("Redemption at
Company's Election"), from time to time, any or all of the Series C Preferred
Stock; provided that (i) Company shall first provide thirty (30) business days
<PAGE>
advance written notice as provided in subparagraph 6(b)(ii) below (which can be
given beginning thirty (30) business days prior to the date which is twelve (12)
months and one (1) day after the Last Closing Date), and (ii) the Company shall
only be entitled to redeem Series C Preferred Stock having an aggregate Stated
Value (as defined below) of at least One Million Five Hundred Thousand Dollars
($1,500,000). If the Company elects to redeem some, but not all, of the Series
C Preferred Stock, the Company shall redeem a pro-rata amount from each Holder
of the Series C Preferred Stock.
(i) Redemption Price At Company's Election. The "Redemption Price
At Company's Election" shall be calculated as a percentage of Stated Value, as
that term is defined below, of the Series C Preferred Stock redeemed pursuant to
this Section 6(b), which percentage shall vary depending on the date of
Redemption at Company's Election (as defined below), and shall be determined as
follows:
<TABLE>
<CAPTION>
Date of Notice of Redemption at Company's Election % of Stated Value
- -------------------------------------------------- -----------------
<S> <C>
12 months and 1 day to 18 months following Last Closing Date 130%
18 months and 1 day to 24 months following Last Closing Date 125%
24 months and 1 day to 30 months following Last Closing Date 120%
30 months and 1 day to 36 months following Last Closing Date 115%
</TABLE>
For purposes hereof, "Stated Value" shall mean the Original Series C Issue
Price (as defined in Section 1) of the shares of Series C Preferred Stock being
redeemed pursuant to this Section 6(b), together with the accrued but unpaid
Premium (as defined in Section 4(a)).
(ii) Mechanics of Redemption at Company's Election. The Company
shall effect each such redemption by giving at least thirty (30) business days
prior written notice ("Notice of Redemption At Company's Election") to (A) the
Holders of the Series C Preferred Stock selected for redemption, at the address
and facsimile number of such Holder appearing in the Company's Series C
Preferred stock register and (B) the Custodian, which Notice of Redemption At
Company's Election shall be deemed to have been delivered three (3) business
days after the Company's mailing (by overnight or two (2) day courier, with a
copy by facsimile) of such Notice of Redemption At Company's Election. Such
Notice of Redemption At Company's Election shall indicate (i) the number of
shares of Series C Preferred Stock that have been selected for redemption, (ii)
the date which such redemption is to become effective (the "Date of Redemption
At Company's Election") and (iii) the applicable Redemption Price At Company's
Election, as defined in subsection (b)(i) above. Notwithstanding the above,
Holder may convert into Common Stock pursuant to section 5, prior to the close
of business on the Date of Redemption at Company's Election, any Series C
Preferred Stock which it is otherwise entitled to convert, including Series C
Preferred Stock that has been selected for redemption at Company's election
pursuant to this subsection 6(b); provided, however, that the Company shall
still be entitled to exercise its right to redeem upon receipt of a Notice of
Conversion pursuant to section 6(a).
(c) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Redemption Notice and
begin the redemption procedure under Sections 6(a) and 6(b) unless it has:
(i) the full amount of the redemption price in cash, available in
a demand or other immediately available account in a bank or similar financial
institution; or
<PAGE>
(ii) immediately available credit facilities, in the full amount of
the redemption price with a bank or similar financial institution; or
(iii) a firm commitment agreement with an underwriter to purchase
from the Company a sufficient number of shares of stock to provide proceeds
necessary to redeem any stock that is not converted prior to redemption; or
(iv) a combination of the items set forth in (i), (ii) and (iii)
above, aggregating the full amount of the redemption price.
(d) Payment of Redemption Price.
(i) Each Holder submitting Preferred Stock being redeemed under
this Section 6 shall send their Series C Preferred Stock Certificates so
redeemed to the Custodian, and the Company shall pay the applicable redemption
price to that Holder within five (5) business days of the Date of Redemption at
Company's Election. The Company shall not be obligated to deliver the redemption
price unless the Preferred Stock Certificates so redeemed are delivered to the
Custodian, or, in the event one (1) or more certificates have been lost, stolen,
mutilated or destroyed, unless the Holder has complied with Section 5(b)(i).
(ii) If Company elects to redeem pursuant to Section 6(a) hereof,
and Company fails to pay Holder the redemption price within the time frame as
required by this Section 6(d), then Company shall issue shares of Common Stock
to any such Holder who has submitted a Notice of Conversion in compliance with
Section 5(b) hereof. The shares to be issued to Holder pursuant to this
provision shall be the number of shares determined using a Conversion Price (as
defined in Section 6 hereof) that equals the lesser of (i) the Conversion Price
on the date Holder sends its Notice of Conversion to Company and the Custodian
via facsimile or (ii) the Conversion Price on the date the Custodian issues
Common Stock pursuant to this Section 6(d)(ii).
(e) Blackout Period. Notwithstanding the foregoing, the Company may
not either send out a redemption notice or effect a redemption pursuant to
Section 6(b) above during a Blackout Period (defined as a period during which
the Company's officers or directors would not be entitled to buy or sell stock
because of their holding of material non-public information), unless the Company
shall first publicly disclose the non-public information that resulted in the
Blackout Period; provided, however, that no redemption shall be effected until
at least ten (10) days after the Company shall have given the Holder written
notice that the Blackout Period has been lifted.
Section 7. Advance Notice of Redemption.
----------------------------
(a) Holder's Right to Elect to Receive Notice of Cash Redemption by
the Company. Holder shall have the right to require Company to provide advance
notice stating whether the Company will elect to redeem Holder's shares of
Series C Preferred Stock in cash, pursuant to the Company's redemption rights
discussed in Section 6(a).
(b) Mechanics of Holder's Election Notice. Holder shall send notice
("Election Notice") to the Company and such other person(s) as the Company may
designate, via facsimile, of the Holder's intention to require Company to
disclose that if Holder were to exercise his, her or its right of conversion
(pursuant to Section 5) whether Company would elect to redeem a specific number
<PAGE>
of shares of Holder's Series C Preferred Stock for cash in lieu of issuing
Common Stock. Company is required to disclose to Holder what action Company
would take, as set forth in subsection 7(c) below. The Holder is not bound to
exercise his, her or its right of conversion by virtue of having delivered a
notice pursuant to this Section.
(c) Company's Response. Upon receipt by the Company of a facsimile
copy of an Election Notice, Company shall immediately send, via facsimile, a
confirmation of receipt of the Election Notice to Holder, which shall specify
that the Election Notice has been received and the name and telephone number of
a contact person at the Company whom the Holder should contact regarding
information related to the requested advance notice. Thereafter, the Company
must respond by the close of business on the next business day following receipt
of Holder's Election Notice (1) via facsimile and (2) by depositing such
response with an overnight or two (2) day courier. The Company's response must
state whether it would redeem the shares, in whole or in part, or allow
conversion into shares of Common Stock without redemption. If Company does not
respond to Holder within one (1) business day via facsimile and overnight or two
(2) day courier, Company shall be required to issue to Holder Common Stock upon
Holder's conversion within the subsequent three (3) business day period of
Holder's Election Notice. However, if the Company's Common Stock price decreases
so that under the Conversion Rate applicable to such conversion, Company would
be required to issue more than an additional ten percent (10%) of shares of
Common Stock than Holder would have been entitled to receive if Holder had sent
a Conversion Notice on the same date Holder sent Company its Election Notice,
then Company shall no longer be bound to convert Holder's Preferred Stock into
Common Stock but may elect to redeem for cash.
Section 8. Voting Rights. The Holders of the Series C Preferred Stock
-------------
shall have no voting power whatsoever, except as otherwise provided by the
corporation law of the State of Colorado ("Colorado Law"), and no Holder of
Series C Preferred Stock shall vote or otherwise participate in any proceeding
in which actions shall be taken by the Company or the shareholders thereof or be
entitled to notification as to any meeting of the shareholders.
Notwithstanding the above, Company shall provide Holder with notification
of any meeting of the shareholders regarding any major corporate events
affecting the Company. In the event of any taking by the Company of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire any share of any class or any other
securities or property (including by way of merger, consolidation or
reorganization), or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail a notice to Holder, at least ten (10) days prior
to the record date specified therein, of the date on which any such record is to
be taken for the purpose of such dividend, distribution, right or other event,
and a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under Colorado Law the vote of the Holders of the Series
C Preferred Stock, voting separately as a class, is required to authorize a
given action of the Company, the affirmative vote or consent of the Holders of
at least a majority of the shares of the Series C Preferred Stock represented at
a duly held meeting at which a quorum is present or by written consent of a
majority of the shares of Series C Preferred Stock (except as otherwise may be
required
<PAGE>
under Colorado Law) shall constitute the approval of such action by the class.
To the extent that under Colorado Law the Holders of the Series C Preferred
Stock are entitled to vote on a matter with holders of Common Stock, voting
together as one (1) class, each share of Series C Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible using the record date for the taking of such vote
of stockholders as the date as of which the Conversion Price is calculated.
Holders of the Series C Preferred Stock also shall be entitled to notice of all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Company's by-
laws and applicable statutes.
Section 9. Protective Provision. So long as shares of Series C Preferred
--------------------
Stock are outstanding, the Company shall not without first obtaining the
approval (by vote or written consent, as provided by Colorado Law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Series C Preferred Stock, and at least seventy-five percent (75%) of the then
outstanding Holders:
(a) alter or change the rights, preferences or privileges of the
Series C Preferred Stock or any other Securities so as to affect adversely the
Series C Preferred Stock;
(b) create any new class or series of stock having a preference
over or on parity with the Series C Preferred Stock with respect to
Distributions (as defined in Section 2 above) or increase the size of the
authorized number of Series C Preferred; or
(c) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series C Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
(d) issue any additional shares of the Series C Preferred Stock
after the Last Closing Date.
In the event Holders of at least seventy-five percent (75%) of the then
outstanding shares of Series C Preferred Stock and at least seventy-five percent
(75%) of the then outstanding Holders agree to allow the Company to alter or
change the rights, preferences or privileges of the shares of Series C Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series C Preferred
Stock, then the Company will deliver notice of such approved change to the
Holders of the Series C Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) business days to convert pursuant to the terms of
this Certificate of Designation as they exist prior to such alteration or change
(notwithstanding the holding requirements set forth in Section 5(a) hereof), or
continue to hold their shares of Series C Preferred Stock.
Section 10. Status of Converted or Redeemed Stock. In the event any
-------------------------------------
shares of Series C Preferred Stock shall be converted or redeemed pursuant to
Section 5 or Section 6 hereof, the shares so converted or redeemed shall be
canceled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Company as Series C
Preferred Stock.
<PAGE>
Section 11. Preference Rights. Nothing contained herein shall be
-----------------
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of Preferred Stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Series C Preferred
Stock.
Section 12. Events of Default. Upon the occurrence of and during the
-----------------
continuation of an Event of Default (as defined below) and upon delivery of a
notice of acceleration by any Holder, the Company shall pay to the Holder an
amount (the "Acceleration Payment") equal to one hundred thirty percent (130%)
of the Stated Value of the Holder's outstanding Series C Preferred Stock to the
date of payment and all other amounts payable hereunder shall immediately become
due and payable, all without demand, presentment, or notice, all of which hereby
are expressly waived, together with all costs, including, without limitation,
legal fees and expenses, of collection, and the Holder shall be entitled to
exercise all other rights and remedies available at law or equity.
If the Company fails to pay any amounts due pursuant to this Section 12
within five (5) business days of such amounts being due and payable, then the
Holder shall have the right at any time, so long as the Company remains in
default, to require the Company, upon written notice, to immediately issue, in
lieu of such amounts, the number of shares of Common Stock of the Company equal
to the amounts owed by Company to the Holder divided by the Conversion Price
then in effect on the date the Company issues shares pursuant to this Section
12.
The Company shall be required promptly upon its knowledge of an Event of
Default hereunder to give notice of such Event of Default to the Holder hereof.
An "Event of Default" shall mean the following:
(a) Conversion. If the Company fails to issue shares of Common Stock
to any Holder upon exercise by such Holder of the Conversion Rights of the
Holder in accordance with the terms of this Certificate of Designation, fails to
transfer any certificate for shares of Common Stock issued to any Holder upon
conversion of any Preferred Stock and when required by the Certificate of
Designation or fails to remove any restrictive legend on any certificate for any
shares of Common Stock issued to a Holder upon conversion of any Preferred Stock
as and when required by this Certificate of Designation or any Subscription
Agreement by and between Company and Holders and any such failure shall continue
uncured for ten (10) business days;
(b) Breach of Covenant. If the Company breached any material covenant
or other material term or condition of this Certificate of Designation or any
Subscription Agreement by and between Company and Holder (including the failure
to have enough stock available for issuance upon conversion), and such breach
continues for a period of ten (10) business days after written notice thereof to
the Company from the Holder;
(c) Breach of Representations and Warranties. Any representation or
warranty of the Company made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, any Subscription Agreement by and between
Company and Holder), shall be false or misleading in any material respect when
made;
(d) Receiver or Trustee. The Company or any subsidiary of the Company
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a
<PAGE>
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed;
(e) Judgments. Any money judgment, writ or similar process shall be
entered or filed against the Company or any subsidiary of the Company or any of
its property or other assets for more than Five Hundred Thousand Dollars
($500,000), and shall remain unvacated, unbonded or unstayed for a period or
twenty (20) days unless otherwise consented to by the Holder, which consent will
not be unreasonably withheld; or
(f) Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief or debtors shall be instituted by or against the Company or any
subsidiary of the Company.
Section 13. Future Offering of Securities. In the event that in a capital
-----------------------------
raising transaction, the Company, after the date of this Certificate, issues any
Common Stock or debt or equity securities convertible into Common Stock
(collectively referred to hereinafter as "Future Equity") and such shares of
Common Stock are or will become freely tradable on or prior to eight (8) months
following the Last Closing Date pursuant to a registration statement or pursuant
to an exemption from the registration requirements of the Securities Act of
1933, the Holders of the outstanding Series C Preferred Stock shall have the
right, on the date of the closing of such Future Equity transaction and at any
time thereafter, to convert any or all of its outstanding Series C Preferred
Stock into Common Stock pursuant to the terms of this Certificate of Designation
(notwithstanding the holding requirements set forth in Section 5(a) hereof).
Signed on December 16, 1996
/s/ Gordon J. Sales
--------------------
Gordon J. Sales, President and CEO
Attest:
/s/ Alan M. Smith
- ------------------
Alan M. Smith, Secretary
<PAGE>
Exhibit 3.2
-----------
BYLAWS
OF
INTERCELL CORPORATION
ARTICLE I
PRINCIPAL OFFICE AND CORPORATE SEAL
Section 1. The principal office and place of business of the business of
the Corporation in the State of Colorado shall be at the Wilson Building, Suite
112, Cortez, Colorado 81321. Other offices and places of business may be
established from time to time by resolution of the board of directors or as the
business of the Corporation may require.
Section 2. The seal of the Corporation shall have inscribed thereon the
name of the Corporation and shall be in such form as may be approved by the
board of directors, which shall have power to alter the same at pleasure. The
Corporation may use the seal by causing it, or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
ARTICLE II
SHARES AND TRANSFER THEREOF
Section 1. The shares of this Corporation shall be represented by
certificates signed by the president or a vice president and the secretary or an
assistant secretary of the Corporation, and may be sealed with the seal of the
Corporation or a facsimile thereof. The signatures of the president or vice
president and the secretary or assistant secretary upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent, or
registrar, other than the Corporation itself or an employee of the Corporation.
In case any officer who has signed a certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer at the date of its issue.
Section 2. No new certificates evidencing shares shall be issued unless
and until the old certificate or certificates, in lieu of which the new
certificate is issued, shall be surrendered for cancellation, except as provided
in Section 3 of this Article II.
Section 3. In case of loss or destruction of any certificate of shares,
another certificate may be issued in its place upon satisfactory proof of such
loss or destruction and, at the discretion of the corporation, upon giving to
the Corporation a satisfactory bond of indemnity issued by a corporate surety in
an amount and for a period satisfactory to the board of directors.
<PAGE>
Section 4. For the purpose of determining shareholders entitled to notice
of or to vote at any meeting of shareholders, or any adjournment thereof, or
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other proper purpose, the board of directors may provide
that the stock transfer books shall be closed for a stated period, but not to
exceed fifty days. If the stock transfer books shall be closed for the purpose
of determining shareholders entitled to notice of, or to vote at a meeting of
shareholders, such books shall be closed for at least ten days immediately
preceding such meeting. In lieu of closing the stock transfer books, the board
of directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than fifty
days and, in case of a meeting of shareholders, not less than ten days prior to
the date on which the particular action requiring such determination of
shareholders is to be taken. If the board of directors does not order the stock
transfer books closed, or fix in advance a record date, as above provided, then
the record date for the determination of shareholders entitled to notice of, or
to vote at any meeting of shareholders entitled to notice of, or to vote at any
meeting of shareholders, or any adjournment thereof, or entitled to receive
payment of any dividend, or for the determination of shareholders for any proper
purpose shall be thirty days prior to the date on which the particular action
requiring such determination of shareholders is to be taken.
ARTICLE III
SHAREHOLDERS AND MEETINGS THEREOF
Section 1. Only shareholders of record on the books of the Corporation
shall be entitled to be treated by the Corporation as holders in fact of the
shares standing in their respective names, and the Corporation shall not be
bound to recognize any equitable or other claim to, or interest in, any shares
on the part of any other person, firm or corporation, whether or not it shall
have express or other notice thereof, except as expressly provided by the laws
of Colorado.
Section 2. Meetings of shareholders shall be held at such locations as
determined by the Company's board of directors.
Section 3. In the absence of a resolution of the board of directors
providing otherwise, the annual meeting of shareholders of the Corporation for
the election of directors, and for the transaction of such other business as may
properly come before the meeting, shall be held on the 15th day of May in each
year, if the same be not a legal holiday, and if a legal holiday, then on the
next succeeding business day, at 9:00 o'clock a.m.
Section 4. Special meetings of shareholders may be called by the president
(or in his absence by a vice president).
Section 5. Written or printed notice stating the place, day and hour of
the shareholders' meeting, and in case of a special meeting of shareholders, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten days nor more than fifty days before the date of the meeting, either
personally or by mail, by or at the direction of the president, the secretary,
the board of directors, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting, except that if the
authorized shares are
<PAGE>
to be increased, at least thirty days' notice shall be given. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid. Failure to deliver such
notice or obtain a waiver thereof shall not cause the meeting to be void, but it
shall be adjourned by the shareholders present for a period not to exceed sixty
days until any deficiency in notice or waiver shall be supplied.
Section 6. The officer or agent having charge of the stock transfer books
for shares of this Corporation shall make, at least ten days before each meeting
of shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten days prior to such meeting, shall be kept on file at the principal office of
the Corporation, whether within or outside Colorado, and shall be subject to
inspection by any shareholder at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting. The original stock transfer books shall be prima facie evidence
as to who are the shareholders entitled to examine such list or transfer books
or to vote at any meeting of shareholders.
Section 7. A quorum at any meeting of shareholders shall consist of a
majority of the shares of the Corporation entitled to vote thereat, represented
in person or by proxy. If a quorum is present, the affirmative vote of a
majority of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the shareholders, unless the vote of a
greater number or voting by classes is required by law, the articles of
incorporation or these bylaws.
Section 8. A shareholder may vote either in person or by proxy executed in
writing by the shareholder or by his duly authorized attorney in fact. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
ARTICLE IV
DIRECTORS, POWERS AND MEETINGS
Section 1. The business and affairs of the Corporation shall be managed by
a board of not less than one director and directors need not be shareholders of
the Corporation or residents of the State of Colorado and shall be elected at
the annual meeting of shareholders or some adjournment thereof. Directors shall
hold office until the next succeeding annual meeting of shareholders or until
their successors shall have been elected and shall qualify.
Section 2. The annual meeting of the board of directors shall be held at
the same place as, and immediately after, the annual meeting of shareholders,
and no notice shall be required in connection therewith. The annual meeting of
the board of directors shall be for the purpose of electing officers and the
transaction of such other business as may come before the meeting.
<PAGE>
Section 3. Special meetings of the board of directors may be called at any
time by the president ( or in his absence by a vice president), or by any
director, and may be held within or outside the State of Colorado at such time
and place as the notice or waiver thereof may specify. Notice of such meetings
shall be mailed or telegraphed to the last known address of each director at
least five days, or shall be given to a director in person or by telephone at
least forty-eight hours, prior to the date or time fixed for the meeting.
Special meetings of the board of directors may be held at any time that all
directors are present in person, and presence of any meeting except as otherwise
provided by law. Unless specifically required by law, the articles of
incorporation or these bylaws, neither the business to be transacted at, nor the
purpose of, any meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
Section 4. A quorum at all meetings of the board of directors shall
consist of a majority of the number of directors then holding office, but a
smaller number may adjourn from time to time without further notice, until a
quorum be secured. The act of a majority of the directors present at a meeting
at which a quorum is present shall be the act of the board of directors, unless
the act of a greater number is required by articles of incorporation of these
bylaws.
Section 5. Any vacancy occurring in the board of directors may be filled
by the affirmative vote of a majority of the remaining directors though less
than a quorum of the board of directors. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office, and shall
hold such office until his successor is duly elected and shall qualify. Any
directorship to be filled by reason of an increase in the number of directors
shall be filed by the affirmative vote of a majority of the directors than in
office or by an election at an annual meeting, or at a special meeting of
shareholders called for that purpose. A director chosen to fill a position
resulting from an increase in the number of directors shall hold office until
the next annual meeting of shareholders and until his successor shall have been
elected and shall qualify.
Section 6. Directors may receive such fees as may be established by
appropriate resolution of the board of directors for attendance at meetings of
the board, and in addition thereto, shall receive reasonable traveling expenses,
if any are required, for attendance at such meetings.
Section 7. The board of directors may by resolution designate two or more
directors to constitute an executive committee which shall have and may exercise
such authority in the management of the Corporation as shall be provided in such
resolution.
Section 8. The shareholders may, at a meeting called for the express
purpose of removing directors, by the concurrence of a majority of the shares
entitled to votes at an election of directors, remove the entire board of
directors or any lesser number, with or without cause.
ARTICLE V
OFFICERS
<PAGE>
Section 1. The elective officers of the Corporation shall be a president,
one or more vice presidents, a secretary and a treasurer, who shall be elected
by the board of directors at its first meeting after the annual meeting of
shareholders. Unless removed in accordance with procedures established by law
and theses bylaws, the said officers shall serve until the next succeeding
annual meeting of the board of directors and until their respective successors
are elected and shall qualify.
Section 2. The board may elect or appoint such other officers and agents
as it may deem advisable, who shall hold office during the pleasure of the
board, and shall be paid such compensation as may be directed by the board.
Section 3. The officers of the Corporation shall respectively exercise and
perform the respective powers, duties and functions as are stated below, and as
may be assigned to the by the board of directors.
(a) The president shall be the chief executive officer of the
Corporation and shall, subject to the control of the board of directors,
have general supervision, direction and control of the business and
officers of the Corporation. He shall preside at all meetings of the
shareholders and of the board of directors. The president or a vice
president, unless some other person is specifically authorized by the board
of directors, shall sign all stock certificates, bonds, deeds, mortgages,
leases and contracts of the Corporation. The president shall perform all
the duties commonly incident to his office and such other duties as the
board of directors shall designate.
(b) In absence or disability of the president, the vice president
or vice presidents, in order of their rank as fixed by the board of
directors, and if not ranked, the vice presidents in the order designated
by the board of directors, shall perform all the duties of the president,
and when so acting shall have all the powers of, and be subject to all the
restrictions on the president. Each vice president shall have such other
powers and perform such other duties as may from time to time be assigned
to him by the president.
(c) The secretary shall keep accurate minutes of all meetings of
the shareholders and the board of directors. He shall keep, or cause to be
kept a register of the shareholders of the Corporation and shall be
responsible for the giving of notice of meetings of the shareholder or the
board of directors. The secretary shall be custodian of the records and of
the seal of the Corporation and shall attest the affixing of the seal of
the Corporation when so authorized. The secretary shall perform all duties
commonly incident to his office and such other duties as may from time to
time be assigned to him by the president.
(d) An assistant secretary may, at the request of the secretary, or
in the absence or disability of the secretary, perform all of the duties of
the secretary. He shall perform such other duties as may be assigned to him
by the president or by the secretary.
(e) The treasurer, subject to the order of the board of directors,
shall have the care and custody of the money, funds, valuable papers and
documents of the
<PAGE>
Corporation. He shall keep accurate books of accounts of the Corporation's
transactions, which shall be the property of the Corporation, and shall
render financial reports and statements of condition of the Corporation
when so requested by the board of directors or president. The treasurer
shall perform all duties commonly incident to his office and such other
duties as may from time to time be assigned to him by the president.
(f) An assistant treasurer may, at the request of the treasurer, or
in the absence or disability of the treasurer. He shall perform such other
duties as may be assigned to him by the president or by the treasurer.
Section 4. All officers of the Corporation may receive salaries or other
compensation if so ordered and fixed by the board of directors. The board shall
have authority to fix salaries in advance for stated periods or render the same
retroactive as the board may deem advisable.
Section 5. In the event of absence or inability of any officer to act, the
board of directors may delegate the powers or duties of such officer to any
other officer, director or person whom it may select.
Section 6. Any officer or agent may be removed by the board of directors
or by the executive committee, if any, whenever in its judgment the best
interest of the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not, of itself, create
contract rights.
ARTICLE VI
FINANCE
Section 1. The board of directors, in its uncontrolled discretion, may set
aside from time to time, out of the net profits or earned surplus of the
Corporation, such sum or sums as it deems expedient as a reserve fund to meet
contingencies, for equalizing dividends, for maintaining any property of the
Corporation, and for any other purpose.
Section 2. The moneys of the Corporation shall be deposited in the name of
the Corporation in such bank or banks or trust company or trust companies, as
the board of directors shall designate, and may be drawn out only on checks
signed in the name of the Corporation by such person or persons as the board of
directors by appropriate resolution may direct. Notes and commercial paper,
when authorized by the board, shall be signed in the name of the Corporation by
such officer or officers or agent or agents as shall thereunto be authorized
from time to time.
Section 3. The fiscal year of the Corporation shall be determined by
resolution of the board of directors.
ARTICLE VII
WAIVER OF NOTICE
<PAGE>
With any notices required by law or under these bylaws to be given to any
shareholder or director of the Corporation, a waiver thereof in writing signed
by the person entitled to such notice, whether before, at, or after the item
stated therein shall be the equivalent to the giving of such notice.
ARTICLE VIII
ACTION WITHOUT A MEETING
Any action required to be taken at a meeting of the directors, executive
committee members or shareholders of this Corporation, or any action which may
be taken at a meeting of directors, executive committee members, or
shareholders, may be without a meeting if a consent in writing, setting forth
the action so taken is signed by all directors or executive committee members,
or the minimum number of shareholders as is required by the laws of the State of
Colorado, depending on the subject matter thereof. Notice of such action shall
be provided according to statute.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Section 1. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or complete
action, suit or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee, fiduciary or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments fines and amounts paid in settlement
actually and reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not of itself create a
---------------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, fiduciary or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee, fiduciary or
agent of another corporation, partnership, joint venture, trust, or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interest of the Corporation, except that no
indemnification
<PAGE>
shall be made in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the Corporation unless and only to the extent that
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
Section 3. To the extent that a director, officer, employee, fiduciary or
agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 1 and 2 of this
Article IX, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 4. Any indemnification under Sections 1 and 2 of this Article IX
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the officer,
director, employee, fiduciary or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 1 and 2 of this
Article IX. Such determination shall be made (a) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even
if obtainable, if a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by the affirmative vote of the
holders of a majority of the shares of stock entitled to vote and represented at
a meeting called for such purpose.
