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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 0-26804
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PLANET POLYMER TECHNOLOGIES, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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CALIFORNIA 33-0502606
STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OF ORGANIZATION
9985 BUSINESSPARK AVENUE, SUITE A, SAN DIEGO, CA 92131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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ISSUER'S TELEPHONE NUMBER (619) 549-5130
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, NO PAR VALUE
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. [X] Yes [ ]
No
Check if there is no disclosure of delinquent filers in response to Items
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for the year ending December 31, 1998 were $1,615,124.
The aggregate market value of the voting stock held by non-affiliates of the
Issuer as of February 25, 1999 was $5,685,463, based on the average of the
closing bid and ask prices of $1.6875 as reported on the Nasdaq SmallCap Market.
As of February 25, 1999, 6,341,062 shares of the Company's Common Stock were
outstanding and 500,000 shares of the Company's Series A Preferred Stock were
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Issuer's Definitive Proxy Statement to be filed with the Commission pursuant
to Regulation 14A in connection with 1999 Annual Meeting is incorporated herein
by reference into Part III of this report.
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Transitional Small Business Disclosure Format (check one) [ ] yes [X] no
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PLANET POLYMER TECHNOLOGIES, INC.
FORM-10KSB
YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
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ITEM
NUMBER PAGE
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PART I.
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1. Description of Business................................................2
2. Description of Property...............................................14
3. Legal Proceedings.....................................................15
4. Submission of Matters to a Vote of Security Holders...................15
PART II.
5. Market for Common Equity and Related Stockholders Matters.............16
6. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................17
7. Financial Statements..................................................20
8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures..................................20
PART III.
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.....................20
10. Executive Compensation................................................20
11. Security Ownership of Certain Beneficial Owners and Management........20
12. Certain Relationships and Related Transactions........................20
PART IV.
13. Exhibits and Reports on Form 8-K......................................21
Signatures............................................................23
Power of Attorney.....................................................23
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This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The Company
intends that such statements shall be protected by the safe harbors provided for
in such sections. Such statements are subject to risks and uncertainties that
could cause the Company's actual results to vary materially from those projected
in such forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to those discussed in this section
as well as those sections entitled "Risk Factors," and in "Item 6 - Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Planet Polymer Technologies, Inc. ("Planet" or the "Company") is a specialty
chemical company that designs, develops, manufactures and markets degradable and
recycled polymer materials. The Company's proprietary polymer materials are
marketed under the trademarks EnviroPlastic(R), Aquadro(TM) and AQUAMIM(TM).
EnviroPlastic(R) and Aquadro(TM) can be used to produce films, coatings and
injection molded parts that serve as environmentally-compatible alternatives to
conventional plastics. AQUAMIM(TM), developed by the Company in 1998, can be
used to manufacture complex metal parts using conventional plastics molding
equipment.
The Company's primary focus is on the technologies listed below:
- AQUAMIM(TM) Metal Injection Molding - moldable metal filled polymers.
- EnviroPlastic(R) CRT (controlled-release technology) - a polymer coating.
- Aquadro(TM) - a hydrodegradable (water dispersible) polyvinyl alcohol
("PVOH") resin.
- Technologies for use in agricultural and food products.
To date, the Company has not fully commercialized nor received any
significant revenues from the sale of any products but has sold pilot production
quantities of AQUAMIM(TM), EnviroPlastic(R) and Aquadro(TM) products.
Since April 1998, the Company began to explore other industrial
opportunities. In particular, the Company is focusing on water soluble materials
in the Metal Injection Molding ("MIM") marketplace. The Company has developed
AQUAMIM(TM), which is designed for the production of precision metal components
using a novel water debinding process, which eliminates the need for hazardous
solvents or acids. To date, the Company has completed pilot production trials
with several companies.
