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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
Commission file number 0-15148
---------------
SCIENTIFIC NRG, INCORPORATED
(Exact name of registrant as specified in its charter)
Minnesota
(State or Other Jurisdiction of Incorporation or Organization)
2246 Lindsay Way
Glendora, California 91740
(Address of Principal Executive Offices)
41-1457271
(I.R.S. Employer Identification No.)
Registrant's telephone number, including area code: (909) 305-0322
---------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. At May 15, 1997 the
registrant had 4,203,423 shares of common stock, no par value, issued and
outstanding.
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TABLE OF CONTENTS
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PAGE
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PART I
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ITEM 1. FINANCIAL STATEMENTS. 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. 3
PART II
ITEM 1. LEGAL PROCEEDINGS. 6
ITEM 2. CHANGES IN SECURITIES. 6
ITEM 3. DEFAULT UPON SENIOR SECURITIES. 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. 6
ITEM 5. OTHER INFORMATION. 7
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 8
</TABLE>
2
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PART I
ITEM 1. FINANCIAL STATEMENTS.
The Company's unaudited condensed balance sheet as of the end of the
Company's most recent quarter, March 31, 1997 and unaudited condensed statements
of operations for the three and nine month period and statements of cash flow
for the nine month period up to the date of the balance sheet and the comparable
period of the preceding fiscal year are attached hereto as pages F-1 through F-8
and are incorporated herein by this reference.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the Company's audited financial statements and management's Discussion and
Analysis of Financial Condition and results of Operations included in the
Company's Annual Report on Form 10-KSB, filed with the Securities and Exchange
Commission on December 23, 1996.
The following discussion includes "forward looking statements" ("FLS")
that represent management's assessment of future performance and its goals.
There are no assurances that the forward looking statements will be achieved.
RESULTS OF OPERATIONS
The three and nine month period ended March 31, 1997 compared to the
three and nine month period ended March 31, 1996.
The Company realized a net gain of $474,566, or $.13 per share for the
three month period ended March 31, 1997, compared to a net loss of $97,028 or
$(.05) per share for the corresponding period of the prior fiscal year. The
Company realized a net gain of $362,591, or $.12 per share for the nine month
period ended March 31, 1997, compared to a net loss of $227,653, or $(.11) per
share for the corresponding period of the prior fiscal year. Management
generally attributes these decreased losses to the Company's reduced overhead
and reduced interest expense and to the recognition of an extraordinary gain, as
further discussed below.
Net sales of the Company during the three months ended March 31, 1997
increased $72,683 or 89.9%. Accordingly for the third quarter ended March 31,
1997 the Company has realized an increase in sales from the corresponding period
of the prior fiscal year. Net sales of the Company during the nine months ended
March 31, 1997 decreased $54,470 or 12.3% from the corresponding period of the
prior fiscal year. The sales decrease for the nine months is attributable to a
decrease in volume during the first six months of the fiscal year caused by reps
not selling products due to the Company's inability to pay their commissions in
a timely manner. Management believes it has made substantial progress by mending
relationships with sales reps. At March 31, 1997 all liabilities are within
terms. Having made payments on past due amounts, management plans for sales from
reps to increase (FLS).
Gross profit from operations during the three months ended March 31,
1997 increased $54,714 or 209.0% from the gross profit from the corresponding
period of the prior fiscal year. This increase is a result of the third
quarter's increase in sales, as discussed above. Gross profit from operations
during the nine months ended March 31, 1997 decreased $26,304 or 15.2% from the
gross profit from the corresponding period of the prior fiscal year. Management
attributes this decrease to the Company's decrease in sales for the first six
months of the fiscal year, as discussed above.
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General, administrative and selling costs for the three months ended
March 31, 1997 decreased by $14,773, and decreased as a percentage of sales
from 125.3% of sales to 56.1% of sales in comparison to the corresponding period
of the prior fiscal year. General, administrative and selling costs for the nine
months ended March 31, 1997 decreased by $47,574, and decreased as a percentage
of sales from 75.0% of sales to 73.3% of sales in comparison to the
corresponding period of the prior fiscal year.The reduction in overhead for the
three months ended March 31, 1997is a result of management's efforts to reduce
costs.
Other income for the three and nine months, respectively ended March
31, 1997 increased by $22,177 and $63,565 in comparison to the corresponding
period of the prior fiscal year. The increase of $63,565 is net of $85,819
discounts negotiated with vendors, (see Note 5, "Common Stock"), less the $
22,254 loss from the disposal of the Company's outdated computer equipment.
On February 4, 1997 the related party debt and accrued interest
totaling $652,179, (see Item 5, "Other Information"), was converted to equity
for 382,373 shares of common stock. At the time of conversion the Company was
offering shares at $.50 per share through a private placement (see Note 6,
"Private Placement"). The Company recorded the debt conversion during the
quarter ended March 31, 1997 as an issuance of common stock for $191,187 and
recognized the difference between the carrying value of the debt in such stock
issuance as an extraordinary gain on relief of indebtedness totaling $460,992.
LIQUIDITY AND CAPITAL RESOURCES
The nine month period ended March 31, 1997 compared to the nine month
period ended March 31, 1996.
The Company had a negative cash flow from operating activities for the
nine month period ended March 31, 1997 of $209,546 compared to a negative cash
flow of $147,052 for the nine month period ended March 31, 1996. The increase
in negative cash flow compared to the previous period can be attributed to a
reduction of outstanding liabilities to vendors and sales reps.
At March 31, 1997, the Company had net working capital of $174,659,
compared to a net working capital deficit of $256,250 at June 30, 1996. The
increase in working capital of $430,909, is primarily the result of the
"Conversion of the related party debt to common stock", as noted below. Also see
Note 7 to the unaudited condensed financial statements at Part I - Item 1.
On February 4, 1997 the related party debt and accrued interest
totaling $652,179, (see Item 5, "Other Information"), was converted to equity
for 382,373 shares of common stock. At the time of conversion the Company was
offering shares at $.50 per share through a private placement (see Note 6,
"Private Placement"). The Company recorded the debt conversion during the
quarter ended March 31, 1997 as an issuance of common stock for $191,187 and
recognized the difference between the carrying value of the debt in such stock
issuance as an extraordinary gain on relief of indebtedness totaling $460,992.
4
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The Company issued 723,000 shares of common stock at $.50 per share.
The offering closed March 31, 1997. At March 31, 1997 the Company had
subscriptions receivable of $71,500. These subscriptions were paid in full in
April 1997. The proceeds will be used for working capital. The Company received
cash of $299,000 for 598,000 shares. Further the Company issued 25,000 shares
in connection with legal services rendered and 20,000 shares in connection with
future legal services. Additionally the Company issued 80,000 shares for eight
months of services to be rendered under the administrative services agreement.
These shares were exempt from registration under Section 4(2) of the Securities
Act. See "Private Placement", (Note 6).
Management believes its plans will be sufficient to support operations
during the year ending June 30, 1997 (FLS). Part of management's operational
strategy include expanding product lines and related sales. Management intends
to augment working capital via profit from operations. However, there are no
assurances that such efforts to improve operating results will be successful.
The Company may be unable to continue operations and there can be no assurances
regarding the recoverability of assets or their values upon liquidation.
5
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PART II
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
During the quarter ended March 31, 1997, the Company issued 382,373
shares of its common stock, no par value, in exchange for the cancellation of
certain Subordinated Cash Flow Promissory Notes dated September 30, 1996. See
Exhibit 10.60 attached hereto.
Further during the quarter ended March 31, 1997, the Company sold
723,000 shares of its common stock, no par value, at a price of $0.50 per share,
in a private placement, exempt from registration under Section 4(2) of the
Securities Act. See "Private Placement", (Note 6).
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
At the Special Meeting of Shareholders of the Company held on October
24, 1996, the following persons were nominated and elected as directors of the
Company; Daniel Parke, Jonathan Forgy, and Oliver Washburn.
The board reviewed the results from the Special Meeting of Shareholders
and announced that the following resolutions were approved by a majority of the
voting power of the shares present and entitled to vote.
Amend the Articles of Incorporation to increase the number of
authorized shares of common stock to 40,000,000 shares of no par value common
stock, up from the current 15,000,000 authorized shares of no par value common
stock.
Amend the Articles of Incorporation to decrease the number of
outstanding shares of common stock through the implementation of a 5:1 reverse
split of all issued and outstanding shares of common stock.
The directors appointed the following persons to serve as officers of
the Company at the pleasure of the board: Daniel Parke, Chief Executive Officer;
Jonathan Forgy, President; Tami Miller, Secretary; and Oliver Washburn,
Treasurer.
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ITEM 5. OTHER INFORMATION.
Below is a description of the "Workout Agreement" dated September 11,
1996. On February 4, 1997 the long-term debt and accrued interest of $652,179
was coverted to equity, see Conversion of related party debt to common stock,
(Note 7).
On September 11, 1996, the board of directors of the Company approved a
formal Workout Agreement (the "Workout Agreement") which provided a method to
[1] restructure outside of bankruptcy existing debt payable to certain related
parties, [2] provide for a change in the Company's officers and directors, and
[3] issue additional notes payable and additional shares of common stock of the
Company in order to finance operations.
On September 11, 1996, two of the Company' s Board of Directors,
Malcolm L. Fickel who was the Company's chief executive officer and Thomas C.