Section 5. Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the board of directors as
provided in Section 4 of this Article IX upon receipt of any undertaking by or
on behalf of the director, officer, employee, fiduciary or agent to repay such
amount unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this Article IX.
Section 6. The board of directors may exercise the Corporation's power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, fiduciary or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability
hereunder or otherwise.
Section 7. The indemnification provided by this Article IX shall not be
deemed exclusive of any other rights or limitations to which those seeking
indemnification may be entitled or limited under the Articles of Incorporation,
these Bylaws, agreement, vote of shareholders or disinterested directors, the
Colorado Corporation Code, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs and personal
representatives of such a person.
<PAGE>
ARTICLE X
AMENDMENTS
These bylaws may be altered, amended or repealed at the annual meeting of
the board of directors or at any special meeting of the board called for that
purpose.
<PAGE>
ARTICLE XI
GENDER
Whenever in these bylaws the masculine gender is used, it shall be deemed
to include the feminine gender.
The above bylaws approved and adopted by the Board of Directors on November
10, 1983.
/s/ John Williams
------------------------
John Williams
<PAGE>
Exhibit 4.1
-----------
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
[COMPANY LOGO] INTERCELL
CORPORATION
NO PAR VALUE
NUMBER SHARES
------
This Certifies That
CUSIP 458441 30 0
is the owner of
Fully Paid and Non-Assessable No Par Value Shares of Common
Stock of
INTERCELL CORPORATION
transferable only on the books of this Corporation in person or by
Attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid unless countersigned by the transfer agent and
registrar.
IN WITNESS WHEREOF the said Corporation has caused this certificate to
be endorsed by the facsimile signature of its duly authorized officers and
to be sealed with the facsimile seal of the Corporation.
Dated:
ALAN M. SMITH, SECRETARY [CORPORATE SEAL] GORDON J. SALES, PRESIDENT
<PAGE>
Exhibit 4.5
-----------
THIS WARRANT AND THE SECURITIES RECEIVABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase
38,462 shares
- ------
WARRANT TO PURCHASE COMMON STOCK
OF
INTERCELL CORPORATION
THIS CERTIFIES that THE GIFFORD FUND LTD or any subsequent ("Holder") hereof,
has the right to purchase from INTERCELL CORPORATION, a Colorado corporation
(the "Company"), up to 38,462 fully paid and nonassessable shares of the
------
Company's Common Stock, no par value ("Common Stock"), subject to adjustment as
provided herein, at a price equal to the Exercise Price as defined in Section 3
below, at any time beginning on the Date of Issuance and ending at 5:00 p.m.,
New York, New York time, on November 30, 2001.
The Holder of this Warrant agrees with the Company that this Warrant is issued
and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Date of Issuance.
-----------------
This Warrant shall be deemed to be issued on December 10, 1996 ("Date of
Issuance").
2. Exercise.
--------
(a) Manner of Exercise. This Warrant may not be exercised prior to June 1,
1997. Thereafter, this Warrant may be exercised as to all or any lesser number
of full shares of Common Stock covered hereby upon surrender of this Warrant,
with the Exercise Form attached hereto duly executed, together with the full
Exercise Price (as defined in Section 3) for each share of Common Stock as to
which this Warrant is exercised, at the office of the Company, Suite 1750, 999
West Hastings St., Vancouver, B.C. V6C 2W2; Attention: President, Telephone No.
(604) 684-1533, Telecopy No. (604) 688-7997, or at such other office or agency
as the Company may designate in writing, by overnight mail, with an advance copy
of the Exercise Form attached as Exhibit A ("Exercise Form") by facsimile (such
surrender and payment of the Exercise Price hereinafter called the "Exercise of
this Warrant").
<PAGE>
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be defined
as the date that the advance copy of the Exercise Form is sent by facsimile to
the Company, provided that the original Warrant and Exercise Form are received
by the Company as soon as practicable thereafter. Alternatively, the Date of
Exercise shall be defined as the date the original Exercise Form is received by
the Company, if Holder has not sent advance notice by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon its
Exercise, and, as soon as practical after the Date of Exercise, the Holder
hereof shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise, and if this Warrant is not exercised in full, the
Holder shall be entitled to receive a new Warrant or Warrants (containing terms
identical to this Warrant) representing any unexercised portion of this Warrant
in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares of
Common Stock is issued shall, for all purposes, be deemed to have become the
Holder of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of such shares of Common Stock. Nothing in
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company.
3. Payment of Warrant Exercise Price.
---------------------------------
The Exercise Price shall equal $3.25 ("Exercise Price").
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder:
(i) Cash Exercise: cash, certified check or cashiers check or wire transfer;
or
(ii) Cashless Exercise: subject to the last sentence of this Section 3,
surrender of this Warrant at the principal office of the Company together with
notice of cashless election, in which event the Company shall issue Holder a
number of shares of Common Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant
is being exercised.
A = the Market Price of one (1) share of Common Stock (for purposes
of this Section 3(ii), the "Market Price" shall be defined as the
average closing price of the Common Stock for the five (5) trading
days prior to the Date of Exercise of this Warrant (the "Average
Closing Price"), as reported by the OTC Bulletin Board, or if the
Common Stock is not
<PAGE>
traded on the OTC Bulletin Board, the Average Closing Price in the
over-the-counter market; provided, however, that if the Common Stock
is listed on a stock exchange, the Market Price shall be the Average
Closing Price on such exchange. If the Common Stock is/was not
traded during the five (5) trading days prior to the Date of
Exercise, then the closing price for the last publicly traded day
shall be deemed to be the closing price for any and all (if
applicable) days during such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon exercise
of this Warrant in a cashless exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
Notwithstanding anything to the contrary contained herein, this Warrant may not
be exercised in a cashless exercise transaction if, on the Date of Exercise, the
shares of Common Stock to be issued upon exercise of this Warrant would upon
such (x) be then registered pursuant to an effective registration statement
filed pursuant to that certain Registration Rights Agreement dated on or about
December 9, 1996 by and among the Company and certain investors; or (y)
otherwise be registered under the Securities Act of 1933, as amended.
4. Transfer and Registration.
-------------------------
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
endorsed. This Warrant shall be canceled upon such surrender and, as soon as
practicable thereafter, the person to whom such transfer is made shall be
entitled to receive a new Warrant or Warrants as to the portion of this Warrant
transferred, and the Holder of this Warrant shall be entitled to receive a new
Warrant or Warrants as to the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise of
this Warrant constitute "Registrable Securities" under that certain Registration
Rights Agreement dated on or about December 9, 1996 between the Company and
certain investors and, accordingly, has the benefit of the registration rights
pursuant to that agreement.
5. Anti-Dilution Adjustments.
-------------------------
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then the Holder hereof, upon Exercise of this
Warrant after the record date for the determination of Holders of Common Stock
entitled to receive such dividend, shall be entitled to receive upon Exercise of
this Warrant, in addition to the number of shares of Common Stock as to which
this Warrant is Exercised, such additional shares of Common Stock
<PAGE>
as such Holder would have received had this Warrant been Exercised immediately
prior to such record date and the Exercise Price will be proportionately
adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which the Holder hereof shall
be entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give the Warrant Holder the same notice it provides to holders of
Common Stock of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute to Holders
of Common Stock cash, evidences of indebtedness or other securities or assets
(other than cash dividends or distributions payable out of earned surplus or net
profits for the current or preceding year) then, in any such case, the Holder of
this Warrant shall be entitled to receive, upon exercise of this Warrant, with
respect to each share of Common Stock issuable upon such Exercise, the amount of
cash or evidences of indebtedness or other securities or assets which such
Holder would have been entitled to receive with respect to each such share of
Common Stock as a result of the happening of such event had this Warrant been
Exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board in its discretion) and the denominator of which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities or other assets of the Company or
another entity or there is a sale of all or substantially all the Company's
assets (a "Corporate Change"), then this Warrant shall be exercisable into such
class and type of securities or other assets as the Holder would have received
had the Holder exercised this Warrant immediately prior to such Corporate
Change; provided, however, that Company may not affect any Corporate Change
unless it first shall have given thirty (30) business days notice to the Holder
hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b) or (c)
of this Section 5, and thereafter shall mean said price as adjusted from time to
time in accordance with the provisions of said subsection. No
<PAGE>
such adjustment under this Section 5 shall be made unless such adjustment would
change the Exercise Price at the time by $.01 or more; provided, however, that
all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $.01 or more. No
adjustment made pursuant to any provision of this Section 5 shall have the
effect of increasing the Exercise Price. The number of shares of Common Stock
subject hereto shall increase proportionately with each decrease in the Exercise
Price.
(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
the Holder of this Warrant shall, upon Exercise of this Warrant, become entitled
to receive shares and/or other securities or assets (other than Common Stock)
then, wherever appropriate, all references herein to shares of Common Stock
shall be deemed to refer to and include such shares and/or other securities or
assets; and thereafter the number of such shares and/or other securities or
assets shall be subject to adjustment from time to time in a manner and upon
terms as nearly equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
--------------------
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If,
on Exercise of this Warrant, the Holder hereof would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher number of shares.
7. Reservation of Shares.
---------------------
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for Exercise and
payment of the Exercise Price of this Warrant. The Company covenants and agrees
that upon Exercise of this Warrant, all shares of Common Stock issuable upon
such Exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. Restrictions on Transfer.
------------------------
(a) Registration or Exemption Required. This Warrant has been issued
in a transaction exempt from the registration requirements of the Act by virtue
of Regulation D. The Warrant and the Common Stock issuable upon exercise of the
Warrant may not be sold except pursuant to an effective registration statement
or an exemption to the registration requirements of the Act and applicable state
laws.
(b) Assignment. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder
shall deliver a written notice to Company, substantially in the form of the
Assignment attached hereto as Exhibit B, indicating the person
<PAGE>
or persons to whom the Warrant shall be assigned and the respective number of
warrants to be assigned to each assignee. The Company shall effect the
assignment within ten (10) days, and shall deliver to the assignee(s) designated
by Holder a Warrant or Warrants of like tenor and terms for the appropriate
number of shares.
9. Benefits of this Warrant.
------------------------
Nothing in this Warrant shall be construed to confer upon any person
other than the Company and the Holder of this Warrant any legal or equitable
right, remedy or claim under this Warrant and this Warrant shall be for the sole
and exclusive benefit of the Company and the Holder of this Warrant.
10. Applicable Law.
--------------
This Warrant is issued under and shall for all purposes be governed by
and construed in accordance with the laws of the state of Colorado, without
giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
---------------
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
-----------------
Notices or demands pursuant to this Warrant to be given or made by the
Holder of this Warrant to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by the
Company, to Attention: President, Intercell Corporation, Suite 1750, 999 West
Hastings St., Vancouver, B.C. V6C 2W2, Attention: President, Telephone No.
(604) 684-1533, Telecopy No. (604) 688-7997. Notices or demands pursuant to
this Warrant to be given or made by the Company to or on the Holder of this
Warrant shall be sufficiently given or made if sent by certified or registered
mail, return receipt requested, postage prepaid, and addressed, to the address
of the Holder set forth in the Company's records, until another address is
designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
16th day of December, 1996.
INTERCELL CORPORATION
By: /s/ Gordon Sales
------------------------
Print Name: Gordon Sales
Title: President
<PAGE>
EXHIBIT A
EXERCISE FORM
TO: INTERCELL CORPORATION
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock of INTERCELL CORPORATION, a Colorado
corporation (the "Company"), evidenced by the attached Warrant, and herewith
makes payment of the Exercise Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of Common Stock obtained on exercise of the Warrant, except in accordance
with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, and a warrant representing any unexercised
portion hereof be issued, pursuant to the Warrant in the name of the Registered
Holder and delivered to the undersigned at the address set forth below:
Dated:
- -------------------------------------------------------------------------------
Signature of Registered Holder
- -------------------------------------------------------------------------------
Name of Registered Holder (Print)
- -------------------------------------------------------------------------------
Non-U.S. Address
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered Holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons below named the right to
purchase _______ shares of the Common Stock of INTERCELL CORPORATION evidenced
by the attached Warrant and does hereby irrevocably constitute and appoint
_______________________ attorney to transfer the said Warrant on the books of
the Company, with full power of substitution in the premises.
Dated: ______________________________
Signature
Fill in for new Registration of Warrant:
_________________________________________
Name
_________________________________________
Address
_________________________________________
Please print name and address of assignee
(including zip code number)
_______________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form or Assignment must correspond to
the name as written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.
________________________________________________________________________
<PAGE>
Exhibit 4.6
-----------
INTERCELL CORPORATION
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of July
1, 1996, by and among INTERCELL CORPORATION, a Colorado corporation ("Company"),
and the subscribers ("Subscribers") to the Company's offering ("Offering") of up
to Ten Million ($10,000,000) of Series B Preferred Stock ("Preferred Stock")
pursuant to the Regulation S Subscription Agreement between the Company and the
Subscribers of even date herewith ("Subscription Agreement").
1. DEFINITIONS.
For purposes of this Agreement:
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933 (the "Act"),
and pursuant to Rule 415 under the Act or any successor rule, and the
declaration or ordering of effectiveness of such registration statement or
document;
(b) For purposes of the Required Registration under Section 2 hereof,
the term "Registrable Securities" means the Company's Common Stock
(together with any capital stock issued as a dividend on, in replacement
of, in exchange for, or otherwise in respect of such Common Stock or issued
pursuant to Section 17 hereof, the "Common Stock") issuable or issued upon
conversion of the Preferred Stock and exercise of the Warrants. For
purposes of a Demand Registration under Section 3 hereof or a Piggyback
Registration under Section 4 hereof, the term "Registrable Securities"
means the Company's Common Stock issuable or issued upon conversion of the
Preferred Stock and exercise of the Warrants; provided, however, that after
the expiration of the Restricted Period (as defined in the Subscription
Agreement), for purposes of Section 3 and Section 4, shares of Common Stock
obtainable on conversion of the Preferred Stock and exercise of the
Warrants (in whole or in part) shall not constitute Registrable Securities,
if those shares of Common Stock may be immediately sold or transferred in
the U.S. by the Holder free of any restrictive legend, including without
limitation under Rule 144;
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock which have been
issued or are issuable upon conversion of the Preferred Stock or exercise
of the Warrants at the time of such determination;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any permitted assignee thereof;
<PAGE>
(e) The terms "Warrant" and "Warrants" refer to the warrant or
warrants issued to Subscribers as securities in connection with the
Offering; and
(f) The term "Due Date" means the date which is ninety (90) days after
the Last Closing (as defined in the Subscription Agreement) of the
Offering.
2. REQUIRED REGISTRATION.
(a) Within ninety (90) days after the Last Closing (as defined in the
Subscription Agreement) of the Offering, the Company shall file a
registration statement ("Registration Statement") on Form S-1, Form SB-2 or
Form S-3 (if filing on Form S-3 is available to Company) (or other suitable
form), covering the resale of all shares of Registrable Securities then
outstanding.
(b) The Registration Statement shall be prepared as a "shelf"
registration statement under Rule 415, and shall be maintained effective
until the distribution described in the Registration Statement is
completed. The Company shall use its best efforts to have the Registration
Statement declared effective as soon as possible after filing.
(c) The Holders have the right to convert the Preferred Stock into
Common Stock pursuant to the terms of the Subscription Agreement and the
Certificate of Designation of Series B Preferred Stock of the Company and
sell the Common Stock under Regulation S and applicable exemptions until
such time that the Registration Statement becomes effective.
(d) Notwithstanding anything to the contrary contained herein, any
Holder (together with any assignee of its rights) (collectively referred to
as "Excluded Holders") shall be entitled, by written notice to the Company
delivered at any time prior to the filing of the Registration Statement
contemplated by this Section 2, to elect to have the Registrable Securities
issued or issuable to it excluded from the Registration Statement. In the
event a Holder elects not to have its Registrable Securities included in
the Registration Statement, the Holder shall, nonetheless, and
notwithstanding anything herein to the contrary, have the right (i) upon
written notice to the Company from Holders of at least twenty-five (25%)
of the Registrable Securities not subject to another registration statement
then on file with the Securities and Exchange Commission, at any time
following the expiration of the ninety (90) day period following the Last
Closing, to cause the Company to effect a Demand Registration (as defined
in Section 3) registering the Registrable Securities held by such Holders
on Form S-1 or Form SB-2 or, if available, Form S-3 (or other suitable
form, subject to the approval of such Holders), and (ii) at any time
following the Due Date, to have its shares included in any Piggyback
Registration (as defined in Section 4), in each case in accordance with the
provisions of Sections 3 and 4 hereof. In connection with a Demand
Registration initiated by the Excluded Holders under this Subsection 2(d),
the Company shall pay all costs and expenses of Demand Registration in
accordance with Section 9.
<PAGE>
3. DEMAND REGISTRATION.
(a) If the Registration Statement described in Section 2 is not filed
by the Due Date, or if such Registration Statement is filed timely but is
not effective within a reasonable time thereafter, the Holders of
Registrable Securities obtained or obtainable upon conversion of at least
twenty-five percent (25%) of the shares of the Preferred Stock outstanding
may notify the Company in writing that they demand that the Company file a
registration statement under the Act covering the registration of all of
the Registrable Securities then outstanding on Form S-1 or Form SB-2, or if
available, Form S-3. Upon receipt of such notice, the Company shall,
within ten (10) days, give written notice of such request to all Holders
and shall, subject to the limitations of subsection 3(b), effect as soon as
practicable, and in any event within thirty (30) days of the receipt of
such request, the registration under the Act of all Registrable Securities
which the Holders request, by notice given to the Company within ten (10)
days of receipt of the Company's notice, to be registered as expeditiously
as reasonably possible after the mailing of such notice by the Company (a
"Demand Registration").
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise
the Company as a part of their request made pursuant to this Section 3 and
the Company shall include such information in the written notice referred
to in subsection 3(a). In such event, the right of any Holder to include
his Registrable Securities in such registration shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders and
such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with
the Company as provided in subsection 7(f)) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected
for such underwriting by a majority in interest of the Initiating Holders,
and reasonably acceptable to the Company; provided that no Holder shall be
required to make any representations other than with respect to its
ownership of Registered Securities and its intended method of distribution.
(c) The Company agrees to include all Registrable Securities held by
all Holders in such Registration Statement without cutback or reduction. In
the event the Company breaches its obligation of the preceding sentences,
any Holders of the Registrable Securities which were not included in such
Registration Statement shall be entitled to additional Demand Registrations
for such excluded securities on the same terms as the Demand Registration
described in this Agreement. In the event the Company breaches its
obligations to effect and maintain any registration statement filed
pursuant to the terms of this Agreement, any Holders of Registrable
Securities which were not sold because of such breach shall be entitled to
additional Demand Registrations for such securities which shall be
maintained until such time as the securities are sold.
<PAGE>
(d) The Company is not obligated to effect a demand registration under
this Section 3 if in the written opinion of counsel to the Company
reasonably acceptable to the person or persons from whom written request
for registration has been received (and satisfactory to the Company's
transfer agent to permit the transfer) that registration under the Act is
not required for the immediate transfer of the Registrable Securities
pursuant to Rule 144 or other applicable provision.
(e) The Company represents that it is eligible to effect the
registration contemplated hereby on Form S-1 or Form SB-2 and will continue
to take such actions as are necessary to maintain such eligibility. The
Company will use its best efforts to become eligible to use Form S-3 and
maintain such eligibility.
4. PIGGYBACK REGISTRATION.
If the Registration Statement described in Section 2 is not effective by
the Due Date, and no demand for a Demand Registration has been made pursuant to
Section 3, and if (but without any obligation to do so), the Company proposes to
register (including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its Common Stock under the Act in
connection with the public offering of such securities (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan or a registration on Form S-4 promulgated under the Act or
any successor or similar form registering stock issuable upon a
reclassification, upon a business combination involving an exchange of
securities or upon an exchange offer for securities of the issuer or another
entity), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given by
fax within ten (10) days after mailing of such notice by the Company, which
request shall state the intended method of disposition of such shares by such
Holder, the Company shall cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered (a
"Piggyback Registration").
5. LIMITATION ON OBLIGATIONS TO REGISTER.
(a) In the case of a Piggyback Registration on an underwritten public
offering by the Company, if the managing underwriter determines and advises
in writing that the inclusion in the registration statement of all
Registrable Securities proposed to be included would interfere with the
successful marketing of the securities proposed to be registered by the
Company, then the number of such Registrable Securities to be included in
the registration statement shall be allocated among all Holders who had
requested Piggyback Registration, in the proportion that the number of
Registrable Securities which each such Holder seeks to register bears to
the total number of Registrable Securities sought to be included by all
Holders; provided that in no event shall the number of Registrable
Securities be less than thirty-five percent (35%) pro-rata of the total
number of shares included in such registration.
(b) Notwithstanding anything to the contrary herein, the Company shall
have the right (i) to defer the initial filing or request for acceleration
of effectiveness of any
<PAGE>
Demand Registration or Piggyback Registration or (ii) after effectiveness,
to suspend effectiveness of any such registration statement, if, in the
good faith judgment of the board of directors of the Company and upon the
advice of counsel of the managing underwriter (if any) of the offering,
such delay in filing or requesting acceleration of effectiveness or such
suspension of effectiveness is necessary in light of the existence of
material non-public information (financial or otherwise) concerning the
Company disclosure of which at the time is not, in the opinion of the board
of directors of the Company upon the advice of counsel, (A) otherwise
required and (B) in the best interests of the Company; provided however
that the Company will use its best efforts to terminate such delay or
suspension as soon as practicable and, in any event will not delay
effectiveness of such registration for more than two (2) months from the
date of the demand or suspend effectiveness for more than twenty (20) days,
unless it is then engaged in an acquisition that would make such
registration impracticable, in which case it will use its best efforts to
eliminate such impracticability as soon as possible.
6. OBLIGATIONS TO INCREASE AVAILABLE SHARES.
In the event that the number of shares available under a registration
statement filed pursuant to Section 3 is insufficient to cover all of the
Registrable Securities then outstanding, the Company shall amend that
registration statement, or file a new registration statement, or both, so as to
cover all shares of Registrable Securities then outstanding. The Company shall
effect such amendment or new registration within sixty (60) days of the date the
registration statement filed under Section 3 is insufficient to cover all the
shares of Registrable Securities then outstanding. Any Registration Statement
filed hereunder shall, to the extent permissible by the Rules of the Securities
and Exchange Commission ("SEC"), state that, in accordance with Rule 416 under
the Act, such Registration Statement also covers such indeterminate numbers of
additional shares of Common Stock as may become issuable upon conversion of the
Preferred Stock to prevent dilution resulting from stock changes or by reason of
changes in the conversion price in accordance with the terms thereof.
7. OBLIGATIONS OF THE COMPANY.
Whenever required under this Agreement to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the Act with respect to the disposition of all securities covered by such
registration statement.
(c) With respect to any Demand Registration, use best efforts to keep
such registration statement effective until the Holders of Registrable
Securities covered by
<PAGE>
such registration statement have completed the distribution described in
the registration statement.
(d) Furnish to the Holders (i) such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them and
(ii) copies of all correspondence to or with the SEC. Each Holder shall be
furnished with copies of drafts of all filings (including amendments and
supplements) prior to filing and given sufficient time to provide comments
thereon.
(e) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by the
Holders of the Registrable Securities covered by such registration
statement, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(f) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(g) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act upon the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing.
(h) Furnish, at the request of any Holder whose shares are being
registered pursuant to this Agreement, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration pursuant to this Agreement, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to
such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an
underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a
letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
(i) Maintain the listing of the Common Stock on the OTC Bulletin Board
or other automated quotation system or a national securities exchange.
<PAGE>
8. FURNISH INFORMATION.
It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this Agreement that the selling Holders shall furnish to
the Company such information regarding themselves, the Registrable Securities
held by them, and the intended method of disposition of such securities as shall
be required to effect the registration of their Registrable Securities or to
determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act.
9. EXPENSES OF REQUIRED OR DEMAND REGISTRATION.
All expenses other than underwriting discounts and commissions incurred in
connection with registrations, filings or qualifications pursuant to Sections 2
or 3, including (without limitation) all registration, filing and qualification
fees, printers' and accounting fees, fees and disbursements of counsel for the
Company, and including the reasonable fees and disbursements incurred of only
one counsel for the selling Holders shall be borne by the Company; provided,
however, that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Sections 2 or 3 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to be registered (in which case all Holders who had
requested such registration shall bear such expenses); provided further,
however, that if at the time of such withdrawal, the Holders have learned of a
material adverse change in the condition, business, or prospects of the Company
from that known to the Holders at the time of their request, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Sections 2 and 3.
10. EXPENSES OF COMPANY REGISTRATION.
The Company shall bear and pay all expenses incurred in connection with any
registration, filing or qualification of Registrable Securities with respect to
the registrations pursuant to Section 4 for each Holder, including (without
limitation) all registration, filing, and qualification fees, printers and
accounting fees relating or apportionable thereto (and including the reasonable
fees and disbursements incurred of only one counsel for the selling Holders
selected by them), but excluding underwriting discounts and commissions relating
to Registrable Securities.
11. INDEMNIFICATION.
In the event any Registrable Securities are included in a registration
statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each "Holder Indemnified Persons" (defined for purposes of
this Section 11 as each Holder, the officers and directors of each Holder
acting in their capacity as such, any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the Securities Exchange Act of
1934, as amended (the "1934 Act")), against any losses, claims,
<PAGE>
damages, expenses, or liabilities (joint or several) (hereinafter referred
to singularly as "Loss" and collectively as "Losses") to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such Losses (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement, or alleged untrue
statement, of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto, (ii) the omission, or alleged
omission, to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation by the Company of the Act, the 1934 Act, any state securities law
or any rule or regulation promulgated under the Act, the 1934 Act or any
state securities law; and the Company will reimburse each such Holder
Indemnified Person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such Loss or action;
provided, however, that the indemnity agreement contained in this
subsection 11(a) shall not apply to amounts paid in settlement of any such
Loss or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case to an Indemnified Person for any such
Loss or action to the extent that it arises out of or is based upon a
Violation which occurs (i) in reliance upon and in conformity with written
information furnished expressly for use in connection with such
registration by such Holder Indemnified Person or (ii) based upon a
prospectus which included a Violation after the Company has advised such
Indemnified Person not to sell pursuant to such prospectus, and has made
available to such Indemnified Person an amended or supplemental prospectus
that corrects such Violation.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the "Company Indemnified Persons" (defined for the
purpose of this Section 11 as the Company, each of its directors in their
capacity as such, each of its officers who have signed the registration
statement in their capacity as such, each person, if any, who controls the
Company within the meaning of the Act in their capacity as such, any
underwriter and any other Holder Indemnified Person selling securities in
such registration statement), against any Loss (joint or several) to which
the Company or any such director, officer, controlling person, or
underwriter or controlling person, or other such Holder Indemnified Person
may become subject, under the Act, the 1934 Act or other federal or state
law, insofar as such Loss (or actions in respect thereto) arises out of or
is based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in
connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company and any such
Company Indemnified Person in connection with investigating or defending
any such Loss or action; provided, however, that the indemnity agreement
contained in this subsection 11(b) shall not apply to amounts paid in
settlement of any such Loss or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this
subsection 11(b) exceed the gross proceeds from the offering received by
such Holder.
