As filed with the Securities and Exchange Commission on December 30, 1998
Registration No. 33- __________
=========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM S-8
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
____________________
ENTROPIN, INC.
------------------
(Exact name of Registrant as specified in its charter)
Colorado 84-1090424
------------ --------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) I.D. Number)
21550 Oxnard Street, Suite 810
Woodland Hills, California 91367
--------------------------------
(Address of Principal Executive Offices, Including Zip Code)
ENTROPIN, INC. 1998 COMPENSATORY STOCK PLAN
-------------------------------------------
(Full title of the plan)
Higgins D. Bailey
Entropin, Inc.
21550 Oxnard Street, Suite 810
Woodland Hills, California 91367
(818) 340-2323
--------------------
(Name, address and telephone number of agent for service)
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=====================================================================================================================
Title of securities Amount to Proposed maximum Proposed maximum Amount of
to be registered be registered offering price per share aggregate offering price registration fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 300,000 shares (1) (2)$4.00 $1,200,000 $354.00
=====================================================================================================================
</TABLE>
(1) There are also registered hereunder such indeterminate number of
additional shares of Common Stock as may become subject to the Plan as
a result of the anti-dilution provisions thereof.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457, based on the closing sale price reported by
NASDAQ on December 28, 1998.
<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Item 1. Plan Information.
----------------
The required Plan Information is included in documents being
maintained and delivered by the Registrant as required by Rule 428 of the
Securities Act of 1933, as amended (the "Act").
Item 2. Registrant Information and Employee Plan Annual Information.
-----------------------------------------------------------
The Registrant shall provide to participants a written statement
advising them of the availability, without charge, upon written or oral
request, of documents incorporated by reference in Item 3 of Part II hereof
and of documents required to be delivered pursuant to Rule 428(b) under the
Act. The statement will include the address listing the title or
department and telephone number to which the request is to be directed.
I-1
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
---------------------------------------
The following documents filed with the Commission by the Registrant
are incorporated into this Registration Statement by this reference:
1. The description of the Common Stock contained in the Registrant's
Amendment No. 2 to Form SB-2 Registration Statement, under the
Securities Exchange Act of 1934 (the "Exchange Act"), SEC File No. 333
-51737, as filed on August 21, 1998;
2. The Registrant's Annual Report on Form 10-KSB-A/2 for the fiscal
year ended December 31, 1997; and
3. The Registrant's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1998.
All documents filed by the Registrant pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the filing of a post-effective amendment which indicates that all shares
offered hereunder have been sold or which de-registers all securities then
remaining unsold shall be deemed to be incorporated by reference herein and
to be a part hereof from the date of filing such documents.
II-1
<PAGE>
Item 4. Description of Securities.
-------------------------
The Company's securities are not eligible for listing on the NASDAQ
system; however, the Company's stock commenced trading on the Electronic
Bulletin Board under the trading symbol "ETOP" on February 25, 1998. The
Company presently has authorized the following capital stock:
COMMON STOCK The Company is authorized to issue up to 50,000,000
shares of Common Stock, $.001 par value. There are 6,000,051 shares
presently outstanding. All shares of Common Stock have equal voting rights
and, when validly issued and outstanding, have one vote per share in all
matters to be voted upon by shareholders. The shares of Common Stock have
no preemptive, subscription, conversion or redemption rights and may be
issued only as fully paid and non-assessable shares. Cumulative voting in
the election of directors is not allowed, which means that the holders of
a majority of the outstanding shares represented at any meeting at which a
quorum is present will be able to elect all of the directors if they choose
to do so and, in such event, the holders of the remaining shares will not
be able to elect any directors. On liquidation of the Company, each common
shareholder is entitled to receive a pro rata share of the Company's assets
available for distribution to common shareholders.
PREFERRED STOCK The Company is authorized to issue up to a total of
10,000,000 shares of preferred stock, $.001 par value, with the shares to
be issued in series by the Board of Directors. The Company's Board of
Directors has designated 3,210,487 shares of preferred stock as Series A
redeemable non-voting Preferred Stock, of which all were issued. There are
four (4) holders of record of the Company's Series A redeemable non-voting
Preferred Stock. In addition, the Company's Board of Directors has
designated 400,000 shares of preferred stock as convertible Series B
redeemable non-voting Preferred Stock, of which 245,500 have been issued.
Such shares are convertible on a 1 for 1 basis into Common Stock. There are
35 holders of record of the Company's convertible Series B redeemable non-voting
Preferred Stock. The remaining shares of preferred stock may be
issued in one or more series from time to time with such designations,
rights, preferences and limitations as the Company's board of directors may
determine without approval of its shareholders.
Series A Preferred Stock is designated as redeemable eight (8%)
percent non-cumulative non-voting preferred stock with $.001 par value.
The Series A Preferred Stock is redeemable only from 20% to 50% of annual
"Earnings", but not to exceed "Net Cash Flow from Operating Activities" as
those terms are defined under GAAP. The Series A Preferred Stock will
automatically expire on January 16, 2005 if not fully redeemed within that
time period.
Series B Preferred Stock is designated as redeemable ten (10%) percent
cumulative non-voting preferred stock with $.001 par value and convertible
on a 1 for 1 basis into Common Stock. At the Company's election, annual
dividends may be paid in cash and/or in Shares of the Company's Common
Stock, at the rate of one share of Common Stock for each $5.00 in accrued
dividends. All issued and outstanding Preferred Stock shall be redeemed in
full on or before July 15, 2003
II-2
<PAGE>
("Expiration Date"). The Company reserves the right to redeem, in whole or
in part based on a pro rata basis with other holders of the Preferred
Stock, the outstanding Preferred Stock upon 30 days' notice at $5.00 per
share plus accrued and unpaid dividends to the redemption date from the
date of issuance up to the Expiration Date. Notwithstanding the foregoing,
in the event that the Company redeems the Preferred Stock within one year
from date of issuance, the redemption price shall be $6.00 per share plus
accrued and unpaid dividends to the redemption date; provided, however, if
the Company redeems such Preferred Stock within six months from date of
issuance, the Preferred Shareholder shall receive a dividend equivalent to
one-half of the annual accrued dividend amount.
The rights, preferences and limitations of separate series of serial
preferred stock may differ with respect to such matters as may be
determined by the Company's Board of Directors, including without
limitation, the rate of dividends, method or nature or prepayment of
dividends, terms of redemption, amounts payable on liquidation, sinking
fund provisions, conversion rights and voting rights. The ability of the
Board to issue preferred stock could also be used by it as a means for
resisting a change of control of the Company and can therefore be
considered an "anti-takeover" device.
DIVIDEND POLICY Dividends are payable on Common Stock when, as, and
if declared by the Board of Directors out of funds legally available to pay
dividends, subject to any preferences which may be given to holders of
preferred stock. The Company has paid no cash dividends to date and it
does not anticipate payment of cash dividends in the foreseeable future.
Item 5. Interests of Named Experts and Counsel.
--------------------------------------
None.
Item 6. Indemnification of Directors and Officers.
-----------------------------------------
A. The Colorado Business Corporation Act (the "CBCA") allows
indemnification of directors, officers, employees and agents of the Company
against liabilities incurred in any proceeding in which an individual is
made a party because he was a director, officer, employee or agent of the
Company if such person conducted himself in good faith and reasonably
believed his actions were in, or not opposed to, the best interests of the
Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A person must be
found to be entitled to indemnification under this statutory standard by
procedures designed to assure that disinterested members of the Board of
Directors have approved indemnification or that, absent the ability to
obtain sufficient numbers of disinterested directors, independent counsel
or shareholders have approved the indemnification based on a finding that
the person has met the standard. Indemnification is limited to reasonable
expenses. In addition, the Company's By-Laws provide that the Company
shall have the power to indemnify its officers, directors, employees and
agents to the extent permitted by the CBCA.