Moceri who was the Company's chief financial officer, resigned from their
positions as directors and officers of the Company. The Board of Directors then
entered into a one year consulting contract with the former chief executive
officer beginning September 12, 1996, that provides for services to be rendered
to the Company, at management's request, at the rate of $75 per hour. Two new
directors were appointed, Daniel W. Parke who was named as the Company's chief
executive officer and Jonathan D. Forgy who was named as the Company's
president. The two new officers and directors are affiliates of Parke
Industries, Inc., an affiliated company controlled by Dan Parke.
As part of the Workout Agreement, Parke Industries, Inc. and its
affiliates acquired 600,000 shares of the Company's common stock at $0.10 per
share on September 11, 1996. The purchase price consisted of $20,000 for future
administrative services at the rate of $5,000 per month for four months from
Parke Industries, Inc. and $40,000 in cash from Parke Industries, Inc. and its
affiliates. The Company's new chief executive officer was given a salary of $12
per year and options to purchase 300,000 shares of common stock exercisable at
$0.50 per share. The Company's new president was given a salary of $24,000 per
year, later raised to $48,000, and options to purchase 100,000 shares of common
stock exercisable at $0.50 per share. In addition, the Company granted options
to purchase 200,000 shares of common stock exercisable at $.50 per share to
Parke Industries, Inc.
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Effective September 11, 1996, certain outstanding debt obligations to
related parties were renegotiated to an aggregate principal amount of $558,500.
These related party obligations totaled $630,067, including accrued interest of
$100,308, at June 30, 1996. Moreover, the outstanding debt obligations to the
related parties had increased to $652,179 by September 10, 1996 due to
additional borrowings and accrued interest. The accrued interest of $93,679
($652,179 less $558,500) will not be recognized as a gain on the restructuring
of the debt in accordance with Statement of Financial Accounting Standards No.
15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring."
Instead, the effective interest rate of the restructured notes payable will be
reduced for financial statement reporting purposes. (The above debt of
$652,179 was converted to equity in 1997, see "Conversion of related party debt
to common stock", Note 7).
The Workout Agreement provided for the issuance of 20,000 shares of
common stock to the Company's former chief executive officer to fulfill the
Company's obligation under his service contract. Such shares were valued at
$0.10 per share and were charged to operations in fiscal 1997. The Workout
Agreement also provided for the issuance of notes payable to certain related
parties totaling $60,000 due on or about January 10, 1997, together with
interest at 15% per annum, and secured by all of the assets of the Company. On
September 19, 1996, the Company issued 140,000 shares of no par value common
stock of the Company at $.20 per share for the payment of legal services
rendered in connection with the Workout Agreement. The value of such shares
totals $28,000, of which $10,000 was expensed is fiscal 1996 and $18,000 was
expensed in fiscal 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits filed concurrently with this report (and referenced in the
Exhibit Index) have thirteen asterisks in the left margin, and are hereby
incorporated herein by this reference.
Exhibits previously filed with the Company's quarterly report on Form
10-QSB for the quarterly period ended December 31, 1996 have twelve asterisks in
the left margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's quarterly report on Form
10-QSB for the quarterly period ended September 30, 1996 have eleven asterisks
in the left margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's quarterly report on Form
10-Q for the quarterly period ended March 31, 1996 have ten asterisks in the
left margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's quarterly report on Form
10-Q for the quarterly period ended September 30, 1995 have nine asterisks in
the left margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's quarterly report on Form
10-K for the fiscal year ended June 30, 1995 have eight asterisks in the left
margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's quarterly report on Form
10-Q for the quarterly period ended December 31, 1994 have seven asterisks in
the left margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1994 have six asterisks in the left margin,
and are hereby incorporated herein by this reference.
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Exhibits previously filed with the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1993 have five asterisks in the left margin,
and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's quarterly report on Form
10-Q for the quarterly period ended March 31, 1993 have four asterisks in the
left margin, and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1992 have three asterisks in the left margin,
and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1991 have two asterisks in the left margin,
and are hereby incorporated herein by this reference.
Exhibits previously filed with the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1989 have one asterisk in the left margin,
and are hereby incorporated herein by this reference.
Finally, all Exhibits previously filed with the Securities and Exchange
Commission as part of the Company's initial Form 10 filing on or about November
12, 1986 or in other reports filed pursuant to the Securities Exchange Act of
1934 have no asterisk in the left margin, and are hereby incorporated herein by
this reference.
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** 3.1 Articles of Incorporation as in effect on the date hereof
(including Amendment thereto effective December 28, 1988).
************ 3.2 Articles of Incorporation as in effect on the date hereof
(including Amendment thereto effective November 20, 1996).
** 3.3 Bylaws.
4.1 Specimen of Issued and Outstanding Restricted Share
Certificate and reverse side thereof (see also Exhibits 3.1
and 3.3).
4.6 Incentive Stock Option Plan.
10.7 Agreement (assigning patent rights).
10.8 Agreement Between Scientific Component Systems, Inc. and NRG,
Inc., June 29, 1983.
10.9 Agreement, July, 1983 (assigning patent rights, with Exhibit
10.7 as exhibit).
10.10 Assignment of Patent Rights from Scientific Component Systems,
Inc. to NRG, Inc., April 20, 1984.
10.11 Assignment of Patent Rights from Rhett McNair and James
Helling to NRG, Inc., April 20, 1984.
</TABLE>
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<TABLE>
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10.12 Assignment of Patent Rights from Rhett McNair, James Helling,
William R. Ingles and Gerald L. Fullerton to NRG, Inc., April
20, 1984.
10.13 Agreement Assigning Patent Rights from Scientific Component
Systems, Inc., to NRG, Inc., April 20, 1984.
** 10.14 Assignment with Possibility of Reverter of Patent Rights from
Rhett McNair to NRG, Inc., January 21, 1986.
10.20 Form of Warrant Certificate.
*** 10.27 New Lease for Company Headquarters in Tustin, California.
* 10.28 Royalty Agreement with Rhett McNair.
* 10.29 Consulting Agreement with MLF & Associates, Inc., April 1,
1990.
*** 10.30 Promissory Note Payable to Oliver Washburn and Extension
Thereto.
*** 10.31 Promissory Note Payable to Malcolm Fickel and Extension
Thereto.
*** 10.32 Promissory Note Payable to Malcolm Fickel and Extension
Thereto.
*** 10.33 Promissory Note Payable to Malcolm Fickel and Extension
Thereto.
*** 10.34 Promissory Note Payable to Malcolm Fickel and Extension
Thereto.
*** 10.35 Deferred Compensation Agreement Between the Company and Malcolm
Fickel.
*** 10.36 Line of Credit Agreement with Bank.
*** 10.37 Promissory Note Payable to Peter C. Kreft.
**** 10.38 Stock Purchase Agreement Between the Company and MLF &
Associates, Inc. Retirement Trust, April 30, 1993.
**** 10.39 Stock Purchase Agreement Between the Company and Malcolm L.
Fickel, April 30, 1993.
**** 10.40 Stock Purchase Agreement Between the Company and Oliver K.
Washburn, April 30, 1993.
**** 10.41 Stock Purchase Agreement Between the Company and Peter C.
Kreft, April 30, 1993.
**** 10.42 Stock Purchase Agreement Between the Company and Thomas C.
Moceri, April 30, 1993.
***** 10.43 Financing Agreement Between the Company and Pre-Banc Business
Credit, Inc., May 21, 1993.
***** 10.44 Addendum to Consulting Agreement between the Company and
Malcolm L. Fickel, June 30, 1993.
</TABLE>
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***** 10.45 Leasing Agreement Between the Company and Auto Car Leasing
Company, September 9, 1993.
***** 10.46 Stock Warrant Agreement Between the Company and Eddie R.
Fischer, September 9, 1993.
******* 10.47 Note and Revolving Loan Agreement Between the Company and
William T. Moceri, IRA, November 15, 1994.
******** 10.48 Promissory Note Payable to Thomas C. Moceri, Trustee, Thomas C.
Moceri Profit Sharing Plan, September 28, 1994.
******** 10.49 Promissory Note Payable to Oliver Washburn, March 7, 1995.
******** 10.50 Promissory Note Payable to Oliver Washburn, March 7, 1995.
******** 10.51 General Release Agreement Between the Company and Peter Kreft,
June 9, 1995.
********* 10.52 Promissory Note Payable to Oliver Washburn, September 14, 1995.
********** 10.53 Promissory Note Payable to Oliver Washburn, November 13, 1995.
********** 10.54 Promissory Note Payable to Oliver Washburn, April 26, 1996.
*********** 10.55 Promissory Note Payable to Oliver Washburn, July 18, 1996.
*********** 10.56 Workout Agreement dated August 30, 1996
*********** 10.57 Secured Promissory Note to Malcolm L. Fickel , September 11,1996
*********** 10.58 Secured Promissory Note to Oliver K. Washburn , September 11,1996
*********** 10.59 Subordinated Cash Flow Promissory Note to Oliver K. Washburn,
September 30 , 1996
*************10.60 Debt For Equity Swap Agreement
*************10.61 Administrative Services Agreement
*************10.62 Non-Qualified Stock Option Agreement
*************10.63 Employment agreement with Jonathan D. Forgy
*************10.64 Employment agreement with Daniel W. Parke
28.2 Patent No. 4,520,436 (X-18 Series Downlight).
** 28.4 Patent No. 4,595,969 (Lamp Mounting Apparatus and Method).
** 28.5 Patent No. 4,641,228 (Lamp Mounting Apparatus and Method).
** 28.6 Patent No. 4,700,110 (Lamp Switching).
** 28.7 Patent No. 4,704,664 (Lamp Apparatus).
** 28.8 Trademarks Registered (Lightning Bolt Logo, Scientific NRG Component Systems, SCS,
X-18) and Notice of Publication of Trademark, "Switchit".