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section
11 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to
be made against any indemnifying party under this Section 11, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the
reasonably incurred fees and expenses to be paid by the indemnifying party,
if representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 11, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under
this Section 11 to the extent it is prejudicial.
(d) The obligations of the Company and Holders under this Section 11
shall survive the redemption and conversion, if any, of the Preferred
Stock, the completion of any offering of Registrable Securities in a
registration statement under this Agreement, and otherwise.
12. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934.
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company,
if true, that it has complied with the reporting requirements of SEC Rule
144 (at any time after ninety (90) days after the effective date of the
first registration statement filed by the Company), the Act and the 1934
Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC which permits the selling of
any such securities without registration.
<PAGE>
13. AMENDMENT OF REGISTRATION RIGHTS.
Any provision of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company,
and the holders of a majority of the Registrable Securities then outstanding.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each Holder, each future Holder, and the Company; provided,
however, that no amendment or waiver that materially and adversely affects the
rights of any Holder shall be effective against such Holder unless such Holder
agrees thereto.
14. NOTICES.
All notices required or permitted under this Agreement shall be made in
writing signed by the party making the same, shall specify the section under
this Agreement pursuant to which it is given, and shall be addressed if to (i)
the Company at: President, 770-1130 West Pender Street, Vancouver, BC V6E 4A4;
Telephone No. (604) 684-1533; Telecopy No. (604) 688-7997 and (ii) the Holders
at their respective last address as the party shall have furnished in writing as
a new address to be entered on such register. Any notice, except as otherwise
provided in this Agreement, shall be made by fax and shall be deemed given at
the time of transmission of the fax.
15. TERMINATION.
This Agreement shall terminate on the later to occur of (a) the date that
is five (5) years from the date of this Agreement and (b) the date that is
ninety (90) days after the date on which all the Warrants have been exercised;
but without prejudice to (i) the parties' rights and obligations arising from
breaches of this Agreement occurring prior to such termination or (ii) other
indemnification obligations under this Agreement.
16. ASSIGNMENT.
No assignment, transfer or delegation, whether by operation of law or
otherwise, of any rights or obligations under this Agreement by the Company or
any Holder, respectively, shall be made without the prior written consent of the
majority in interest of the Holders or the Company, respectively; provided that
the rights of a Holder may be transferred to a subsequent holder of the Holder's
Registrable Securities (provided such transferee shall provide to the Company,
together with or prior to such transferee's request to have such Registrable
Securities included in a Demand Registration or Piggyback Registration, a
writing executed by such transferee agreeing to be bound as a Holder by the
terms of this Agreement); and provided further that the Company may transfer its
rights and obligations under this Agreement to a purchaser of all or a
substantial portion of its business if the obligations of the Company under this
Agreement are assumed in connection with such transfer, either by merger or
other operation of law (which may include without limitation a transaction
whereby the Registrable Securities are converted into securities of the
successor in interest) or by specific assumption executed by the transferee.
<PAGE>
17. PAYMENTS FOR FAILURE TO REGISTER OR FAILURE TO LIST.
If the Registration Statement required under Section 2 hereof is not filed
on or prior to ninety (90) days after the Last Closing or if a registration
statement filed pursuant to Section 3 is not effective within ninety (90) days
of demand, or if the Company fails to respond to any request for information
from the SEC related to such Registration Statement within fifteen (15) days of
such request, then the Company shall pay to all Holders of outstanding Preferred
Stock an aggregate amount equal to two percent (2%) per month of the aggregate
amount of Preferred Stock sold in the Offering, compounded monthly, and accruing
daily, payable in Common Stock, which Common Stock shall also be deemed
"Registrable Securities" hereunder. If, the Company is not eligible to effect a
Registration under Form S-1 or SB-2 or S-3, or other appropriate registration
statement, at the time of a Demand Registration under the terms of this
agreement solely through the act or failure to act by the Company, and not due
to a change in statute or regulation or other fact circumstance not under the
Company's control, then the Company shall pay to all Holders of outstanding
Preferred Stock an aggregate penalty equal to the amount of the Conversion
Default Payment ("Conversion Default Payment") set forth in Section 7.6 of the
Regulation S Subscription Agreement between the Company and the Subscribers
("Subscription Agreement") for each day beyond sixty (60) days of the receipt of
a request for a Demand Registration until such registration is complete. If, on
the date (the "Conversion Eligibility Date") that Preferred Stock becomes
eligible for conversion into Common Stock or the Warrants are exercisable, the
Common Stock is not listed on the OTC Bulletin Board or other national stock
exchange or automated quotation system, then the Company shall pay to all
Holders of outstanding Preferred Stock that are eligible for immediate
conversion and to all Holders of unexercised Warrants a penalty equal to the
amount of the Conversion Default Payment ("Conversion Default Payment") set
forth in Section 7.6 of the Regulation S Subscription Agreement between the
Company and the Subscribers ("Subscription Agreement") for each day beyond the
Conversion Eligibility Date until such listing is complete.
18. GOVERNING LAW.
This Registration Rights Agreement shall be governed by and construed in
accordance with the laws of the state of Colorado applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws. Any action brought to
enforce, or otherwise arising out of, this Agreement shall be heard and
determined only in either a federal or province court sitting in the State of
Colorado, Denver County.
[INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date first above written.
INTERCELL CORPORATION
By: /s/ Gordon J. Sales
---------------------------
Name: Gordon J. Sales
Title: President
Address: 770-1130 West Pender Street
Vancouver, BC V6E 4A4
INVESTOR(S)
___________________________________
Investor's Name
By:_________________________________
(Signature)
Address: __________________________
____________________________________
<PAGE>
Exhibit 4.7
-----------
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
December 16, 1996, by and among Intercell Corporation, a Colorado corporation
("Company"), Swartz Investments, LLC, a Georgia limited liability company
("Swartz Investments") and the subscribers (hereinafter referred to as
"Subscribers" or "Investors") to the Company's offering ("Offering") of up to
Six Million Dollars ($6,000,000) of Series C Convertible Preferred Stock (the
"Preferred Stock") pursuant to the Regulation D Securities Subscription
Agreement between the Company and the Subscribers ("Subscription Agreement").
1. DEFINITIONS. For purposes of this Agreement:
-----------
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933 (the "Act"), and
pursuant to Rule 415 under the Act or any successor rule, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) For purposes of the Required Registration under Section 2 hereof,
the term "Registrable Securities" means the shares of the Company's Common Stock
together with any capital stock issued in replacement of, in exchange for or
otherwise in respect of such Common Stock, the "Common Stock"), issuable or
issued upon (i) conversion of the Series C Preferred Stock (the "Preferred
Stock") issued to Subscribers in the Offering and (ii) exercise of the Warrants.
For purposes of a Demand Registration under Section 3 hereof or a
Piggyback Registration under Section 4 hereof, "Registrable Securities" shall
have the meaning set forth above, except that the following shall not constitute
Registrable Securities for purposes of a Demand Registration under Section 3
hereof or a Piggyback Registration under Section 4 hereof:
1. shares of Common Stock obtainable (x) on conversion of the
Preferred Stock (in whole or in part) and (y) on exercise of the
Warrant (the "Warrant Shares"), shall not constitute Registrable
Securities if those shares of Common Stock may be resold in a public
transaction without registration under the Act, including without
limitation pursuant to Rule 144 under the Act; and
2. any Registrable Securities resold in a public transaction shall
cease to constitute Registrable Securities.
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock which have been
issued or are issuable upon conversion of the Preferred Stock and exercise of
the Warrants at the time of such determination;
<PAGE>
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any permitted assignee thereof;
(e) The terms "Warrant" and "Warrants" refer to (i) the warrants
granted to Swartz Investments or to persons designated by Swartz Investments in
connection with this Offering or in connection with the offering of the
Company's Series B Preferred Stock and (ii) the warrant or warrants issued to
Subscribers as securities in connection with the Offering;
(f) The term "Initiating Holders" means (i) holders of Registrable
Securities obtained or obtainable upon conversion of at least Fifty (50) shares
of Preferred Stock; and
(g) The term "Due Date" means the date which is four (4) months after
the Last Closing (as defined in the Subscription Agreement) of the Offering (as
defined in the Subscription Agreement).
2. REQUIRED REGISTRATION.
---------------------
(a) Within thirty (30) days after the Last Closing of the Offering
(as defined in the Subscription Agreement), the Company shall file a
registration statement ("Registration Statement") on Form S-1 (or other suitable
form, at the Company's discretion but subject to the reasonable approval of the
Investors), covering the resale of all shares of Registrable Securities then
outstanding including an indeterminate number of shares of Common Stock as
required to effect conversion of the Preferred Stock and exercise of the
Warrants. Such Registration Statement shall initially cover at least Four
Million (4,000,000) shares of Common Stock and allocated and reserved pro rata
among the Subscribers.
(b) The Registration Statement shall be prepared as a "shelf"
registration statement under Rule 415, and shall be maintained effective until
the distribution described in the Registration Statement is completed. The
Company shall use its best efforts to have the Registration Statement declared
effective within four (4) months after the Last Closing (as defined in the
Subscription Agreement).
(c) If the Registration Statement is not declared effective by the Due
Date, the Company must continue to use its best efforts to obtain a declaration
of effectiveness and shall pay the Investors an amount equal to two percent (2%)
per month of the aggregate amount of Preferred Stock sold in the Offering,
compounded monthly and accruing daily, until the Registration Statement or a
registration statement filed pursuant to Section 3 or Section 4 is declared
effective, payable in common stock, which common stock shall also be deemed
"Registrable Securities" for the purpose of this Agreement. The accrual amount
payable will be tolled for any periods occasioned by a delay of a Registration
Statement under Section 3 as a result of the choice of the Holders to have that
Registration Statement underwritten.
3. DEMAND REGISTRATION.
-------------------
(a) If the Registration Statement described in Section 2 above is not
effective by the Due Date, Initiating Holders may notify the Company in writing
and, subject to the terms
<PAGE>
of Section 5(d) below, demand that the Company file a registration statement
under the Securities Act (a "Demand Registration Statement") covering the resale
of the Registrable Securities then outstanding. Upon receipt of such notice,
the Company shall, within ten (10) days thereafter, give written notice of such
request to all Holders and shall, subject to the limitations of subsections 3(b)
and 5(b), as soon as practicable, and in any event within sixty (60) days after
the receipt of such request, effect registration under the Act of all
Registrable Securities which the Holders request, by notice given to the Company
within ten (10) days of receipt of the Company's notice. The election of
initiating Holders to demand the Company to file a Demand Registration Statement
shall not impact the amount payable to investors pursuant to Section 2(c)
herein.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 3
and the Company shall include such information in the written notice referred to
in subsection 3(a). In such event, the right of any other Holder to include such
Holder's Registrable Securities in such registration shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company as provided in
subsection 6(f)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, and reasonably acceptable to the Company.
The Holder will not be required to make any representation other than as to its
ownership of the Registrable Securities and its intended method of distribution.
(c) The Company is obligated to effect only one (1) demand
registration pursuant to Section 3 of this Agreement. The Company agrees to
include all Registrable Securities held by all Holders in such registration
statement without cutback or reduction. In the event the Company breaches its
obligation of the preceding sentences, any Holders of the Registrable Securities
which were not included in such registration statement shall be entitled to a
second demand registration for such excluded securities and the Company shall
keep such registration statement effective as required by Section 6.
(d) The Company represents that it is presently eligible to effect the
registration contemplated hereby on Form S-1 and will use its best efforts to
continue to take such actions as are necessary to maintain such eligibility.
4. PIGGYBACK REGISTRATION. If the Registration Statement described
----------------------
in Section 2 is not effective by the Due Date, and no demand for a Demand
Registration Statement has been made pursuant to Section 3, and if (but without
any obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holders) any of its Common Stock under the Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely for the sale of securities to participants in a Company stock plan or a
registration on Form S-4 promulgated under the Act or any successor or similar
form registering stock issuable upon a
<PAGE>
reclassification, upon a business combination involving an exchange of
securities or upon an exchange offer for securities of the issuer or another
entity), the Company shall, at such time, promptly give each Holder written
notice of such registration (a "Piggyback Registration Statement"). Upon the
written request of each Holder given by fax within ten (10) days after mailing
of such notice by the Company, the Company shall cause to be included in such
registration statement under the Act all of the Registrable Securities that each
such Holder has requested to be registered ("Piggyback Registration"); nothing
herein shall prevent the Company from withdrawing or abandoning the registration
statement prior to its effectiveness. The election of initiating Holders to
participate in a Piggyback Registration Statement shall not impact the amount
payable to investors pursuant to Section 2(c) herein.
5. LIMITATION ON OBLIGATIONS TO REGISTER.
-------------------------------------
(a) In the case of a Piggyback Registration on an underwritten public
offering by the Company, if the managing underwriter determines and advises in
writing that the inclusion in the registration statement of all Registrable
Securities proposed to be included would interfere with the successful marketing
of the securities proposed to be registered by the Company, then the number of
such Registrable Securities to be included in the registration statement shall
be allocated among all Holders who had requested Piggyback Registration, in the
proportion that the number of Registrable Securities which each such Holder,
including Swartz Investments, seeks to register bears to the total number of
Registrable Securities sought to be included by all Holders, including Swartz
Investments.
(b) Notwithstanding anything to the contrary herein, the Company shall
have the right (i) to defer the initial filing or request for acceleration of
effectiveness of any Demand Registration Statement or Piggyback Registration
Statement or (ii) after effectiveness, to suspend effectiveness of any such
registration statement, if, in the good faith judgment of the board of directors
of the Company and upon the advice of counsel to the Company, such delay in
filing or requesting acceleration of effectiveness or such suspension of
effectiveness is necessary in light of (i) the requirement by the underwriter in
a public offering by the Company that such registration statement be delayed or
suspended or (ii) the existence of material non-public information (financial or
otherwise) concerning the Company, disclosure of which at the time is not, in
the opinion of the board of directors of the Company upon the advice of counsel,
(A) otherwise required and (B) in the best interests of the Company; provided,
however, that solely in the case of a demand registration the Company will not
delay filing or suspend effectiveness of such registration for more than three
(3) months from the date of the demand, unless it is then engaged in an
acquisition that would make such registration impracticable, in which case it
will use its best efforts to eliminate such impracticability as soon as possible
after such three (3) month period.
(c) In the event the Company believes that shares sought to be
registered under Section 2, Section 3 or Section 4 by Holders do not constitute
"Registrable Securities" by virtue of Section 1(b) of this Agreement, and the
status of those shares as Registrable Securities is disputed, the Company shall
provide, at its expense, an Opinion of Counsel, reasonably acceptable to the
Holders of the Securities at issue (and satisfactory to the Company's transfer
agent to permit the sale and transfer) that those securities may be sold
immediately, without
<PAGE>
restriction or resale, without registration under the Act, by virtue of Rule 144
or applicable provisions.
(d) The Company is not obligated to effect a Demand Registration under
this Section 3: i) during the ninety (90) day period after the Due Date, so long
as the Registration Statement has been filed, and the Company is using its best
efforts to obtain a declaration of the effectiveness of the Registration
Statement during such period or, ii) if in the opinion of counsel to the Company
reasonably acceptable to the person or persons from whom written request for
registration has been received (and satisfactory to the Company's transfer agent
to permit the transfer) that registration under the Act is not required for the
immediate transfer of all of the Registrable Securities pursuant to Rule 144 or
other applicable provision.
6. OBLIGATIONS TO INCREASE THE NUMBER OF AVAILABLE SHARES. In the
------------------------------------------------------
event that the number of shares available under a registration statement filed
pursuant to Section 2 or Section 3 is insufficient to cover all of the
Registrable Securities then outstanding, the Company shall amend that
registration statement, or file a new registration statement, or both, so as to
cover all shares of Registrable Securities then outstanding. The Company shall
effect such amendment or new registration as soon as practicable, but in any
event within thirty (30) days of the date the registration statement filed under
Section 2 or Section 3 is insufficient to cover all the shares of Registrable
Securities then outstanding. Any registration statement filed hereunder shall,
to the extent permissible by the rules and regulations of the Securities and
Exchange Commission ("SEC"), state that, in accordance with Rule 416 under the
Act, such registration statement also covers such indeterminate numbers of
additional shares of Common Stock as may become issuable upon conversion of the
Preferred stock to prevent dilution resulting from stock changes or by reason of
changes in the conversion price in accordance with the terms thereof. Unless
and until such amendment or new registration statement is effective, the
Investors shall have the rights described in Section 2(c) above.
7. OBLIGATIONS OF THE COMPANY. Whenever required under this
--------------------------
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become effective.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) With respect to any registration statement filed pursuant to this
Agreement, keep such registration statement effective until the sooner to occur
of (A) such time as the Holders of Registrable Securities covered by such
registration statement have completed the distribution described in the
registration statement, and (B) such time as all of the Registrable
<PAGE>
Securities covered by such registration statement may be sold without any volume
limitation pursuant to Rule 144 promulgated under the Act.
(d) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(e) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders of
the Registrable Securities covered by such registration statement, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(f) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(g) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
(h) Furnish, at the request of any Holder whose shares are being
registered pursuant to this Agreement, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration pursuant to this Agreement, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of outside
counsel of recognized standing (or reasonably acceptable to Holder) representing
the Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders whose shares are being registered pursuant to this Agreement.
(i) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
<PAGE>
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the registration statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Holder as such Holder may reasonably request.
(j) Provide Holders with written notice of the date that a
registration statement registering the resale of the Registrable Securities is
declared effective by the SEC, and the date or dates when the registration
statement is no longer effective.
(k) Provide Holders and their representatives the opportunity to
conduct a reasonable due diligence inquiry of Company's pertinent financial and
other records and make available its officers, directors and employees for
questions regarding such information as it relates to information contained in
the registration statement.
(l) Provide Holders and their representatives the opportunity to
review the registration statement and all amendments thereto a reasonable period
of time prior to their filing with the SEC.
8. FURNISH INFORMATION. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Agreement with
regard to each selling Holder that such selling Holders shall furnish to the
Company such information regarding themselves, the Registrable Securities held
by them, and the intended method of disposition of such securities as shall be
required to effect the registration of their Registrable Securities or to
determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act.
9. EXPENSES OF REQUIRED OR DEMAND REGISTRATION. All expenses other
-------------------------------------------
than underwriting discounts and commissions and fees and expenses of counsel to
the selling Holders incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, shall be borne by the Company.
10. EXPENSES OF PIGGYBACK REGISTRATION. The Company shall bear and
----------------------------------
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registration
pursuant to Section 4 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto but excluding underwriting discounts and
commissions and fees and expenses of counsel to the selling Holders relating to
Registrable Securities.
11. INDEMNIFICATION. In the event any Registrable Securities are
---------------
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the "1934
<PAGE>
Act"), against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will reimburse each such Holder, officer or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 11(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by any such Holder, officer, director, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder, severally and
not jointly, will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Act, any
underwriter and any other Holder selling securities in such registration
statement or any of its directors or officers or any person who controls such
Holder, against any losses, claims, damages, or liabilities (joint or several)
to which the Company or any such director, officer, controlling person, or
underwriter or controlling person, or other such Holder or director, officer or
controlling person may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company and any such director, officer, controlling person, underwriter or
controlling person, other Holder, officer, director, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 11(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
11(b) exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
11 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this
<PAGE>
Section 11, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the reasonably incurred fees and expenses of one such counsel to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential conflicting interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 11, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 11.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 11 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and each holder of Registrable
Securities agree to contribute to the aggregate claims, losses, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which the
Company and one or more of the holders of Registrable Securities may be subject
in such proportion as is appropriate to reflect the relative fault of the
Company and the holders in connection with the statements or omissions which
resulted in such Losses; provided, however, that in no case shall any holder be
responsible for any amount in excess of the net purchase price of securities
sold by it under the registration statement. Relative fault shall be determined
by reference to whether any alleged untrue statement or omission relates to
information provided by the Company or by the holders. The Company and the
holders agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 11,
each person who controls a holder of Registrable Securities within the meaning
of either the Securities Act or the Exchange Act and each director, officer,
partner, employee and agent of a holder shall have the same rights to
contribution as such holder, and each person who controls the Company within the
meaning of either the Securities Act or the Exchange Act and each director of
the Company, and each officer of the Company who has signed the registration
statement, shall have the same rights to contribution as the Company, subject in
each case to the applicable terms and conditions of this paragraph (d).
(e) The obligations of the Company and Holders under this Section 11
shall survive the redemption and conversion, if any, of the Preferred Stock, the
completion of any offering of Registrable Securities in a registration statement
under this Agreement, and otherwise.
<PAGE>
12. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of SEC Rule 144, the
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC which permits the selling of any
such securities without registration.
13. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement
--------------------------------
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Registrable
Securities provided that the amendment treats all Holders equally. Any amendment
or waiver effected in accordance with this paragraph shall be binding upon each
Holder, each future Holder, and the Company.
14. NOTICES. All notices required or permitted under this Agreement
-------
shall be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: Intercell Corporation, Suite 1750, 999 West
Hastings St., Vancouver, B.C., V6C 2W2 Telephone No. (604) 684-1533, Telecopy
No. (604) 688-7997 and (ii) the Holders at their respective last address as the
party shall have furnished in writing as a new address to be entered on such
register. Any notice, except as otherwise provided in this Agreement, shall be
made by fax and shall be deemed given at the time of transmission of the fax.
15. TERMINATION. This Agreement shall terminate on the earlier to
-----------
occur of (a) the date that is three (3) years from the date of this Agreement
and (b) the date the distribution of all Registrable Securities described in any
registration statement filed pursuant to this Agreement is completed; but
without prejudice to (i) the parties' rights and obligations arising from
breaches of this Agreement occurring prior to such termination (ii) other
indemnification obligations under this Agreement or (iii) the Company's
obligation to maintain the effectiveness of a registration statement filed prior
thereto in accordance with the terms hereof, and to fulfill its obligation
hereunder in respect thereof until it is no longer required to maintain the
effectiveness thereof.
<PAGE>
16. ASSIGNMENT. No assignment, transfer or delegation, whether by
----------
operation of law or otherwise, of any rights or obligations under this Agreement
by the Company or any Holder, respectively, shall be made without the prior
written consent of the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be transferred to a
subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, together with or prior to such
transferee's request to have such Registrable Securities included in a Demand
Registration or Piggyback Registration, a writing executed by such transferee
agreeing to be bound as a Holder by the terms of this Agreement); and provided
further that the Company may transfer its rights and obligations under this
Agreement to a purchaser of all or a substantial portion of its business if the
obligations of the Company under this Agreement are assumed in connection with
such transfer, either by merger or other operation of law (which may include
without limitation a transaction whereby the Registrable Securities are
converted into securities of the successor in interest) or by specific
assumption executed by the transferee.
17. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Colorado applicable to agreements
made in and wholly to be performed in that jurisdiction, except for matters
arising under the Act or the Securities Exchange Act of 1934, which matters
shall be construed and interpreted in accordance with such laws.
18. EXECUTION IN COUNTERPARTS PERMITTED. This Agreement may be
-----------------------------------
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
[INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
INTERCELL CORPORATION
By: /s/ Gordon J. Sales
--------------------------------
Gordon J. Sales, President
Address:
Intercell Corporation
Suite 1750, 999 West Hastings St.
Vancouver, B.C. V6C 2W2
Telephone No. (604) 684-1533
Telecopy No. (604) 688-7997
SWARTZ INVESTMENTS, LLC
By: /s/ Eric Swartz
--------------------------------
Eric Swartz, President
Address: 200 Roswell Summit, Suite 285
1080 Holcomb Bridge Road
Roswell, GA 30076
INVESTOR(S)
___________________________________
Investor's Name
By:_________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
<PAGE>
Exhibit 4.8
-----------
PLAN OF LIQUIDATING DISSOLUTION
OF
ENERGY CORPORATION
WHEREAS, the Undersigned, as Sole Director of Energy Corporation (hereinafter
"Energy") has approved a Plan of Liquidating Dissolution of Energy; and
WHEREAS, this Plan of Liquidating Dissolution will be proposed to the
shareholders of Energy for their approval; and
WHEREAS, Energy and Intercell Corporation (hereinafter "Intercell") have agreed
to the terms and conditions of a registered distribution of Five Million, Four
Hundred and Twelve Thousand, One Hundred and Ninety-One (5,412,191) shares owned
by Energy; and
WHEREAS, Intercell has agreed to file a Registration Statement, registering such
shares for distribution over a period of three (3) years; and
WHEREAS, Energy believes the orderly liquidation and dissolution of Energy is
and will be for the benefit of its shareholders; and
NOW THEREFORE, the following Plan of Liquidating Dissolution, as set forth
herein, subject to shareholder approval, is adopted and shall be implemented,
pursuant to the General Corporation Code of the State of Delaware.
1. All assets of this Corporation, except for the Five Million, Four
Hundred and Twelve, One Hundred and Ninety-One (5,412,191) shares, to
be distributed to the shareholders of Energy, shall be sold and the
proceed therefrom shall be used to pay all legal claims against this
Corporation and the balance, if any, remaining shall be distributed to
the shareholders.
2. All creditors having legal claims against this Corporation shall be
satisfied.
3. The Five Million, Four Hundred and Twelve Thousand, One Hundred and
Ninety-One (5,412,191) shares of Intercell owned by Energy shall be
distributed to all beneficial owners of the common stock of Energy as
of July 8, 1996, in the following stages:
(a) On or about January 31, 1997, Nine Hundred and Two Thousand,
Thirty-Two (902,032) shares;
(b) On or about April 30, 1997, Nine Hundred and Two Thousand,
Thirty-Two (902,032) shares;
(c) On or about January 30, 1998, Nine Hundred and Two Thousand,
Thirty-Two (902,032) shares;
<PAGE>
(d) On or about April 30, 1998, Nine Hundred and Two Thousand,
Thirty-Two (902,032) shares;
(e) On or about January 31, 1999, Nine Hundred and Two Thousand,
Thirty Two (902,032) shares; and
(f) On or about April 30, 1997, Nine Hundred and Two Thousand,
Thirty-One (902,031) shares.
4. Energy shall use its best efforts to co-operate with Intercell in the
expeditious filing of a Registration Statement registering the shares
for the distribution set forth above, and in assisting Intercell in
obtaining the earliest possible Declaration of Effectiveness of such
registration. Energy, shall further, undertake to perform such
procedures as may be required of it by Intercell or by the Securities
and Exchange Commission or by any state regulatory authority to comply
with both federal and state securities laws.
5. Upon completion of the final distribution of the shares referred to
above, Energy Corporation shall cause to be prepared and filed with
the State of Delaware. a Certificate of Dissolution, dissolving it as
a matter of law.