II-3
<PAGE>
Specifically, the CBCA provides as follows:
"7-109-102. AUTHORITY TO INDEMNIFY DIRECTORS
(1) Except as provided in subsection (4) of this section, a
corporation may indemnify a person made a party to a proceeding
because the person is or was a director against liability incurred in
the proceeding if:
(a) The person conducted himself or herself in good faith;
and
(b) The person reasonably believed:
(I) In the case of conduct in an official capacity
with the corporation, that his or her conduct was in the corporation's
best interests; and
(II) In all other cases, that his or her conduct was at
least not opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had
no reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit
plan for a purpose the director reasonably believed to be in the
interests of the participants in or beneficiaries of the plan is
conduct that satisfies the requirement of subparagraph (II) of
paragraph (b) of subsection (1) of this section. A director's
conduct with respect to an employee benefit plan for a purpose that
the director did not reasonably believe to be in the interests of the
participants in or beneficiaries of the plan shall be deemed not to
satisfy the requirements of paragraph (a) of subsection (1) of this
section.
(3) The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent is not, of itself, determinative that the director did not
meet the standard of conduct described in this section.
(4) A corporation may not indemnify a director under this
section:
(a) In connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the
corporation; or
(b) In connection with any other proceeding charging that
the director derived an improper personal benefit, whether or not
involving action in an official capacity, in which proceeding the
director was adjudged liable on the basis that he or she derived an
improper personal benefit.
II-4
<PAGE>
(5) Indemnification permitted under this section in connection
with a proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with the proceeding.
7-109-103. MANDATORY INDEMNIFICATION OF DIRECTORS
Unless limited by its articles of incorporation, a corporation
shall indemnify a person who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which the person was a
party because the person is or was a director, against reasonable
expenses incurred by him or her in connection with the proceeding.
7-109-105 COURT-ORDERED INDEMNIFICATION OF DIRECTORS
(1) Unless otherwise provided in the articles of incorporation,
a director who is or was a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another
court of competent jurisdiction. On receipt of an application, the
court, after giving any notice the court considers necessary, may
order indemnification in the following manner:
(a) If it determines that the director is entitled to
mandatory indemnification under section 7-109-103, the court shall
order indemnification, in which case the court shall also order the
corporation to pay the director's reasonable expenses incurred to
obtain court-ordered indemnification.
(b) If it determines that the director is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not the director met the standard of conduct
set forth in section 7-109-102(1) or was adjudged liable in the
circumstances described in section 7-109-102(4), the court may order
such indemnification as the court deems proper; except that the
indemnification with respect to any proceeding in which liability
shall have been adjudged in the circumstances described in section
7-109-102(4) is limited to reasonable expenses incurred in connection
with the proceeding and reasonable expenses incurred to obtain court-
ordered indemnification.
7-109-106. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF
DIRECTORS
(1) A corporation may not indemnify a director under section
7-109-102 unless authorized in the specific case after a determination
has been made that indemnification of the director is permissible in
the circumstances because the director has met the standard of conduct
set forth in section 7-109-102. A corporation shall not advance
expenses to a director under section 7-109-104 unless authorized in
the specific case after the written affirmation and undertaking
required by section 7-109-104(1)(a) and (1)(b) are received and the
determination required by section 7-109-104(1)(c) has been made.
II-5
<PAGE>
(2) The determinations required by subsection (1) of this
section shall be made:
(a) By the board of directors by a majority vote of those
present at a meeting at which a quorum is present, and only those
directors not parties to the proceeding shall be counted in satisfying
the quorum; or
(b) If a quorum cannot be obtained, by a majority vote of
a committee of the board of directors designated by the board of
directors, which committee shall consist of two or more directors not
parties to the proceeding; except that directors who are parties to
the proceeding may participate in the designation of directors for the
committee.
(3) If a quorum cannot be obtained as contemplated in paragraph
(a) of subsection (2) of this section, and a committee cannot be
established under paragraph (b) of subsection (2) of this section, or,
even if a quorum is obtained or a committee is designated, if a
majority of the directors constituting such quorum or such committee
so directs, the determination required to be made by subsection (1)of
this section shall be made:
(a) By independent legal counsel selected by a vote of the
board of directors or the committee in the manner specified in
paragraph (a) or (b) of subsection (2) of this section or, if a
quorum of the full board cannot be obtained and a committee cannot be
established, by independent legal counsel selected by a majority vote
of the full board of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and advance of expenses
shall be made in the same manner as the determination that
indemnification or advance of expenses is permissible; except that, if
the determination that indemnification or advance of expenses is
permissible is made by independent legal counsel, authorization of
indemnification and advance of expenses shall be made by the body that
selected such counsel.
II-6
<PAGE>
7-109-107. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND
AGENTS
(1) Unless otherwise provided in the articles of incorporation:
(a) An officer is entitled to mandatory indemnification
under section 7-109-103, and is entitled to apply for court-ordered
indemnification under section 7-109-105, in each case to the same
extent as a director;
(b) A corporation may indemnify and advance expenses to an
officer, employee, fiduciary, or agent of the corporation to the same
extent as to a director; and
(c) A corporation may also indemnify and advance expenses
to an officer, employee, fiduciary, or agent who is not a director to
a greater extent, if not inconsistent with public policy, and if
provided for by its bylaws, general or specific action of its board of
directors or shareholders, or contract.
7-109-108. INSURANCE
A corporation may purchase and maintain insurance on behalf of a
person who is or was a director, officer, employee, fiduciary, or
agent of the corporation, or who, while a director, officer, employee,
fiduciary, or agent of the corporation, is or was serving at the
request of the corporation as a director, officer, partner, trustee,
employee, fiduciary, or agent of another domestic or foreign
corporation or other person or of an employee benefit plan, against
liability asserted against or incurred by the person in that capacity
or arising from his or her status as a director, officer, employee,
fiduciary, or agent, whether or not the corporation would have power
to indemnify the person against the same liability under section
7-109-102, 7-109-103, or 7-109-107. Any such insurance may be procured
from any insurance company designated by the board of directors,
whether such insurance company is formed under the laws of this state
or any other jurisdiction of the United States or elsewhere, including
any insurance company in which the corporation has an equity or any
other interest through stock ownership or otherwise.
7-109-109. LIMITATION OF INDEMNIFICATION OF DIRECTORS
(1) A provision treating a corporation's indemnification of, or
advance of expenses to, directors that is contained in its articles
of incorporation or bylaws, in a resolution of its shareholders or
board of directors, or in a contract, except an insurance policy, or
otherwise, is valid only to the extent the provision is not
inconsistent with sections 7-109-101 to 7-109-108. If the articles
of incorporation limit indemnification or advance of expenses,
indemnification and advance of expenses are valid only to the extent
not inconsistent with the articles of incorporation.
II-7
<PAGE>
(2) Sections 7-109-101 to 7-109-108 do not limit a corporation's
power to pay or reimburse expenses incurred by a director in
connection with an appearance as a witness in a proceeding at a time
when he or she has not been made a named defendant or respondent in
the proceeding.