****** 28.9 Patent No. 4,922,393 (Lamp Apparatus).
</TABLE>
(b) Reports on Form 8-K
No reports were filed during the quarter ended March 31, 1997 on form
8-K.
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SCIENTIFIC NRG, INCORPORATED
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
CONDENSED BALANCE SHEETS
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March 31, June 30,
1997 1996
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ASSETS (Unaudited)
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CURRENT ASSETS
Cash .................................................... $ 46,586 $ --
Trade receivables, less allowance for
doubtful accounts at March 31 of $5,702
and June 30, 1996 of $9,812 ........................... 21,388 57,982
Subscriptions Receivable ................................ 71,500 --
Inventories (Note 2) .................................... 73,070 88,635
Prepaid expenses ........................................ 58,543 2,364
---------- ----------
Total current assets ............................. 271,087 148,981
EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
at depreciated cost ..................................... 5,564 26,441
OTHER ASSETS, deposits .................................... -- 4,809
---------- ----------
$ 276,651 $ 180,231
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Line of credit (Note 3) ................................. $ -- $ 44,220
Current obligations under capital leases ................ -- 6,059
Accounts payable ........................................ 44,049 241,711
Accrued compensation .................................... -- 58,161
Accrued interest to related parties ..................... -- --
Other accrued expenses .................................. 52,379 55,080
---------- ----------
Total current liabilities ......................... 96,428 405,231
Obligations under capital leases ........................ -- 9,089
Notes Payable to related parties (Notes 3 and 7) ........ -- 358,159
Accrued interest to related parties (Notes 3 and 7) ..... -- 100,308
Accrued service contract to related party (Notes 3 and 7) -- 175,500
---------- ----------
Total liabilities ................................. 96,428 1,048,287
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value;
authorized 40,000,000 shares;
issued and outstanding:
March 31,1997 4,203,423 shares
June 30, 1996 2,166,050 shares ...................... 3,556,707 2,871,020
Accumulated deficit ..................................... (3,376,484) (3,739,076)
---------- ----------
Total stockholders' equity (deficit) .............. 180,223 (868,056)
---------- ----------
$ 276,651 $ 180,231
========== ==========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F - 1
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SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ............................. $ 153,475 $ 80,792 $ 388,737 $ 443,207
Cost of sales ......................... 72,703 54,734 241,896 270,062
---------- --------- ---------- ---------
Gross profit .......................... 80,772 26,058 146,841 173,145
Operating expenses:
General, administrative,
and selling costs ................. 86,517 101,290 285,021 332,595
Research and development ............ 1,111 379 3,944 4,101
---------- --------- ---------- ---------
Loss from operations .................. (6,856) (75,611) (142,124) (163,551)
Other income (Note 5) ................. 22,177 -- 63,565 --
Interest expense ...................... (1,547) (21,217) (19,242) (63,502)
---------- --------- ---------- ---------
Income (loss) before extraordinary
item and income taxes .............. 13,774 (96,828) (97,801) (227,053)
Income tax provision .................. (200) (200) (600) (600)
---------- --------- ---------- ---------
Income (loss) before extraordinary item 13,574 (97,028) (98,401) (227,653)
Extraordinary gain on conversion of
debt to common stock,
net of $0 tax, (Note 7) ............ 460,992 -- 460,992 --
---------- --------- ---------- ---------
Net income (loss) ..................... $ 474,566 $ (97,028) $ 362,591 $(227,653)
========== ========= ========== =========
Weighted average number
of shares outstanding ............... 3,525,293 2,104,050 2,960,346 2,104,050
---------- --------- ---------- ---------
Income (loss) per share:
From continuing operations ......... $ -- (0.05) (0.03) (0.11)
Extraordinary gain ................. 0.13 -- 0.15 --
---------- --------- ---------- ---------
Net income (loss) per common share .... $ 0.13 $ (0.05) $ 0.12 $ (0.11)
========== ========= ========== =========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F - 2
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SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Nine Months Ended March 31, 1997
(UNAUDITED)
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<CAPTION>
Common Stock
--------------------------- Accumulated Stockholders'
Shares Amount Deficit Equity (Deficit)
------ ------ ----------- ----------------
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Balance, June 30, 1996 .................. 2,166,050 $2,871,020 $(3,739,076) $(868,056)
Common stock issued for cash and
services to be rendered under the
workout agreement (Note 4) ............ 600,000 60,000 -- 60,000
Common stock issued in connection
with legal services rendered (Note 4) . 140,000 28,000 -- 28,000
Common stock issued in connection
with services rendered under
the service contract (Note 4) ......... 20,000 2,000 -- 2,000
Net loss - First Quarter ................ -- -- (90,768) (90,768)
--------- ---------- ----------- ---------
Balance, September 30, 1996 ............. 2,926,050 2,961,020 (3,829,844) (868,824)
Common stock issued for cash (Note 5) ... 172,000 43,000 -- 43,000
Net loss - Second Quarter ............... -- -- (21,206) (21,206)
--------- ---------- ----------- ---------
Balance, December 31, 1996 .............. 3,098,050 3,004,020 (3,851,050) (847,030)
Common stock issued for cash (Note 6) ... 598,000 299,000 -- (299,000)
Common stock issued in connection
with legal services rendered (Note 6) . 25,000 12,500 -- 12,500
Common stock issued in connection
with future legal services (Note 6) ... 20,000 10,000 -- 10,000
Common stock issued for services
to be rendered under the administrative
services agreement (Note 6) ........... 80,000 40,000 -- 40,000
Common stock issued in connection
with the cancellation of debt (Note 7) 382,373 191,187 -- 191,187
Net income - Third Quarter .............. -- -- 474,566 474,566
--------- ---------- ----------- ---------
Balance, March 31, 1997 ................. 4,203,423 $3,556,707 $(3,376,484) $ 180,233
========= ========== =========== =========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F - 3
<PAGE> 15
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF CASH FLOW Nine Months
Ended March 31, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers ............... $ 369,831 $ 497,472
Cash paid to suppliers and employees ....... (572,507) (620,594)
Interest paid .............................. (6,870) (23,930)
--------- ---------
Net cash used in operating activities ... (209,546) (147,052)
--------- ---------
CASH FLOW USED IN INVESTING ACTIVITIES
Purchase of equipment and
leasehold improvements ................... (5,000) --
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Net decrease in line of credit ............. (44,220) (45,729)
Proceeds from advances and notes from
Company's officer and/or director ........ 70,000 170,000
Principal payments under
capital lease obligations ................ (15,148) (6,668)
Principal payments on advances ............. (60,000) --
Proceeds from issuance of common stock ..... 310,500 --
--------- ---------
Net cash provided by financing activities 261,132 117,603
--------- ---------
Net increase (decrease) in cash ......... 46,586 (29,449)
CASH
Beginning of period ........................ -- 19,599
--------- ---------
Ending of period ........................... $ 46,586 $ (9,850)
========= =========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F - 4
<PAGE> 16
SCIENTIFIC NRG, INCORPORATED
CONDENSED STATEMENTS OF CASH FLOW (Continued)
Nine Months Ended March 31, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH USED IN OPERATING ACTIVITIES
Net Income (loss) ....................................... $ 362,591 $ (227,653)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Non-cash interest expense ............................. 18,212 --
Depreciation and amortization ......................... 3,625 5,465
Provision for doubtful accounts ....................... (4,110) 9,000
Loss on disposal of fixed assets ...................... 22,252 --
Compensation expense arising from
professional services and service contracts ......... 52,500 --
Extraordinary gain from debt conversion to equity ..... (460,992) --
Write off of other assets - deposits .................. 4,809 --
Change in assets and liabilities:
Trade receivables ................................. 40,704 43,460
Inventories ....................................... 15,565 (32,330)
Prepaid expenses and deposits ..................... (6,179) 2,940
Accounts payable, accrued compensation
and other accrued expenses ...................... (259,123) 9,372
Accrued interest payable .......................... -- 42,094
Accrued Income Taxes .............................. 600 600
--------- ---------
Net cash used in operating activities ................ $(209,546) $(147,052)
========= =========
</TABLE>
See accompanying notes to unaudited
condensed financial statements
F - 5
<PAGE> 17
SCIENTIFIC NRG, INCORPORATED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
In the opinion of the Company's management, the accompanying unaudited condensed
financial statements include all adjustments (consisting of normal accruals)
necessary for the fair presentation of its financial position at March 31, 1997,
results of operations for the three and nine months ended March 31, 1997 and
1996 and cashflows for the nine months ended March 31, 1997 and 1996. Although
the Company believes that the disclosures in these financial statements are
adequate to make the information presented not misleading, certain information
and disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These financial statements should be read in conjunction with the
Company's audited financial statements included in the Company's Annual Report
on Form 10-KSB filed with the Securities and Exchange Commission on December 23,
1996. Operating results for the three and nine month periods ended March 31,
1997 are not necessarily indicative of the results that may be expected for the
Company's entire year ending June 30, 1997. The Financial Accounting Standards
Board has issued Statement of Financial Accounting Standards 128, "Earnings per
Share" (SFAS 128), which is effective for financial statements issued for
periods ending after December 15, 1997. The effect of adopting SFAS 128 has not
yet been determined.