Dated: July 8, 1996
ENERGY CORPORATION
By: /s/ Gordon J. Sales
-------------------------
Gordon J. Sales
President and Sole Director
<PAGE>
Exhibit 10.2
------------
ASSIGNMENT
In consideration of Ten Dollars ($10.00) and other valuable consideration, of
which receipt is hereby acknowledged, Particle Interconnect, Inc., of 31032
Hershey Avenue, Hayward, CA 94544 (ASSIGNOR) hereby sells and assigns to
Particle Interconnect Corporation, a Colorado corporation having offices at 3550
Marksheffel, Colorado Springs, CO 80925 (ASSIGNEE), its successors and assigns,
the entire right, title and interest in and to the improvements of the following
United States Patents:
1. U.S. Patent Number 4,804,132; Issue Date 2/14/89; Title: "Method For
Cold Bonding,"
2. U.S. Patent Number 5,083,697; Issue Date 1/28/92; Title: "Particle
Enhanced Joining of Metal Surfaces,"
3. U.S. Patent Number 5,471,151; Issue Date 11/28/95; Title: "Electrical
Interconnect Using Particle Enhanced Joining of Metal Surfaces,"
4. U.S. Patent Number 5,334,809; Issue Date 8/2/94; Title: "Particle
Enhanced Joining of Metal Surfaces,"
5. U.S. Patent Number 5,430,614; Issue Date 7/4/95; Title: "Electrical
Interconnect Using Particle Enhanced Joining of Metal Surfaces," and
6. U.S. Patent Number 5,506,514; Issue Date 4/9/96; Title: "Electrical
Interconnect Using Particle Enhanced Joining of Metal Surfaces."
and in and to the improvements of the following United States Patent
Applications:
7. U.S. Patent Application Number 08/320,436; Filing Date 10/7/94; Title:
"Patternable Particle Filled Adhesive Matrix For Localized Communication Between
Joined Surfaces,"
<PAGE>
ASSIGNMENT
Page 2 of 3
8. U.S. Patent Application Number 08/320,443; Filing Date 10/7/94; Title:
"Patternable Particle Filled Adhesive Matrix For Forming Patterned Structures
Between Joined Surfaces,"
9. U.S. Patent Application Number 08/422,445; Filing Date 4/12/95; Title:
"Electrical Interconnect Using Particle Enhanced Joining of Metal Surfaces,"
10. U.S. Patent Application Number 08/422,446; Filing Date: 4/12/95;
Title: "Electrical Interconnect Using Particle Enhanced Joining of Metal
Surfaces,"
11. U.S. Patent Application Number 08/622,447; Filing Date 4/12/95; Title:
"Electrical Interconnect Using Particle Enhanced Joining of Metal Surfaces,"
12. U.S. Patent Application Number 08/422,448; Filing Date: 4/12/95;
Title: "Electrical Interconnect Using Particle Enhanced Joining of Metal
Surfaces," and
13. U.S. Patent Application Number 08/440, 497; Filing Date 5/10/95;
Title: "Method And Apparatus For Handling Electronic Devices."
and any and all applications for patent and patents therefor in any and all
countries, including all divisions, reissues, continuations and extensions
thereof, and all rights of priority resulting from the filing of said United
States patents and applications, and authorize and request any official whose
duty it is to issue patents, to issue any patent on said improvements or
resulting therefrom to said ASSIGNEE, or its successors or assigns and agree
that on request and without further consideration, but at the expense of
ASSIGNEE, ASSIGNOR will communicate to said ASSIGNEE, or its representatives or
nominees, any facts known to us respecting said improvements and testify in any
legal proceedings, sign all lawful papers, execute all divisional, continuing
and reissue applications, make all rightful oaths and generally do everything
possible to aid ASSIGNEE its successors, assigns and nominees, to obtain and
enforce proper patent protection for said inventions in all countries. ASSIGNOR
covenants with said ASSIGNEE, its successors and assign, that the rights and
property hereby covered are free and
<PAGE>
ASSIGNMENT
Page 3 of 3
clear of any encumbrances, other than the existing licenses previously granted
by ASSIGNOR to third parties, and that has full right to convey the same as
herein expressed.
September 3, 1996 /s/ Louis DiFrancesco
----------------------------------
Louis DiFrancesco
President and CEO,
Particle Interconnect, Inc.
On this 3rd day of September, 1996, before me, the undersigned, personally
appeared Louis DiFrancesco, known to me to be the person whose name is
subscribed to the within instrument, and acknowledged to me that he executed the
foregoing instrument for the purpose therein contained.
IN WITNESS WHEREOF, I have set my hand and official seal.
/s/ Paul H. Metzinger
--------------------------------
Paul H. Metzinger
Notary Public
Commission Expires 1-13-97
(Seal)
<PAGE>
Exhibit 10.3
------------
ASSIGNMENT
In consideration of Ten Dollars ($10.00) and other valuable consideration, of
which I acknowledge receipt, I, EL-BADAWY AMIEN EL-SHARAWY of 225 South Rush
Circle, Chandler, Arizona 85226, hereby sell, and assign to INTERCELL
CORPORATION, having offices at 4455 East Camelback Road #E-160, Phoenix, Arizona
85108, its successors and assigns, the entire right, title and interest in and
to the improvements of DUAL RESONANCE ANTENNA AND PORTABLE TELEPHONE THEREWITH,
invented by me, as described in the application for United States Patent
Application filed concurrently herewith (LWG Docket Number 2215-020), and any
and all applications for patent and patents therefor in any and all countries,
including all divisions, reissues, continuations and extensions thereof, and all
rights of priority resulting from the filing of said United States application,
and authorize and request any official whose duty it is to issue patents, to
issue any patent on said improvements or resulting therefrom to said INTERCELL
CORPORATION, or its successors or assigns and agree that on request and without
further consideration, but at the expense of INTERCELL CORPORATION, I will
communicate to said INTERCELL CORPORATION or its representatives or nominees,
any facts known to me respecting said improvements and testify in any legal
proceeding, sign all lawful papers, execute all divisional, continuing and
reissue applications, make all rightful oaths and generally do everything
possible to aid INTERCELL CORPORATION, its successors, assigns and nominees to
obtain and enforce proper patent protection for said invention in all countries.
I covenant with said INTERCELL CORPORATION, its successors and assigns, that the
rights and property hereby covered are free and clear of any encumbrances, and
that We have full right to convey the same as herein expressed.
June 5, 1996 /s/ El-Badawy Amien El-Sharawy
- ------------ -------------------------------
DATE EL-BADAWY AMIEN EL-SHARAWY
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
On this 5th day of June 1996, before me, the undersigned, personally appeared
El-Badawy Amien El-Sharawy, known to me to be the person whose name is
subscribed to the within instrument, and acknowledged to me that he executed the
foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, We have set our hands and official seal.
/s/ Jordan M. Meschkow
----------------------------
Notary Public
(SEAL)
<PAGE>
Exhibit 10.4
------------
EMPLOYMENT AGREEMENT
This Agreement is between Intercell Corporation, a Colorado corporation,
hereinafter referred to as the "Company," and Gordon J. Sales, President and
Chief Executive Officer, hereinafter referred to as "Employee."
1. Engagement. The Company hereby engages the Employee and the Employee
----------
hereby accepts engagement upon the terms and conditions hereinafter set forth.
Employee's compensation set forth herein shall be subject to all applicable
federal or state tax withholding provisions.
2. Term. Subject to the provisions for termination as hereinafter provided,
----
the term of this Agreement shall be for a period of Sixty (60) months commencing
on September 1, 1996. The parties hereby acknowledge and agree it is their
intent that: (a) any extension or renewal of this Agreement shall be concluded
at least Three (3) months prior to the expiration date of the initial Sixty
(60) months term and Three (3) months prior to the expiration date of any
subsequent extension or renewal term hereof; and (b) absent mutual agreement to
the contrary, the failure to conclude such extension or renewal by the dates
indicated shall be deemed notice to the Company and the Employee that the
Agreement shall not be extended.
3. Duties. The Employee shall be the President and Chief Executive Officer
------
of the Company. As Employee, the Employee shall, during the term of this
Agreement, perform the responsibilities and duties, exercise the powers and
follow the instructions which from time to time may be lawfully assigned to or
vested in him by the Board of Directors of the Company. It is agreed that
during the term of this Agreement, the Employee will not accept an officership
or directorship, participate in the operation or management of or act as a
Employee to any other company, which is in the same line of business as or in
competition with the Company unless it be a company either owned or controlled
by the Company, without the prior written consent of the Board of Directors of
the Company.
4. Extent of Services. Employee agrees to provide not less than 30 hours
------------------
per week of executive services to the Company for the compensation paid to the
Employee. Employee shall not be prevented from investing his assets in such
form or manner as will not require any services on the part of the Employee in
the operation of the affairs of the companies in which such investments are
made, except that in no event may the Employee make investments in any firms in
competition with, or in the business of supplying goods or services to the
Company, unless such investments are disclosed to and approved by the Board of
Directors of the Company.
5. Compensation. For services rendered by the Employee under this
------------
Agreement, the Company shall pay the Employee the compensation set forth on
Exhibit "A." If during the term of the Agreement the Employee is unavailable
because of illness which prevents Employee from performing his duties described
herein, the Company shall be obligated to pay the Employee for all such periods
of absence; not to exceed however three (3) months.
<PAGE>
6. Bonus and Stock Option Plans and Benefit Programs. The Company proposes
-------------------------------------------------
to establish certain bonus and stock option plans. During the term of this
Agreement, and as additional compensation, the Employee will be eligible to
participate in those plans currently in effect and as they may be amended from
time to time, so long as such plans remain in existence. Furthermore, during
the term of this Agreement, the Employee shall be entitled to participate in all
current or subsequently enacted benefit programs applicable to other officers,
directors, agent and consultants of the Company. For purposes of this
Agreement, all references to stock option plans, bonus plans or benefit programs
shall be deemed to mean that Employee shall be eligible to participate in such
plans or programs of the Company in which Employee presently participates or is
eligible for, or such plans or programs of the Company that may subsequently be
adopted in substitution for the Company plans or programs Options, if any,
under this Agreement are set forth on Exhibit B.
7. Expenses. The Employee is authorized to incur reasonable expenses with
--------
regard to the business of the Company, including expenses for entertainment,
travel and other items of a similar character. The Company will reimburse the
Employee for all such expenses incurred by him in the performance of his duties
hereunder.
8. Termination by Company. This Agreement may be terminated by the Company
----------------------
as follows:
(a) If the Employee shall commit a breach of this Agreement, and such breach,
if capable of rectification, is not rectified with thirty (30) calendar
days of receipt by Employee from the Company of written notice requiring
him so to do;
(b) If the Employee shall be convicted of a felony criminal offense, or been
found in a judicial proceeding initiated after the date of this Agreement
by a court of competent jurisdiction, in a decision subject to no further
appeals, to have committed any dishonest or unlawful act or to have been
engaged or engaging or might irreparably injure or tend to injure the
reputation or business of the Company;
(c) If the Employee shall grossly, willfully or inexcusably neglect the
performance of Employee's duties as set forth herein. Such standard of
neglect shall however be determined only by the Board of Directors, based
upon the written opinion of independent counsel and written advice to
Employee and unanimously approved by the full Board of Directors
especially convened for such purpose.
9. Termination by Employee. Employee may terminate this Agreement with or
-----------------------
without cause, and if terminated, the Company and Employee agree to abide by and
promptly honor the provisions of Section 10 of this Agreement. Cause for
termination by Employee shall not consist of the Company's refusal to follow the
bona-fide professional recommendations of the Employee.
10. Payments upon Termination by Company or Employee. It is agreed that if
------------------------------------------------
this Agreement is terminated payments and/or provisions for payments will be
made as follows:
<PAGE>
(a) If the Company terminates this Agreement on some basis other than for any
of the reasons as stated in Paragraph 8 hereof, the Company will take the
actions set forth in Subparagraphs (1), (2) and (3) of this Paragraph.
If the Employee terminates this Agreement for cause, which shall be
limited to a failure by the Company to pay Employee his compensation, the
Company will take the actions set forth in Subparagraphs (1), (2) and (3)
of this Paragraph.
(1) All stock options granted to the Employee will become immediately
vested for the full amount of Optioned Shares and shall be exercised, if
ever, in accordance with and subject to the terms and provisions of the
Company's 1995 Compensatory Stock Option Plan and Employee's Stock Option
Agreement; and
(2) The Employee will receive within fifteen (15) days of the effective
date of such termination, all compensation and all other benefits that
would have accrued and/or been payable to the Employee during the term of
this Agreement; and
(3) The Employee will be paid in full any other contractual benefits
Employee may have with the Company and be reimbursed for all un-
reimbursed accountable expenses.
(b) If the Company terminates this Agreement for a reason or reasons set
forth in paragraph 8 hereof or the Employee terminates this Agreement
without cause, the Company will only be obligated to pay to the Employee
the actual amount of compensation accrued to the date of termination, the
Employee will be bound to the terms of the Company's Compensatory Stock
Option Plan as it relates to the exercise of any vested options, and, all
other payments or benefits recited herein shall be canceled and
terminated, without recourse.
11. Termination Due to Change in Control. If Employee is terminated by the
------------------------------------
Company, for any reason as part of or because of a change in control of the
Company, then Employee shall be entitled to a one time lump sum payment of cash
for the termination of this Agreement as follows:
Termination Occurring In Amount
Years One (1) through Three (3) $400,000.00
Years Four (4) through Five (5) $430,000.00
The cash payment set forth herein, shall be made within Five (5) days of the
date of delivery to Employee of written termination of this Agreement by the
Company. Upon receipt of the payment as set forth herein, the Employee and the
Company shall in writing cancel this Agreement and the parties shall be released
of all further obligations under this Agreement, provided however, that any
options which have been granted to Employee and which are otherwise vested shall
remain unimpaired and in full force and effect.
A change in control of the Company shall be deemed to have occurred when, as a
result of any type of corporate reorganization, execution of proxies or voting
trust or other arrangements,
<PAGE>
such person or group of persons acquire sufficient equity or voting control of
the Company to elect more than a majority of the Board of Directors.
12. Notices of Termination. All Notices of Termination provided for in this
----------------------
Agreement must be in writing and must provide for a minimum notice period of
Sixty (60) calendar days between the date of such notification and the effective
date of such termination.
13. Arbitration. Any controversy or claim arising out of, or relating to
-----------
this Agreement, or the breach hereof, shall be settled by arbitration in the
City of Denver, Colorado in accordance with the then effective rules of the
American Arbitration Association. Such ruling shall be binding upon the
parties.
14. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be sufficient if in writing, and if sent by registered or
certified mail to the Employee's residence in the case of the Employee, or to is
principal office in the case of the Company.
15. Waiver, Modification or Cancellation. Any waiver, alteration or
------------------------------------
modification of any of the provisions of this Agreement or cancellation or
replacement of this Agreement shall not be valid unless in writing and signed by
the Parties.
16. Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the Company, its successors and assigns, including but not limited
to any entity which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged,
and the Employee, his successors, representatives and assigns, provided that the
duties of the Employee as described herein may not be delegated.
17. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall in no way affect the validity or enforceability of any
other provision.
18. Entire Agreement. This Agreement represents the entire Agreement between
----------------
the parties. Each party represents that there are no other oral, written,
express or implied contracts, agreements or understandings between them.
19. Authorization. Each party represents that he, she or it is duly
-------------
competent, authorized and capable of executing this Agreement as a valid,
binding and enforceable Agreement.
20. Governing Law. The substantive law of Colorado shall govern all the
-------------
terms, conditions and interpretations of this Agreement and all other
instruments, documents or agreements executed pursuant hereto. In the event of
litigation concerning this Agreement or any other instrument, document or
agreement relating to it, the parties hereto agree that the exclusive venue and
place of jurisdiction shall be the State of Colorado, City and County of Denver.
Further, the Employee by execution hereof, irrevocably and unconditionally
consents to receive service of process and further agrees to file a general
appearance upon either acceptance of process by the Employee or actual service
of process upon the Employee.
<PAGE>
21. Nondisclosure and Non-Competition. Employee agrees to the terms and
---------------------------------
conditions of his obligations, if any, relating to nondisclosure and non-
competition as set forth on Exhibit C.
22. Specific Representations. Each party represents that:
------------------------
(a) The consideration recited herein shall conclusively be deemed fair,
adequate, reasonable and sufficient.
(b) He, she or it has voluntarily and without fraud, duress, coercion, undue
influence or improper persuasion executed this Agreement.
(c) The signature appearing below is his, her or its manual, original,
genuine, authentic and undeniable signature.
<PAGE>
DATED: September 1, 1996
Intercell Corporation Gordon J. Sales
By: /s/ Terry W. Neild By: /s/ Gordon J. Sales
------------------------ --------------------------
Terry W. Neild Gordon J. Sales
Executive Vice President Individually
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Period Compensation
------ ------------
<S> <C>
September 1, 1996 - August 31, 1997 $10,000 per month
September 1, 1997 - August 31, 1998 $15,000 per month
September 1, 1998 - August 31, 1999 $20,000 per month
September 1, 1999 - August 31, 2000 $22,500 per month
September 1, 2000 - August 31, 2001 $25,000 per month
</TABLE>
<PAGE>
EXHIBIT B
-NONE-
<PAGE>
EXHIBIT C
NONDISCLOSURE AND NON-COMPETITION
---------------------------------
1. During the term of Employee's employment with the Company and for one (1)
year thereafter, Employee shall not, directly or indirectly, as principal,
agent, Employee, trustee, or in any like capacity, or through the agency of any
corporation, partnership, association, agent, agency or any other like entity,
i) engage in any business that is similar to the business conducted by the
Company, its subsidiaries or affiliates; or
ii) solicit any person (natural or otherwise) who is or has been within three
(3) years prior to the date Employee's association is terminated, a
customer or client of the Company, its subsidiaries or affiliates; or
iii) induce any present or future Employee or affiliate of the Company, its
subsidiaries or affiliates to accept employment or similar association
with the Employee or any person, firm, association, corporation or other
entity with whom the Employee is now or may hereafter become associated;
or
iv) become the direct or beneficial owner of the capital stock of, or acquire
the right or option to become such owner, or become a member or partner
of any partnership or any owner or affiliate of any other business which
conducts a business similar to the business conducted by the Company.
v) in any manner interfere with, disrupt or attempt to disrupt the
relationship between the Company and/or any of its customers, or use in
any manner whatsoever, the Company's customer list, database, or trade
secrets.
2. The parties agree that in light of the specialized nature of the industry
and the national-customer base of the Company's business that the restrictions
set forth in Paragraph 1 hereof shall apply to Employee within the territory of
the United States of America.
3. In the event of a violation by Employee of any of the covenants contained
in this Agreement, it is mutually agreed that the term of said covenant and/or
covenants shall be automatically extended against Employee for a period of one
(1) year from the date on which Employee permanently ceases such violation or
for a period of one (1) year from the date of the entry by a Court of competent
jurisdiction of a final order or judgment enforcing said convenant(s), whichever
period is later. The extension of the term(s) of said covenant(s) as provided
in this sub-paragraph 3 shall be in addition to, and not in lieu of the remedies
provided below.
4. Other than within the proper course of Employee's duties, the Employee
will not during or at any time after the termination of association with the
Company, use for himself or
<PAGE>
others or divulge or convey to others any secret or confidential information,
knowledge or data of the Company, its subsidiaries its affiliates or that of
third parties obtained by him during the period of his employment with the
Company. Such information, knowledge or data includes but is not limited to
secret or confidential matters,
i) of a technical nature such as but not limited to research methods, know-
how, reporting procedures, composition, processes, computer databases and
similar items or research project,
ii) of a business nature such as but not limited to information about
finances, costs, profits, sales, contracts, transactions, or customer
lists, or
iii) pertaining to future developments such as but not limited to research
and development or future marketing or advertising programs.
Further, the Employee shall, during and after the period of Employee's
employment, diligently endeavor to prevent the publication or disclosure of any
such secret or confidential information, knowledge or data.
5. All forms, manuals, letters, notes, notebooks, reports, sketches,
formulas, computer programs and similar items, memoranda, client lists,
business, marketing and financial plans and studies and all other materials and
all copies thereof relating in any way to the business of the Company or of its
subsidiaries or affiliates and in any way obtained or produced by the Employee
during the period of his employment with the Company shall be the property of
the Company and shall be surrendered to the Company or its authorized
representative upon the termination of the employment or at any other time at
the request of the Company. Employee further agrees that Employee will not make
or retain any copies of any of the foregoing and will so represent to the
Company upon the termination of Employee's employment.
6. The Company and Employee agree that the Company would not have an
adequate remedy at law for money damages in the event that the provisions of
this Agreement are not complied with in accordance with their terms, and
therefore agree that in the event of any breach of any of these provisions by
the Employee, the Company shall be entitled to equitable relief by way of
injunction or otherwise, together with costs and expenses incurred by it,
including attorneys' fees, in addition to such other remedies as the Company may
have.
7. In the event, Employee violates the terms of this Nondisclosure and Non-
competition section, and in the further event that Company is not made aware of
such violation until a point in time after which Employee has commenced engaging
in services similar to those engaged in by Company, for clients for whom Company
has provided services within three years of the date of Employee's termination
of employment, then in addition to the injunctive relief provide for in
subparagraph 6 above, Company shall be entitled to liquidated damages which
shall be based upon the revenues generated by Employee from Company's clients as
follows.
<PAGE>
a. Employee shall pay to Company one-third of all revenues collected by
Employee from Company's clients for a period of three (3) years from the
date on which Employee first collected revenues from any such Company
client.
8. The parties hereby acknowledge that the restrictive covenants contained
in this Agreement are fair and reasonable in light of all of the facts and
circumstances of the relationship between Employee and Company; however,
Employee and Company are aware that in certain circumstances courts have refused
to enforce certain agreements not to compete. Therefore, in furtherance and not
in derogation of the provisions of this Agreement, Company and Employee agree
that in the event a court of competent jurisdiction should for any reason
decline to enforce any of said covenants, that his Agreement shall be deemed to
be modified to restrict Employee's competition with Company to the maximum
extent in time, geography and otherwise as the court shall deem enforceable
and/or to grant Company such other relief at law or in equity as shall be
reasonable necessary to protect the interest of Company.
<PAGE>
Exhibit 10.5
------------
EMPLOYMENT AGREEMENT
This Agreement is between Intercell Corporation, a Colorado corporation,
hereinafter referred to as the "Company," and Alan M. Smith, Secretary -
Treasurer and Chief Financial Officer, hereinafter referred to as "Employee."
1. Engagement. The Company hereby engages the Employee and the Employee
-----------
hereby accepts engagement upon the terms and conditions hereinafter set forth.
Employee's compensation set forth herein shall be subject to all applicable
federal or state tax withholding provisions.
2. Term. Subject to the provisions for termination as hereinafter provided,
-----
the term of this Agreement shall be for a period of Sixty (60) months commencing
on September 1, 1996. The parties hereby acknowledge and agree it is their
intent that: (a) any extension or renewal of this Agreement shall be concluded
at least Three (3) months prior to the expiration date of the initial Sixty (60)
months term and Three (3) months prior to the expiration date of any subsequent
extension or renewal term hereof; and (b) absent mutual agreement to the
contrary, the failure to conclude such extension or renewal by the dates
indicated shall be deemed notice to the Company and the Employee that the
Agreement shall not be extended.
3. Duties. The Employee shall be the Secretary - Treasurer and Chief
-------
Financial Officer of the Company. As Employee, the Employee shall, during the
term of this Agreement, perform the responsibilities and duties, exercise the
powers and follow the instructions which from time to time may be lawfully
assigned to or vested in him by the Board of Directors of the Company. It is
agreed that during the term of this Agreement, the Employee will not accept an
officership or directorship, participate in the operation or management of or
act as a Employee to any other company, which is in the same line of business as
or in competition with the Company unless it be a company either owned or
controlled by the Company, without the prior written consent of the Board of
Directors of the Company.
4. Extent of Services. Employee agrees to provide not less than 30 hours
-------------------
per week of executive services to the Company for the compensation paid to the
Employee. Employee shall not be prevented from investing his assets in such
form or manner as will not require any services on the part of the Employee in
the operation of the affairs of the companies in which such investments are
made, except that in no event may the Employee make investments in any firms in
competition with, or in the business of supplying goods or services to the
Company, unless such investments are disclosed to and approved by the Board of
Directors of the Company.
5. Compensation. For services rendered by the Employee under this
-------------
Agreement, the Company shall pay the Employee the compensation set forth on
EXHIBIT "A." If during the term of the Agreement the Employee is unavailable
because of illness which prevents Employee
<PAGE>
from performing his duties described herein, the Company shall be obligated to
pay the Employee for all such periods of absence; not to exceed however three
(3) months.
6. Bonus and Stock Option Plans and Benefit Programs. The Company proposes
--------------------------------------------------
to establish certain bonus and stock option plans. During the term of this
Agreement, and as additional compensation, the Employee will be eligible to
participate in those plans currently in effect and as they may be amended from
time to time, so long as such plans remain in existence. Furthermore, during
the term of this Agreement, the Employee shall be entitled to participate in all
current or subsequently enacted benefit programs applicable to other officers,
directors, agent and consultants of the Company. For purposes of this
Agreement, all references to stock option plans, bonus plans or benefit programs
shall be deemed to mean that the Employee shall be eligible to participate in
such plans or programs of the Company in which Employee presently participates
or is eligible for, or such plans or programs of the Company that may
subsequently be adopted in substitution for the Company plans or programs.
Options, if any, under this Agreement as set forth on EXHIBIT "B."
7. Expenses. The Employee is authorized to incur reasonable expenses with
---------
regard to the business of the Company, including expenses for entertainment,
travel and other items of a similar character. The Company will reimburse the
Employee for all such expenses incurred by him in the performance of his duties
hereunder.
8. Termination by Company. This Agreement may be terminated by the Company
-----------------------
as follows:
(a) If the Employee shall commit a breach of this Agreement, and such breach,
if capable of rectification, is not rectified with thirty (30) calendar
days of receipt by Employee from the Company of written notice requiring
him so to do;
(b) If the Employee shall be convicted of a felony criminal offense, or found
in a judicial proceeding initiated after the date of this Agreement by a
court of competent jurisdiction, in a decision subject to no further
appeals, to have committed any dishonest or unlawful act or to have been
engaged or engaging in any conduct which might irreparably injure or tend
to injure the reputation or business of the Company;
(c) If the Employee shall grossly, willfully or inexcusably neglect the
performance of Employee's duties as set forth herein. Such standard of
neglect shall however be determined only by the Board of Directors, based
upon written opinion of independent counsel and written advice to
Employee and unanimously approved by the full Board of Directors
especially convened for such purpose.
9. Termination by Employee. Employee may terminate this Agreement with or
------------------------
without cause, and if terminated, the Company and Employee agree to abide by and
promptly honor the provisions of Section 10 of this Agreement. Cause for
termination by Employee shall not consist of the Company's refusal to follow the
bona-fide professional recommendations of the Employee.
<PAGE>
10. Payments upon Termination by Company or Employee. It is agreed that if
-------------------------------------------------
this Agreement is terminated payments and/or provisions for payments will be
made as follows:
(a) If the Company terminates this Agreement on some basis other than for any
of the reasons as stated in Paragraph 8 hereof, the Company will take the
actions set forth in Subparagraphs (1), (2) and (3) of this Paragraph.
If the Employee terminates this Agreement for cause, which shall be
limited to a failure by the Company to pay Employee his compensation, the
Company will take the actions set forth in Subparagraphs (1), (2) and (3)
of this Paragraph.
(1) All stock options granted to the Employee will become immediately
vested for the full amount of Optioned Shares and shall be
exercised, if ever, in accordance with and subject to the terms and
provisions of the Company's 1995 Compensatory Stock Option Plan and
Employee's Stock Option Agreement; and
(2) The Employee will receive within fifteen (15) days of the effective
date of such termination, all compensation and all other benefits
that would have accrued and/or been payable to the Employee during
the term of this Agreement; and
(3) The Employee will be paid in full any other contractual benefits
Employee may have with the Company and be reimbursed for all un-
reimbursed accountable expenses.
(b) If the Company terminates this Agreement for a reason or reasons set
forth in paragraph 8 hereof or the Employee terminates this Agreement
without cause, the Company will only be obligated to pay to the Employee
the actual amount of compensation accrued to the date of termination, the
Employee will be bound to the terms of the Company's 1995 Compensatory
Stock Option Plan as it relates to the exercise of any vested options,
and, all other payments or benefits recited herein shall be canceled and
terminated, without recourse.