7-109-110. NOTICE TO SHAREHOLDERS OF INDEMNIFICATION OF DIRECTOR
If a corporation indemnifies or advances expenses to a director
under this article in connection with a proceeding by or in the right
of the corporation, the corporation shall give written notice of the
indemnification or advance to the shareholders with or before the
notice of the next shareholders' meeting. If the next shareholder
action is taken without a meeting at the instigation of the board of
directors, such notice shall be given to the shareholders at or before
the time the first shareholder signs a writing consenting to such
action."
B. Article VI of the Registrant's Amended and Restated Articles of
Incorporation provides for the elimination of personal liability for
monetary damages for the breach of fiduciary duty as a director except for
liability (i) resulting from a breach of the director's duty of loyalty to
the Registrant or its shareholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the
law; (iii) for approving payment of distributions to shareholders to the
extent that any such actions are illegal under the Act; or (iv) for any
transaction from which a director derives an improper personal benefit.
This Article further provides that the personal liability of the
Registrant's directors shall be eliminated or limited to the fullest extent
permitted by the Act.
Item 7. Exemption from Registration Claimed.
-----------------------------------
Not applicable.
Item 8. Exhibits.
--------
The following is a complete list of exhibits filed as a part of this
Registration Statement, which Exhibits are incorporated herein.
5.1 Opinion of Brenman Bromberg & Tenenbaum, P.C.
10.14 1998 Compensatory Stock Plan
24.1 Consent of Brenman Bromberg & Tenenbaum, P.C. - See Exhibit 5.1.
24.2 Consent of Causey Demgen & Moore Inc.
II-8
<PAGE>
Item 9. Undertakings.
------------
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement;
PROVIDED, HOWEVER, that paragraph (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in an amendment by those
paragraphs is included in periodic reports filed by the Registrant pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) For purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed
II-9
<PAGE>
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-8 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City and County of Denver, State of
Colorado on December 29, 1998.
ENTROPIN, INC, Registrant
By /s/Higgins D. Bailey
----------------------------------------
Higgins D. Bailey, Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/Higgins D. Bailey Chairman of the Board December 29, 1998
- --------------------------- of Directors,
Higgins D. Bailey
/s/ Dewey H. Crim Chief Executive Officer, December 29, 1998
- --------------------------- Treasurer and Director
Dewey H. Crim
/s/Daniel L. Azarnoff President and Director December 29, 1998
- ---------------------------
Daniel L. Azarnoff
/s/Wellington A. Ewen Chief Financial Officer December 29, 1998
- ---------------------------
Wellington A. Ewen
/s/ Donald Hunter Secretary and Director December 29, 1998
- ---------------------------
Donald Hunter
/s/James E. Wynn Director December 29, 1998
- ---------------------------
James E. Wynn
II-11
EXHIBIT 5.1
BRENMAN, BROMBERG & TENENBAUM, P.C.
ATTORNEYS AT LAW
MELLON FINANCIAL CENTER
SUITE 1001
1775 SHERMAN STREET FACSIMILE
TELEPHONE DENVER, COLORADO 80203-4314 303-839-1633
303-894-0234 303-830-8890
December 29, 1998
Board of Directors
Entropin, Inc.
45926 Oasis Street
Indio, California 92201
RE: ENTROPIN, INC.
REGISTRATION STATEMENT ON FORM S-8
Gentlemen:
We have acted as counsel to Entropin, Inc., a Colorado corporation
(the "Company"), in connection with the preparation and filing with the
U.S. Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), of the Company's
registration statement of Form S-8 (the "Registration Statement"). This
Registration Statement relates to the registration under the Act of 300,000
shares of the Company's common stock, $.001 par value (the "Common Stock"),
which may be issued pursuant to the Company's 1998 Compensatory Stock Plan
(the "Plan").
In rendering this opinion, we have reviewed the Registration
Statement, as well as a copy of the Company's articles of incorporation and
bylaws, each as amended to date, and the Plan. We have also reviewed such
documents and such statutes, rules and judicial precedents as we have
deemed necessary for the opinions expressed herein.
In rendering this opinion, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of
documents submitted to us as originals, the conformity to original
documents of documents submitted to us as certified or photostatic copies,
and the authenticity of originals of such photostatic copies.
Based upon and in reliance upon the foregoing, and subject to the
qualifications and limitations herein set forth, we are of the opinion that
the shares of Common Stock issuable under the Plan, pursuant to the
exercise of stock options granted thereunder, have been duly and validly
authorized and, when issued and sold in the manner contemplated in the Plan
(by award to eligible persons as defined in the Plan) and by the
Registration Statement, will be validly issued, fully paid and
nonassessable.
<PAGE>
Board of Directors
Entropin, Inc.
December 29, 1998
Page 2
The opinion set forth in this letter is limited by, subject to and
based on the following:
1. We are admitted to practice before the Bar of the State
of Colorado and are not admitted to practice in any
other jurisdiction.
2. The foregoing opinion is limited in all respects to the
laws of the State of Colorado and applicable federal
securities laws of the United States.
We consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement.
This opinion may not be used, circulated, quoted or otherwise referred
to for any other purpose without prior written consent and may not be
relied upon by any person or entity other than the Company and its
successors and assigns. This opinion is based upon our knowledge of law
and facts as of its date. We assume no duty to communicate to you with
respect to any matter which comes to our attention hereafter.
Very truly yours,
/s/ Brenman Bromberg & Tenenbaum, P.C.
EXHIBIT 10.14
ENTROPIN, INC.
1998 COMPENSATORY STOCK PLAN
ARTICLE I
1.1 PURPOSE OR PLAN; TERM.
(a) ADOPTION. On September 11, 1998 (the "Adoption Date"), the
Board of Directors (the "Board") of Entropin, Inc., a Colorado corporation
(the "Company"), adopted this stock option plan to be known as the 1998
Compensatory Stock Plan (the "Plan").
(b) DEFINED TERMS. All initially capitalized terms used hereby
shall have the meaning set forth in ARTICLE IV hereto.
(c) GENERAL PURPOSE. This 1998 Compensatory Stock Plan is
intended to encourage stock ownership by employees, officers, directors of
and consultants to Entropin, Inc. and its controlled, affiliated subsidiary
corporations (collectively, the "Company"), so that they may acquire or
increase their proprietary interest in the Company, and is intended to
facilitate the Company's efforts to (i) induce qualified persons to become
employees or officers of or consultants to the Company; (ii) compensate
employees, officers, directors and consultants for services to the Company;
and (iii) encourage such persons to remain in the employ of or associated
with the Company and to put forth maximum efforts for the success of the
Company. Such purpose shall be accomplished by providing for the
discretionary granting of options to acquire the Company's Stock
("Options"), the direct granting of the Company's Stock ("Stock Awards"),
and the granting of stock appreciation rights ("SARs"), (Stock Awards and
SARs shall be collectively referred to herein as "Awards").
(d) CHARACTER OF OPTIONS. Options granted under this Plan to
employees of the Company (or Parent or Subsidiary Corporations) that are
intended to qualify as an "incentive stock option" as defined in Code
section 422 ("Incentive Stock Option") will be specified in the applicable
stock option agreement. All other Options granted under this Plan will be
non-qualified options.
(e) RULE 16b-3 PLAN. The Plan is intended to comply with all
applicable conditions of Rule 16b-3 (and all subsequent revisions thereof)
promulgated under the Securities Exchange Act of 1934 (the "Act"). In such
instance, to the extent any provision of the Plan or action by a Committee
or the Board fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Board or such
Committee. In addition, the Board may amend the Plan from time to time as
it deems necessary in order to meet the requirements of any amendments to
Rule 16b-3 without the consent of the shareholders of the Company.