In November 1998, the Company entered into a Stock Purchase Agreement with a
subsidiary of Agway Inc. ("Agway") whereby Agway would purchase 1,000,000 shares
of Planet's Common Stock for $1,000,000 and receive a warrant to purchase up to
2,000,000 shares of Common Stock at a price of $1.00 per share. The stock
purchase transaction was completed in January 1999 with the Company's
shareholders' approval. Contemporaneously with the execution of the agreement,
Planet and Agway entered into an agreement relating to the funding by Agway of a
feasibility study (the "Feasibility Agreement") of Planet's polymer technology
for use in agricultural products (other than fertilizers and certain biological
products) and food products and an exclusive worldwide license (the "License
Agreement") to all current and future products that utilize Planet's polymer
technology for agricultural and food related purposes (other than products
already covered by existing agreements). Under the terms of the License
Agreement, Agway has the exclusive right to grant licenses and sublicenses on
the technology developed under the License Agreement to other parties. In return
for the rights granted to Agway, Agway is required to pay royalties to the
Company determined in accordance with the terms of the License Agreement. In
addition, in February 1999, the Company received a commitment from Agway whereby
Agway agreed to exercise its warrant to acquire up to 500,000 shares of the
Company's Common Stock as early as July 1, 1999 at the Company's request, in the
event that the Company's cash flows are less than currently projected and/or
insufficient to fund its operating requirements.
In addition to the Agway alliance, the Company has sought to develop
strategic alliances with other potential customers. Since 1995, the Company has
had a relationship with Agrium Inc. ("Agrium") to conduct development work in
the use of coatings of fertilizer products using the Company's EnviroPlastic(R)
CRT technology. These
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strategic alliances are intended to define product specifications and promote
market acceptance of the Company's products and technologies.
In addition to Planet's research and development and pilot production
facility in San Diego, California, the Company also has a wholly-owned
subsidiary, Deltco, in Ashland, Wisconsin. Acquired by Planet in January 1996,
Deltco is a manufacturer and reprocessor of thermoplastic scrap resins that can
be used in a wide variety of applications, either blended with other polymer
materials or alone.
Planet was incorporated under the laws of California in August 1991. The
Company's principal executive offices are located at 9985 Businesspark Avenue,
Suite A, San Diego, CA 92131, and its telephone number is (619) 549-5130.
PLANET POLYMER'S PRODUCTS AND TECHNOLOGIES
Planet is using its polymer chemistry expertise to provide degradable
technology-based solutions to the current and emerging needs of the industrial
and agricultural markets.
The Company operates in two segments: (1) research and development of polymer
technologies and materials in San Diego, California and (2) manufacturing and
reprocessing of thermoplastic scrap resins by Deltco in Ashland, Wisconsin. The
Company is currently focusing on application, market development and sales of
AQUAMIM(TM), EnviroPlastic(R) CRT and Aquadro(TM). For EnviroPlastic(R) H and
EnviroPlastic(R) Z, the Company has not allocated any significant research,
development, sales and marketing resources to these technologies.
AQUAMIM(TM) Metal Injection Molding. AQUAMIM(TM) is based on Planet's
Aquadro(TM) technology and extends it into the industrial manufacturing
marketplace. Manufacturers are constantly looking to lower their cost of doing
business by evaluating alternative innovative fabrication techniques.
AQUAMIM(TM) makes it possible to manufacture complex metal parts using
conventional plastics molding equipment. Planet has learned through its
marketing efforts that products made by MIM using water soluble polymers can
potentially reduce the cost of manufacturing certain metal parts.
AQUAMIM(TM) is designed for the production of precision metal components
utilizing a novel water debinding process, which eliminates the need for
hazardous solvents or acids. AQUAMIM(TM) feedstock is a granular mixture of
metal powders and the Company's proprietary water soluble polymer binder. This
feedstock is capable of producing complex shaped components from a variety of
steels and other alloys at high volumes for a lower cost than its competing
feedstock formulations. Preliminary tests by potential customers have
demonstrated that watchcases, microelectronics, aerospace parts, automotive
parts, computer components, firearm components, cutlery, battery housings,
tensile bars, trigger mechanisms, set screws and various industrial and consumer
products can be manufactured by the AQUAMIM(TM) technology. The Company plans to
begin its feedstock commercialization with two stainless steel compounds, 316L
and 17-4PH, and continues to develop nickel-iron and tungsten metal compounds.