11. Termination Due to Change in Control. If Employee is terminated by the
-------------------------------------
Company, for any reason as part or because of a change in control of the
Company, then Employee shall be entitled to a one time lump sum payment of cash
for the termination of this Agreement as follows:
Termination Occurring In Amount
Years One (1) through Three (3) $400,000.00
Years Four (4) through Five (5) $430,000.00
The cash payment set forth herein, shall be made within Five (5) days of the
date of delivery to Employee of written termination of this Agreement by the
Company. Upon receipt of the payment as set forth herein, the Employee and the
Company shall in writing cancel this Agreement and the parties shall be released
of all further obligations under this Agreement,
<PAGE>
provided however, that any options which have been granted to Employee and which
are otherwise vested shall remain unimpaired and in full force and effect.
A change in control of the Company shall be deemed to have occurred when, as a
result of any type of corporate reorganization, execution of proxies or voting
trusts or other arrangements such person or group of persons acquire sufficient
equity or voting control of the Company to elect more than a majority of the
Board of Directors.
12. Notices of Termination. All Notices of Termination provided for in this
-----------------------
Agreement must be in writing and must provide for a minimum notice period of
Sixty (60) calendar days between the date of such notification and the effective
date of such termination.
13. Arbitration. Any controversy or claim arising out of, or relating to
------------
this Agreement, or the breach hereof, shall be settled by arbitration in the
City of Denver, Colorado in accordance with the then effective rules of the
American Arbitration Association. Such ruling shall be binding upon the
parties.
14. Notices. Any notice required or permitted to be given under this
--------
Agreement shall be sufficient if in writing, and if sent by registered or
certified mail to the Employee's residence in the case of the Employee, or to is
principal office in the case of the Company.
15. Waiver, Modification or Cancellation. Any waiver, alteration or
-------------------------------------
modification of any of the provisions of this Agreement or cancellation or
replacement of this Agreement shall not be valid unless in writing and signed by
the Parties.
16. Binding Effect. This Agreement shall inure to the benefit of and be
---------------
binding upon the Company, its successors and assigns, including but not limited
to any entity which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged,
and the Employee, his successors, representatives and assigns, provided that the
duties of the Employee as described herein may not be delegated.
17. Severability. The invalidity or unenforceability of any provision of
-------------
this Agreement shall in no way affect the validity or enforceability of any
other provision.
18. Entire Agreement. This Agreement represents the entire Agreement between
-----------------
the parties. Each party represents that there are no other oral, written,
express or implied contracts, agreements or understandings between them.
19. Authorization. Each party represents that he, she or it is duly
--------------
competent, authorized and capable of executing this Agreement as a valid,
binding and enforceable Agreement.
20. Governing Law. The substantive law of Colorado shall govern all the
--------------
terms, conditions and interpretations of this Agreement and all other
instruments, documents or agreements executed pursuant hereto. In the event of
litigation concerning this Agreement or any other instrument, document or
agreement relating to it, the parties hereto agree that the exclusive venue and
place of jurisdiction shall be the State of Colorado, City and County of
<PAGE>
Denver. Further, the Employee by execution hereof, irrevocably and
unconditionally consents to receive service of process and further agrees to
file a general appearance upon either acceptance of process by the Employee or
actual service of process upon the Employee.
21. Nondisclosure and Non-Competition. Employee agrees to the terms and
----------------------------------
conditions of his obligations, if any, relating to nondisclosure and non-
competition as set forth on EXHIBIT "C."
22. Specific Representations. Each party represents that:
-------------------------
(a) The consideration recited herein shall conclusively be deemed fair,
adequate, reasonable and sufficient.
(b) He, she or it has voluntarily and without fraud, duress, coercion, undue
influence or improper persuasion executed this Agreement.
(c) The signature appearing below is his, her or its manual, original,
genuine, authentic and undeniable signature.
<PAGE>
DATED: September 1, 1996
Intercell Corporation Alan M. Smith
/s/ Gordon J. Sales /s/ Alan M. Smith
- ------------------------- ------------------------
By: Gordon J. Sales By: Alan M. Smith
Chief Executive Officer Individually
and President
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
Period Compensation
------ ------------
<S> <C>
September 1, 1996 - August 31, 1997 $10,000 per month
September 1, 1997 - August 31, 1998 $15,000 per month
September 1, 1998 - August 31, 1999 $20,000 per month
September 1, 1999 - August 31, 2000 $22,500 per month
September 1, 2000 - August 31, 2001 $25,000 per month
</TABLE>
<PAGE>
EXHIBIT "B"
-NONE-
<PAGE>
EXHIBIT "C"
NONDISCLOSURE AND NON-COMPETITION
---------------------------------
1. During the term of Employee's employment with the Company and for one (1)
year thereafter, Employee shall not, directly or indirectly, as principal,
agent, Employee, trustee, or in any like capacity, or through the agency of any
corporation, partnership, association, agent, agency or any other like entity,
i) engage in any business that is similar to the business conducted by the
Company, its subsidiaries or affiliates; or
ii) solicit any person (natural or otherwise) who is or has been within three
(3) years prior to the date Employee's association is terminated, a
customer or client of the Company, its subsidiaries or affiliates; or
iii) induce any present or future Employee or affiliate of the Company, its
subsidiaries or affiliates to accept employment or similar association
with the Employee or any person, firm, association, corporation or other
entity with whom the Employee is now or may hereafter become associated;
or
iv) become the direct or beneficial owner of the capital stock of, or acquire
the right or option to become such owner, or become a member or partner
of any partnership or any owner or affiliate of any other business which
conducts a business similar to the business conducted by the Company.
v) in any manner interfere with, disrupt or attempt to disrupt the
relationship between the Company and/or any of its customers, or use in
any manner whatsoever, the Company's customer list, database, or trade
secrets.
2. The parties agree that in light of the specialized nature of the industry
and the national-customer base of the Company's business that the restrictions
set forth in Paragraph 1 hereof shall apply to Employee within the territory of
the United States of America.
3. In the event of a violation by Employee of any of the covenants contained
in this Agreement, it is mutually agreed that the term of said covenant and/or
covenants shall be automatically extended against Employee for a period of one
(1) year from the date on which Employee permanently ceases such violation or
for a period of one (1) year from the date of the entry by a Court of competent
jurisdiction of a final order or judgment enforcing said covenant(s), whichever
period is later. The extension of the term(s) of said covenant(s) as provided
in this sub-paragraph 3 shall be in addition to, and not in lieu of the remedies
provided below.
<PAGE>
4. Other than within the proper course of Employee's duties, the Employee
will not during or at any time after the termination of association with the
Company, use for himself or others or divulge or convey to others any secret or
confidential information, knowledge or data of the Company, its subsidiaries its
affiliates or that of third parties obtained by him during the period of his
employment with the Company. Such information, knowledge or data includes but
is not limited to secret or confidential matters,
i) of a technical nature such as but not limited to research methods, know-
how, reporting procedures, composition, processes, computer databases and
similar items or research project,
ii) of a business nature such as but not limited to information about
finances, costs, profits, sales, contracts, transactions, or customer
lists, or
iii) pertaining to future developments such as but not limited to research
and development or future marketing or advertising programs.
Further, the Employee shall, during and after the period of Employee's
employment, diligently endeavor to prevent the publication or disclosure of any
such secret or confidential information, knowledge or data.
5. All forms, manuals, letters, notes, notebooks, reports, sketches,
formulas, computer programs and similar items, memoranda, client lists,
business, marketing and financial plans and studies and all other materials and
all copies thereof relating in any way to the business of the Company or of its
subsidiaries or affiliates and in any way obtained or produced by the Employee
during the period of his employment with the Company shall be the property of
the Company and shall be surrendered to the Company or its authorized
representative upon the termination of the employment or at any other time at
the request of the Company. Employee further agrees that Employee will not make
or retain any copies of any of the foregoing and will so represent to the
Company upon the termination of Employee's employment.
6. The Company and Employee agree that the Company would not have an
adequate remedy at law for money damages in the event that the provisions of
this Agreement are not complied with in accordance with their terms, and
therefore agree that in the event of any breach of any of these provisions by
the Employee, the Company shall be entitled to equitable relief by way of
injunction or otherwise, together with costs and expenses incurred by it,
including attorneys' fees, in addition to such other remedies as the Company may
have.
7. In the event, Employee violates the terms of this Nondisclosure and Non-
competition section, and in the further event that Company is not made aware of
such violation until a point in time after which Employee has commenced engaging
in services similar to those engaged in by Company, for clients for whom Company
has provided services within three years of the date of Employee's termination
of employment, then in addition to the injunctive relief provide for in
subparagraph 6 above, Company shall be entitled to liquidated damages which
shall be based upon the revenues generated by Employee from Company's clients as
follows.
<PAGE>
a. Employee shall pay to Company one-third of all revenues collected by
Employee from Company's clients for a period of three (3) years from the
date on which Employee first collected revenues from any such Company
client.
8. The parties hereby acknowledge that the restrictive covenants contained
in this Agreement are fair and reasonable in light of all of the facts and
circumstances of the relationship between Employee and Company; however,
Employee and Company are aware that in certain circumstances courts have refused
to enforce certain agreements not to compete. Therefore, in furtherance and not
in derogation of the provisions of this Agreement, Company and Employee agree
that in the event a court of competent jurisdiction should for any reason
decline to enforce any of said covenants, that his Agreement shall be deemed to
be modified to restrict Employee's competition with Company to the maximum
extent in time, geography and otherwise as the court shall deem enforceable
and/or to grant Company such other relief at law or in equity as shall be
reasonable necessary to protect the interest of Company.
<PAGE>
Exhibit 10.6
------------
EMPLOYMENT AGREEMENT
This Agreement is between Intercell Corporation, a Colorado corporation,
hereinafter referred to as the "Company," and Terry W. Neild, Executive Vice-
President, hereinafter referred to as "Employee."
1. Engagement. The Company hereby engages the Employee and the Employee
-----------
hereby accepts engagement upon the terms and conditions hereinafter set forth.
Employee's compensation set forth herein shall be subject to all applicable
federal or state tax withholding provisions.
2. Term. Subject to the provisions for termination as hereinafter provided,
-----
the term of this Agreement shall be for a period of Sixty (60) months commencing
on September 1, 1996. The parties hereby acknowledge and agree it is their
intent that: (a) any extension or renewal of this Agreement shall be concluded
at least Three (3) months prior to the expiration date of the initial Sixty
(60) months term and Three (3) months prior to the expiration date of any
subsequent extension or renewal term hereof; and (b) absent mutual agreement to
the contrary, the failure to conclude such extension or renewal by the dates
indicated shall be deemed notice to the Company and the Employee that the
Agreement shall not be extended.
3. Duties. The Employee shall be the Executive Vice-President of the
-------
Company. As Employee, the Employee shall, during the term of this Agreement,
perform the responsibilities and duties, exercise the powers and follow the
instructions which from time to time may be lawfully assigned to or vested in
him by the Board of Directors of the Company. It is agreed that during the term
of this Agreement, the Employee will not accept an officership or directorship,
participate in the operation or management of or act as a Employee to any other
company, which is in the same line of business as or in competition with the
Company unless it be a company either owned or controlled by the Company,
without the prior written consent of the Board of Directors of the Company.
4. Extent of Services. Employee agrees to provide not less than 30 hours
-------------------
per week of executive services to the Company for the compensation paid to the
Employee. Employee shall not be prevented from investing his assets in such form
or manner as will not require any services on the part of the Employee in the
operation of the affairs of the companies in which such investments are made,
except that in no event may the Employee make investments in any firms in
competition with, or in the business of supplying goods or services to the
Company, unless such investments are disclosed to and approved by the Board of
Directors of the Company.
5. Compensation. For services rendered by the Employee under this
-------------
Agreement, the Company shall pay the Employee the compensation set forth on
EXHIBIT "A". If during the term of the Agreement the Employee is unavailable
because of illness which prevents Employee
<PAGE>
from performing his duties described herein, the Company shall be obligated to
pay the Employee for all such periods of absence; not to exceed however three
(3) months.
6. Bonus and Stock Option Plans and Benefit Programs. The Company proposes
--------------------------------------------------
to establish certain bonus and stock option plans. During the term of this
Agreement, and as additional compensation, the Employee will be eligible to
participate in those plans currently in effect and as they may be amended from
time to time, so long as such plans remain in existence. Furthermore, during
the term of this Agreement, the Employee shall be entitled to participate in all
current or subsequently enacted benefit programs applicable to other officers,
directors, agent and employees of the Company. For purposes of this Agreement,
all references to stock option plans, bonus plans or benefit programs shall be
deemed to mean that Employee shall be eligible to participate in such plans or
programs of the Company in which Employee presently participates or is eligible
for, or such plans or programs of the Company that may subsequently be adopted
in substitution for the Company plans or programs. Options, if any, under this
Agreement as set forth on EXHIBIT "B."
7. Expenses. The Employee is authorized to incur reasonable expenses with
---------
regard to the business of the Company, including expenses for entertainment,
travel and other items of a similar character. The Company will reimburse the
Employee for all such expenses incurred by him in the performance of his duties
hereunder.
8. Termination by Company. This Agreement may be terminated by the Company
-----------------------
as follows:
(a) If the Employee shall commit a breach of this Agreement, and such breach,
if capable of rectification, is not rectified with thirty (30) calendar
days of receipt by Employee from the Company of written notice requiring
him so to do;
(b) If the Employee shall be convicted of a felony criminal offense, or been
found in a judicial proceeding initiated after the date of this Agreement
by a court of competent jurisdiction, in a decision subject to no further
appeals, to have committed any dishonest or unlawful act or to have been
engaged or engaging in any conduct which might irreparably injure or tend
to injure the reputation or business of the Company;
(c) If the Employee shall grossly, willfully or inexcusably neglect the
performance of Employee's duties as set forth herein. Such standard of
neglect shall however be determined only by the Board of Directors, based
upon written opinion of independent counsel and written advice to
Employee and unanimously approved by the full Board of Directors
especially convened for such purpose.
9. Termination by Employee. Employee may terminate this Agreement with or
------------------------
without cause, and if terminated, the Company and Employee agree to abide by and
promptly honor the provisions of Section 10 of this Agreement. Cause for
termination by Employee shall not consist of the Company's refusal to follow the
bona-fide professional recommendations of the Employee.
<PAGE>
10. Payments upon Termination by Company or Employee. It is agreed that if
-------------------------------------------------
this Agreement is terminated payments and/or provisions for payments will be
made as follows:
(a) If the Company terminates this Agreement on some basis other than for any
of the reasons as stated in Paragraph 8 hereof, the Company will take the
actions set forth in Subparagraphs (1), (2) and (3) of this Paragraph.
If the Employee terminates this Agreement for cause, which shall be
limited to a failure by the Company to pay Employee his compensation, the
Company will take the actions set forth in Subparagraphs (1), (2) and (3)
of this Paragraph.
(1) All stock options granted to the Employee will become immediately
vested for the full amount of Optioned Shares and shall be
exercised, if ever, in accordance with and subject to the terms and
provisions of the Company's 1995 Compensatory Stock Option Plan and
Employee's Stock Option Agreement; and
(2) The Employee will receive within fifteen (15) days of the effective
date of such termination, all compensation and all other benefits
that would have accrued and/or been payable to the Employee during
the term of this Agreement; and
(3) The Employee will be paid in full any other contractual benefits
Employee may have with the Company and be reimbursed for all un-
reimbursed accountable expenses.
(b) If the Company terminates this Agreement for a reason or reasons set
forth in paragraph 8 hereof or the Employee terminates this Agreement
without cause, the Company will only be obligated to pay to the Employee
the actual amount of compensation accrued to the date of termination, the
Employee will be bound to the terms of the Company's 1995 Compensatory
Stock Option Plan as it relates to the exercise of any vested options,
and, all other payments or benefits recited herein shall be canceled and
terminated, without recourse.
11. Termination Due to Change in Control. If Consultant is terminated by the
-------------------------------------
Company, for any reason as part or because of a change in control of the
Company, then Consultant shall be entitled to a one time lump sum payment of
cash for the termination of this Agreement as follows:
Termination Occurring In Amount
Years One (1) through Three (3) $400,000.00
Years Four (4) through Five (5) $430,000.00
The cash payment set forth herein, shall be made within Five (5) days of the
date of delivery to Employee of written termination of this Agreement by the
Company. Upon receipt of the payment as set forth herein, the Consultant and
the Company shall in writing cancel this Agreement and the parties shall be
released of all further obligations under this Agreement,
<PAGE>
provided however, that any options which have been granted to Consultant and
which are otherwise vested shall remain unimpaired and in full force and effect.
A change in control of the Company shall be deemed to have occurred when, as a
result of any type of corporate reorganization, execution of proxies or voting
trusts or other arrangements, such person or group of persons acquire sufficient
equity or voting control of the Company to elect more than a majority of the
Board of Directors.
12. Notices of Termination. All Notices of Termination provided for in this
-----------------------
Agreement must be in writing and must provide for a minimum notice period of
Sixty (60) calendar days between the date of such notification and the effective
date of such termination.
13. Arbitration. Any controversy or claim arising out of, or relating to
------------
this Agreement, or the breach hereof, shall be settled by arbitration in the
City of Denver, Colorado in accordance with the then effective rules of the
American Arbitration Association. Such ruling shall be binding upon the
parties.
14. Notices. Any notice required or permitted to be given under this
--------
Agreement shall be sufficient if in writing, and if sent by registered or
certified mail to the Employee's residence in the case of the Employee, or to is
principal office in the case of the Company.
15. Waiver, Modification or Cancellation. Any waiver, alteration or
-------------------------------------
modification of any of the provisions of this Agreement or cancellation or
replacement of this Agreement shall not be valid unless in writing and signed by
the Parties.
16. Binding Effect. This Agreement shall inure to the benefit of and be
---------------
binding upon the Company, its successors and assigns, including but not limited
to any entity which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged,
and the Employee, his successors, representatives and assigns, provided that the
duties of the Employee as described herein may not be delegated.
17. Severability. The invalidity or unenforceability of any provision of
-------------
this Agreement shall in no way affect the validity or enforceability of any
other provision.
18. Entire Agreement. This Agreement represents the entire Agreement between
-----------------
the parties. Each party represents that there are no other oral, written,
express or implied contracts, agreements or understandings between them.
19. Authorization. Each party represents that he, she or it is duly
--------------
competent, authorized and capable of executing this Agreement as a valid,
binding and enforceable Agreement.
20. Governing Law. The substantive law of Colorado shall govern all the
--------------
terms, conditions and interpretations of this Agreement and all other
instruments, documents or agreements executed pursuant hereto. In the event of
litigation concerning this Agreement or any other instrument, document or
agreement relating to it, the parties hereto agree that the exclusive venue and
place of jurisdiction shall be the State of Colorado, City and County of
<PAGE>
Denver. Further, the Employee by execution hereof, irrevocably and
unconditionally consents to receive service of process and further agrees to
file a general appearance upon either acceptance of process by the Employee or
actual service of process upon the Employee.
21. Nondisclosure and Non-Competition. Employee agrees to the terms and
----------------------------------
conditions of his obligations, if any, relating to nondisclosure and non-
competition as set forth on Exhibit "C."
22. Specific Representations. Each party represents that:
-------------------------
(a) The consideration recited herein shall conclusively be deemed fair,
adequate, reasonable and sufficient.
(b) He, she or it has voluntarily and without fraud, duress, coercion, undue
influence or improper persuasion executed this Agreement.
(c) The signature appearing below is his, her or its manual, original,
genuine, authentic and undeniable signature.
<PAGE>
DATED: September 1, 1996
Intercell Corporation Terry W. Neild
/s/ Gordon J. Sales By: /s/ Terry W. Neild
- --------------------------------------- ------------------------
By: Gordon J. Sales Terry W. Neild
Chief Executive Officer and President Individually
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
Period Compensation
------ ------------
<S> <C>
September 1, 1996 - August 31, 1997 $10,000 per month
September 1, 1997 - August 31, 1998 $15,000 per month
September 1, 1998 - August 31, 1999 $20,000 per month
September 1, 1999 - August 31, 2000 $22,500 per month
September 1, 2000 - August 31, 2001 $25,000 per month
</TABLE>
<PAGE>
EXHIBIT "B"
-NONE-
<PAGE>
EXHIBIT "C"
NONDISCLOSURE AND NON-COMPETITION
---------------------------------
1. During the term of Employee's employment with the Company and for one
(1) year thereafter, Consultant shall not, directly or indirectly, as principal,
agent, employee, trustee, or in any like capacity, or through the agency of any
corporation, partnership, association, agent, agency or any other like entity,
i) engage in any business that is similar to the business conducted by the
Company, its subsidiaries or affiliates; or
ii) solicit any person (natural or otherwise) who is or has been within three
(3) years prior to the date Consultant's association is terminated, a
customer or client of the Company, its subsidiaries or affiliates; or
iii) induce any present or future Employee or affiliate of the Company, its
subsidiaries or affiliates to accept employment or similar association
with the Consultant or any person, firm, association, corporation or
other entity with whom the Consultant is now or may hereafter become
associated; or
iv) become the direct or beneficial owner of the capital stock of, or acquire
the right or option to become such owner, or become a member or partner
of any partnership or any owner or affiliate of any other business which
conducts a business similar to the business conducted by the Company.
v) in any manner interfere with, disrupt or attempt to disrupt the
relationship between the Company and/or any of its customers, or use in
any manner whatsoever, the Company's customer list, database, or trade
secrets.
2. The parties agree that in light of the specialized nature of the industry
and the national-customer base of the Company's business that the restrictions
set forth in Paragraph 1 hereof shall apply to Consultant within the territory
of the United States of America.
3. In the event of a violation by Employee of any of the covenants
contained in this Agreement, it is mutually agreed that the term of said
covenant and/or covenants shall be automatically extended against Consultant for
a period of one (1) year from the date on which Consultant permanently ceases
such violation or for a period of one (1) year from the date of the entry by a
Court of competent jurisdiction of a final order or judgment enforcing said
covenant(s), whichever period is later. The extension of the term(s) of said
covenant(s) as provided in this sub-paragraph 3 shall be in addition to, and not
in lieu of the remedies provided below.
<PAGE>
4. Other than within the proper course of Consultant's duties, the
Employee will not during or at any time after the termination of association
with the Company, use for himself or others or divulge or convey to others any
secret or confidential information, knowledge or data of the Company, its
subsidiaries its affiliates or that of third parties obtained by him during the
period of his employment with the Company. Such information, knowledge or data
includes but is not limited to secret or confidential matters,
i) of a technical nature such as but not limited to research methods, know-
how, reporting procedures, composition, processes, computer databases and
similar items or research project,
ii) of a business nature such as but not limited to information about
finances, costs, profits, sales, contracts, transactions, or customer
lists, or
iii) pertaining to future developments such as but not limited to research
and development or future marketing or advertising programs.
Further, the Employee shall, during and after the period of Employee's
employment, diligently endeavor to prevent the publication or disclosure of any
such secret or confidential information, knowledge or data.
5. All forms, manuals, letters, notes, notebooks, reports, sketches,
formulas, computer programs and similar items, memoranda, client lists,
business, marketing and financial plans and studies and all other materials and
all copies thereof relating in any way to the business of the Company or of its
subsidiaries or affiliates and in any way obtained or produced by the Consultant
during the period of his employment with the Company shall be the property of
the Company and shall be surrendered to the Company or its authorized
representative upon the termination of the employment or at any other time at
the request of the Company. Consultant further agrees that Consultant will not
make or retain any copies of any of the foregoing and will so represent to the
Company upon the termination of Consultant's employment.
6. The Company and Employee agree that the Company would not have an
adequate remedy at law for money damages in the event that the provisions of
this Agreement are not complied with in accordance with their terms, and
therefore agree that in the event of any breach of any of these provisions by
the Employee, the Company shall be entitled to equitable relief by way of
injunction or otherwise, together with costs and expenses incurred by it,
including attorneys' fees, in addition to such other remedies as the Company may
have.
7. In the event, Employee violates the terms of this Nondisclosure and
Non-competition section, and in the further event that Company is not made aware
of such violation until a point in time after which Employee has commenced
engaging in services similar to those engaged in by Company, for clients for
whom Company has provided services within three years of the date of
Employee's termination of employment, then in addition to the injunctive
relief provide for in subparagraph 6 above, Company shall be entitled to
liquidated damages which shall be based upon the revenues generated by
Employee from Company's clients as follows.
<PAGE>
a. Employee shall pay to Company one-third of all revenues collected by
Employee from Company's clients for a period of three (3) years from
the date on which Employee first collected revenues from any such
Company client.
8. The parties hereby acknowledge that the restrictive covenants contained
in this Agreement are fair and reasonable in light of all of the facts and
circumstances of the relationship between Employee and Company; however,
Employee and Company are aware that in certain circumstances courts have
refused to enforce certain agreements not to compete. Therefore, in furtherance
and not in derogation of the provisions of this Agreement, Company and
Employee agree that in the event a court of competent jurisdiction should for
any reason decline to enforce any of said covenants, that his Agreement shall be
deemed to be modified to restrict Employee's competition with Company to the
maximum extent in time, geography and otherwise as the court shall deem
enforceable and/or to grant Company such other relief at law or in equity as
shall be reasonable necessary to protect the interest of Company.
<PAGE>
Exhibit 10.7
------------
EMPLOYMENT AGREEMENT
This Agreement is between Particle Interconnect Corporation, a Colorado
corporation, hereinafter referred to as the "Company," and Steven D. Clark,
President, hereinafter referred to as "Employee."
1. Engagement. The Company hereby engages the Employee and the Employee
-----------
hereby accepts engagement upon the terms and conditions hereinafter set forth.
Employee's compensation set forth herein shall be subject to all applicable
federal or state tax withholding provisions.
2. Term. Subject to the provisions for termination as hereinafter provided,
-----
the term of this Agreement shall be for a period of Thirty-Six (36) months
commencing on October 22, 1996. The parties hereby acknowledge and agree it is
their intent that: (a) any extension or renewal of this Agreement shall be
concluded at least Three (3) months prior to the expiration date of the initial
Thirty-Six (36) months term and Three (3) months prior to the expiration date
of any subsequent extension or renewal term hereof; and (b) absent mutual
agreement to the contrary, the failure to conclude such extension or renewal by
the dates indicated shall be deemed notice to the Company and the Employee that
the Agreement shall not be extended.
At the end of one (1) year the Board of Directors shall review the Employee's
performance and upon their determination of satisfactory performance, Employee
shall be eligible for appointment as Chief Executive Officer of the Company.
3. Duties. The Employee shall be the President of the Company. As
-------
Employee, the Employee shall, during the term of this Agreement, perform the
responsibilities and duties, exercise the powers and follow the instructions
which from time to time may be lawfully assigned to or vested in him by the
Board of Directors of the Company. It is agreed that during the term of this
Agreement, the Employee will not accept an officership or directorship,
participate in the operation or management of or act as a Employee to any other
company, which is in the same line of business as or in competition with the
Company unless it be a company either owned or controlled by the Company,
without the prior written consent of the Board of Directors of the Company.
4. Extent of Services. Employee agrees to provide not less than 40 hours
-------------------
per week of executive services to the Company for the compensation paid to the
Employee. Employee shall not be prevented from investing Employee's assets in
such form or manner as will not require any services on the part of the Employee
in the operation of the affairs of the companies in which such investments are
made, except that in no event may the Employee make investments in any firms in
competition with, or in the business of supplying goods or services to the
Company, unless such investments are disclosed to and approved by the Board of
Directors of the Company.