(f) DURATION OF PLAN. The term of the Plan is 10 years,
commencing on the date of adoption of the original Plan by the Board as
specified in SECTION 1.1(a) hereof. No Option or Award shall be granted
under the Plan unless granted within 10 years of the adoption of the Plan
by the Board, but Options or Awards outstanding on that date shall not be
terminated or otherwise affected by virtue of the Plan's expiration.
<PAGE>
1.2 STOCK AND MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN.
(a) DESCRIPTION OF STOCK AND MAXIMUM SHARES ALLOCATED. The
shares of stock subject to the provisions of the Plan and issuable upon the
grant of Stock Awards or upon the exercise of SARs or Options granted under
the Plan are shares of the Company's Common Stock, $.001 par value per
share (the "Stock"), which may be either unissued or treasury shares. The
Company may not issue more than 300,000 shares of Stock pursuant to the
Plan, unless the Plan is amended as provided in SECTION 1.3 or the maximum
number of shares subject to the Plan is adjusted as provided in SECTION
3.1.
(b) CALCULATION OF AVAILABLE SHARES. The number of shares of
Stock available under the Plan shall be reduced: (i) by any shares of Stock
issued (including any shares of Stock withheld for tax withholding
requirements) upon exercise of an Option; and, (ii) by any shares of Stock
issued (including any shares of Stock withheld for tax withholding
requirements) upon the grant of a Stock Award or the exercise of an SAR.
(c) RESTORATION OF UNPURCHASED SHARES. If an Option or SAR
expires or terminates for any reason prior to its exercise in full and
before the term of the Plan expires, the shares of Stock subject to, but
not issued under, such Option or SAR shall, without further action or by or
on behalf of the Company, again be available under the Plan.
1.3 APPROVAL; AMENDMENTS.
(a) APPROVAL BY STOCKHOLDERS. The Plan shall be submitted to
the stockholders of the Company for their approval at a regular or special
meeting to be held within 12 months after the adoption of the Plan by the
Board. Stockholder approval shall be evidenced by the affirmative vote of
the holders of a majority of the shares of the Company's Common Stock
present in person or by proxy and voting at the meeting. The date such
stockholder approval has been obtained shall be referred to herein as the
"Effective Date."
(b) COMMENCEMENT OF PLAN. The Plan is effective immediately,
but if the Plan is not approved by the stockholders within 12 months after
its adoption by the Board, all Incentive Stock Options made thereunder
shall lose their status as incentive stock options as defined in Section
422(b) of the Code, and shall automatically become non-qualified stock
options; provided, however, that the failure to adopt the Plan by
shareholders shall not effect any non-qualified options and Awards
previously granted herein.
(c) AMENDMENTS TO PLAN. The Board may, without action on the
part of the Company's stockholders, terminate or make such amendments to,
changes in and additions to the Plan as it may, from time to time, deem
necessary or appropriate and in the best interests of the Company;
provided, the Board may not, without the consent of the applicable
Optionholder, take any action which disqualifies any Option previously
granted under the Plan for treatment as an Incentive Stock Option or which
adversely affects or impairs the rights of the Optionholder of any Option
outstanding under the Plan, except as provided in Paragraph 1.3 (b), and
further provided
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that, except as provided in ARTICLE III hereof, the Board may not, without
the approval of the Company's stockholders: (i) increase the aggregate
number of shares of Stock subject to the Plan; (ii) reduce the exercise
price at which Options may be granted or the exercise price at which any
outstanding Option may be exercised; (iii) extend the term of the Plan;
(iv) change the class of persons eligible to receive Options or Awards
under the Plan; or, (v) materially increase the benefits accruing to
participants under the Plan. Notwithstanding the foregoing, Options or
Awards may be granted under this Plan to purchase shares of Stock in excess
of the number of shares then available for issuance under the Plan if (A)
an amendment to increase the maximum number of shares issuable under the
Plan is adopted by the Board prior to the initial grant of any such Option
or Award and within one year thereafter such amendment is approved by the
Company's stockholders and (B) each such Option or Award granted does not
become exercisable or vested, in whole or in part, at any time prior to the
obtaining of such stockholder approval.
ARTICLE II
2.1 PARTICIPANTS; ADMINISTRATION.
(a) ELIGIBILITY AND PARTICIPATION. Options and Awards may be
granted only to persons ("Eligible Persons") who at the time of grant are:
(i) employees (including officers and directors) of the Company or Parent
or Subsidiary Corporations; or, (ii) consultants or independent contractors
who provide valuable services to the Company or Parent or Subsidiary
Corporations; provided that Incentive Stock Options may only be granted to
employees of the Company (and its Parent or Subsidiary Corporations). The
Committee shall have full authority to determine which Eligible Persons are
to receive Option grants under the Plan, the number of shares to be covered
by each such grant, whether or not the granted Option is to be an Incentive
Stock Option, the time or times at which each such Option is to become
exercisable, and the maximum term for which the Option is to be
outstanding. The Committee shall also have full authority to determine
which Eligible Persons are to receive Awards and the conditions relating to
such Award.
(b) GENERAL ADMINISTRATION. The Plan shall be administered by
the Compensation Committee which shall make recommendations to the Board of
Directors with respect to the grant of Options and Awards. The Board of
Directors retains complete authority in its discretion, subject to and not
inconsistent with the express provisions of the Plan, to grant Options and
Awards pursuant to the Plan. The Committee shall administer the Plan and
make recommendations to the Board concerning the following: exercise of all
powers and authorities either specifically conferred under the Plan or
necessary or advisable in the administration of the Plan: to determine the
vesting schedule and other restrictions, if any, relating to Options and
Awards; to determine the Option Price; to determine the persons to whom,
and the time or times at which, Options and Awards shall be granted; to
determine the number of shares to be covered by each Option or Award; to
determine Fair Market Value per share; to interpret the Plan; to prescribe,
amend and rescind rules and regulations relating to the Plan; to determine
the terms and provisions of the Option agreements (which need not be
identical) entered into in connection with Options granted under the Plan;
and to make all other determinations deemed necessary or advisable for the
administration of the Plan. The Committee may delegate to one or more of
its members or to one
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or more agents such administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect to any
responsibility the Committee or such person may have under the Plan.
(c) Options and Awards granted under the Plan shall be evidenced
by duly adopted resolutions of the Committee included in the minutes of the
meeting at which they are adopted or in a unanimous written consent.
(d) No member of the Committee or the Board shall be liable for
any action taken or determination made in good faith with respect to the
Plan or any Option or Award granted hereunder.
(e) In designating and selecting Eligible Persons for
participation in the Plan, the Committee shall consult with and give
consideration to the recommendations and criticisms submitted by
appropriate managerial and executive officers of the Company. The
Committee also shall take into account the duties and responsibilities of
the Eligible Persons, their past, present and potential contributions to
the success of the Company and such other factors as the Committee shall
deem relevant in connection with accomplishing the purpose of the Plan.
2.2 TERMS AND CONDITIONS OF OPTIONS.
(a) ALLOTMENT OF SHARES. The Committee shall determine the
number of shares of Stock to be optioned from time to time and the number
of shares to be optioned to any Eligible Person (the "Optioned Shares").
The grant of a Option to a person shall neither entitle such person to, nor
disqualify such person from, participation in any other grant of Options or
Awards under this Plan or any other stock option plan of the Company.