In May 1998, the Company retained Dr. Randall German, an authority on MIM, as a
scientific advisor to the Company. To date, the Company has not received
significant revenue from the sale of products based on its AQUAMIM(TM)
technology. The patent for AQUAMIM(TM) is pending.
EnviroPlastic(R) CRT. The Company's EnviroPlastic(R) CRT (controlled-release
technology) polymer product line (see "Strategic Alliances: Agrium Technology
Development and License Agreement"), is a proprietary polymer coating derived
from monomers such as urethane, acrylics, styrene and natural vegetable oils.
This product line is different from the Company's other products; it is not a
polymer alloy or blend. The product line is targeted for fertilizer
controlled-release coating applications including, in particular, urea granules.
By coating urea granules with the Company's materials, it is possible to control
the release of the fertilizer over a period of up to 120 days. Initial field
test results of EnviroPlastic(R) CRT have shown an average increase of 20% in
crop yields. Numerous tests have occurred in the United States, Canada, China
and Australia with positive results. The patent for EnviroPlastic(R) CRT is No.
5,803,946.
Aquadro(TM). Aquadro(TM) is a polyvinyl alcohol based compound developed by
Planet to provide cost effective product solutions for the medical disposable,
industrial manufacturing and personal hygiene markets. Aquadro(TM) can be
manufactured into blown film, extrusion cast film, and injection molded
products. Aquadro(TM) resins are highly versatile and can be engineered for
elastomeric or rigid applications. Aquadro(TM) can be disposed of through
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the municipal sewage system by dissolving the material in hot or cold water. The
patent for Aquadro(TM) is No. 5,658,977.
EnviroPlastic(R) H. The Company's EnviroPlastic(R) H line of materials is
based on polyethylene oxide polymers and is manufactured into films using a
patented proprietary process. EnviroPlastic(R) H materials are engineered to
disperse or dissolve on contact with water. The dissolution time of
EnviroPlastic(R) H can be engineered to occur over a period ranging from seconds
to days depending on the requirements of the ultimate application. These polymer
blends are targeted for use in the personal hygiene market. The patent for
EnviroPlastic(R) H is No. 5,367,003.
EnviroPlastic(R) Z. The Company's patented EnviroPlastic(R) Z materials are
biodegradable and compostable polymers based on the polymer cellulose acetate
derived from trees, a natural renewable resource. EnviroPlastic(R) Z materials
are subjected to a high energy physical process that enhances their
biodegradability and compostability. Product features include transparency, fast
molding cycles, outstanding processability and degradation rates from 1 to 3
years. EnviroPlastic(R) Z materials have been successfully injection molded and
extruded into sheet film. EnviroPlastic(R) Z materials are targeted for use in
products in the packaging and the industrial markets. The patent for
EnviroPlastic(R) Z is No. 5,505,830.
The Company's EnviroPlastic(R) and Aquadro(TM) products are designed to offer
water solubility, water dispensability, and other engineering benefits which
conventionally produced plastics do not have. Planet has also developed polymer
materials that can be fabricated into films, coatings, and plastic parts that
degrade when exposed to water, light or soil without reducing product efficacy.
This degradation, which can be engineered to occur over a period of a few
seconds to hundreds of days, converts the polymer into a combination of
environmentally-safe water, carbon dioxide and biomass. In addition,
EnviroPlastic(R) and Aquadro(TM) materials can be custom-engineered to replicate
the product and manufacturing characteristics of non-degradable plastic
materials. To date, the Company has not received any significant revenues from
the sale of products based on its EnviroPlastic(R) and Aquadro(TM) technologies.