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost or net realizable value. Cost is
determined under the standard cost method. Costs include materials, direct
labor, and an allocable portion of manufacturing overhead. The Company operates
in an industry in which its products are subject to design changes and
manufactured based upon customer specifications. Accordingly, should design
requirements change significantly or customer orders be canceled, the ultimate
net realizable value of such products could be less than the carrying value of
such amounts. At March 31, 1997, management believes that inventories are
carried at their net realizable value.
NOTE 3. LINE OF CREDIT, BRIDGE NOTES AND RELATED PARTY NOTES PAYABLE
The Line of Credit was paid in full in October 1996. In September 1996 the
Company borrowed $60,000 in Bridge Notes from related parties as more fully
explained under Item 5 "Other Information". Subsequent to June 30, 1996, all
notes payable, related accrued interest and the accrued service contract
obligation to related parties were restructured as part of the Workout Agreement
(see Note 4). Such amounts were converted to common stock on February 4, 1997,
(see Note 7). As of March 31,1997 these bridge notes are paid in full.
F-6
<PAGE> 18
SCIENTIFIC NRG, INCORPORATED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4. WORKOUT AGREEMENT
On September 11, 1996 , the board of directors of the Company approved a formal
Workout Agreement (the "Workout Agreement") which provided a method to [1]
restructure outside of bankruptcy existing debt payable to certain related
parties, [2] provide for a change in the Company's officers and directors, and
[3] issue additional notes payable and additional shares of common stock of the
Company in order to finance operations (see Item 5, "Other Information" and
Note 7, "Conversion of related party debt").
NOTE 5. COMMON STOCK
In November 1996 the Company received subscriptions from officers and existing
shareholders to purchase 172,000 shares at $.25 per share. The proceeds were
needed to settle certain accounts payable at discounts of 70% off of face value.
For the three and nine months ended March 31, 1997 the Company had paid
settlements to vendors resulting in discounts to the Company of $22,177 and
$85,819, respectively. Such amounts have been included in Other Income in the
unaudited condensed statement of operations and presented net of a $22,254 loss
on the disposal of the outdated computer system, for the nine months ended March
31, 1997.
NOTE 6. PRIVATE PLACEMENT
The Company issued 723,000 shares of common stock at $.50 per share. The
offering closed March 31, 1997. At March 31, 1997 the Company had subscriptions
receivable of $71,500. These subscriptions were paid in full in April 1997. The
proceeds will be used for working capital. The Company received cash of
$299,000 for 598,000 shares. Further the Company issued 25,000 shares in
connection with legal services rendered and 20,000 shares in connection with
future legal services. Additionally the Company issued 80,000 shares for eight
months of services to be rendered under the administrative services agreement.
F-7
<PAGE> 19
SCIENTIFIC NRG, INCORPORATED
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7. CONVERSION OF RELATED PARTY DEBT TO COMMON STOCK (SEE EXIBIT 10.60)
On February 4, 1997 the related party debt and accrued interest totaling
$652,179, (see Item 5, "Other Information"), was converted to equity for
382,373 shares of common stock. At the time of conversion the Company was
offering shares at $.50 per share through a private placement (see Note 6,
"Private Placement"). The Company recorded the debt conversion during the
quarter ended March 31, 1997 as an issuance of common stock for $191,187 and
recognized the difference between the carrying value of the debt in such stock
issuance as an extraordinary gain on relief of indebtedness totaling $460,992.
F-8
<PAGE> 20
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May 20, 1997
SCIENTIFIC NRG, INCORPORATED,
a Minnesota Corporation
By: /s/ Daniel W. Parke
-------------------------
Name: Daniel W. Parke
Title: Chairman and CEO
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 in the capacities and on the dates indicated.
Signatures Date
---------- ----
By: /s/ Daniel W. Parke May 20, 1997
-----------------------------
Name: Daniel W. Parke
Title: Chairman and CEO
By: /s/ Oliver K. Washburn May 20,1997
-----------------------------
Name: Oliver K. Washburn
Title: Treasurer and Principal
Financial Officer
12
<PAGE> 21
Index to Exhibits
10.60 Debt For Equity Swap Agreement
10.61 Administrative Services Agreement
10.62 Non-Qualified Stock Option Agreement
10.63 Employment Agreement with Jonathan D. Forgy
10.64 Employment Agreement with Daniel W. Parke
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.60
DEBT FOR EQUITY SWAP AGREEMENT
This Debt for Equity Swap Agreement ("Agreement") is made this 27th day of
January 1997 between Scientific NRG, Incorporated, a Minnesota corporation
("Company"), and Oliver K. Washburn, Malcolm L. Fickel, William T. Moceri, and
Thomas C. Moceri ("Noteholders").
WHEREAS, the Company desires to issue shares of its no par value common
stock (the "Shares") in exchange for the return and cancellation of those
certain Subordinated Cash Flow Promissory Notes dated September 30, 1996 (the
"Notes") held by Noteholders and Noteholders desire to receive the Shares in
exchange for the Notes; and
WHEREAS, the rate of exchange for the debt for equity swap shall be 1
share of no par value common stock of the Company for each $1.50 of principal
and accrued interest as of January 31, 1997 on the Notes.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Company agrees to issue to Noteholders 382,373 Shares in exchange for the
return and cancellation of the Notes and Security Agreement and release of the
UCC-1 financing statement. The amount of Shares to be issued to each Noteholder
under this Agreement is set forth on the signature page hereof.
2. Noteholders agree to accept the Shares in exchange for the Notes and to
return and cancel the Notes and Security Agreement and release the UCC-1
financing statement. Further, the Noteholders understand and agree that the
Shares will be issued with a restrictive legend to the effect that: "The shares
represented by this certificate have not been registered under the Securities
Act of 1933 (the "Act") and are "restricted securities" as that term is defined
in Rule 144 under the Act. The shares may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration statement
under the Act or pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of the Company."
3. As further consideration for the execution and performance of this
Agreement, Company promises to pay in full those certain Secured Promissory
Notes dated September 11, 1996 in the aggregate principal amount of $60,000 plus
accrued interest, collectively referred to as the Bridge Loans, on or before
February 5, 1997.
4. Company and Noteholders appoint Richard O. Weed, attorney at law, to act
as escrow agent on the transaction and Mr. Weed shall perform the following:
For the Company: As soon as feasible, upon receipt of the Shares from the
Company and sufficient funds to discharge the Bridge Loans, Mr. Weed shall
notify the Noteholders of the foregoing. Upon receipt of the Notes and Security
Agreement, and other documents sufficient to release the UCC-1 financing
statement, Mr. Weed shall immediately issue checks made payable to the holders
of the Bridge Loans and shall send the checks and the Shares to the proper
parties by Federal Express overnight courier service.
<PAGE> 2
For the Noteholders: As soon as feasible, upon receipt of the
Notes and Security Agreement, and other documents sufficient to release the
UCC-1 financing statement, Mr. Weed shall notify the Company of the foregoing.
Upon receipt of the Shares and funds to discharge the Bridge Loans, Mr. Weed
shall send the Notes and Security Agreement to the Company by Federal Express
overnight courier service. Further, Mr. Weed shall file with the California
Secretary of State the documents necessary to release the UCC-1 financing
statement.
In the event the foregoing does not occur on or before February
5, 1997, Mr. Weed shall return all documents and funds to the respective parties
delivering same, without further duty or obligation to the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date set forth above.
Scientific NRG, Incorporated
By: /s/ JONATHAN D. FORGY
---------------------
Name: Jonathan D. Forgy
Title: President
/s/ OLIVER K. WASHBURN
- -----------------------
Oliver K. Washburn, Noteholder [167,737 Shares]
/s/ MALCOLM L. FICKEL
- ----------------------
Malcolm L. Fickel, Noteholder [120,155 Shares]
/s/ WILLIAM T. MOCERI
- ----------------------
William T. Moceri, Noteholder [75,311 Shares]
/s/ THOMAS C. MOCERI
- ----------------------------
Thomas C. Moceri, Noteholder [19,170 Shares]
Approved and Accepted:
/s/ RICHARD O. WEED
- ---------------------------
Richard O. Weed, Escrow Agent
<PAGE> 1
EXHIBIT 10.61
ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT is entered into by and between
Parke Industries, Inc. ("Parke Industries") and Scientific NRG, Incorporated
("Scientific") on this 28th day of February 1997 to be effective as of January
1, 1997.
WHEREAS, Scientific has requested that Parke Industries provide Scientific
with administrative services; and
WHEREAS, Parke Industries desires to provide Scientific with
administrative services upon the terms and conditions set forth herein.
NOW THEREFORE, for and in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Parke Industries agrees to provide Scientific with administrative services
for the calendar year 1997. The administrative services to be provided hereunder
include accounting services, payroll services, employee benefits administration
services, use of computer equipment and software, temporary manufacturing
employees, manufacturing space, warehouse space, telephone equipment, and
utilities.
2. Scientific agrees that the services contracted for herein are reasonably
worth Five Thousand Dollars ($5,000) per month or a total of $60,000 for the
term of this Agreement. Scientific agrees to pay Parke Industries monthly, in
arrears, for the services rendered hereunder.
3. This Agreement will automatically terminate on December 31, 1997, unless
renewed or extended by the parties hereto.
4. Scientific and Parke Industries agree that the services provided herein
shall be performed by Parke Industries, its officers, employees and/or agents
from time to time under the direction and supervision of Scientific's officers
and directors.
5. This agreement contains the entire agreement between the parties hereto
and supersedes any and all prior agreements, arrangements, or understandings
between the parties relating to the subject matter hereof
6. If any part of this agreement is deemed to be unenforceable the balance of
the agreement shall remain in full force and effect.