(b) EXERCISE PRICE. Upon the grant of any Option, the Committee
shall specify the option price per share. If the Option is intended to
qualify as an Incentive Stock Option under the Code, the option price per
share may not be less than 100 percent of the fair market value per share
of the stock on the date the Option is granted (110 percent if the Option
is granted to a stockholder who at the time the Option is granted owns or
is deemed to own stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or of any
Parent or Subsidiary Corporation). If the Option is not intended to qualify
as an Incentive Stock Option under the Code, the option price per share may
not be less than 85 percent of the fair market value per share of the stock
on the date the Option is granted. The determination of the fair market
value of the Stock shall be made in accordance with the valuation
provisions of SECTION 3.5 hereof.
(c) INDIVIDUAL STOCK OPTION AGREEMENTS. Options granted under
the Plan shall be evidenced by option agreements in such form and content
as the Committee from time to time approves, which agreements shall
substantially comply with and be subject to the terms of the Plan,
including the terms and conditions of this SECTION 2.2. As determined by
the Committee, each option agreement shall state: (i) the total number of
shares to which it pertains; (ii) the exercise price for the shares covered
by the Option; (iii) the time at which the Options vest and become
exercisable;
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and, (iv) the Option's scheduled expiration date. The option agreements
may contain such other provisions or conditions as the Committee deems
necessary or appropriate to effectuate the sense and purpose of the Plan,
including covenants by the Optionholder not to compete and remedies for the
Company in the event of the breach of any such covenant.
(d) OPTION PERIOD. No Option granted under the Plan that is
intended to be an Incentive Stock Option shall be exercisable for a period
in excess of 10 years from the date of its grant (five years if the Option
is granted to a shareholder who at the time the Option is granted owns or
is deemed to own stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or of any
Subsidiary Corporation), subject to earlier termination in the event of
termination of employment, retirement or death of the Optionholder. An
Option may be exercised in full or in part at any time or from time to time
during the term of the Option or provide for its exercise in stated
installments at stated times during the Option's term.
(e) VESTING; LIMITATIONS. The time at which Options vest with
respect to an Optionholder shall be in the discretion of that
Optionholder's Committee; provided that no Options shall vest prior to the
Effective Date. Notwithstanding the foregoing, to the extent a Option is
intended to qualify as an Incentive Stock Option, the aggregate fair market
value (determined as of the respective date or dates of grant) of the Stock
for which one or more Options granted to any person under this Plan (or any
other option plan of the Company or its Parent or Subsidiary Corporations)
may for the first time become exercisable as Incentive Stock Options during
any one calendar year shall not exceed the sum of $100,000 (referred to
herein as the "$100,000 Limitation"). To the extent that any person holds
two or more Options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability as an
Incentive Stock Option shall be applied on the basis of the order in which
such Options are granted.
(f) NO FRACTIONAL SHARES. Options shall be exercisable only for
whole shares; no fractional shares will be issuable upon exercise of any
Option granted under the Plan.
(g) METHOD OF EXERCISE. To exercise a Option, an Optionholder
(or in the case of an exercise after an Optionholder's death, such
Optionholder's executor, administrator, heir or legatee, as the case may
be) must take the following action:
(i) execute and deliver to the Company a written notice of
exercise signed in writing by the person exercising the Option specifying
the number of shares of Stock with respect to which the Option is being
exercised;
(ii) pay the aggregate Option Price in one of the alternate
forms as set forth in SECTION 2.2(h) below; and,
(iii) furnish appropriate documentation that the person
or persons exercising the Option (if other than the Optionholder) has the
right to exercise such Option.
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As soon as practical after the Exercise Date, the Company will mail or
deliver to or on behalf of the Optionholder (or any other person or persons
exercising this Option under the Plan) a certificate or certificates
representing the Stock acquired upon exercise of the Option.
(h) PAYMENT PRICE. The aggregate Option Price shall be payable
in one of the alternative forms specified below:
(i) Full payment in cash or check made payable to the
Company's order;
(ii) At the Company's option, full payment in shares of
Stock held for the requisite period necessary to avoid a charge to the
Company's reported earnings and valued at fair market value on the Exercise
Date (as determined in accordance with SECTION 3.5 hereof); or,
(iii) At the Company's option, if a cashless exercise Plan
has been implemented by the Board, full payment through a sale and
remittance procedure pursuant to which the Optionholder (A) shall provide
irrevocable written instructions to a designated brokerage firm to effect
the immediate sale of the Optioned Shares to be purchased and remit to the
Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
Optioned Shares to be purchased and (B) shall concurrently provide written
directives to the Company to deliver the certificates for the Optioned
Shares to be purchased directly to such brokerage firm in order to complete
the sale transaction.
(i) RIGHTS OF A STOCKHOLDER. An Optionholder shall not have any
of the rights of a stockholder with respect to Optioned Shares until such
individual shall have exercised the Option and paid the Option Price for
the Optioned Shares. No adjustment will be made for dividends or other
rights for which the record date is prior to the date such stock
certificate is issued.
(j) REPURCHASE RIGHT. The Committee may, in its sole
discretion, set forth other terms and conditions upon which the Company (or
its assigns) shall have the right to repurchase shares of Stock acquired by
an Optionholder pursuant to a Option. Any repurchase right of the Company
shall be exercisable by the Company (or its assignees) upon such terms and
conditions as the Committee may specify in a stock repurchase agreement in
such form and content as the Committee may approve evidencing such right.
The Committee may also in its discretion establish as a term and condition
of one or more Options granted under the Plan that the Company shall have
a right of first refusal with respect to any proposed sale or other
disposition by the Optionholder of any shares of Stock issued upon the
exercise of such Options. Any such right of first refusal shall be
exercisable by the Company (or its assigns) in accordance with the terms
and conditions set forth in a stock repurchase agreement.
(k) TERMINATION OF SERVICE. If any Optionholder ceases to be in
Service to the Company for a reason other than permanent disability or
death, such Optionholder must, within 90 days after the date of termination
of such Service, but in no event after the Option's stated expiration date,
exercise some or all of the Options that the Optionholder was entitled to
exercise on the date the Optionholder's Service terminated; provided, that
if the Optionholder is discharged for Cause
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or commits acts detrimental to the Company's interests after the Service of
the Optionholder has been terminated, then the Option will thereafter be
void for all purposes. "Cause" shall mean a termination of Service based
upon a finding by the applicable Committee that the Optionholder: (i) has
committed a felony involving dishonesty, fraud, theft or embezzlement; (ii)
after written notice from the Company, has repeatedly failed or refused, in
a material respect, to follow reasonable policies or directives established
by the Company; (iii) after written notice from the Company, has willfully
and persistently failed to attend to material duties or obligations; (iv)
has performed an act or failed to act, which, if he were prosecuted and
convicted, would constitute a theft of money or property of the Company;
or, (v) has misrepresented or concealed a material fact for purposes of
securing employment with the Company. If any Optionholder ceases to be in
Service to the Company by reason of permanent disability within the meaning
of section 22(e)(3) of the Code (as determined by the applicable
Committee), the Optionholder will have 12 months after the date of
termination of Service, but in no event after the stated expiration date of
the Optionholder's Options, to exercise Options that the Optionholders was
entitled to exercise on the date the Optionholder's Service terminated as
a result of the disability.