Deltco Technology. Deltco reprocesses thermoplastic polypropylene resins that
are known as "wide spec" materials. These materials are offered in flake or
pellet form and are available in white, natural and mixed colors. The
performance characteristics of these post-industrial recycled materials compete
with virgin polypropylene for injection molded products. Supplementing the
Company's degradable products, Deltco's recycled materials may offer an
attractive alternative to customers who are required or desire to incorporate
recycled materials into their end products at a cost advantage over virgin
materials.
PRODUCT TESTING
In 1998, the Company conducted injection molding trials using the AQUAMIM(TM)
technology with potential customers. Preliminary testings have demonstrated
favorable results. Metal parts for various industrial and consumer products can
be manufactured by the AQUAMIM(TM) technology with cost saving potential.
In 1996, the Company commenced testing for its EnviroPlastic(R) CRT
technology testing in North America, Australia and China. Field testing
continues and results to date indicate an average 20% increase in crop yields.
Testing focused on the Company's Aquadro(TM) technology commenced in 1996. To
date, Aquadro(TM) testing has been designed to assess film properties, melting
point, water vapor transmission and oxygen permeability. Degradation testing on
Aquadro(TM) formulations has also been conducted and confirmed by independent
research laboratories. Product testing on the Aquadro(TM) technology has
included injection molding trials, environmental and humidity testing,
antibacterial cidal properties and controlled dispersion analysis.
Acceptance and degradation testing for EnviroPlastic(R) alloys have been
conducted by several independent testing organizations and governmental
agencies. Comprehensive studies completed by the U.S. Department of the Interior
on polyethylene oxide, the base material for the Company's EnviroPlastic(R) H
product line, have determined that it is non-toxic (acceptable volume of five
parts per million) to marine life such as bacteria, algae and fish. The findings
also indicate that in laboratory tests, sewage effluent containing these
polymers have an above normal flow rate through the sewer. Tests have also
confirmed the compostable or biodegradable capabilities of the Company's
EnviroPlastic(R) Z materials as being similar to that of yard waste, cardboard
and magazines.
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Additional tests, such as cytotoxicity screening and sea water degradation, have
been performed on EnviroPlastic(R) materials by the Company's customers with
favorable results.
Product testing for new and existing technologies will continue as
appropriate. However, there can be no assurance that results from testing will
continue to be favorable, or that products which produce initial positive test
results will be engineered to meet the specifications necessary to commercialize
such product.
MARKETS AND APPLICATIONS
The Company is focusing on specific market opportunities where the Company
believes that its polymer chemistry expertise, AQUAMIM(TM), EnviroPlastic(R),
Aquadro(TM) and EnviroPlastic(R) CRT technologies, may address current or
emerging market requirements. However, there can be no assurance that the
Company's products or that new products, if developed, will be able to capture
market share or be profitable.
The Company is currently targeting the following markets:
Industrial Manufacturing. The Company believes that potential users of
AQUAMIM(TM) include commercial custom MIM parts producers, internal MIM parts
producers and new entrants including diversifying plastic injection molders.
Some of the current MIM products being produced today include aerospace parts,
medical devices, firearm components, business machine and camera parts, jewelry,
cutting tools, microelectronics, wear components, surgical tools, computer disk
drives, locks, hand tools, sporting goods, thermocouples, connectors, and
various industrial components and automotive parts. The Company believes that
its AQUAMIM(TM) feedstock can be used to produce similar MIM products at a lower
cost because the debinding process uses water as compared to the traditional MIM
process which requires hazardous solvents or acids. The Company believes that
its AQUAMIM(TM) technology provides a simple, safe and cost effective solution
for producing metal injection molded parts.
Agrotechnology. The Company believes that EnviroPlastic(R) CRT materials
provide a potential solution to the problem of soil and water contamination in
the fertilizer industry. The use of controlled-release technology decreases the
water contamination caused by unacceptably high levels of nitrates being
dissolved in the water table and provides a cost effective method of
dissemination of the fertilizer product. Additionally, rain does not wash away
controlled-release fertilizers using EnviroPlastic(R) CRT materials.