7. A facsimile, telecopy or other reproduction of this agreement may be
executed by one or more parties hereto and such executed copy may be delivered
by facsimile or similar instantaneous electronic transmission device pursuant to
which the signature of or on behalf of such party can be seen, and such
execution and delivery shall be considered
1
<PAGE> 2
valid, binding and effective for all purposes. At the request of any party
hereto, all parties agree to execute an original of this agreement as well as
any facsimile, telecopy or other reproduction hereof.
8. Time is of the essence in performance of this agreement and of each and
every provision hereof.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first written above.
Scientific NRG, Incorporated,
a Minnesota corporation
By: /s/ OLIVER K. WASHBURN
---------------------------
Name: Oliver K. Washburn
Title: Chief Financial Officer
Parke Industries, Inc.,
a California corporation
By: /s/ DANIEL W. PARKE
---------------------
Name: Daniel W. Parke
Title: President
2
<PAGE> 1
EXHIBIT 10.62
NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement is made this 28th day of
February 1997 by Scientific NRG, Incorporated, a Minnesota corporation in favor
of Parke Industries, Inc., a California corporation.
WHEREAS, Parke Industries, Inc. previously agreed to and has rendered
consulting and advisory services to Scientific NRG, Incorporated (the "Company")
since September 1996; and
WHEREAS, the Company agreed to grant to Parke Industries, Inc. stock
options as a reward for consulting and advisory services under the terms of the
Workout Agreement dated August 30, 1996.
NOW THEREFORE, in consideration for the services rendered to the Company
by Parke Industries, Inc., and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged the Company grants,
transfer, and conveys to Parke Industries, Inc. the following:
1. The Company hereby grants to Parke Industries, Inc. 200,000 non qualified
stock options (the "Stock Options"). Each Stock Option provides Parke
Industries, Inc. with the right to purchase one share of the Company's no par
value common stock at $0.50 per share. The Stock Options granted are
non-transferable, vest immediately, and expire at the close of business on June
30, 1999.
IN WITNESS WHEREOF, Scientific NRG, Incorporated has executed this
Non-Qualified Stock Option Agreement as of the date written above.
Scientific NRG, Incorporated
By: /s/ JONATHAN D. FORGY
-----------------------
Name: Jonathan D. Forgy
Title: President
<PAGE> 1
EXHIBIT 10.63
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 25th day
of March, 1997, to be effective as of the date services were first rendered
September 11, 1996, by Scientific NRG, Incorporated, a Minnesota corporation
(the "Company") and Jonathan D. Forgy, an individual residing at 912 North
Loraine Avenue, Glendora, California 91741 (the "Executive").
WHEREAS, the Company desires to retain the services of the Executive as
President of the Company and the Executive desires to render such services on
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the receipt and sufficiency of which is hereby acknowledged, the parties agree
as follows:
1. Employment Term. The Company employs the Executive and the Executive
accepts employment by the Company, upon the terms and subject to the conditions
set forth in this Agreement, until June 30, 1997; provided, however, that such
employment may be sooner terminated pursuant to the terms of this Agreement.
2. Management of the Company. The Executive shall devote the Executive's
time, best efforts, attention and skill to, and shall perform faithfully,
loyally and efficiently the Executive's duties as President of the Company.
Further, the Executive will punctually and faithfully perform and observe any
and all rules and regulations which the Company may now or shall hereafter
reasonably establish governing the Executive's conduct and the conduct of the
Company's business which are consistent with this Agreement.
3. Compensation; Benefits. In consideration of the services rendered to the
Company by the Executive, the Company shall pay the Executive a salary at the
annual rate of $48,000 (the "Salary"). The Salary shall be payable in accordance
with the normal payroll practices of the Company then in effect. The Salary, and
all other forms of compensation paid to the Executive hereunder, shall be
subject to all applicable taxes required to be withheld by the Company pursuant
to federal, state or local law. The Executive shall be solely responsible for
income taxes imposed on the Executive by reasons of any cash or non-cash
compensation and benefits provided by this Agreement.
In addition to the Salary, during the Employment Term, the Executive shall
be entitled to: (i) all legal and religious holidays, and two (2) weeks paid
vacation per annum. The Executive shall arrange for vacations in advance at such
time or times as shall be mutually agreeable to the Executive and the Company's
Board of Directors. The Executive may not receive pay in lieu of vacation; (ii)
participate in all employee benefit plans and/or arrangements adopted by the
Company relating to pensions, hospital, medical, dental, disability and life
insurance, deferred salary and savings plans, and other similar employee benefit
plans or arrangements to the extent that the Executive meets the eligibility
requirements for any such plan as in effect from time to
<PAGE> 2
time; (iii) payment by the Company directly, or reimbursement by the Company
for, reasonable and customary business and out-of-pocket expenses incurred by
the Executive in connection with the performance by the Executive of the
Executive's duties under this Agreement in accordance with the Company's
policies and practices for reimbursement of such expenses, as in effect from
time to time, including, without limitation, reasonable and necessary travel,
lodging, entertainment and meals incurred by the Executive in furtherance of the
Company's business and at the Company's request.
In addition to the payment of Salary, the Company hereby grants to the
Executive, 100,000 non-qualified stock options (collectively, the "Stock
Options"). Each Stock Option provides the Executive with the right to purchase
one share of the Company's no par value common stock at $0.50 per share. The
Stock Options are non-transferable, vest immediately in Executive, and expire at
the close of business on June 30, 1999.
In addition to the Salary, Executive shall be entitled to a M&A Fee equal
to 1/2 of 1% of the transaction amount, payable within 45 days of closing, on
any merger, acquisition or public stock offering during the Employment Term. The
M&A Fee is to compensate Executive solely for the extra time, effort, attention,
and experience required by the transaction, if any.
4. Termination of Employment. The Executive's employment hereunder shall
terminate upon the earliest to occur of any the following events, on the dates
and at the times specified below:
(i) the close of business on June 30, 1997 (the "Expiration Date");
(ii) the close of business on the date of the Executive's death ("Death");
(iii) the close of business on the Termination Date (as defined below)
specified in the Notice of Termination (as defined below) which the Company
shall have delivered to the Executive due to the Executive's Disability.
"Disability" shall mean if (i) the Executive is absent from work for 30 calendar
days in any twelve-month period by reason of illness or incapacity whether
physical or otherwise) or (ii) the Company reasonably determines that the
Executive is unable to perform his duties, services and responsibilities by
reason of illness or incapacity (whether physical or otherwise) for a total of
30 calendar days in any twelve-month period during the Employment Term. The
Executive agrees, in the event of any dispute under this Section, and after
receipt by the Executive of such Notice of Termination from the Company, to
submit to a physical examination by a licensed physician selected by the
Company. The Executive may seek a second opinion from a licensed physician
acceptable to the Company. If the results of the first examination and the
second examination are different, a licensed physician selected by the
physicians who have performed the first and second examinations shall perform a
third physical examination of the Executive, the result of which shall be
determinative for purposes of this Section;
(iv) the close of business on the Termination Date specified in the Notice
of Termination which the Executive shall have delivered to the Company to
terminate his employment ("Voluntary Termination");
2
<PAGE> 3
(v) the close of business on the Termination Date specified in the Notice
of Termination which the Company shall have delivered to the Executive to
terminate the Executive's employment for Cause. "Cause" as used herein means
termination based on (i) the Executive's material breach of this Agreement, (ii)
conviction of the Executive for (a) any crime constituting a felony in the
jurisdiction in which committed, (b) any crime involving moral turpitude whether
or not a felony), or (c) any other criminal act against the Company involving
dishonesty or willful misconduct intended to injure the Company (whether or not
a felony), (iii) substance abuse by the Executive, (iv) the failure or refusal
of the Executive to follow one or more lawful and proper directives of the Board
of Directors delivered to the Executive in writing, or (v) willful malfeasance
or gross misconduct by the Executive which discredits or damages the Company.
Any purported termination by the Company or the Executive (other than by
reason of Death or on the Expiration Date) shall be communicated by written
Notice of Termination to the other. As used herein, the term "Notice of
Termination" shall mean a notice which indicates the specific termination
provision in this Agreement relied upon and sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. After receipt of a
Notice of Termination, the Executive shall continue to be available to the
Company on a part-time basis at reasonable and customary hourly rates to assist
in the necessary transition.
As used herein, the term "Termination Date" shall mean, (i) in the case of
Death, the date of the Executive's death, (ii) in the case of expiration of the
term hereof, the Expiration Date, or (iii) in all other cases, the date
specified in the Notice of Termination.
5. Employee Covenants.
Trade Secrets and Proprietary Information. The Executive agrees and
understands that due to the Executive's position with the Company, the Executive
will be exposed to, and has received and will receive, confidential and
proprietary information of the Company or relating to the Company's business or
affairs collectively, the "Trade Secrets"), including but not limited to
technical information, product information and formulae, processes, business and
marketing plans, strategies, customer information, other information concerning
the Company's products, promotions, development, financing, expansion plans,
business policies and practices and other forms of information considered by the
Company to be proprietary and confidential and in the nature of trade secrets.