(l) DEATH OF OPTIONHOLDER. If an Optionholder dies while in the
Company's Service, any Options that the Optionholder was entitled to
exercise on the date of death will be exercisable within the six-month
period following the date of issuance of letters testamentary or letters of
administration of a deceased Optionholder, in the case of the
Optionholder's death during his employment by the Company, but not later
than one year after the Optionholder's death or until the stated expiration
date of the Optionholder's Option, whichever occurs first, by the person or
persons ("successors") to whom the Optionholder's rights pass under a will
or by the laws of descent and distribution. As soon as practicable after
receipt by the Company of such notice and of payment in full of the Option
Price, a certificate or certificates representing the Optioned Shares shall
be registered in the name or names specified by the successors in the
written notice of exercise and mall be delivered to the successors.
(m) OTHER PLAN PROVISIONS STILL APPLICABLE. If a Option is
exercised upon the termination of Service or death of an Optionholder under
this SECTION 2.2, the other provisions of the Plan will continue to apply
to such exercise, including the requirement that the Optionholder or its
successor may be required to enter into a Stock Repurchase Agreement.
(n) DEFINITION OF "SERVICE". For purposes of this Plan, unless
it is evidenced otherwise in the option agreement with the Optionholder,
the Optionholder is deemed to be in "Service" to the Company so long as
such individual renders continuous services on a periodic basis to the
Company (or to any Parent or Subsidiary Corporation) in the capacity of an
employee, director, or an independent consultant or advisor. In the
discretion of the applicable Committee, an Optionholder will be considered
to be rendering continuous services to the Company even if the type of
services change, e.g., from employee to independent consultant. The
Optionholder will be considered to be an employee for so long as such
individual remains in the employ of the Company or one or more of its
Parent or Subsidiary Corporations.
2.3 TERMS AND CONDITIONS OF STOCK AWARDS.
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(a) ELIGIBILITY. All Eligible Persons shall be eligible to
receive Stock Awards. The Committee shall determine the number of shares of
Stock to be awarded from time to time to any Eligible Person. Except as
provided otherwise in this Plan, the grant of a Stock Award to a person (a
"Grantee") shall neither entitle such person to, nor disqualify such person
from participation in, any other grant of options or awards by the Company,
whether under this Plan or under any other stock option or award plan of
the Company.
(b) AWARD FOR SERVICES RENDERED. Stock Awards shall be granted
in recognition of an Eligible Person's services to the Company. The grantee
of any such Stock Award shall not be required to pay any consideration to
the Company upon receipt of such Stock Award, except as may be required to
satisfy any applicable corporate law, employment tax and/or income tax
withholding requirements.
(c) CONDITIONS TO AWARD. All Stock Awards shall be subject to
such terms, conditions, restrictions, or limitations as the Committee deems
appropriate, including, by way of illustration but not by way of
limitation, restrictions on transferability, requirements of continued
employment, individual performance or the financial performance of the
Company, or payment by the recipient of any applicable employment or
withholding taxes. Such Committee may modify or accelerate the termination
of the restrictions applicable to any Stock Award under the circumstances
as it deems appropriate.
(d) AWARD AGREEMENTS. The Committee may require as a condition
to a Stock Award that the recipient of such Stock Award enter into an award
agreement in such form and content as that Committee from time to time
approves.
2.4 TERMS AND CONDITIONS OF SARS.
(a) ELIGIBILITY. All Eligible Persons shall be eligible to
receive SARs. The Committee shall determine the SARs to be awarded from
time to time to any Eligible Person. The grant of a SAR to a person shall
neither entitle such person to, nor disqualify such person from
participation in, any other grant of options or awards by the Company,
whether under this Plan or under any other stock option or award plan of
the Company.
(b) AWARD OF SARS. Concurrently with or subsequent to the grant
of any Option to purchase one or more shares of Stock, the Committee may
award to the Optionholder with respect to each share of Stock, underlying
the Option, a related SAR permitting the Optionholder to be paid any
appreciation on that Stock in lieu of exercising the Option. In addition,
a Committee may award to any Eligible Person a SAR permitting the Eligible
Person to be paid the appreciation on a designated number of shares of the
Stock, whether or not such Shares are actually issued.
(c) CONDITIONS TO SAR. All SARs shall be subject to such terms,
conditions, restrictions or limitations as the Committee deems appropriate,
including, by way of illustration but not by way of limitation,
restrictions on transferability, requirements of continued employment,
individual performance, financial performance of the Company, or payment by
the recipient of any
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applicable employment or withholding taxes. The Committee may modify or
accelerate the termination of the restrictions applicable to any SAR under
the circumstances as it deems appropriate.
(d) SAR AGREEMENTS. The Committee may require as a condition to
the grant of a SAR that the recipient of such SAR enter into a SAR
agreement in such form and content as that Committee from time to time
approves.
(e) EXERCISE. An Eligible Person who has been granted a SAR may
exercise such SAR subject to the conditions specified in the SAR agreement
by the Committee.
(f) AMOUNT OF PAYMENT. The amount of payment to which the
grantee of a SAR shall be entitled upon the exercise of each SAR shall be
equal to the amount, if any, by which the fair market value of the
specified shares of Stock on the exercise date exceeds the fair market
value of the specified shares of Stock on the date the Option related to
the SAR was granted or became effective, or, if the SAR is not related to
any Option, on the date the SAR was granted or became effective.
(g) FORM OF PAYMENT. The SAR may be paid in either cash or
Stock, as determined in the discretion of the Committee and set forth in
the SAR agreement. If the payment is in Stock, the number of shares to be
paid to the participant shall be determined by dividing the amount of the
payment determined pursuant to SECTION 2.4(f) by the fair market value of
a share of Stock on the exercise date of such SAR. As soon as practical
after exercise, the Company shall deliver to the SAR grantee a certificate
or certificates for such shares of Stock.
(h) TERMINATION OF EMPLOYMENT; DEATH. SECTIONS 2.2(k) and (1),
applicable to Options, shall apply equally to SARs.
ARTICLE III
3.1 CAPITAL ADJUSTMENTS. The aggregate number of shares of Stock
subject to the Plan, the number of shares of Stock covered by outstanding
Options and Awards, and the price per share stated in all outstanding
Options and Awards shall be proportionately adjusted for any increase or
decrease in the number of outstanding shares of Stock of the Company
resulting from a subdivision or consolidation of shares or any other
capital adjustment or the payment of a stock dividend or any other increase
or decrease in the number of such shares effected without the Company's
receipt of consideration therefor in money, services or property.
3.2 MERGERS, ETC. If the Company is the surviving corporation in any
merger or consolidation (not including a Corporate Transaction), any Option
or Award granted under the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to
the Option or Award would have been entitled prior to the merger or
consolidation. Except as provided in SECTION 3.3 hereof, a dissolution or
liquidation of the Company shall cause every Option or Award outstanding
hereunder to terminate.
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3.3 CORPORATE TRANSACTION. In the event of stockholder approval of a
Corporate Transaction, the Committee shall have the discretion and
authority, exercisable at any time, to provide for the automatic
acceleration of one or more of the outstanding Options or Awards granted by
it under the Plan. Upon the consummation of the Corporate Transaction, all
Options shall, to the extent not previously exercised, terminate and cease
to be outstanding.
3.4 CHANGE IN CONTROL.
(a) In the event of a Change in Control, the Committee shall
have the discretion and authority, exercisable at any time, whether before
or after the Change in Control, to provide for the automatic acceleration
of one or more outstanding Options or Awards granted by it under the Plan
upon the occurrence of such Change in Control. The Committee may also
impose limitations upon the automatic acceleration of such Options or
Awards to the extent it deems appropriate. Any Options or Awards
accelerated upon a Change in Control will remain fully exercisable until
the expiration or sooner termination of the Option term.