<PAGE>
5. Compensation. For services rendered by the Employee under this
-------------
Agreement, the Company shall pay the Employee the compensation set forth on
EXHIBIT "A". If during the term of the Agreement the Employee is unavailable
because of illness which prevents Employee from performing Employee's duties
described herein, the Company shall be obligated to pay the Employee for all
such periods of absence; not to exceed however three (3) months.
6. Bonus and Stock Option Plans and Benefit Programs. The Company proposes
--------------------------------------------------
to establish certain bonus and stock option plans. During the term of this
Agreement, and as additional compensation, the Employee will be eligible to
participate in those plans currently in effect and as they may be amended from
time to time, so long as such plans remain in existence. Furthermore, during
the term of this Agreement, the Employee shall be entitled to participate in all
current or subsequently enacted benefit programs applicable to other officers,
directors, agent and employees of the Company. For purposes of this Agreement,
all references to stock option plans, bonus plans or benefit programs shall be
deemed to mean that Employee shall be eligible to participate in such plans or
programs of the Company in which Employee presently participates or is eligible
for, or such plans or programs of the Company that may subsequently be adopted
in substitution for the Company plans or programs. Options, if any, under this
Agreement as set forth on EXHIBIT "B."
7. Expenses. The Employee is authorized to incur reasonable expenses with
---------
regard to the business of the Company, including expenses for entertainment,
travel and other items of a similar character. The Company will reimburse the
Employee for all such expenses incurred by him in the performance of Employee's
duties hereunder. The Company will re-imburse Employee for all moving and
transportation costs in relocating to Colorado Springs, Colorado. Employee
shall present copies of all such expenses to the Company prior to reimbursement.
8. Termination by Company. This Agreement may be terminated by the Company
-----------------------
as follows:
(a) If the Employee shall commit a breach of this Agreement, and such breach,
if capable of rectification, is not rectified with thirty (30) calendar
days of receipt by Employee from the Company of written notice requiring
him so to do;
(b) If the Employee shall be convicted of a felony criminal offense, or been
found in a judicial proceeding initiated after the date of this Agreement
by a court of competent jurisdiction, in a decision subject to no further
appeals, to have committed any dishonest or unlawful act or to have been
engaged or engaging in any conduct which might irreparably injure or tend
to injure the reputation or business of the Company;
(c) If the Employee shall grossly, willfully or inexcusably neglect the
performance of Employee's duties as set forth herein. Such standard of
neglect shall however be determined only by the Board of Directors, based
upon written opinion of independent counsel and written advice to
Employee and unanimously approved by the full Board of Directors
especially convened for such purpose.
<PAGE>
9. Termination by Employee. Employee may terminate this Agreement with or
------------------------
without cause, and if terminated, the Company and Employee agree to abide by and
promptly honor the provisions of Section 10 of this Agreement. Cause for
termination by Employee shall not consist of the Company's refusal to follow the
bona-fide professional recommendations of the Employee.
10. Payments upon Termination by Company or Employee. It is agreed that if
-------------------------------------------------
this Agreement is terminated payments and/or provisions for payments will be
made as follows:
(a) If the Company terminates this Agreement on some basis other than for any
of the reasons as stated in Paragraph 8 hereof, the Company will take the
actions set forth in Subparagraphs (1), (2) and (3) of this Paragraph.
If the Employee terminates this Agreement for cause, which shall be
limited to a failure by the Company to pay Employee's compensation, the
Company will take the actions set forth in Subparagraphs (1), (2) and (3)
of this Paragraph.
(1) All stock options granted to the Employee will become immediately
vested for the full amount of Optioned Shares and shall be
exercised, if ever, in accordance with and subject to the terms and
provisions of the Intercell Corporation 1995 Compensatory Stock
Option Plan and Employee's Stock Option Agreement; and
(2) The Employee will receive within fifteen (15) days of the effective
date of such termination, all compensation and all other benefits
that would have accrued and/or been payable to the Employee during
the term of this Agreement; and
(3) The Employee will be paid in full any other contractual benefits
Employee may have with the Company and be reimbursed for all un-
reimbursed accountable expenses.
(b) If the Company terminates this Agreement for a reason or reasons set
forth in paragraph 8 hereof or the Employee terminates this Agreement
without cause, the Company will only be obligated to pay to the Employee
the actual amount of compensation accrued to the date of termination, the
Employee will be bound to the terms of the Intercell Corporation 1995
Compensatory Stock Option Plan as it relates to the exercise of any
vested options, and, all other payments or benefits recited herein shall
be canceled and terminated, without recourse.
11. Termination Due to Change in Control. If Employee is terminated by the
-------------------------------------
Company, for any reason as part or because of a change in control of the
Company, then Employee shall be entitled to a one time lump sum payment of cash
for the termination of this Agreement as follows:
Termination Occurring In Amount
Years One (1) through Two (2) $ 270,000.00
<PAGE>
Years Three (3) $ 180,000.00
The cash payment set forth herein, shall be made within Five (5) days of the
date of delivery to Employee of written termination of this Agreement by the
Company. Upon receipt of the payment as set forth herein, the Employee and the
Company shall in writing cancel this Agreement and the parties shall be released
of all further obligations under this Agreement, provided however, that any
options which have been granted to Employee and which are otherwise vested shall
remain unimpaired and in full force and effect.
A change in control of the Company shall be deemed to have occurred when, as a
result of any type of corporate reorganization, execution of proxies or voting
trusts or other arrangements, a person or group of persons acquire sufficient
equity or voting control of the Company to elect more than a majority of the
Board of Directors.
12. Notices of Termination. All Notices of Termination provided for in this
-----------------------
Agreement must be in writing and must provide for a minimum notice period of
Sixty (60) calendar days between the date of such notification and the effective
date of such termination.
13. Arbitration. Any claim or controversy arising out of, or relating to,
------------
this Agreement, or the making, performance or interpretation of this Agreement,
shall be settled by arbitration in El Paso County, Colorado, according to the
Commercial Rules of the American Arbitration Association then existing, and
judgment on the arbitration award may be entered in any court having
jurisdiction over the subject matter of the controversy. The arbitrator shall
have been a member of the State Bar of Colorado for at least ten (10) years;
shall be neutral and impartial; and shall not have had any prior relationship
with either Party. The arbitrator shall be paid at the daily rate established
by the American Arbitration Association then in effect for each and every day of
the arbitration proceedings, including all days of hearings, case study,
preparation and deliberation and such payment shall be assessed equally against
the parties. The law governing the arbitration tribunal shall be the law of
Colorado, irrespective of any choice of law principles.
14. Notices. Any notice required or permitted to be given under this
--------
Agreement shall be sufficient if in writing, and if sent by registered or
certified mail to the Employee's residence in the case of the Employee, or to is
principal office in the case of the Company.
15. Waiver, Modification or Cancellation. Any waiver, alteration or
-------------------------------------
modification of any of the provisions of this Agreement or cancellation or
replacement of this Agreement shall not be valid unless in writing and signed by
the Parties.
16. Binding Effect. This Agreement shall inure to the benefit of and be
---------------
binding upon the Company, its successors and assigns, including but not limited
to any entity which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged,
and the Employee, Employee's successors, representatives and assigns, provided
that the duties of the Employee as described herein may not be delegated.
<PAGE>
17. Severability. The invalidity or unenforceability of any provision of
-------------
this Agreement shall in no way affect the validity or enforceability of any
other provision.
18. Entire Agreement. This Agreement represents the entire Agreement between
-----------------
the parties. Each party represents that there are no other oral, written,
express or implied contracts, agreements or understandings between them.
19. Authorization. Each party represents that he, she or it is duly
--------------
competent, authorized and capable of executing this Agreement as a valid,
binding and enforceable Agreement.
20. Governing Law. The substantive law of Colorado shall govern all the
--------------
terms, conditions and interpretations of this Agreement and all other
instruments, documents or agreements executed pursuant hereto. In the event of
litigation concerning this Agreement or any other instrument, document or
agreement relating to it, the parties hereto agree that the exclusive venue and
place of jurisdiction shall be the State of Colorado, City and County of Denver.
Further, the Employee by execution hereof, irrevocably and unconditionally
consents to receive service of process and further agrees to file a general
appearance upon either acceptance of process by the Employee or actual service
of process upon the Employee.
21. Nondisclosure and Non-Competition. Employee agrees to the terms and
----------------------------------
conditions of Employee's obligations, if any, relating to nondisclosure and non-
competition as set forth on Exhibit "C."
22. Specific Representations. Each party represents that:
-------------------------
(a) The consideration recited herein shall conclusively be deemed fair,
adequate, reasonable and sufficient.
(b) He, she or it has voluntarily and without fraud, duress, coercion, undue
influence or improper persuasion executed this Agreement.
(c) The signature appearing below is Employee's manual, original, genuine,
authentic and undeniable signature.
<PAGE>
DATED: October 22, 1996
Particle Interconnect Corporation Steven D. Clark
By: /s/ Gordon J. Sales By: /s/ Steven D. Clark
---------------------- -------------------------
Gordon J. Sales Steven D. Clark
Chief Executive Officer Individually
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
Period Minimum Compensation
------ --------------------
<S> <C>
October 22, 1996 - October 21, 1997 $90,000.00 per year
</TABLE>
payable according to the Company's normal payroll practices, but in no event
less frequently than monthly; the Employee's salary shall be reviewed by the
Board of Directors no less often than once every six (6) months.
<PAGE>
EXHIBIT "B"
OPTION PARTICIPATION
An Option for One Hundred Thousand (100,000) shares under the Intercell
Corporation 1995 Compensatory Stock Option Plan. This option shall vest
according to the following schedule: one-thirty-sixth (1/36) per month on the
last day of each month, for Thirty-Six (36) months, beginning with November 1,
1996 and ending with October 31, 1999.
<PAGE>
EXHIBIT "C"
NONDISCLOSURE AND NON-COMPETITION
---------------------------------
1. During the term of Employee's employment with the Company and for one (1)
year thereafter, Employee shall not, directly or indirectly, as principal,
agent, employee, trustee, or in any like capacity, or through the agency of any
corporation, partnership, association, agent, agency or any other like entity,
i) engage in any business that is similar to the business conducted by the
Company, its subsidiaries or affiliates; or
ii) solicit any person (natural or otherwise) who is or has been within three
(3) years prior to the date Employee's association is terminated, a
customer or client of the Company, its subsidiaries or affiliates; or
iii) induce any present or future Employee or affiliate of the Company, its
subsidiaries or affiliates to accept employment or similar association
with the Employee or any person, firm, association, corporation or other
entity with whom the Employee is now or may hereafter become associated;
or
iv) become the direct or beneficial owner of the capital stock of, or acquire
the right or option to become such owner, or become a member or partner
of any partnership or any owner or affiliate of any other business which
conducts a business similar to the business conducted by the Company.
v) in any manner interfere with, disrupt or attempt to disrupt the
relationship between the Company and/or any of its customers, or use in
any manner whatsoever, the Company's customer list, database, or trade
secrets.
2. The parties agree that in light of the specialized nature of the industry
and the national-customer base of the Company's business that the restrictions
set forth in Paragraph 1 hereof shall apply to Employee within the territory of
the United States of America.
3. In the event of a violation by Employee of any of the covenants contained
in this Agreement, it is mutually agreed that the term of said covenant and/or
covenants shall be automatically extended against Employee for a period of one
(1) year from the date on which Employee permanently ceases such violation or
for a period of one (1) year from the date of the entry by a Court of competent
jurisdiction of a final order or judgment enforcing said covenant(s), whichever
period is later. The extension of the term(s) of said covenant(s) as provided
in this sub-paragraph 3 shall be in addition to, and not in lieu of the remedies
provided below.
<PAGE>
4. Other than within the proper course of Employee's duties, the Employee
will not during or at any time after the termination of association with the
Company, use for himself or others or divulge or convey to others any secret or
confidential information, knowledge or data of the Company, its subsidiaries,
its affiliates or that of third parties obtained by him during the period of
Employee's employment with the Company. Such information, knowledge or data
includes but is not limited to secret or confidential matters,
i) of a technical nature such as but not limited to research methods, know-
how, reporting procedures, composition, processes, computer databases and
similar items or research project,
ii) of a business nature such as but not limited to information about
finances, costs, profits, sales, contracts, transactions, or customer
lists, or
iii) pertaining to future developments such as but not limited to research
and development or future marketing or advertising programs.
Further, the Employee shall, during and after the period of Employee's
employment, diligently endeavor to prevent the publication or disclosure of any
such secret or confidential information, knowledge or data.
5. Except as otherwise provided in a written agreement between Employee and
the Company, if any, all forms, manuals, letters, notes, notebooks, reports,
sketches, formulas, computer programs and similar items, memoranda, client
lists, business, marketing and financial plans and studies and all other
materials and all copies thereof relating in any way to the business of the
Company or of its subsidiaries or affiliates and in any way obtained or produced
by the Employee during the period of Employee's employment with the Company
shall be the property of the Company and shall be surrendered to the Company or
its authorized representative upon the termination of the employment or at any
other time at the request of the Company. Employee further agrees that Employee
will not make or retain any copies of any of the foregoing and will so represent
to the Company upon the termination of Employee's employment.
6. The Company and Employee agree that the Company would not have an
adequate remedy at law for money damages in the event that the provisions of
this Agreement are not complied with in accordance with their terms, and
therefore agree that in the event of any breach of any of these provisions by
the Employee, the Company shall be entitled to equitable relief by way of
injunction or otherwise, together with costs and expenses incurred by it,
including attorneys' fees, in addition to such other remedies as the Company may
have.
7. In the event, Employee violates the terms of this Nondisclosure and Non-
competition section, and in the further event that Company is not made aware of
such violation until a point in time after which Employee has commenced engaging
in services similar to those engaged in by Company, for clients for whom Company
has provided services within three years of the date of Employee's termination
of employment, then in addition to the injunctive relief provide for
<PAGE>
in subparagraph 6 above, Company shall be entitled to liquidated damages which
shall be based upon the revenues generated by Employee from Company's clients as
follows.
a. Employee shall pay to Company one-third of all revenues collected by
Employee from Company's clients for a period of three (3) years from the
date on which Employee first collected revenues from any such Company
client.
8. The parties hereby acknowledge that the restrictive covenants contained
in this Agreement are fair and reasonable in light of all of the facts and
circumstances of the relationship between Employee and Company; however,
Employee and Company are aware that in certain circumstances courts have refused
to enforce certain agreements not to compete. Therefore, in furtherance and not
in derogation of the provisions of this Agreement, Company and Employee agree
that in the event a court of competent jurisdiction should for any reason
decline to enforce any of said covenants, that Employee's Agreement shall be
deemed to be modified to restrict Employee's competition with Company to the
maximum extent in time, geography and otherwise as the court shall deem
enforceable and/or to grant Company such other relief at law or in equity as
shall be reasonable necessary to protect the interest of Company.
<PAGE>
Exhibit 10.8
------------
EMPLOYMENT AGREEMENT
This Agreement is between Particle Interconnect Corporation, a Colorado
corporation, hereinafter referred to as the "Company," and Lawrence DiFrancesco,
Executive Vice-President and Chief Operations Officer, hereinafter referred to
as "Employee."
1. Engagement. The Company hereby engages the Employee and the Employee
-----------
hereby accepts engagement upon the terms and conditions hereinafter set forth.
Employee's compensation set forth herein shall be subject to all applicable
federal or state tax withholding provisions.
2. Term. Subject to the provisions for termination as hereinafter provided,
-----
the term of this Agreement shall be for a period of Sixty (60) months commencing
on September 1, 1996. The parties hereby acknowledge and agree it is their
intent that: (a) any extension or renewal of this Agreement shall be concluded
at least Three (3) months prior to the expiration date of the initial Sixty
(60) months term and Three (3) months prior to the expiration date of any
subsequent extension or renewal term hereof; and (b) absent mutual agreement to
the contrary, the failure to conclude such extension or renewal by the dates
indicated shall be deemed notice to the Company and the Employee that the
Agreement shall not be extended.
3. Duties. The Employee shall be the Executive Vice-President and Chief
-------
operations Officer of the Company. As Employee, the Employee shall, during the
term of this Agreement, perform the responsibilities and duties, exercise the
powers and follow the instructions which from time to time may be lawfully
assigned to or vested in him by the Board of Directors of the Company. It is
agreed that during the term of this Agreement, the Employee will not accept an
officership or directorship, participate in the operation or management of or
act as a Employee to any other company, which is in the same line of business as
or in competition with the Company unless it be a company either owned or
controlled by the Company, without the prior written consent of the Board of
Directors of the Company.
4. Extent of Services. Employee agrees to provide not less than 30 hours
-------------------
per week of executive services to the Company for the compensation paid to the
Employee. Employee shall not be prevented from investing Employee's assets in
such form or manner as will not require any services on the part of the Employee
in the operation of the affairs of the companies in which such investments are
made, except that in no event may the Employee make investments in any firms in
competition with, or in the business of supplying goods or services to the
Company, unless such investments are disclosed to and approved by the Board of
Directors of the Company.
5. Compensation. For services rendered by the Employee under this
-------------
Agreement, the Company shall pay the Employee the compensation set forth on
EXHIBIT "A." The Company agrees that the Board of Directors shall review the
Employee's compensation no less frequently than every six (6) months. If during
the term of the Agreement the Employee is unavailable
<PAGE>
because of illness which prevents Employee from performing Employee's duties
described herein, the Company shall be obligated to pay the Employee for all
such periods of absence; not to exceed however three (3) months.
6. Bonus and Stock Option Plans and Benefit Programs. The Company proposes
--------------------------------------------------
to establish certain bonus and stock option plans. During the term of this
Agreement, and as additional compensation, the Employee will be eligible to
participate in those plans currently in effect and as they may be amended from
time to time, so long as such plans remain in existence. Furthermore, during
the term of this Agreement, the Employee shall be entitled to participate in all
current or subsequently enacted benefit programs applicable to other officers,
directors, agent and employees of the Company. For purposes of this Agreement,
all references to stock option plans, bonus plans or benefit programs shall be
deemed to mean that Employee shall be eligible to participate in such plans or
programs of the Company in which Employee presently participates or is eligible
for, or such plans or programs of the Company that may subsequently be adopted
in substitution for the Company plans or programs. Options, if any, under this
Agreement as set forth on EXHIBIT "B."
7. Expenses. The Employee is authorized to incur reasonable expenses with
---------
regard to the business of the Company, including expenses for entertainment,
travel and other items of a similar character. The Company will reimburse the
Employee for all such expenses incurred by him in the performance of Employee's
duties hereunder.
8. Termination by Company. This Agreement may be terminated by the Company
-----------------------
as follows:
(a) If the Employee shall commit a breach of this Agreement, and such breach,
if capable of rectification, is not rectified with thirty (30) calendar
days of receipt by Employee from the Company of written notice requiring
him so to do;
(b) If the Employee shall be convicted of a felony criminal offense, or been
found in a judicial proceeding initiated after the date of this Agreement
by a court of competent jurisdiction, in a decision subject to no further
appeals, to have committed any dishonest or unlawful act or to have been
engaged or engaging in any conduct which might irreparably injure or tend
to injure the reputation or business of the Company;
(c) If the Employee shall grossly, willfully or inexcusably neglect the
performance of Employee's duties as set forth herein. Such standard of
neglect shall however be determined only by the Board of Directors, based
upon written opinion of independent counsel and written advice to
Employee and unanimously approved by the full Board of Directors
especially convened for such purpose.
9. Termination by Employee. Employee may terminate this Agreement with or
------------------------
without cause, and if terminated, the Company and Employee agree to abide by and
promptly honor the provisions of Section 10 of this Agreement. Cause for
termination by Employee shall not consist of the Company's refusal to follow the
bona-fide professional recommendations of the Employee.
<PAGE>
10. Payments upon Termination by Company or Employee. It is agreed that if
-------------------------------------------------
this Agreement is terminated payments and/or provisions for payments will be
made as follows:
(a) If the Company terminates this Agreement on some basis other than for any
of the reasons as stated in Paragraph 8 hereof, the Company will take the
actions set forth in Subparagraphs (1), (2) and (3) of this Paragraph.
If the Employee terminates this Agreement for cause, which shall be
limited to a failure by the Company to pay Employee's compensation, the
Company will take the actions set forth in Subparagraphs (1), (2) and (3)
of this Paragraph.
(1) All stock options granted to the Employee will become immediately
vested for the full amount of Optioned Shares and shall be
exercised, if ever, in accordance with and subject to the terms and
provisions of the Intercell Corporation 1995 Compensatory Stock
Option Plan and Employee's Stock Option Agreement; and
(2) The Employee will receive within fifteen (15) days of the effective
date of such termination, all compensation and all other benefits
that would have accrued and/or been payable to the Employee during
the term of this Agreement; and
(3) The Employee will be paid in full any other contractual benefits
Employee may have with the Company and be reimbursed for all un-
reimbursed accountable expenses.
(b) If the Company terminates this Agreement for a reason or reasons set
forth in paragraph 8 hereof or the Employee terminates this Agreement
without cause, the Company will only be obligated to pay to the Employee
the actual amount of compensation accrued to the date of termination, the
Employee will be bound to the terms of the Intercell Corporation 1995
Compensatory Stock Option Plan as it relates to the exercise of any
vested options, and, all other payments or benefits recited herein shall
be canceled and terminated, without recourse.
11. Termination Due to Change in Control. If Employee is terminated by the
-------------------------------------
Company, for any reason as part or because of a change in control of the
Company, then Employee shall be entitled to a one time lump sum payment of cash
for the termination of this Agreement as follows:
Termination Occurring In Amount
Years One (1) through Three (3) $300,000.00
Years Four (4) through Five (5) $200,000.00
The cash payment set forth herein, shall be made within Five (5) days of the
date of delivery to Employee of written termination of this Agreement by the
Company. Upon receipt of the payment as set forth herein, the Employee and the
Company shall in writing cancel this Agreement and the parties shall be released
of all further obligations under this Agreement,
<PAGE>
provided however, that any options which have been granted to Employee and which
are otherwise vested shall remain unimpaired and in full force and effect.
A change in control of the Company shall be deemed to have occurred when, as a
result of any type of corporate reorganization, execution of proxies or voting
trusts or other arrangements, a person or group of persons acquire sufficient
equity or voting control of the Company to elect more than a majority of the
Board of Directors.
12. Notices of Termination. All Notices of Termination provided for in this
-----------------------
Agreement must be in writing and must provide for a minimum notice period of
Sixty (60) calendar days between the date of such notification and the effective
date of such termination.
13. Arbitration. Any claim or controversy arising out of, or relating to,
------------
this Agreement, or the making, performance or interpretation of this Agreement,
shall be settled by arbitration in El Paso County, Colorado, according to the
Commercial Rules of the American Arbitration Association then existing, and
judgment on the arbitration award may be entered in any court having
jurisdiction over the subject matter of the controversy. The arbitrator shall
have been a member of the State Bar of Colorado for at least ten (10) years;
shall be neutral and impartial; and shall not have had any prior relationship
with either Party. The arbitrator shall be paid at the daily rate established
by the American Arbitration Association then in effect for each and every day of
the arbitration proceedings, including all days of hearings, case study,
preparation and deliberation and such payment shall be assessed equally against
the parties. The law governing the arbitration tribunal shall be the law of
Colorado, irrespective of any choice of law principles.
14. Notices. Any notice required or permitted to be given under this
--------
Agreement shall be sufficient if in writing, and if sent by registered or
certified mail to the Employee's residence in the case of the Employee, or to is
principal office in the case of the Company.
15. Waiver, Modification or Cancellation. Any waiver, alteration or
-------------------------------------
modification of any of the provisions of this Agreement or cancellation or
replacement of this Agreement shall not be valid unless in writing and signed by
the Parties.
16. Binding Effect. This Agreement shall inure to the benefit of and be
---------------
binding upon the Company, its successors and assigns, including but not limited
to any entity which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged,
and the Employee, Employee's successors, representatives and assigns, provided
that the duties of the Employee as described herein may not be delegated.
17. Severability. The invalidity or unenforceability of any provision of
-------------
this Agreement shall in no way affect the validity or enforceability of any
other provision.
18. Entire Agreement. This Agreement represents the entire Agreement between
-----------------
the parties. Each party represents that there are no other oral, written,
express or implied contracts, agreements or understandings between them.
<PAGE>
19. Authorization. Each party represents that he, she or it is duly
--------------
competent, authorized and capable of executing this Agreement as a valid,
binding and enforceable Agreement.
20. Governing Law. The substantive law of Colorado shall govern all the
--------------
terms, conditions and interpretations of this Agreement and all other
instruments, documents or agreements executed pursuant hereto. In the event of
litigation concerning this Agreement or any other instrument, document or
agreement relating to it, the parties hereto agree that the exclusive venue and
place of jurisdiction shall be the State of Colorado, City and County of Denver.
Further, the Employee by execution hereof, irrevocably and unconditionally
consents to receive service of process and further agrees to file a general
appearance upon either acceptance of process by the Employee or actual service
of process upon the Employee.
21. Nondisclosure and Non-Competition. Employee agrees to the terms and
----------------------------------
conditions of Employee's obligations, if any, relating to nondisclosure and non-
competition as set forth on Exhibit "C."
22. Specific Representations. Each party represents that:
-------------------------
(a) The consideration recited herein shall conclusively be deemed fair,
adequate, reasonable and sufficient.
(b) He, she or it has voluntarily and without fraud, duress, coercion, undue
influence or improper persuasion executed this Agreement.
(c) The signature appearing below is Employee's, her or its manual, original,
genuine, authentic and undeniable signature.
<PAGE>
DATED: September 1, 1996
Particle Interconnect
Corporation Lawrence DiFrancesco
By: /s/ Steven Clark By: /s/ Lawrence DiFrancesco
----------------- -------------------------
Steven Clark Lawrence DiFrancesco
Chief Executive Officer Individually
and President
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
Period Minimum Compensation
------ --------------------
<S> <C>
September 1, 1996 - August 31, 1997 $100,000.00 per year
</TABLE>
payable according to the Company's normal payroll practices, but in no event
less frequently than monthly; the Employee's salary shall be reviewed by the
Board of Directors no less often than once every six (6) months.
<PAGE>
EXHIBIT "B"
OPTION PARTICIPATION
An Option for One Hundred Thousand (100,000) shares under the Intercell
Corporation 1995 Compensatory Stock Option Plan. This option shall vest
according to the following schedule: one-thirty-sixth (1/36) per month on the
last day of each month, for thirty-six (36) months, beginning with September 1,
1996 and ending with August 31, 1999.
<PAGE>
EXHIBIT "C"
NONDISCLOSURE AND NON-COMPETITION
---------------------------------
1. During the term of Employee's employment with the Company and for one (1)
year thereafter, Employee shall not, directly or indirectly, as principal,
agent, employee, trustee, or in any like capacity, or through the agency of any
corporation, partnership, association, agent, agency or any other like entity,
i) engage in any business that is similar to the business conducted by the
Company, its subsidiaries or affiliates; or
ii) solicit any person (natural or otherwise) who is or has been within three
(3) years prior to the date Employee's association is terminated, a
customer or client of the Company, its subsidiaries or affiliates; or
iii) induce any present or future Employee or affiliate of the Company, its
subsidiaries or affiliates to accept employment or similar association
with the Employee or any person, firm, association, corporation or other
entity with whom the Employee is now or may hereafter become associated;
or
iv) become the direct or beneficial owner of the capital stock of, or acquire
the right or option to become such owner, or become a member or partner
of any partnership or any owner or affiliate of any other business which
conducts a business similar to the business conducted by the Company.
v) in any manner interfere with, disrupt or attempt to disrupt the
relationship between the Company and/or any of its customers, or use in
any manner whatsoever, the Company's customer list, database, or trade
secrets.