Trade Secrets shall not include any such information which (A) was known to the
Executive prior to his employment by the Company or (B) was or becomes generally
available to the public other than as a result of a disclosure by the Executive
in violation of the provisions of this Section. Except to the extent that the
proper performance of the Executive's duties, services and responsibilities
hereunder may require disclosure, the Executive agrees that during the
Employment Term and at all times thereafter the Executive will keep such Trade
Secrets confidential and will not disclose such information, either directly or
indirectly, to any third person or entity without the prior written consent of
the Company. This confidentiality covenant has no temporal, geographical or
territorial restriction. On the Termination Date unless the Executive remains as
an employee of the Company thereafter in which case, on the date which
3
<PAGE> 4
the Executive is no longer an employee of the Company), the Executive will
promptly supply to the Company all property, keys, notes, memoranda, writings,
lists, files, reports, customer lists, correspondence, tapes, disks, cards,
surveys, maps, logs, machines, technical data, formulae or any other tangible
product or document which has been produced by, received by or otherwise
submitted to and retained by the Executive in the course of his employment with
the Company. Any material breach of the terms of this paragraph shall be
considered Cause.
Prohibited and Competitive Activities. The Executive and the Company
recognize that due to the nature of the Executive's engagement hereunder and the
relationship of the Executive to the Company, the Executive has had and will
have access to, has had and will acquire, and has assisted and may continue to
assist in, developing confidential and proprietary information relating to the
business and operations of the Company and its affiliates, including, without
limitation, Trade Secrets. The Executive acknowledges that such information has
been and will be of central importance to the business of the Company and its
affiliates and that disclosure of it to, or its use by, others (including,
without limitation, the Executive (other than with respect to the Company's
business and affairs)) could cause substantial loss to the Company.
The Executive and the Company also recognize that an important part of the
Executive's duties will be to develop good will for the Company and its
affiliates through the Executive's personal contact with Clients (as defined
below), employees, and others having business relationships with the Company,
and that there is a danger that this good will, a proprietary asset of the
Company, may follow the Executive if and when the Executive's relationship with
the Company is terminated. The Executive accordingly agrees as follows:
(i) Prohibited Activities. The Executive agrees that the Executive will
not at any time during the Employment Term: (A) (other than in the course of the
Executive's employment) disclose or furnish to any other person or, directly or
indirectly, use for the Executive's own account or the account of any other
person, any Trade Secrets, no matter from where or in what manner he may have
acquired such Trade Secrets, and the Executive shall retain all such Trade
Secrets in trust for the benefit of the Company, its affiliates and the
successors and assigns of any of them, (B) directly or through one or more
intermediaries, solicit for employment or recommend to any subsequent employer
of the Executive the solicitation for employment of, any person who, at the time
of such solicitation, is employed by the Company or any affiliate, (C) directly
or indirectly, whether for the Executive's own account or for the account of any
other person, solicit, divert, or endeavor to entice away from the Company or
any entity controlled by the Company, or otherwise engage in any activity
intended to terminate, disrupt, or interfere with, the Company's or any of its
affiliates' relationships with, Clients, or otherwise adversely affect the
Company's or any of its affiliates' relationships with Clients or other business
relationships of the Company or any affiliate thereof, or (D) publish or make
any statement critical of the Company or any shareholder or affiliate of the
Company or in any way adversely affect or otherwise malign the business or
reputation of any of the foregoing persons (any activity described in clause
(A), (B), (C) or (D) of this Section being referred to as a Prohibited
Activity"); provided, however, that if in the written opinion of Counsel, the
Executive is legally compelled to disclose Trade Secrets to any tribunal or else
stand liable for contempt or suffer other similar censure or penalty, then the
disclosure to such tribunal of only those Trade Secrets which such counsel
advises in writing are
4
<PAGE> 5
legally required to be disclosed shall not constitute a Prohibited Activity
provided that the Executive shall give the Company as much advance notice of
such disclosure as is reasonably practicable. As used herein, the term "Clients"
shall mean those persons who, at any time during the Executive's course of
employment with the Company (including, without limitation, prior to the date of
this Agreement) are or were clients or customers of the Company or any affiliate
thereof or any predecessor of any of the foregoing.
(ii) Non-Competition. By and in consideration of the Company's entering
into this Agreement, the Executive agrees that the Executive will not, during
the Employment Term and for a period of eighteen months thereafter, engage in
any Competitive Activity. The term "Competitive Activity" means engaging in any
of the following activities: (A) serving as a director of any Competitor (as
defined below), (B) directly or indirectly through one or more intermediaries,
either (X) controlling any Competitor or (Y) owning any equity or debt interests
in any Competitor (other than equity or debt interests which are publicly traded
and, at the time of any acquisition thereof by the Executive, do not in the
aggregate exceed 5% of the particular class of interests of such Competitor then
outstanding) (it being understood that, if interests in any Competitor are owned
by an investment vehicle or other entity in which the Executive owns an equity
interest, a portion of the interests in such Competitor owned by such entity
shall be attributed to the Executive, such portion determined by applying the
percentage of the equity interest in such entity owned by the Executive to the
interests in such Competitor owned by such entity), (C) employment by (including
serving as an officer, director or partner of), providing consulting services to
(including, without limitation, as an independent contractor), or managing or
operating the business or affairs of, any Competitor or (D) participating in the
ownership, management, operation or control of or being connected in any manner
with any Competitor. The term "Competitor" as used herein (i) during the
Employment Term, means any person (other than the Company, Parke Industries,
Inc. or any of their respective affiliates) that competes, either directly or
indirectly with any of the business conducted by the Company or any affiliate.
Remedies. The Executive agrees that any breach of the terms of this
Section would result in irreparable injury and damage to the Company for which
the Company would have no adequate remedy at law. The Executive therefore agrees
that in the event of said breach or any threat of breach, the Company shall be
entitled to an immediate injunction and restraining order to prevent such breach
and/or threatened breach and/or continued breach by the Executive and/or any and
all persons and/or entities acting for and/or with the Executive, without having
to prove damages. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies to which the Company may be entitled at
law or in equity for any breach or threatened breach hereof, including but not
limited to the recovery of damages from the Executive. the provisions of this
Section 8 shall survive any termination of this Agreement. The existence of any
claim or cause of action by the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants and agreements of this Section.
Proprietary Information and Inventions. The Executive agrees that any and
all inventions, discoveries, improvements, processes, formulae, business
application software, patents, copyrights and trademarks made, developed,
discovered or acquired by him prior to and during
5
<PAGE> 6
the Employment Term, solely or jointly with others or otherwise, which relate to
the business of the Company, and all knowledge possessed by the Executive
relating thereto collectively, the "Inventions"), shall be fully and promptly
disclosed to the Board of Directors and to such person or persons as the Board
of Directors shall direct and the Executive irrevocably assigns to the Company
all of the Executive's right, title and interest in and to all Inventions of the
Company and all such Inventions shall be the sole and absolute property of the
Company and the Company shall be the sole and absolute owner thereof. The
Executive agrees that he will at all times keep all Inventions secret from
everyone except the Company and such persons as the Board of Directors may from
time to time direct. The Executive shall, as requested by the Company at any
time and from time to time, whether prior to or after the expiration of the
Employment Term, execute and deliver to the Company any instruments deemed
necessary by the Company to effect disclosure and assignment of the Inventions
to the Company or its designees and any patent applications (United States or
foreign) and renewals with respect thereto, including any other instruments
deemed necessary by the Company for the prosecution of patent applications, the
acquisition of letters patent and/or the acquisition of patents or copyrights in
any and all countries and to vest title thereto in the Company or its nominee.
6. Representations and Warranties of the Executive. The Executive represents
and warrants to the Company that:
(i) The Executive's employment by the Company as contemplated will not
conflict with, and will not be constrained by, any prior or current employment,
consulting agreement or relationship, whether written or oral; and
(ii) The Executive does not possess confidential information arising out
of any employment, consulting agreement or relationship with any person or
entity other than the Company which could be utilized in connection with the
Executive's employment by the Company.
7. Binding Effect or Assignment. This Agreement shall inure to the benefit of
and be binding upon the parties and their respective heirs, executors,
representatives, states, successors and assigns, including any successor or
assign to all or substantially all of the business and/or assets of the Company,
whether direct or indirect, by purchase, merger, consolidation, acquisition of
stock, or otherwise; provided, however, that the Executive, or any beneficiary
or legal representative of the Executive, shall not assign all or any portion of
the Executive's rights or obligations under this Agreement without the prior
written consent of the Company.
8. Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered, mailed or transmitted, and shall be effective upon
receipt.
9. Amendment and Modification. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by each of the Executive and the Company. No
such waiver or discharge by either party hereto at any time or any waiver or
discharge of any breach by the other party hereto of, or compliance
6
<PAGE> 7
with, any condition or provision of this agreement to be performed by such other
party, shall be deemed a waiver or discharge of similar or dissimilar provisions
or conditions, or a waiver or discharge of any breach of any provisions, at the
same or at any prior or subsequent time.
10. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of California without giving effect to the
conflict of law principles of that state.
11. Severability. In the event that any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
portion of this Agreement, and this Agreement shall be construed as if such
provision had never been contained herein.
12. Withholding Taxes. Notwithstanding anything contained herein to the
contrary, all payments required to be made hereunder by the Company to the
Executive, or his estate or beneficiaries, shall be subject to the withholding
of such amounts as the Company may reasonably determine it should withhold
pursuant to any applicable federal, state or local law or regulation.
13. Arbitration of Disputes. The parties hereto mutually consent to the
resolution by arbitration of all claims and controversies arising out of or
relating to this Agreement.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
15. Entire Agreement. This Agreement constitutes the entire agreement between
the parties and supersedes any and all prior agreements, written or oral,
understandings and arrangements, either oral or written, between the parties
with respect to the subject matter, and shall, as of the date hereof, constitute
the only employment agreement between the parties.
16. Further Assurances. Each party shall do and perform, or cause to be done
and performed, all further acts and things and shall execute and deliver all
other agreements, certificates, instruments, and documents as any other party
reasonably may request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions
contemplated.