Personal Hygiene and Medical Disposables. The Company's EnviroPlastic(R) and
Aquadro(TM) technologies offer both product enhancements and environmental
benefits in both film and injection molded applications in the personal hygiene
market. Prototype samples of these products, manufactured with Planet's
EnviroPlastic(R) H polymer blends, have demonstrated that they can be disposed
of in the toilet and jettisoned into the sewage system. The Company believes
that consumers will consider this method of disposal to be more convenient and
environmentally sound. Planet believes that its injection molded Aquadro(TM)
product, as well as Aquadro(TM) modified to be antibacterial, are
well-positioned to capitalize on the increasing concern for safe, efficient and
environmentally-compatible disposable medical supplies. Although the Company has
not allocated any significant marketing resources to the EnviroPlastic(R) H and
EnviroPlastic(R) Z products, these products have received ongoing interest from
potential customers.
In addition to its degradable plastic products, the Company, through Deltco,
offers recycled polymer products sold to the following industries: Automotive,
Construction, Gardening, Household Products, Medical, Packaging, Catering,
Agriculture and Furniture. Deltco has marketed its products as a price
performance alternative to virgin polypropylene. Over the last twelve years,
Deltco has built a customer base covering a variety of applications. These
applications include automotive heater/AC duct work, flower pots, hanging plant
baskets, decorative lawn furniture, garment hangers, fencing, continuous roof
vents, cafeteria food trays, paint roller trays and other related products.
STRATEGIC ALLIANCES
To facilitate the development and commercialization of the Company's
products, Planet has pursued a strategy of aligning itself with a number of
companies in the areas of product development and marketing. To date, however,
the Company has not commercialized or sold in commercial quantities products
based on its technologies.
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Agway Product Feasibility Agreement, License Agreement and Stock Purchase
Agreement. In November 1998, the Company entered into a Stock Purchase Agreement
with a subsidiary of Agway Inc. ("Agway") whereby Agway would purchase 1,000,000
shares of Planet's Common Stock for $1,000,000 and receive a warrant to purchase
up to 2,000,000 shares of Common Stock at a price of $1.00 per share. The stock
purchase transaction was completed in January 1999 with the Company's
shareholders' approval. Contemporaneously with the execution of the agreement,
Planet and Agway entered into an agreement relating to the funding by Agway of a
feasibility study (the "Feasibility Agreement") of Planet's polymer technology
for use in agricultural products (other than fertilizers and certain biological
products) and food products and an exclusive worldwide license (the "License
Agreement") to all current and future products that utilize Planet's polymer
technology for agricultural and food related purposes (other than products
already covered by existing agreements). Under the terms of the License
Agreement, Agway has the exclusive right to grant licenses and sublicenses on
the technology developed under the License Agreement to other parties. In return
for the rights granted to Agway, Agway is required to pay royalties to the
Company determined in accordance with the terms of the License Agreement. In
addition, in February 1999, the Company received a commitment from Agway whereby
Agway agreed to exercise its warrant to acquire up to 500,000 shares of the
Company's Common Stock as early as July 1, 1999 at the Company's request, in the
event that the Company's cash flows are less than currently projected and/or
insufficient to fund its operating requirements.
During the term of the License Agreement, the Company may not conduct any
development work of the same nature or type as that performed under the
agreement for any third party on any subject if the intended use falls within,
or could reasonably be expected to fall within, Agway's Field of Business (as
defined in the License Agreement). Moreover, the Company may not enter into any
arrangements or agreements with any third party for a license under any of the
Company's technology used during performance of this agreement if the intended
place of use falls within, or could reasonably be expected to fall within,
Agway's Field of Business (as defined in the License Agreement) without first
offering such arrangement to Agway and at the terms no less favorable to Agway
than those offered to a third party. Agway's Field of Business is broadly
related to agricultural products and food products, but does not include
fertilizers for purposes of the License Agreement. As a result, the Company's
ability to develop or license its technology to third parties for agricultural
and food applications is significantly restricted by the License Agreement.