2. The parties agree that in light of the specialized nature of the industry
and the national-customer base of the Company's business that the restrictions
set forth in Paragraph 1 hereof shall apply to Employee within the territory of
the United States of America.
3. In the event of a violation by Employee of any of the covenants contained
in this Agreement, it is mutually agreed that the term of said covenant and/or
covenants shall be automatically extended against Employee for a period of one
(1) year from the date on which Employee permanently ceases such violation or
for a period of one (1) year from the date of the entry by a Court of competent
jurisdiction of a final order or judgment enforcing said covenant(s), whichever
period is later. The extension of the term(s) of said covenant(s) as provided
in this sub-paragraph 3 shall be in addition to, and not in lieu of the remedies
provided below.
4. Other than within the proper course of Employee's duties, the Employee
will not during or at any time after the termination of association with the
Company, use for himself or
<PAGE>
others or divulge or convey to others any secret or confidential information,
knowledge or data of the Company, its subsidiaries, its affiliates or that of
third parties obtained by him during the period of Employee's employment with
the Company. Such information, knowledge or data includes but is not limited to
secret or confidential matters,
i) of a technical nature such as but not limited to research methods, know-
how, reporting procedures, composition, processes, computer databases and
similar items or research project,
ii) of a business nature such as but not limited to information about
finances, costs, profits, sales, contracts, transactions, or customer
lists, or
iii) pertaining to future developments such as but not limited to research
and development or future marketing or advertising programs.
Further, the Employee shall, during and after the period of Employee's
employment, diligently endeavor to prevent the publication or disclosure of any
such secret or confidential information, knowledge or data.
5. Except as otherwise provided in a written agreement between Employee and
the Company, if any, all forms, manuals, letters, notes, notebooks, reports,
sketches, formulas, computer programs and similar items, memoranda, client
lists, business, marketing and financial plans and studies and all other
materials and all copies thereof relating in any way to the business of the
Company or of its subsidiaries or affiliates and in any way obtained or produced
by the Employee during the period of Employee's employment with the Company
shall be the property of the Company and shall be surrendered to the Company or
its authorized representative upon the termination of the employment or at any
other time at the request of the Company. Employee further agrees that Employee
will not make or retain any copies of any of the foregoing and will so represent
to the Company upon the termination of Employee's employment.
6. The Company and Employee agree that the Company would not have an
adequate remedy at law for money damages in the event that the provisions of
this Agreement are not complied with in accordance with their terms, and
therefore agree that in the event of any breach of any of these provisions by
the Employee, the Company shall be entitled to equitable relief by way of
injunction or otherwise, together with costs and expenses incurred by it,
including attorneys' fees, in addition to such other remedies as the Company may
have.
7. In the event, Employee violates the terms of this Nondisclosure and Non-
competition section, and in the further event that Company is not made aware of
such violation until a point in time after which Employee has commenced engaging
in services similar to those engaged in by Company, for clients for whom Company
has provided services within three years of the date of Employee's termination
of employment, then in addition to the injunctive relief provide for in
subparagraph 6 above, Company shall be entitled to liquidated damages which
shall be based upon the revenues generated by Employee from Company's clients as
follows.
<PAGE>
a. Employee shall pay to Company one-third of all revenues collected by
Employee from Company's clients for a period of three (3) years from the
date on which Employee first collected revenues from any such Company
client.
8. The parties hereby acknowledge that the restrictive covenants contained
in this Agreement are fair and reasonable in light of all of the facts and
circumstances of the relationship between Employee and Company; however,
Employee and Company are aware that in certain circumstances courts have refused
to enforce certain agreements not to compete. Therefore, in furtherance and not
in derogation of the provisions of this Agreement, Company and Employee agree
that in the event a court of competent jurisdiction should for any reason
decline to enforce any of said covenants, that Employee's Agreement shall be
deemed to be modified to restrict Employee's competition with Company to the
maximum extent in time, geography and otherwise as the court shall deem
enforceable and/or to grant Company such other relief at law or in equity as
shall be reasonable necessary to protect the interest of Company.
<PAGE>
Exhibit 10.9
------------
EMPLOYMENT AGREEMENT
This Agreement is between Particle Interconnect Corporation, a Colorado
corporation, hereinafter referred to as the "Company," and Patricia E. Grihalva,
Chief Financial Officer, hereinafter referred to as "Employee."
1. Engagement. The Company hereby engages the Employee and the Employee
-----------
hereby accepts engagement upon the terms and conditions hereinafter set forth.
Employee's compensation set forth herein shall be subject to all applicable
federal or state tax withholding provisions.
2. Term. Subject to the provisions for termination as hereinafter provided,
-----
the term of this Agreement shall be for a period of Sixty (60) months commencing
on September 1, 1996. The parties hereby acknowledge and agree it is their
intent that: (a) any extension or renewal of this Agreement shall be concluded
at least Three (3) months prior to the expiration date of the initial Sixty
(60) months term and Three (3) months prior to the expiration date of any
subsequent extension or renewal term hereof; and (b) absent mutual agreement to
the contrary, the failure to conclude such extension or renewal by the dates
indicated shall be deemed notice to the Company and the Employee that the
Agreement shall not be extended.
3. Duties. The Employee shall be the Chief Financial Officer of the
-------
Company. As Employee, the Employee shall, during the term of this Agreement,
perform the responsibilities and duties, exercise the powers and follow the
instructions which from time to time may be lawfully assigned to or vested in
him by the Board of Directors of the Company. It is agreed that during the term
of this Agreement, the Employee will not accept an officership or directorship,
participate in the operation or management of or act as a Employee to any other
company, which is in the same line of business as or in competition with the
Company unless it be a company either owned or controlled by the Company,
without the prior written consent of the Board of Directors of the Company.
4. Extent of Services. Employee agrees to provide not less than 30 hours
-------------------
per week of executive services to the Company for the compensation paid to the
Employee. Employee shall not be prevented from investing Employee's assets in
such form or manner as will not require any services on the part of the Employee
in the operation of the affairs of the companies in which such investments are
made, except that in no event may the Employee make investments in any firms in
competition with, or in the business of supplying goods or services to the
Company, unless such investments are disclosed to and approved by the Board of
Directors of the Company.
5. Compensation. For services rendered by the Employee under this
-------------
Agreement, the Company shall pay the Employee the compensation set forth on
EXHIBIT "A". The Company agrees that the Board of Directors shall review the
Employee's compensation no less frequently than every six (6) months. If during
the term of the Agreement the Employee is unavailable
<PAGE>
because of illness which prevents Employee from performing Employee's duties
described herein, the Company shall be obligated to pay the Employee for all
such periods of absence; not to exceed however three (3) months.
6. Bonus and Stock Option Plans and Benefit Programs. The Company proposes
--------------------------------------------------
to establish certain bonus and stock option plans. During the term of this
Agreement, and as additional compensation, the Employee will be eligible to
participate in those plans currently in effect and as they may be amended from
time to time, so long as such plans remain in existence. Furthermore, during
the term of this Agreement, the Employee shall be entitled to participate in all
current or subsequently enacted benefit programs applicable to other officers,
directors, agent and employees of the Company. For purposes of this Agreement,
all references to stock option plans, bonus plans or benefit programs shall be
deemed to mean that Employee shall be eligible to participate in such plans or
programs of the Company in which Employee presently participates or is eligible
for, or such plans or programs of the Company that may subsequently be adopted
in substitution for the Company plans or programs. Options, if any, under this
Agreement as set forth on EXHIBIT "B."
7. Expenses. The Employee is authorized to incur reasonable expenses with
---------
regard to the business of the Company, including expenses for entertainment,
travel and other items of a similar character. The Company will reimburse the
Employee for all such expenses incurred by him in the performance of Employee's
duties hereunder.
8. Termination by Company. This Agreement may be terminated by the Company
-----------------------
as follows:
(a) If the Employee shall commit a breach of this Agreement, and such breach,
if capable of rectification, is not rectified with thirty (30) calendar
days of receipt by Employee from the Company of written notice requiring
him so to do;
(b) If the Employee shall be convicted of a felony criminal offense, or been
found in a judicial proceeding initiated after the date of this Agreement
by a court of competent jurisdiction, in a decision subject to no further
appeals, to have committed any dishonest or unlawful act or to have been
engaged or engaging in any conduct which might irreparably injure or tend
to injure the reputation or business of the Company;
(c) If the Employee shall grossly, willfully or inexcusably neglect the
performance of Employee's duties as set forth herein. Such standard of
neglect shall however be determined only by the Board of Directors, based
upon written opinion of independent counsel and written advice to
Employee and unanimously approved by the full Board of Directors
especially convened for such purpose.
9. Termination by Employee. Employee may terminate this Agreement with or
------------------------
without cause, and if terminated, the Company and Employee agree to abide by and
promptly honor the provisions of Section 10 of this Agreement. Cause for
termination by Employee shall not consist of the Company's refusal to follow the
bona-fide professional recommendations of the Employee.
<PAGE>
10. Payments upon Termination by Company or Employee. It is agreed that if
-------------------------------------------------
this Agreement is terminated payments and/or provisions for payments will be
made as follows:
(a) If the Company terminates this Agreement on some basis other than for any
of the reasons as stated in Paragraph 8 hereof, the Company will take the
actions set forth in Subparagraphs (1), (2) and (3) of this Paragraph.
If the Employee terminates this Agreement for cause, which shall be
limited to a failure by the Company to pay Employee's compensation, the
Company will take the actions set forth in Subparagraphs (1), (2) and (3)
of this Paragraph.
(1) All stock options granted to the Employee will become immediately
vested for the full amount of Optioned Shares and shall be
exercised, if ever, in accordance with and subject to the terms and
provisions of the Intercell Corporation 1995 Compensatory Stock
Option Plan and Employee's Stock Option Agreement; and
(2) The Employee will receive within fifteen (15) days of the effective
date of such termination, all compensation and all other benefits
that would have accrued and/or been payable to the Employee during
the term of this Agreement; and
(3) The Employee will be paid in full any other contractual benefits
Employee may have with the Company and be reimbursed for all un-
reimbursed accountable expenses.
(b) If the Company terminates this Agreement for a reason or reasons set
forth in paragraph 8 hereof or the Employee terminates this Agreement
without cause, the Company will only be obligated to pay to the Employee
the actual amount of compensation accrued to the date of termination, the
Employee will be bound to the terms of the Intercell Corporation 1995
Compensatory Stock Option Plan as it relates to the exercise of any
vested options, and, all other payments or benefits recited herein shall
be canceled and terminated, without recourse.
11. Termination Due to Change in Control. If Employee is terminated by the
-------------------------------------
Company, for any reason as part or because of a change in control of the
Company, then Employee shall be entitled to a one time lump sum payment of cash
for the termination of this Agreement as follows:
Termination Occurring In Amount
Years One (1) through Three (3) $ 255,000.00
Years Four (4) through Five (5) $ 170,000.00
The cash payment set forth herein, shall be made within Five (5) days of the
date of delivery to Employee of written termination of this Agreement by the
Company. Upon receipt of the payment as set forth herein, the Employee and the
Company shall in writing cancel this Agreement and the parties shall be released
of all further obligations under this Agreement,
<PAGE>
provided however, that any options which have been granted to Employee and which
are otherwise vested shall remain unimpaired and in full force and effect.
A change in control of the Company shall be deemed to have occurred when, as a
result of any type of corporate reorganization, execution of proxies or voting
trusts or other arrangements, a person or group of persons acquire sufficient
equity or voting control of the Company to elect more than a majority of the
Board of Directors.
12. Notices of Termination. All Notices of Termination provided for in this
-----------------------
Agreement must be in writing and must provide for a minimum notice period of
Sixty (60) calendar days between the date of such notification and the effective
date of such termination.
13. Arbitration. Any claim or controversy arising out of, or relating to,
------------
this Agreement, or the making, performance or interpretation of this Agreement,
shall be settled by arbitration in El Paso County, Colorado, according to the
Commercial Rules of the American Arbitration Association then existing, and
judgment on the arbitration award may be entered in any court having
jurisdiction over the subject matter of the controversy. The arbitrator shall
have been a member of the State Bar of Colorado for at least ten (10) years;
shall be neutral and impartial; and shall not have had any prior relationship
with either Party. The arbitrator shall be paid at the daily rate established
by the American Arbitration Association then in effect for each and every day of
the arbitration proceedings, including all days of hearings, case study,
preparation and deliberation and such payment shall be assessed equally against
the parties. The law governing the arbitration tribunal shall be the law of
Colorado, irrespective of any choice of law principles.
14. Notices. Any notice required or permitted to be given under this
--------
Agreement shall be sufficient if in writing, and if sent by registered or
certified mail to the Employee's residence in the case of the Employee, or to is
principal office in the case of the Company.
15. Waiver, Modification or Cancellation. Any waiver, alteration or
-------------------------------------
modification of any of the provisions of this Agreement or cancellation or
replacement of this Agreement shall not be valid unless in writing and signed by
the Parties.
16. Binding Effect. This Agreement shall inure to the benefit of and be
---------------
binding upon the Company, its successors and assigns, including but not limited
to any entity which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged,
and the Employee, Employee's successors, representatives and assigns, provided
that the duties of the Employee as described herein may not be delegated.
17. Severability. The invalidity or unenforceability of any provision of
-------------
this Agreement shall in no way affect the validity or enforceability of any
other provision.
18. Entire Agreement. This Agreement represents the entire Agreement between
-----------------
the parties. Each party represents that there are no other oral, written,
express or implied contracts, agreements or understandings between them.
<PAGE>
19. Authorization. Each party represents that he, she or it is duly
--------------
competent, authorized and capable of executing this Agreement as a valid,
binding and enforceable Agreement.
20. Governing Law. The substantive law of Colorado shall govern all the
--------------
terms, conditions and interpretations of this Agreement and all other
instruments, documents or agreements executed pursuant hereto. In the event of
litigation concerning this Agreement or any other instrument, document or
agreement relating to it, the parties hereto agree that the exclusive venue and
place of jurisdiction shall be the State of Colorado, City and County of Denver.
Further, the Employee by execution hereof, irrevocably and unconditionally
consents to receive service of process and further agrees to file a general
appearance upon either acceptance of process by the Employee or actual service
of process upon the Employee.
21. Nondisclosure and Non-Competition. Employee agrees to the terms and
----------------------------------
conditions of Employee's obligations, if any, relating to nondisclosure and non-
competition as set forth on Exhibit "C."
22. Specific Representations. Each party represents that:
-------------------------
(a) The consideration recited herein shall conclusively be deemed fair,
adequate, reasonable and sufficient.
(b) He, she or it has voluntarily and without fraud, duress, coercion, undue
influence or improper persuasion executed this Agreement.
(c) The signature appearing below is Employee's manual, original, genuine,
authentic and undeniable signature.
<PAGE>
DATED: September 1, 1996
Particle Interconnect
Corporation Patricia E. Grihalva
By: /s/ Steven Clark By: /s/ Patricia E. Grihalva
----------------- -------------------------
Steven Clark Patricia E. Grihalva
President Individually
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
Period Minimum Compensation
------ --------------------
<S> <C>
September 1, 1996 - August 31, 1997 $85,000.00 per year
</TABLE>
payable according to the Company's normal payroll practices, but in no event
less frequently than monthly; the Employee's salary shall be reviewed by the
Board of Directors no less often than once every six (6) months.
<PAGE>
EXHIBIT "B"
OPTION PARTICIPATION
An Option for Fifty Thousand (50,000) shares under the Intercell Corporation
1995 Compensatory Stock Option Plan. This option shall vest according to the
following schedule: one-thirty-sixth (1/36) per month on the last day of each
month, for thirty-six (36) months, beginning with September 1, 1996 and ending
with August 31, 1999.
<PAGE>
EXHIBIT "C"
NONDISCLOSURE AND NON-COMPETITION
---------------------------------
1. During the term of Employee's employment with the Company and for one (1)
year thereafter, Employee shall not, directly or indirectly, as principal,
agent, employee, trustee, or in any like capacity, or through the agency of any
corporation, partnership, association, agent, agency or any other like entity,
i) engage in any business that is similar to the business conducted by the
Company, its subsidiaries or affiliates; or
ii) solicit any person (natural or otherwise) who is or has been within three
(3) years prior to the date Employee's association is terminated, a
customer or client of the Company, its subsidiaries or affiliates; or
iii) induce any present or future Employee or affiliate of the Company, its
subsidiaries or affiliates to accept employment or similar association
with the Employee or any person, firm, association, corporation or other
entity with whom the Employee is now or may hereafter become associated;
or
iv) become the direct or beneficial owner of the capital stock of, or acquire
the right or option to become such owner, or become a member or partner
of any partnership or any owner or affiliate of any other business which
conducts a business similar to the business conducted by the Company.
v) in any manner interfere with, disrupt or attempt to disrupt the
relationship between the Company and/or any of its customers, or use in
any manner whatsoever, the Company's customer list, database, or trade
secrets.
2. The parties agree that in light of the specialized nature of the industry
and the national-customer base of the Company's business that the restrictions
set forth in Paragraph 1 hereof shall apply to Employee within the territory of
the United States of America.
3. In the event of a violation by Employee of any of the covenants contained
in this Agreement, it is mutually agreed that the term of said covenant and/or
covenants shall be automatically extended against Employee for a period of one
(1) year from the date on which Employee permanently ceases such violation or
for a period of one (1) year from the date of the entry by a Court of competent
jurisdiction of a final order or judgment enforcing said covenant(s), whichever
period is later. The extension of the term(s) of said covenant(s) as provided
in this sub-paragraph 3 shall be in addition to, and not in lieu of the remedies
provided below.
4. Other than within the proper course of Employee's duties, the Employee
will not during or at any time after the termination of association with the
Company, use for himself or
<PAGE>
others or divulge or convey to others any secret or confidential information,
knowledge or data of the Company, its subsidiaries, its affiliates or that of
third parties obtained by him during the period of Employee's employment with
the Company. Such information, knowledge or data includes but is not limited to
secret or confidential matters,
i) of a technical nature such as but not limited to research methods, know-
how, reporting procedures, composition, processes, computer databases and
similar items or research project,
ii) of a business nature such as but not limited to information about
finances, costs, profits, sales, contracts, transactions, or customer
lists, or
iii) pertaining to future developments such as but not limited to research
and development or future marketing or advertising programs.
Further, the Employee shall, during and after the period of Employee's
employment, diligently endeavor to prevent the publication or disclosure of any
such secret or confidential information, knowledge or data.
5. Except as otherwise provided in a written agreement between Employee and
the Company, if any, all forms, manuals, letters, notes, notebooks, reports,
sketches, formulas, computer programs and similar items, memoranda, client
lists, business, marketing and financial plans and studies and all other
materials and all copies thereof relating in any way to the business of the
Company or of its subsidiaries or affiliates and in any way obtained or produced
by the Employee during the period of Employee's employment with the Company
shall be the property of the Company and shall be surrendered to the Company or
its authorized representative upon the termination of the employment or at any
other time at the request of the Company. Employee further agrees that Employee
will not make or retain any copies of any of the foregoing and will so represent
to the Company upon the termination of Employee's employment.
6. The Company and Employee agree that the Company would not have an
adequate remedy at law for money damages in the event that the provisions of
this Agreement are not complied with in accordance with their terms, and
therefore agree that in the event of any breach of any of these provisions by
the Employee, the Company shall be entitled to equitable relief by way of
injunction or otherwise, together with costs and expenses incurred by it,
including attorneys' fees, in addition to such other remedies as the Company may
have.
7. In the event, Employee violates the terms of this Nondisclosure and Non-
competition section, and in the further event that Company is not made aware of
such violation until a point in time after which Employee has commenced engaging
in services similar to those engaged in by Company, for clients for whom Company
has provided services within three years of the date of Employee's termination
of employment, then in addition to the injunctive relief provide for in
subparagraph 6 above, Company shall be entitled to liquidated damages which
shall be based upon the revenues generated by Employee from Company's clients as
follows.
<PAGE>
a. Employee shall pay to Company one-third of all revenues collected by
Employee from Company's clients for a period of three (3) years from the
date on which Employee first collected revenues from any such Company
client.
8. The parties hereby acknowledge that the restrictive covenants contained
in this Agreement are fair and reasonable in light of all of the facts and
circumstances of the relationship between Employee and Company; however,
Employee and Company are aware that in certain circumstances courts have refused
to enforce certain agreements not to compete. Therefore, in furtherance and not
in derogation of the provisions of this Agreement, Company and Employee agree
that in the event a court of competent jurisdiction should for any reason
decline to enforce any of said covenants, that Employee's Agreement shall be
deemed to be modified to restrict Employee's competition with Company to the
maximum extent in time, geography and otherwise as the court shall deem
enforceable and/or to grant Company such other relief at law or in equity as
shall be reasonable necessary to protect the interest of Company.
<PAGE>
Exhibit 10.10
-------------
EMPLOYMENT AGREEMENT
This Agreement is between Cellular Magnetics, an Arizona corporation,
(hereinafter referred to as the "Company"), and Jerry W. Tooley (hereinafter
referred to as "Employee").
1. Engagement. The Company hereby engages the Employee and the Employee
----------
hereby accepts engagement upon the terms and conditions hereinafter set forth.
Employee's compensation set forth herein shall be subject to all applicable
federal or state tax withholding provisions.
2. Term. Subject to the provisions for termination as hereafter provided,
----
the term of this Agreement shall be for a period of thirty-six (36) months
commencing on October 15, 1996. The parties hereby acknowledge and agree it is
their intent that: (a) any extension or renewal of this Agreement shall be
concluded at least Three (3) months prior to the expiration date of the initial
thirty-six (36) months term and Three (3) months prior to the expiration date of
any subsequent extension or renewal term hereof; and (b) absent mutual agreement
to the contrary, the failure to conclude such extension or renewal by the dates
indicated shall be deemed notice to the Company and the Employee that the
Agreement shall not be extended.
3. Duties. The Employee shall be the President of the Company. As such,
------
the Employee shall, during the term of this Agreement, perform the
responsibilities and duties, exercise the powers and follow the instructions
which from time to time may be lawfully assigned to or vested in him by the
Board of Directors of the Company. It is agreed that during the term of this
Agreement, and for so long as no Event of Default has occurred hereunder, the
Employee will not accept an officership or directorship, participate in the
operation or management of or act as an Employee to any other company, which is
in the same line of business as or in competition with the Company unless it be
a company either owned or controlled by the Company, without the prior written
consent of the Board of Directors of the Company.
4. Extent of Services. Employee agrees to provide not less than 30 hours
------------------
per week of executive services to the Company for the compensation paid to the
Employee. Employee shall not be prevented from investing his assets in any
manner, except that in no event may the Employee make investments in any firms
in competition with, or in the business of supplying goods or services to the
Company, unless such investments are disclosed to and approved by the Board of
Directors of the Company.
5. Compensation. For services rendered by the Employee under this
------------
Agreement, the Company shall pay the Employee the compensation and bonus, and
grant such other benefits, as are set forth on Exhibit "A." If during the term
------------
of the Agreement the Employee is unavailable because of illness which prevents
Employee from performing his duties described herein, the Company shall be
obligated to pay the Employee for all such periods of absence; not to exceed
however three (3) months.
<PAGE>
6. Bonus and Stock Option Plans and Benefit Programs. The Company proposes
-------------------------------------------------
to establish certain bonus and stock option plans. During the term of this
Agreement, and as additional compensation, the Employee will be eligible to
participate in those plans currently in effect and as they may be amended from
time to time, so long as such plans remain in existence. Furthermore, during
the term of this Agreement, the Employee shall be entitled to participate in all
current or subsequently enacted benefit programs applicable to other officers,
directors, agent and employees of the Company. For purposes of this Agreement,
all references to stock option plans, bonus plans or benefit programs shall be
deemed to mean that Employee shall be eligible to participate in such plans or
programs of the Company in which Employee presently participates or is eligible
for, or such plans or programs of the Company that may subsequently be by the
Company. Options, if any, under this Agreement as are set forth on Exhibit "B."
-----------
7. Expenses. The Employee is authorized to incur reasonable expenses with
--------
regard to the business of the Company, including expenses for entertainment,
travel and other items of a similar character. The Company will reimburse the
Employee for all such expenses incurred by him in the performance of his duties
hereunder.
8. Termination by Company. This Agreement may be terminated by the Company
----------------------
as follows:
(a) If the Employee shall commit a breach of this Agreement, and such breach,
if capable of rectification, is not rectified within thirty (30) calendar
days of receipt by Employee from the Company of written notice requiring
him so to do.
(b) If the Employee shall be convicted of a felony criminal offense, or been
found in a judicial proceeding initiated after the date of this Agreement
by a court of competent jurisdiction, in a decision subject to no further
appeals, to have committed any dishonest or unlawful act or to have been
engaged or engaging in any conduct which might irreparably injure or tend
to injure the reputation or business of the Company.
(c) If the Employee shall grossly, willfully or inexcusably neglect the
performance of Employee's duties as set forth herein. Such standard of
neglect shall however be determined only by the Board of Directors, based
upon written opinion of independent counsel and written advice to
Employee and unanimously approved by the full Board of Directors
especially convened for such purpose.
9. Termination by Employee. Employee may terminate this Agreement with or
-----------------------
without cause, and if terminated, the Company and Employee agree to abide by and
promptly honor the provisions of Section 10 of this Agreement. Cause for
----------
termination by Employee shall not consist of the Company's refusal to follow the
bona-fide professional recommendations of the Employee.
10. Payments Upon Termination by Company or Employee. It is agreed that if
------------------------------------------------
this Agreement is terminated payments and/or provisions for payments will be
made as follows:
<PAGE>
(a) If the Company terminates this Agreement on some basis other than for any
of the reasons as stated in Paragraph 8 hereof, the Company will take the
actions set forth in Subparagraphs (1) through (5) of this Paragraph. If
the Employee terminates this Agreement for cause, which shall be limited
to a failure by the Company to pay Employee his compensation, or a breach
by Employer of that certain Agreement and Plan of Merger of even date
herewith to which Employer and Employee are partners, or that certain
Promissory Note of even date herewith in the principal amount of Eighty
Thousand Dollars ($80,000), the Company will take all of the following
actions:
(1) All stock options granted to the Employee pursuant to this Agreement
will become immediately vested for the full amount of Optioned
Shares and shall be exercised, if ever, in accordance with and
subject to the terms and provisions of the Company's Compensatory
Stock Option Plan and Employee's Stock Option Agreement; and
(2) The Employee will receive within fifteen (15) days of the effective
date of such termination, all compensation and all other benefits
that would have accrued and/or been payable to the Employee during
the term of this Agreement; and
(3) The Employee will be paid in full any other contractual benefits
Employee may have with the Company and be reimbursed for all un-
reimbursed accountable expenses; and
(4) Within ninety (90) days thereafter, Employee shall have the option,
on giving Employer fifteen (15) days prior written notice, to
require Employer to redeem for cash all or any portion of the stock
of Employer then owned by Employee, at one hundred percent (100%) of
its then fair market value.
(5) Within thirty (30) days after the effective date of such
termination, Employer shall pay to Employee the amount of any
Minimum Bonus payable to Employee during the first two (2) years
hereof, as set forth on Exhibit "A," Section B, which has not
theretofore been paid to Employee.
(b) If the Company terminates this Agreement for a reason or reasons set
forth in paragraph 9 hereof or the Employee terminates this Agreement
without cause, the Company will only be obligated to pay to the Employee
the actual amount of compensation accrued to the date of termination to
which Employee is otherwise entitled pursuant to this Employment
Agreement, including, but not limited to, the minimum bonus set forth on
Exhibit "A," Section B hereto and, all other payments or benefits recited
----------------------
herein shall be canceled and terminated, without recourse.