17. Construction. The headings in this Agreement are for reference purposes
only and shall not limit or otherwise affect the meaning or interpretation of
this Agreement.
7
<PAGE> 8
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first above written.
"Company"
Scientific NRG, Incorporated,
a Minnesota corporation
By: /s/ OLIVER K. WASHBURN
-----------------------
Name: Oliver K. Washburn
Title: Chief Financial Officer
"Executive"
Jonathan D. Forgy
By: /s/ JONATHAN D. FORGY
----------------------
Jonathan D. Forgy, an individual
8
<PAGE> 1
EXHIBIT 10.64
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 25th day
of March, 1997, to be effective as of the date services were first rendered
September 11, 1996, by Scientific NRG, Incorporated, a Minnesota corporation
(the "Company") and Daniel W. Parke, an individual residing at
_________________________________________________ (the "Executive").
WHEREAS, the Company desires to retain the services of the Executive as
Chief Executive Officer of the Company and the Executive desires to render such
services on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the receipt and sufficiency of which is hereby acknowledged, the parties agree
as follows:
1. Employment Term. The Company employs the Executive and the Executive
accepts employment by the Company, upon the terms and subject to the conditions
set forth in this Agreement, until June 30, 1997; provided, however, that such
employment may be sooner terminated pursuant to the terms of this Agreement.
2. Management of the Company. The Executive shall devote the Executive's
time, best efforts, attention and skill to, and shall perform faithfully,
loyally and efficiently the Executive's duties as Chief Executive Officer of the
Company. Further, the Executive will punctually and faithfully perform and
observe any and all rules and regulations which the Company may now or shall
hereafter reasonably establish governing the Executive's conduct and the conduct
of the Company's business which are consistent with this Agreement.
3. Compensation; Benefits. In consideration of the services rendered to the
Company by the Executive, the Company shall pay the Executive a salary at the
annual rate of $12,000 (the "Salary"). The Salary shall be payable in accordance
with the normal payroll practices of the Company then in effect. The Salary, and
all other forms of compensation paid to the Executive hereunder, shall be
subject to all applicable taxes required to be withheld by the Company pursuant
to federal, state or local law. The Executive shall be solely responsible for
income taxes imposed on the Executive by reasons of any cash or non-cash
compensation and benefits provided by this Agreement.
In addition to the Salary, during the Employment Term, the Executive shall
be entitled to: (i) all legal and religious holidays, and two (2) weeks paid
vacation per annum. The Executive shall arrange for vacations in advance at such
time or times as shall be mutually agreeable to the Executive and the Company's
Board of Directors. The Executive may not receive pay in lieu of vacation; (ii)
participate in all employee benefit plans and/or arrangements adopted by the
Company relating to pensions, hospital, medical, dental, disability and life
insurance, deferred salary and savings plans, and other similar employee benefit
plans or arrangements to the extent that the Executive meets the eligibility
requirements for any such plan as in effect from time to
<PAGE> 2
time; (iii) payment by the Company directly, or reimbursement by the Company
for, reasonable and customary business and out-of-pocket expenses incurred by
the Executive in connection with the performance by the Executive of the
Executive's duties under this Agreement in accordance with the Company's
policies and practices for reimbursement of such expenses, as in effect from
time to time, including, without limitation, reasonable and necessary travel,
lodging, entertainment and meals incurred by the Executive in furtherance of the
Company's business and at the Company's request.
In addition to the payment of Salary, the Company hereby grants to the
Executive, 300,000 non-qualified stock options (collectively, the "Stock
Options"). Each Stock Option provides the Executive with the right to purchase
one share of the Company's no par value common stock at $0.50 per share. The
Stock Options are non-transferable, vest immediately in Executive, and expire at
the close of business on June 30, 1999.
4. Termination of Employment. The Executive's employment hereunder shall
terminate upon the earliest to occur of any the following events, on the dates
and at the times specified below:
(i) the close of business on June 30, 1997 (the "Expiration Date");
(ii) the close of business on the date of the Executive's death ("Death");
(iii) the close of business on the Termination Date (as defined below)
specified in the Notice of Termination (as defined below) which the Company
shall have delivered to the Executive due to the Executive's Disability.
"Disability" shall mean if (i) the Executive is absent from work for 30 calendar
days in any twelve-month period by reason of illness or incapacity whether
physical or otherwise) or (ii) the Company reasonably determines that the
Executive is unable to perform his duties, services and responsibilities by
reason of illness or incapacity (whether physical or otherwise) for a total of
30 calendar days in any twelve-month period during the Employment Term. The
Executive agrees, in the event of any dispute under this Section, and after
receipt by the Executive of such Notice of Termination from the Company, to
submit to a physical examination by a licensed physician selected by the
Company. The Executive may seek a second opinion from a licensed physician
acceptable to the Company. If the results of the first examination and the
second examination are different, a licensed physician selected by the
physicians who have performed the first and second examinations shall perform a
third physical examination of the Executive, the result of which shall be
determinative for purposes of this Section;
(iv) the close of business on the Termination Date specified in the Notice
of Termination which the Executive shall have delivered to the Company to
terminate his employment ("Voluntary Termination");
(v) the close of business on the Termination Date specified in the Notice
of Termination which the Company shall have delivered to the Executive to
terminate the Executive's employment for Cause. "Cause" as used herein means
termination based on (i) the Executive's material breach of this Agreement, (ii)
conviction of the Executive for (a) any crime constituting a
2
<PAGE> 3
felony in the jurisdiction in which committed, (b) any crime involving moral
turpitude whether or not a felony), or (c) any other criminal act against the
Company involving dishonesty or willful misconduct intended to injure the
Company (whether or not a felony), (iii) substance abuse by the Executive, (iv)
the failure or refusal of the Executive to follow one or more lawful and proper
directives of the Board of Directors delivered to the Executive in writing, or
(v) willful malfeasance or gross misconduct by the Executive which discredits or
damages the Company.
Any purported termination by the Company or the Executive (other than by
reason of Death or on the Expiration Date) shall be communicated by written
Notice of Termination to the other. As used herein, the term "Notice of
Termination" shall mean a notice which indicates the specific termination
provision in this Agreement relied upon and sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. After receipt of a
Notice of Termination, the Executive shall continue to be available to the
Company on a part-time basis at reasonable and customary hourly rates to assist
in the necessary transition.
As used herein, the term "Termination Date" shall mean, (i) in the case of
Death, the date of the Executive's death, (ii) in the case of expiration of the
term hereof, the Expiration Date, or (iii) in all other cases, the date
specified in the Notice of Termination.
5. Employee Covenants.
Trade Secrets and Proprietary Information. The Executive agrees and
understands that due to the Executive's position with the Company, the Executive
will be exposed to, and has received and will receive, confidential and
proprietary information of the Company or relating to the Company's business or
affairs collectively, the "Trade Secrets"), including but not limited to
technical information, product information and formulae, processes, business and
marketing plans, strategies, customer information, other information concerning
the Company's products, promotions, development, financing, expansion plans,
business policies and practices and other forms of information considered by the
Company to be proprietary and confidential and in the nature of trade secrets.
Trade Secrets shall not include any such information which (A) was known to the
Executive prior to his employment by the Company or (B) was or becomes generally
available to the public other than as a result of a disclosure by the Executive
in violation of the provisions of this Section. Except to the extent that the
proper performance of the Executive's duties, services and responsibilities
hereunder may require disclosure, the Executive agrees that during the
Employment Term and at all times thereafter the Executive will keep such Trade
Secrets confidential and will not disclose such information, either directly or
indirectly, to any third person or entity without the prior written consent of
the Company. This confidentiality covenant has no temporal, geographical or
territorial restriction. On the Termination Date unless the Executive remains as
an employee of the Company thereafter in which case, on the date which the
Executive is no longer an employee of the Company), the Executive will promptly
supply to the Company all property, keys, notes, memoranda, writings, lists,
files, reports, customer lists, correspondence, tapes, disks, cards, surveys,
maps, logs, machines, technical data, formulae or any other tangible product or
document which has been produced by, received by or otherwise
3
<PAGE> 4
submitted to and retained by the Executive in the course of his employment with
the Company. Any material breach of the terms of this paragraph shall be
considered Cause.
Prohibited and Competitive Activities. The Executive and the Company
recognize that due to the nature of the Executive's engagement hereunder and the
relationship of the Executive to the Company, the Executive has had and will
have access to, has had and will acquire, and has assisted and may continue to
assist in, developing confidential and proprietary information relating to the
business and operations of the Company and its affiliates, including, without
limitation, Trade Secrets. The Executive acknowledges that such information has
been and will be of central importance to the business of the Company and its
affiliates and that disclosure of it to, or its use by, others (including,
without limitation, the Executive (other than with respect to the Company's
business and affairs)) could cause substantial loss to the Company.