(b) INCENTIVE STOCK OPTION LIMITS. The exercisability of any
Options which are intended to qualify as Incentive Stock Options and which
are accelerated by the Committee in connection with a pending Corporation
Transaction or Change in Control shall, except as otherwise provided in the
discretion of the Committee and the Optionholder, remain subject to the
$100,000 Limitation and vest as quickly as possible without violating the
$100,000 Limitation.
3.5 CALCULATION OF FAIR MARKET VALUE OF STOCK. The fair market value
of a share of Stock on any relevant date shall be determined in accordance
with the following provisions:
(a) If the Stock is not at the time listed or admitted to
trading on any stock exchange but is traded in the over-the-counter market,
the fair market value shall be the mean between the highest bid and lowest
asked prices (or, if such information is available, the closing selling
price) per share of Stock on the date in question in the over-the-counter
market, as such prices are reported by the National Association of
Securities Dealers through its NASDAQ system or any successor system. If
there are no reported bid and asked prices (or closing selling price) for
the Stock on the date in question, then the mean between the highest bid
price and lowest asked price (or the closing selling price) on the last
preceding date for which such quotations exist shall be determinative of
fair market value.
(b) If the Stock is at the time listed or admitted to trading on
any stock exchange, then the fair market value shall be the closing selling
price per share of Stock on the date in question on the stock exchange
determined by the Board to be the primary market for the Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no reported sale of Stock on such exchange on the
date in question, then the fair market value shall be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.
(c) If the Stock at the time is neither listed nor admitted to
trading on any stock exchange nor traded in the over-the-counter market,
then the fair market value shall be determined
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by the Board after taking into account such factors as the Board shall deem
appropriate, including one or more independent professional appraisals.
3.6 USE OF PROCEEDS. The proceeds received by the Company from the
sale of Stock pursuant to the exercise of Options or Awards hereunder, if
any, shall be used for general corporate purposes.
3.7 CANCELLATION OF OPTIONS. The Committee shall have the authority
to effect, at any time and from time to time, with the consent of the
affected Optionholders, the cancellation of any or all outstanding Options
granted under the Plan by that Committee and to grant in substitution
therefore new Options under the Plan covering the same or different numbers
of shares of Stock as long as such new Options have an exercise price per
share of Stock no less than the minimum exercise price as set forth in
SECTION 2.2(b) hereof on the new grant date.
3.8 REGULATORY APPROVALS. The implementation of the Plan, granting
of any Option or Award hereunder, and the issuance of Stock upon the
exercise of any such Option or Award shall be subject to the procurement by
the Company of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the Options or Awards granted under it
and the Stock issued pursuant to it.
3.9 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have, the members of the Committee shall be
indemnified and held harmless by the Company, to the extent permitted under
applicable law, for, from and against all costs and expenses reasonably
incurred by them in connection with any action, legal proceeding to which
any member thereof may be a party by reason of any action taken, failure to
act under or in connection with the Plan or any rights granted thereunder
and against all amounts paid by them in settlement thereof or paid by them
in satisfaction of a judgment of any such action, suit or proceeding,
except a judgment based upon a finding of bad faith.
3.10 PLAN NOT EXCLUSIVE. This Plan is not intended to be the
exclusive means by which the Company may issue options or warrants to
acquire its Stock, stock awards or any other type of award. To the extent
permitted hy applicable law, any such other option, warrants or awards may
he issued by the Company other than pursuant to this Plan without
shareholder approval.
3.11 COMPANY RIGHTS. The grants of Options shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
3.12 ASSIGNMENT. The right to acquire Stock or other assets under the
Plan may not be assigned, encumbered or otherwise transferred by any
Optionholder except as specifically provided herein. No Option or Award
granted under the Plan or any of the rights and privileges conferred
thereby shall be assignable or transferable by an Optionholder or grantee
other than by will or the laws of descent and distribution, and such Option
or Award shall be exercisable during the Optionholder's or grantee's
lifetime only by the Optionholder or grantee. Notwithstanding the
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foregoing, any Options or Awards granted pursuant to the Plan may be
assigned, encumbered or otherwise transferred by the Optionholder or
grantee if specifically allowed by the Committee upon the grant of such
Option or Award. The provisions of the Plan shall inure to the benefit of,
and be binding upon, the Company and its successors or assigns, and the
Optionholders. the legal representatives of their respective estates, their
respective heirs or legatees and their permitted assignees.
3.13 SECURITIES REGISTRATION.
(a) LEGEND ON CERTIFICATES. All certificates representing
shares of Stock issued under the Plan shall be endorsed with a legend
reading as follows:
The shares of Common Stock evidenced by this certificate have been
issued to the registered owner in reliance upon written
representations that these shares have been purchased solely for
investment. These shares may not he sold, transferred or assigned
unless in the opinion of the Company and its legal counsel such sale,
transfer or assignment will not be in violation of the Securities Act
of 1933, as amended, and the rules and regulations thereunder.
(b) PRIVATE OFFERING FOR INVESTMENT ONLY. The Options and
Awards are and shall be made available only to a limited number of present
and future executives, directors, employees and/or consultants who have
knowledge of the Company's financial condition, management and its affairs.
The Plan is not intended to provide additional capital for the Company, but
to encourage ownership of Stock among the Company's employees. By the act
of accepting an Option or Award, each grantee agrees: (i) that, any shares
of Stock acquired will be solely for investment not with any intention to
resell or redistribute those shares; and, (ii) such intention will be
confirmed by an appropriate certificate at the time the Stock is acquired
if requested by the Company. The neglect or failure to execute such a
certificate, however, shall not limit or negate the foregoing agreement.
(c) REGISTRATION STATEMENT. If a Registration Statement
covering the shares of Stock issuable under the Plan as filed under the
Securities Exchange Act of 1933, as amended, and as declared effective by
the Securities Exchange Commission, the provisions of SECTIONS 3.13(a) and
(b) shall terminate during the period of time that such Registration
Statement, as periodically amended, remains effective.
3.14 TAX WITHHOLDING.
(a) GENERAL. The Company's obligation to deliver Stock under the
Plan shall be subject to the satisfaction of all applicable federal, state
and local income tax withholding requirements.
(b) SHARES TO PAY FOR WITHHOLDING. The Board may, in its
discretion and in accordance with the provisions of this SECTION 3.14(b)
and such supplemental roles as it may from time to time adopt (including
the applicable safe-harbor provisions of SEC Rule 16b-3), provide any
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or all Optionholders or Grantees with the right to use shares of Stock in
satisfaction of all or part of the federal, state and local income tax
liabilities incurred by such Optionholders or Grantees in connection with
the receipt of Stock ("Taxes"). Such right may be provided to any such
Optionholder or Grantee in either or both of the following formats:
(i) STOCK WITHHOLDING. An Optionholder or Grantee may be
provided with the election, which may be subject to approval by the
Committee, to have the Company withhold, from the Stock otherwise issuable,
a portion of those shares of Stock with an aggregate fair market value
equal to the percentage of the applicable Taxes (not to exceed 100 percent)
designated by the Optionholder or Grantee.