11. Termination Due to Change in Control. If Employee is terminated by the
------------------------------------ --------
Company, for any reason as part or because of a change in control of the
Company, or of Intercell, Inc.,
<PAGE>
the Company's parent, then Employee shall be entitled to a one time lump sum
payment of cash for the termination of this Agreement as follows:
Termination Occurring In Amount
------------------------ ------
Years One (1) through Three (3) $216,000.00
The cash payment set forth herein, shall be made within Five (5) days of the
date of delivery to Employee of written termination of this Agreement by the
Company. Upon receipt of the payment as set forth herein, the Employee and the
Company shall in writing cancel this Agreement and the parties shall be released
of all further obligations under this Agreement, provided however, that any
options which have been granted to Employee and which are otherwise vested shall
remain unimpaired and in full force and effect.
A change in control of the Company shall be deemed to have occurred when, as a
result of any type of corporate reorganization, execution of proxies or voting
trusts or other arrangements, a person or group or persons acquire sufficient
equity or voting control of the Company to elect more than a majority of the
Board of Directors.
12. Notices of Termination. All Notices of Termination provided for in this
----------------------
Agreement must be in writing and must provide for a minimum notice period of
Sixty (60) calendar days between the date of such notification and the effective
date of such termination.
13. Arbitration. Any controversy or claim arising out of, or relating to
-----------
this Agreement, or the breach hereof, shall be settled by arbitration in the
City of Phoenix, Arizona in accordance with the then effective rules of the
American Arbitration Association. Such ruling shall be binding upon the parties.
14. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be sufficient if in writing, and if sent by registered or
certified mail to the Employee's residence in the case of the Employee, or to is
principal office in the case of the Company.
15. Waiver, Modification or Cancellation. Any waiver, altercation or
------------------------------------
modification of any of the provisions of this Agreement or cancellation or
replacement of this Agreement shall not be valid unless in writing and signed by
the Parties.
16. Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the Company, its successors and assigns, including but not limited
to any entity which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged,
and the Employee, his successors, representatives and assigns, provided that the
duties of the Employee as described herein may not be delegated.
17. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall in no way affect the validity or enforceability of any
other provision.
<PAGE>
18. Entire Agreement. This Agreement represents the entire Agreement between
----------------
the parties. Each party represents that there are no other oral, written,
express or implied contracts, agreements or understandings between them.
19. Authorization. Each party represents that he, she or it is duly
-------------
competent, authorized and capable of executing this Agreement as a valid,
binding and enforceable Agreement.
20. Governing Law. The substantive law of Arizona shall govern all the
-------------
terms, conditions and interpretations of this Agreement and all other
instruments, documents or agreements executed pursuant hereto. In the event of
litigation concerning this Agreement or any other instrument, document or
agreement relating to it, the parties hereto agree that the exclusive venue and
place of jurisdiction shall be the State of Arizona, County of Maricopa.
Further, each of Employee and Employer by execution hereof, irrevocably and
unconditionally consents to receive service of process and further agrees to
file a general appearance upon either acceptance of process by the other party
or actual service of process upon such party.
21. Nondisclosure and Non-Competition. Employee agrees to the terms and
---------------------------------
conditions of his obligations, if any, relating to nondisclosure and non-
competition as set forth on Exhibit "C."
------------
22. Specific Representations. Each party represents that:
------------------------
(a) The consideration recited herein shall conclusively be deemed fair,
adequate, reasonable and sufficient.
(b) He, she or it has voluntarily and without fraud, duress, coercion, undue
influence or improper persuasion executed this Agreement.
<PAGE>
DATED: October 8, 1996
Intercell Corporation
By: /s/ Gordon J. Sales By: /s/ Jerry W. Tooley
-------------------- --------------------
Gordon J. Sales Jerry W. Tooley
Chief Executive Officer Individually
and President
<PAGE>
EXHIBIT "A"
A. Base Compensation $72,000 annually
B. Minimum Bonus:
1. On or before October 1, 1997: $90,000
2. On or before October 1, 1998: $90,000
C. Performance Bonus:
Annually, based on _________ percent (____%) of the amount by which Net
Operating Profit exceeds One Hundred Thousand Dollars ($100,000.00).
For purposes hereof "Net Operating Profit" shall be as determined for
financial accounting purposes, without taking into consideration inter-
company expenditures, and expenses in excess of current (September 30, 1996)
expense ratios.
D. Fringe Benefits:
Use of own company vehicle.
3 weeks paid vacation annually
<PAGE>
EXHIBIT "B"
<PAGE>
EXHIBIT "C"
NONDISCLOSURE AND NON-COMPETITION
---------------------------------
1. During the term of Employee's employment with the Company and for one (1)
year thereafter, and further provided that neither Company nor Intercell, Inc.
are then in default of any of their respective obligations to Employee under any
agreement to which they are parties, Employee shall not, directly or indirectly,
as principal, agent, employee, trustee, or in any like capacity, or through the
agency of any corporation, partnership, association, agent, agency or any other
like entity.
(a) engage in any business that is similar to the business conducted by the
Company, its subsidiaries or affiliates; or
(b) solicit any person (natural or otherwise) who is or has been within three
(3) years prior to the date Employee's association is terminated, a
customer or client of the Company, its subsidiaries or affiliates; or
(c) induce any present or future Employee or affiliate of the Company, its
subsidiaries or affiliates to accept employment or similar association
with the Employee or any person, firm, association, corporation or other
entity with whom the Employee is now or may hereafter become associated;
or
(d) in any manner interfere with, disrupt or attempt to disrupt the
relationship between the Company and/or any of its customers, or use in
any manner whatsoever, the Company's customer list, database, or trade
secrets.
2. The parties agree that in light of the specialized nature of the industry
and the national-customer base of the Company's business that the restrictions
set forth in Paragraph 1 hereof shall apply to Employee within the territory of
the United States of America.
3. In the event of a violation by Employee of any of the covenants contained
in this Agreement, it is mutually agreed that the term of said covenant and/or
covenants shall be automatically extended against Employee for a period of one
(1) year from the date on which Employee permanently ceases such violation or
for a period of time of one (1) year from the date of the entry by a Court of
competent jurisdiction of a final order or judgment enforcing said covenant(s),
whichever period is later. The extension of the term(s) of said covenant(s) as
provided in this sub-paragraph 3 shall be in addition to and not in lieu of the
remedies provided below.
4. Other than within the proper course of Employee's duties, the Employee
will not during or at any time after the termination of association with the
Company, use for himself or others or divulge or convey to others any secret or
confidential information, knowledge or data of the Company, its subsidiaries its
affiliates or that of third parties obtained by him during the period of his
employment with the Company. Such information, knowledge or data includes but
is not limited to secret or confidential matters.
<PAGE>
(a) of a technical nature such as but not limited to research methods, know-
how, reporting procedures, composition, processes, computer databases and
similar terms or research project.
(b) of a business nature such as but not limited to information about
finances, costs, profits, sales, contracts, transactions, or customer
lists, or
(c) pertaining to future developments such as but not limited to research and
development or future marketing or advertising programs.
Further, the Employee shall, during and after the period of Employee's
employment, diligently endeavor to prevent the publication or disclosure of any
such secret or confidential information, knowledge or data.
5. All forms, manuals, letters, notes, notebooks, reports, sketches,
formulas, computer programs and similar items, memoranda, client lists,
business, marketing and financial plans and studies and all other materials and
all copies thereof relating in any way to the business of the Company or of its
subsidiaries or affiliates and in any way obtained or produced by the Employee
during the period of his employment with the Company or its authorized
representative upon the termination of the employment or at any other time at
the request of the Company. Employee further agrees that Employee will not make
or retain any copies of any of the foregoing and will so represent to the
Company upon the termination of Employee's employment.
6. The Company and Employee agree that the Company would not have an
adequate remedy at law for money damages in the event that the provisions of
this Agreement are not complied with in accordance with their terms, and
therefore agree that in the event of any breach of any of these provisions by
the Employee, the Company shall be entitled to equitable relief by way of
injunction or otherwise, together with costs and expenses incurred by it,
including attorneys' fees, in addition to such other remedies as the Company may
have.
7. In the event, Employee violates the terms of this Nondisclosure and Non-
Competition section, and in the further event that Company is not made aware of
such violation until a point in time after which Employee has commenced engaging
in services similar to those engaged in by Company, for clients for whom Company
has provided services within three years of the date of Employee's termination
of employment, then in addition to the injunctive relief provide for in
subparagraph 6 above, Company shall be entitled to liquidated damages which
shall be based upon the revenues generated by Employee from Company's clients as
follows.
(a) Employee shall pay to Company one-third of all revenues collected by
Employee from Company's clients for a period of three (3) years from the
date on which Employee first collected revenues from any such Company
client.
The parties hereby acknowledge that the restrictive covenants contained in this
Agreement are fair and reasonable in light of all of the facts and circumstances
of the relationship between Employee and Company; however, Employee and Company
are aware that in certain
<PAGE>
circumstances courts have refused to enforce certain agreements not to compete.
Therefore, in furtherance and not in derogation of the provisions of this
Agreement, Company and Employee agree that in the event a court of competent
jurisdiction should for any reason decline to enforce any of said covenants,
that his Agreement shall be deemed to be modified to restrict Employee's
competition with Company to the maximum extent in time, geography and otherwise
as the court shall deem enforceable and/or to grant Company such other relief at
law or in equity as shall be reasonable necessary to protect the interest of
Company.
<PAGE>
Exhibit 10.11
-------------
EMPLOYMENT AGREEMENT
This Agreement is between Cellular Magnetics an Arizona corporation,
(hereinafter referred to as the "Company"), and David Putnam (hereinafter
referred to as "Employee").
8. Engagement. The Company hereby engages the Employee and the Employee
----------
hereby accepts engagement upon the terms and conditions hereinafter set forth.
Employee's compensation set forth herein shall be subject to all applicable
federal or state tax withholding provisions.
9. Term. Subject to the provisions for termination as hereafter provided,
----
the term of this Agreement shall be for a period of sixty (60) months commencing
on October 15, 1996. The parties hereby acknowledge and agree it is their
intent that: (a) any extension or renewal of this Agreement shall be concluded
at least Three (3) months prior to the expiration date of the initial sixty (60)
----------
months term and Three (3) months prior to the expiration date of any subsequent
extension or renewal term hereof; and (b) absent mutual agreement to the
contrary, the failure to conclude such extension or renewal by the dates
indicated shall be deemed notice to the Company and the Employee that the
Agreement shall not be extended.
10. Duties. The Employee shall, during the term of this Agreement, perform
------
the responsibilities and duties, exercise the powers and follow the instructions
which from time to time may be lawfully assigned to or vested in him by the
Board of Directors of the Company. It is agreed that during the term of this
Agreement, and for so long as no Event of Default has occurred hereunder, the
Employee will not accept an officership or directorship, participate in the
operation or management of or act as an Employee to any other company, which is
in the same line of business as or in competition with the Company unless it be
a company either owned or controlled by the Company, without the prior written
consent of the Board of Directors of the Company.
11. Extent of Services. Employee agrees to provide not less than 40 hours
------------------
per week of services to the Company for the compensation paid to the Employee.
Employee shall not be prevented from investing his assets in any manner, except
that in no event may the Employee make investments in any firms in competition
with, or in the business of supplying goods or services to the Company, unless
such investments are disclosed to and approved by the Board of Directors of the
Company.
12. Compensation. For services rendered by the Employee under this
------------
Agreement, the Company shall pay the Employee the compensation and bonus, and
grant such other benefits, as are set forth on Exhibit "A." If during the term
------------
of the Agreement the Employee is unavailable because of illness which prevents
Employee from performing his duties described herein, the Company shall be
obligated to pay the Employee for all such periods of absence; not to exceed
however three (3) months.
<PAGE>
13. Bonus and Stock Option Plans and Benefit Programs. The Company proposes
-------------------------------------------------
to establish certain bonus and stock option plans. During the term of this
Agreement, and as additional compensation, the Employee will be eligible to
participate in those plans currently in effect and as they may be amended from
time to time, so long as such plans remain in existence. Furthermore, during
the term of this Agreement, the Employee shall be entitled to participate in all
current or subsequently enacted benefit programs applicable to other officers,
directors, agent and employees of the Company. For purposes of this Agreement,
all references to stock option plans, bonus plans or benefit programs shall be
deemed to mean that Employee shall be eligible to participate in such plans or
programs of the Company in which Employee presently participates or is eligible
for, or such plans or programs of the Company that may subsequently be by the
Company. Options, if any, under this Agreement as are set forth on Exhibit "B."
-----------
14. Expenses. The Employee is authorized to incur reasonable expenses with
--------
regard to the business of the Company, including expenses for entertainment,
travel and other items of a similar character. The Company will reimburse the
Employee for all such expenses incurred by him in the performance of his duties
hereunder.
15. Termination by Company. This Agreement may be terminated by the Company
----------------------
as follows:
(a) If the Employee shall commit a breach of this Agreement, and such breach,
if capable of rectification, is not rectified within thirty (30) calendar
days of receipt by Employee from the Company of written notice requiring
him so to do.
(b) If the Employee shall be convicted of a felony criminal offense, or been
found in a judicial proceeding initiated after the date of this Agreement
by a court of competent jurisdiction, in a decision subject to no further
appeals, to have committed any dishonest or unlawful act or to have been
engaged or engaging in any conduct which might irreparably injure or tend
to injure the reputation or business of the Company
(c) If the Employee shall grossly, willfully or inexcusably neglect the
performance of Employee's duties as set forth herein. Such standard of
neglect shall however be determined only by the Board of Directors, based
upon written opinion of independent counsel and written advice to
Employee and unanimously approved by the full Board of Directors
especially convened for such purpose.
16. Termination by Employee. Employee may terminate this Agreement with or
-----------------------
without cause, and if terminated, the Company and Employee agree to abide by and
promptly honor the provisions of Section 10 of this Agreement. Cause for
----------
termination by Employee shall not consist of the Company's refusal to follow the
bona-fide professional recommendations of the Employee.
17. Payments Upon Termination by Company or Employee. It is agreed that if
------------------------------------------------
this Agreement is terminated payments and/or provisions for payments will be
made as follows:
<PAGE>
(a) If the Company terminates this Agreement on some basis other than for any
of the reasons as stated in Paragraph 8 hereof, the Company will take the
actions set forth in Subparagraphs (1) through (5) of this Paragraph. If
the Employee terminates this Agreement for cause, which shall be limited
to a failure by the Company to pay Employee his compensation, or a breach
by Employer of that certain Agreement and Plan of Merger of even date
herewith to which Employer and Employee are parties, the Company will
take all of the following actions:
(1) All stock options granted to the Employee pursuant to this Agreement
will become immediately vested for the full amount of Optioned
Shares and shall be exercised, if ever, in accordance with and
subject to the terms and provisions of the Company's Compensatory
Stock Option Plan and Employee's Stock Option Agreement; and
(2) The Employee will receive within fifteen (15) days of the effective
date of such termination, all compensation and all other benefits
that would have accrued and/or been payable to the Employee during
the term of this Agreement; and
(3) The Employee will be paid in full any other contractual benefits
Employee may have with the Company and be reimbursed for all un-
reimbursed accountable expenses; and
(4) Within ninety (90) days thereafter, Employee shall have the option,
upon giving Employer fifteen (15) days prior written notice, to
require Employer to redeem for cash all or any portion of the stock
of Employer then owned by Employee, at One Hundred percent (100%) of
its then fair market value.
(5) Within thirty (30) days after the effective date of such
termination, Employer shall pay to Employee the amount of any
Minimum Bonus payable to Employee during the first two (2) years
hereof, as set forth on Exhibit "A," Section B, which has not
theretofore been paid to Employee.
(b) If the Company terminates this Agreement for a reason or reasons set
forth in paragraph 9 hereof or the Employee terminates this Agreement
without cause, the Company will only be obligated to pay to the Employee
the actual amount of compensation accrued to the date of termination to
which Employee is otherwise entitled pursuant to this Employment
Agreement, including, but not limited to, the minimum bonus set forth on
Exhibit "A," Section B hereto and, all other payments or benefits recited
herein shall be canceled and terminated, without recourse.
18. Termination Due to Change in Control. INTENTIONALLY LEFT BLANK.
------------------------------------
19. Notices of Termination. All Notices of Termination provided for in this
----------------------
Agreement must be in writing and must provide for a minimum notice period of
Sixty (60) calendar days between the date of such notification and the effective
date of such termination.
<PAGE>
20. Arbitration. Any controversy or claim arising out of, or relating to
-----------
this Agreement, or the breach hereof, shall be settled by arbitration in the
City of Phoenix, Arizona in accordance with the then effective rules of the
American Arbitration Association. Such ruling shall be binding upon the parties.
21. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be sufficient if in writing, and if sent by registered or
certified mail to the Employee's residence in the case of the Employee, or to is
principal office in the case of the Company.
22. Waiver, Modification or Cancellation. Any waiver, altercation or
------------------------------------
modification of any of the provisions of this Agreement or cancellation or
replacement of this Agreement shall not be valid unless in writing and signed by
the Parties.
23. Binding Effect. This Agreement shall inure to the benefit of and be
--------------
binding upon the Company, its successors and assigns, including but not limited
to any entity which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged,
and the Employee, his successors, representatives and assigns, provided that the
duties of the Employee as described herein may not be delegated.
24. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall in no way affect the validity or enforceability of any
other provision.
25. Entire Agreement. This Agreement represents the entire Agreement between
----------------
the parties. Each party represents that there are no other oral, written,
express or implied contracts, agreements or understandings between them.
26. Authorization. Each party represents that he, she or it is duly
-------------
competent, authorized and capable of executing this Agreement as a valid,
binding and enforceable Agreement.
27. Governing Law. The substantive law of Arizona shall govern all the
-------------
terms, conditions and interpretations of this Agreement and all other
instruments, documents or agreements executed pursuant hereto. In the event of
litigation concerning this Agreement or any other instrument, document or
agreement relating to it, the parties hereto agree that the exclusive venue and
place of jurisdiction shall be the State of Arizona, County of Maricopa.
Further, each of Employee and Employer by execution hereof, irrevocably and
unconditionally consents to receive service of process and further agrees to
file a general appearance upon either acceptance of process by the other party
or actual service of process upon such party.
28. Nondisclosure and Non-Competition. Employee agrees to the terms and
---------------------------------
conditions of his obligations, if any, relating to nondisclosure and non-
competition as set forth on Exhibit "C."
------------
29. Specific Representations. Each party represents that:
------------------------
(a) The consideration recited herein shall conclusively be deemed fair,
adequate, reasonable and sufficient.
<PAGE>
(b) He, she or it has voluntarily and without fraud, duress, coercion, undue
influence or improper persuasion executed this Agreement
<PAGE>
DATED: October 8, 1996
Intercell Corporation
By: /s/ Gordon J. Sales By: /s/ David Putnam
-------------------- -----------------
Gordon J. Sales David Putnam
Chief Executive Officer Individually
and President
<PAGE>
EXHIBIT "A"
A. Base Compensation $47,623 annually
B. Bonus Compensation:
Minimum Bonus:
1. On or before October 1, 1997: $10,000
2. On or before October 1, 1998: $10,000
C. Performance Bonus:
Annually, based on _________ percent (____%) of the amount by which Net
Operating Profit exceeds One Hundred Thousand Dollars ($100,000.00).
For purposes hereof "Net Operating Profit" shall be as determined for
financial accounting purposes, without taking into consideration inter-
company expenditures, and expenses in excess of current (September 30, 1996)
expense ratios.
D. Fringe Benefits:
2 weeks paid vacation annually
<PAGE>
EXHIBIT "B"
<PAGE>
EXHIBIT "C"
NONDISCLOSURE AND NON-COMPETITION
---------------------------------
1. During the term of Employee's employment with the Company and for one (1)
year thereafter, and further provided that neither Company nor Intercell, Inc.
are then in default of any of their respective obligations to Employee under any
agreement to which they are parties, Employee shall not, directly or indirectly,
as principal, agent, employee, trustee, or in any like capacity, or through the
agency of any corporation, partnership, association, agent, agency or any other
like entity.
(a) engage in any business that is similar to the business conducted by the
Company, its subsidiaries or affiliates; or
(b) solicit any person (natural or otherwise) who is or has been within three
(3) years prior to the date Employee's association is terminated, a
customer or client of the Company, its subsidiaries or affiliates; or
(c) induce any present or future Employee or affiliate of the Company, its
subsidiaries or affiliates to accept employment or similar association
with the Employee or any person, firm, association, corporation or other
entity with whom the Employee is now or may hereafter become associated;
or
(d) in any manner interfere with, disrupt or attempt to disrupt the
relationship between the Company and/or any of its customers, or use in
any manner whatsoever, the Company's customer list, database, or trade
secrets.
2. The parties agree that in light of the specialized nature of the industry
and the national-customer base of the Company's business that the restrictions
set forth in Paragraph 1 hereof shall apply to Employee within the territory of
the United States of America.
3. In the event of a violation by Employee of any of the covenants contained
in this Agreement, it is mutually agreed that the term of said covenant and/or
covenants shall be automatically extended against Employee for a period of one
(1) year from the date on which Employee permanently ceases such violation or
for a period of time of one (1) year from the date of the entry by a Court of
competent jurisdiction of a final order or judgment enforcing said covenant(s),
whichever period is later. The extension of the term(s) of said covenant(s) as
provided in this sub-paragraph 3 shall be in addition to and not in lieu of the
remedies provided below.
4. Other than within the proper course of Employee's duties, the Employee
will not during or at any time after the termination of association with the
Company, use for himself or others or divulge or convey to others any secret or
confidential information, knowledge or data of the Company, its subsidiaries its
affiliates or that of third parties obtained by him during the period of his
employment with the Company. Such information, knowledge or data includes but
is not limited to secret or confidential matters.
<PAGE>
(a) of a technical nature such as but not limited to research methods, know-
how, reporting procedures, composition, processes, computer databases and
similar terms or research project.
(b) of a business nature such as but not limited to information about
finances, costs, profits, sales, contracts, transactions, or customer
lists, or
(c) pertaining to future developments such as but not limited to research and
development or future marketing or advertising programs.
Further, the Employee shall, during and after the period of Employee's
employment, diligently endeavor to prevent the publication or disclosure of any
such secret or confidential information, knowledge or data.
5. All forms, manuals, letters, notes, notebooks, reports, sketches,
formulas, computer programs and similar items, memoranda, client lists,
business, marketing and financial plans and studies and all other materials and
all copies thereof relating in any way to the business of the Company or of its
subsidiaries or affiliates and in any way obtained or produced by the Employee
during the period of his employment with the Company or its authorized
representative upon the termination of the employment or at any other time at
the request of the Company. Employee further agrees that Employee will not make
or retain any copies of any of the foregoing and will so represent to the
Company upon the termination of Employee's employment.
6. The Company and Employee agree that the Company would not have an
adequate remedy at law for money damages in the event that the provisions of
this Agreement are not complied with in accordance with their terms, and
therefore agree that in the event of any breach of any of these provisions by
the Employee, the Company shall be entitled to equitable relief by way of
injunction or otherwise, together with costs and expenses incurred by it,
including attorneys' fees, in addition to such other remedies as the Company may
have.
7. In the event, Employee violates the terms of this Nondisclosure and Non-
Competition section, and in the further event that Company is not made aware of
such violation until a point in time after which Employee has commenced engaging
in services similar to those engaged in by Company, for clients for whom Company
has provided services within three years of the date of Employee's termination
of employment, then in addition to the injunctive relief provide for in
subparagraph 6 above, Company shall be entitled to liquidated damages which
shall be based upon the revenues generated by Employee from Company's clients as
follows.
(a) Employee shall pay to Company one-third of all revenues collected by
Employee from Company's clients for a period of three (3) years from the
date on which Employee first collected revenues from any such Company
client.
The parties hereby acknowledge that the restrictive covenants contained in this
Agreement are fair and reasonable in light of all of the facts and circumstances
of the relationship between Employee and Company; however, Employee and Company
are aware that in certain
<PAGE>
circumstances courts have refused to enforce certain agreements not to compete.
Therefore, in furtherance and not in derogation of the provisions of this
Agreement, Company and Employee agree that in the event a court of competent
jurisdiction should for any reason decline to enforce any of said covenants,
that his Agreement shall be deemed to be modified to restrict Employee's
competition with Company to the maximum extent in time, geography and otherwise
as the court shall deem enforceable and/or to grant Company such other relief at
law or in equity as shall be reasonable necessary to protect the interest of the
Company.
<PAGE>
Exhibit 11
----------
INTERCELL CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------------------
Statement of operations data: 1996 1995 1994
----------- ---------- ---------
<S> <C> <C> <C>
Net (loss) (5,283,000) (1,321,000) (362,000)
========== ========== =========
Weighted average shares outstanding 11,779,787 7,391,275 4,828,007
Common equivalent shares from stock options
Average common and equivalent shares outstanding/(1)/ -- -- --
---------- ---------- ---------
11,779,787 7,391,275 4,828,007
========== ========== =========
Net (loss) per share (.45) (.18) (.08)
========== ========== =========
</TABLE>
________________
/(1)/ The difference between primary and fully diluted earnings per share is not
material.
<PAGE>
Exhibit 21
----------
SUBSIDIARIES OF THE COMPANY
The following is a list of the Company's wholly-owned subsidiaries:
. Arizcan Properties, Ltd., an Arizona corporation
. California Tube Laboratory, a California corporation
. Cellular Magnetics, Inc., an Arizona corporation
. Intercell Wireless Corp., an Arizona corporation
. Particle Interconnect Corporation, a Colorado corporation
<PAGE>
Exhibit 23.1
------------
Consent of Independent Auditors
The Board of Directors
Intercell Corporation:
We consent to incorporation by reference in the registration statement (No.
333-604) on Form S-8 of Intercell Corporation of our report dated December 6,
1996, relating to the consolidated balance sheets of Intercell Corporation and
subsidiaries as of September 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
ended September 30, 1996, and the eleven-month period ended September 30, 1995,
and the related schedule, which report appears in the September 30, 1996, annual
report on Form 10-K of Intercell Corporation.
/s/ KPMG Peat Marwick LLP
San Jose, California
January 8, 1997
<PAGE>
Exhibit 23.2
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As an independent public accountant, I hereby consent to the incorporation of
my report included in this Form 10-K into Intercell Corporation's previously
filed Registration Statement on Form S-8, No. 333-604.
/s/ Mark Shelley, CPA
January 1, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 4,224,000
<SECURITIES> 3,063,000
<RECEIVABLES> 746,000
<ALLOWANCES> 255,000
<INVENTORY> 1,066,000
<CURRENT-ASSETS> 10,625,000
<PP&E> 1,418,000
<DEPRECIATION> 142,000
<TOTAL-ASSETS> 13,826,000
<CURRENT-LIABILITIES> 2,060,000
<BONDS> 86,000
0
5,533,000
<COMMON> 12,187,000
<OTHER-SE> (6,040,000)
<TOTAL-LIABILITY-AND-EQUITY> 13,826,000
<SALES> 3,405,000
<TOTAL-REVENUES> 3,441,000
<CGS> 2,830,000
<TOTAL-COSTS> 8,601,000
<OTHER-EXPENSES> 33,000
<LOSS-PROVISION> 47,000
<INTEREST-EXPENSE> 54,000
<INCOME-PRETAX> (5,283,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,283,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,283,000)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