The Executive and the Company also recognize that an important part of the
Executive's duties will be to develop good will for the Company and its
affiliates through the Executive's personal contact with Clients (as defined
below), employees, and others having business relationships with the Company,
and that there is a danger that this good will, a proprietary asset of the
Company, may follow the Executive if and when the Executive's relationship with
the Company is terminated. The Executive accordingly agrees as follows:
(i) Prohibited Activities. The Executive agrees that the Executive will
not at any time during the Employment Term: (A) (other than in the course of the
Executive's employment) disclose or furnish to any other person or, directly or
indirectly, use for the Executive's own account or the account of any other
person, any Trade Secrets, no matter from where or in what manner he may have
acquired such Trade Secrets, and the Executive shall retain all such Trade
Secrets in trust for the benefit of the Company, its affiliates and the
successors and assigns of any of them, (B) directly or through one or more
intermediaries, solicit for employment or recommend to any subsequent employer
of the Executive the solicitation for employment of, any person who, at the time
of such solicitation, is employed by the Company or any affiliate, (C) directly
or indirectly, whether for the Executive's own account or for the account of any
other person, solicit, divert, or endeavor to entice away from the Company or
any entity controlled by the Company, or otherwise engage in any activity
intended to terminate, disrupt, or interfere with, the Company's or any of its
affiliates' relationships with, Clients, or otherwise adversely affect the
Company's or any of its affiliates' relationships with Clients or other business
relationships of the Company or any affiliate thereof, or (D) publish or make
any statement critical of the Company or any shareholder or affiliate of the
Company or in any way adversely affect or otherwise malign the business or
reputation of any of the foregoing persons (any activity described in clause
(A), (B), (C) or (D) of this Section being referred to as a Prohibited
Activity"); provided, however, that if in the written opinion of Counsel, the
Executive is legally compelled to disclose Trade Secrets to any tribunal or else
stand liable for contempt or suffer other similar censure or penalty, then the
disclosure to such tribunal of only those Trade Secrets which such counsel
advises in writing are legally required to be disclosed shall not constitute a
Prohibited Activity provided that the Executive shall give the Company as much
advance notice of such disclosure as is reasonably practicable. As used herein,
the term "Clients" shall mean those persons who, at any time during the
Executive's course of employment with the Company (including, without
limitation, prior to
4
<PAGE> 5
the date of this Agreement) are or were clients or customers of the Company or
any affiliate thereof or any predecessor of any of the foregoing.
(ii) Non-Competition. By and in consideration of the Company's entering
into this Agreement, the Executive agrees that the Executive will not, during
the Employment Term and for a period of eighteen months thereafter, engage in
any Competitive Activity. The term "Competitive Activity" means engaging in any
of the following activities: (A) serving as a director of any Competitor (as
defined below), (B) directly or indirectly through one or more intermediaries,
either (X) controlling any Competitor or (Y) owning any equity or debt interests
in any Competitor (other than equity or debt interests which are publicly traded
and, at the time of any acquisition thereof by the Executive, do not in the
aggregate exceed 5% of the particular class of interests of such Competitor then
outstanding) (it being understood that, if interests in any Competitor are owned
by an investment vehicle or other entity in which the Executive owns an equity
interest, a portion of the interests in such Competitor owned by such entity
shall be attributed to the Executive, such portion determined by applying the
percentage of the equity interest in such entity owned by the Executive to the
interests in such Competitor owned by such entity), (C) employment by (including
serving as an officer, director or partner of), providing consulting services to
(including, without limitation, as an independent contractor), or managing or
operating the business or affairs of, any Competitor or (D) participating in the
ownership, management, operation or control of or being connected in any manner
with any Competitor. The term "Competitor" as used herein (i) during the
Employment Term, means any person (other than the Company, Parke Industries,
Inc. or any of their respective affiliates) that competes, either directly or
indirectly with any of the business conducted by the Company or any affiliate.
Remedies. The Executive agrees that any breach of the terms of this
Section would result in irreparable injury and damage to the Company for which
the Company would have no adequate remedy at law. The Executive therefore agrees
that in the event of said breach or any threat of breach, the Company shall be
entitled to an immediate injunction and restraining order to prevent such breach
and/or threatened breach and/or continued breach by the Executive and/or any and
all persons and/or entities acting for and/or with the Executive, without having
to prove damages. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies to which the Company may be entitled at
law or in equity for any breach or threatened breach hereof, including but not
limited to the recovery of damages from the Executive. the provisions of this
Section 8 shall survive any termination of this Agreement. The existence of any
claim or cause of action by the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the covenants and agreements of this Section.
Proprietary Information and Inventions. The Executive agrees that any and
all inventions, discoveries, improvements, processes, formulae, business
application software, patents, copyrights and trademarks made, developed,
discovered or acquired by him prior to and during the Employment Term, solely or
jointly with others or otherwise, which relate to the business of the Company,
and all knowledge possessed by the Executive relating thereto collectively, the
"Inventions"), shall be fully and promptly disclosed to the Board of Directors
and to such person or persons as the Board of Directors shall direct and the
Executive irrevocably assigns to the
5
<PAGE> 6
Company all of the Executive's right, title and interest in and to all
Inventions of the Company and all such Inventions shall be the sole and absolute
property of the Company and the Company shall be the sole and absolute owner
thereof. The Executive agrees that he will at all times keep all Inventions
secret from everyone except the Company and such persons as the Board of
Directors may from time to time direct. The Executive shall, as requested by the
Company at any time and from time to time, whether prior to or after the
expiration of the Employment Term, execute and deliver to the Company any
instruments deemed necessary by the Company to effect disclosure and assignment
of the Inventions to the Company or its designees and any patent applications
(United States or foreign) and renewals with respect thereto, including any
other instruments deemed necessary by the Company for the prosecution of patent
applications, the acquisition of letters patent and/or the acquisition of
patents or copyrights in any and all countries and to vest title thereto in the
Company or its nominee.
6. Representations and Warranties of the Executive. The Executive represents
and warrants to the Company that:
(i) The Executive's employment by the Company as contemplated will not
conflict with, and will not be constrained by, any prior or current employment,
consulting agreement or relationship, whether written or oral; and
(ii) The Executive does not possess confidential information arising out
of any employment, consulting agreement or relationship with any person or
entity other than the Company which could be utilized in connection with the
Executive's employment by the Company.
7. Binding Effect or Assignment. This Agreement shall inure to the benefit of
and be binding upon the parties and their respective heirs, executors,
representatives, states, successors and assigns, including any successor or
assign to all or substantially all of the business and/or assets of the Company,
whether direct or indirect, by purchase, merger, consolidation, acquisition of
stock, or otherwise; provided, however, that the Executive, or any beneficiary
or legal representative of the Executive, shall not assign all or any portion of
the Executive's rights or obligations under this Agreement without the prior
written consent of the Company.
8. Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered, mailed or transmitted, and shall be effective upon
receipt.
9. Amendment and Modification. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by each of the Executive and the Company. No
such waiver or discharge by either party hereto at any time or any waiver or
discharge of any breach by the other party hereto of, or compliance with, any
condition or provision of this agreement to be performed by such other party,
shall be deemed a waiver or discharge of similar or dissimilar provisions or
conditions, or a waiver or discharge of any breach of any provisions, at the
same or at any prior or subsequent time.
6
<PAGE> 7
10. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of California without giving effect to the
conflict of law principles of that state.
11. Severability. In the event that any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
portion of this Agreement, and this Agreement shall be construed as if such
provision had never been contained herein.
12. Withholding Taxes. Notwithstanding anything contained herein to the
contrary, all payments required to be made hereunder by the Company to the
Executive, or his estate or beneficiaries, shall be subject to the withholding
of such amounts as the Company may reasonably determine it should withhold
pursuant to any applicable federal, state or local law or regulation.
13. Arbitration of Disputes. The parties hereto mutually consent to the
resolution by arbitration of all claims and controversies arising out of or
relating to this Agreement.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
15. Entire Agreement. This Agreement constitutes the entire agreement between
the parties and supersedes any and all prior agreements, written or oral,
understandings and arrangements, either oral or written, between the parties
with respect to the subject matter, and shall, as of the date hereof, constitute
the only employment agreement between the parties.
16. Further Assurances. Each party shall do and perform, or cause to be done
and performed, all further acts and things and shall execute and deliver all
other agreements, certificates, instruments, and documents as any other party
reasonably may request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions
contemplated.
17. Construction. The headings in this Agreement are for reference purposes
only and shall not limit or otherwise affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first above written.
"Company"
Scientific NRG, Incorporated,
a Minnesota corporation
By: /s/ OLIVER K. WASHBURN
-------------------------
7
<PAGE> 8
Name: Oliver K. Washburn
Title: Chief Financial Officer
"Executive"
Daniel W. Parke
By: /s/ DANIEL W. PARKE
--------------------
Daniel W. Parke, an individual
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED BALANCE SHEET AS OF MARCH 31, 1997 AND UNAUDITED CONDENSED
STATEMENT OF OPERATIONS AND STATEMENTS OF CASH FLOWS FOR THE PERIOD ENDING MARCH
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH UNAUDITED
FINANCIAL STATEMENTS AND THE COMPANY'S FORM 10-KSB FOR THE YEAR ENDED JUNE 30,
1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 46,586
<SECURITIES> 0
<RECEIVABLES> 21,388
<ALLOWANCES> 5,702
<INVENTORY> 73,070
<CURRENT-ASSETS> 271,087
<PP&E> 5,564
<DEPRECIATION> 3,625
<TOTAL-ASSETS> 276,651
<CURRENT-LIABILITIES> 96,428
<BONDS> 0
0
0
<COMMON> 4,203,423
<OTHER-SE> 180,223
<TOTAL-LIABILITY-AND-EQUITY> 276,651
<SALES> 153,475
<TOTAL-REVENUES> 153,475
<CGS> 72,703
<TOTAL-COSTS> 87,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,547)
<INCOME-PRETAX> 474,766
<INCOME-TAX> (200)
<INCOME-CONTINUING> 13,774
<DISCONTINUED> 0
<EXTRAORDINARY> 460,992
<CHANGES> 0
<NET-INCOME> 474,566
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