(ii) STOCK DELIVERY. The Board may, in its discretion,
provide the Optionholder or Grantee with the election to deliver to the
Company, at the time the Option is exercised or Stock is awarded, one or
more shares of Stock previously acquired by such individual (other than
pursuant to the transaction triggering the Taxes) with an aggregate fair
market value equal to the percentage of applicable taxes incurred in
connection with such Option exercise or Stock Award (not to exceed 100
percent) designated by the Optionholder or Grantee.
3.15 GOVERNING LAW. The Plan shall be governed by and all questions
hereunder shall he determined in accordance with the laws of the State of
Colorado.
ARTICLE IV
DEFINITIONS
The following capitalized terms used in this Plan shall have the
meaning described below:
"AFFILIATES" shall mean all "executive officers" (as that term is defined
in Rule 16a-1(f) promulgated under the Act) and directors of the Company
and all persons who own ten percent or more of the Company's issued and
outstanding Stock.
"AWARD" shall mean a Stock Award or SAR under the Plan.
"BOARD" shall mean the Board of Directors of the Company.
"CHANGE IN CONTROL" shall mean and include the following transactions or
situations:
(a) A sale, transfer, or other disposition by the Company through a
single transaction or a series of transactions of securities of the Company
representing 30 percent or more of the combined voting power of the
Company's then outstanding securities to any "Unrelated Person" or
"Unrelated Persons" acting in concert with one another. For purposes of
this Section, the term "Person" shall mean and include any individual,
partnership, joint venture, association, trust corporation, or other entity
(including a "group" as referred to in Section 13(d)(3) of the Act). For
purposes of this Section, the term "Unrelated Person" shall mean and
include any Person other than the Company, a wholly-owned subsidiary of the
Company, or an employee benefit plan of the Company.
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(b) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of the Company to an Unrelated Person or Unrelated Persons acting in
concert with one another.
(c) A change in the ownership of the Company through a single
transaction or a series of transactions such that any Unrelated Person or
Unrelated Persons acting in concert with one another become the "Beneficial
Owner," directly or indirectly, of securities of the Company representing
at least 30 percent of the combined, voting power of the Company's then
outstanding securities. For purposes of this Section, the term "Beneficial
Owner" shall have the same meaning as given to that term in Rule 13d-3
promulgated under the Act, provided that any pledgee of voting securities
is not deemed to be the Beneficial Owner thereof prior to its acquisition
of voting rights with respect to such securities.
(d) Any consolidation or merger of the Company with or into an
Unrelated Person, unless immediately after the consolidation or merger the
holders of the common stock of the Company immediately prior to the
consolidation or merger are the Beneficial Owners of securities of the
surviving corporation representing at least 50 percent of the combined
voting power of the surviving corporation's then outstanding securities.
(e) During any period of two years, individuals who, at the beginning
of such period, constituted the Board of Directors of the Company cease,
for any reason, to constitute at least a majority thereof, unless the
election or nomination for election of each new director was approved by
the vote of at least two-thirds of the directors then still in office who
were directors at the beginning of such period.
(f) A change in control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule l4A of
Regulation 14A promulgated under the Act, or any successor regulation of
similar import, regardless of whether the Company is subject to such
reporting requirement.
Notwithstanding any provision hereof to the contrary, the filing of a
proceeding for the reorganization of the Company under Chapter 11 of the
General Bankruptcy Code or any successor or other statute of similar import
shall not be deemed to be a Change of Control for purposes of this Plan.
"CODE" shall mean the internal Revenue Code of 1986, as amended.
"COMMITTEE" shall mean the Compensation Committee appointed by the Board,
if one has been appointed. If no Committee has been appointed, the term
"Committee" shall mean the Board.
"COMPANY" shall mean Entropin, Inc., a Colorado corporation.
"CORPORATE TRANSACTION" shall mean: (a) a merger or consolidation in which
the Company is not the surviving entity, except for a transaction the
principal purposes of which is to change the state
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in which the Company is incorporated; (b) the sale, transfer of or other
disposition of all or substantially all of the assets of the Company and
complete liquidation or dissolution of the Company; or, (c) any reverse
merger in which the Company is the surviving entity hut in which the
securities possessing more than 50 percent of the total combined voting
power of the Company's outstanding securities are transferred to a person
or persons different from those who held such securities immediately prior
to such merger.
"EFFECTIVE DATE" shall mean the date that the Plan has been approved by the
Stockholders as required by SECTION 1 3(a) hereof.
"ELIGIBLE PERSONS" shall mean, with respect to the Plan, those persons who,
at the time that the Option or Award is granted, are (i) employees
(including officers and directors) of the Company or Parent or Subsidiary
Corporations, or (ii) consultants or independent contractors who provide
valuable services to The Company or Parent or Subsidiary Corporations.
"EXERCISE DATE" shall be the date on which written notice of the exercise
of an Option is delivered to the Company in accordance with the
requirements of the Plan.
"GRANTEE" shall mean an Eligible Person that has received an Award.
"INCENTIVE STOCK OPTION" shall mean a Option that is intended to qualify as
an "Incentive stock option" under Code section 422.
"NON-AFFILIATES" shall mean all persons who are not Affiliates.
"NON-EMPLOYEE DIRECTOR" shall have the same meaning as ascribed under Rule
16b-3(b)(3)(i) of the Securities Exchange Act of 1934, as amended.
"$100,000 LIMITATION" shall mean the limitation in which the aggregate fair
market value (determined as of the respective date or dates of grant) of
the Stock for which one or more Options granted to any person under this
Plan (or any other option plan of the Company or any Parent or Subsidiary
Corporation) may for the first time be exercisable as Incentive Stock
Options during any one calendar year shall not exceed the sum of $100,000.
"OPTIONHOLDER" shall mean an Eligible Person or Eligible Director to whom
Options have been granted.
"OPTIONED SHARES" shall be those shares of Stock to be optioned from time
to time to any Eligible Person or Directors.
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"OPTION PRICE" shall mean the option price per share as specified by the
Committee or by the terms of the Plan.
"OPTIONS" shall mean options granted under the Plan to acquire Stock.
"PARENT" OR "PARENT CORPORATION" shall mean any corporation as defined in
Section 424(e) of the Code, with respect to the Corporation.
"PLAN" shall mean The 1998 Compensatory Stock Plan for the Company.
"SAR" shall mean stock appreciation rights granted pursuant to SECTION 2.4
hereof.
"SERVICE" shall have the meaning set forth in SECTION 2.2(n) hereof.
"STOCK" shall mean shares of the Company's Common Stock, $.00001 par value
per share, which may be unissued or treasury shares, as the Board may from
time to time determine.
"STOCK AWARDS" shall mean Stock directly granted under the Plan.
"SUBSIDIARY CORPORATION" shall mean any corporation in the unbroken chain
of corporations starting with the employer corporation, where, at each link
of the chain, the corporation and the link above owns at least 50 percent
of the combined voting power of all classes of stock in the corporation
below.
EXECUTED as of the ___ day of __________, 1998.
Entropin, Inc.
By:_________________________
Name:_______________________
Its:________________________
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EXHIBIT 24.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in the Registration Statement of Entropin, Inc. on
Form S-8 of our report dated February 22, 1998, except for Note 9, as to
which the date is March 19, 1998, and Note 10, as to which the date is
August 12, 1998, relating to the balance sheet of Entropin, Inc. as of
December 31, 1996 and 1997 and the related statements of operations,
stockholders' equity and cash flows for the years then ended and for the
period from August 27, 1984 (inception) through December 31, 1997.
/s/ CAUSEY DEMGEN & MOORE INC.
Denver, Colorado CAUSEY DEMGEN & MOORE INC.
December 28, 1998