Agrium Technology Development and License Agreement. In January 1995, the
Company entered into a ten year technology and license agreement with Cominco
Fertilizers Ltd. (now named Agrium Inc.), pursuant to which Agrium desired to
have the Company conduct further development work including, but not limited to,
the use of coatings to control release of fertilizers and to protect products
containing biological inoculants. The Company's EnviroPlastic(R) CRT polymer was
developed for Agrium under this agreement. Under the terms of the agreement,
Agrium owns all technology developed under the agreement, including, among other
things, compositions of matter, new chemical complexes, association compounds,
blends, mixtures or compositions of coating materials, or new products, or new
processes relating thereto developed by the Company or by Agrium. In addition,
Agrium has the exclusive right to grant licenses and sublicenses on the
technology developed under the agreement to other parties. In return for the
rights granted to Agrium, Agrium is required to pay royalties to the Company
determined in accordance with the terms of the agreement.
During the term of the agreement, the Company may not conduct any development
work of the same nature or type as that performed under the agreement for any
third party on any subject if the intended use falls within, or could reasonably
be expected to fall within, Agrium's Field of Business as defined in the
agreement. Moreover, the Company may not enter into any arrangements or
agreements with any third party for a license under any of the Company's
technology used during performance of this agreement if the intended place of
use falls within, or could reasonably be expected to fall within, Agrium's Field
of Business, as defined in the agreement, without first offering such
arrangement to Agrium and at the terms no less favorable to Agrium than those
offered to a third party. Agrium's Field of Business is broadly related to
agriculture and, in particular, fertilizers. As a result, the Company's ability
to develop or license its technology to third parties for agricultural
applications is significantly restricted by the Agrium Agreement.
The Company intends to continue developing other strategic relationships that
may help it promote its products or that might extend the range of product
solutions provided by the Company's technologies. The Company has entered into
non-disclosure agreements providing for the confidential exchange of information
and discussion with potential strategic partners and customers. There can be no
assurance that any such agreements will result in any development and license
agreements or commercial relationships. There can be no assurance that the
Company will
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be able to negotiate acceptable customer relationships in the future, or that
its existing joint development and licensing agreements will be successful.
There can also be no assurance that the Company and its potential strategic
partners will be able to develop any products or that the new products, if
developed, and their pricing will be acceptable to customers.
SALES AND MARKETING
The Company primarily relies on direct sales efforts and strategic marketing
alliances to market the Company's products and technologies. Many of these
direct sales efforts are based on the initiatives of the Company's senior
management. The Company believes that these efforts have provided the Company
with significant market exposure and have continued the educational process
required to commercialize its technologies. In order to leverage its sales and
marketing efforts, Planet has also developed strategic alliances with Agway and
Agrium. See "Strategic Alliances."
Most of the Company's technologies are designed to be specially engineered to
enhance, and become incorporated into, customers' products. Due to this high
degree of product specialization, the Company expects the average sales cycle
for its products to be approximately 24 to 48 months. This average sales cycle
includes initial customer contacts, specification writing, engineering design,
prototype construction, pilot testing, regulatory approval (if any), sales and
marketing and commercial manufacture. A significant amount of time and energy is
required by the Company's staff to educate the customer, understand the
customer's unique application requirements and recommend and develop the
appropriate solution.
COMPETITION
The Company considers its competition for its AQUAMIM(TM) product to be from
competing technologies rather than from direct competitors. The competing
technologies include: solvent debinding technologies based on a wax binder by
Advanced Forming Technology, catalytic debinding based on a polyacetal binder by
BASF Corporation, air dry debinding based on a water-based binder by
AlliedSignal Inc. and thermal debinding based on an acrylic binder by Rohm &
Haas Company.
In the manufacture and marketing of controlled-release urea, the Company
competes indirectly with Pursell Inc. and The Scotts Company in the United
States and Haifa Chemical Company in Israel. The Company believes that its
EnviroPlastic(R) CRT technology is a lower cost alternative that can be targeted
towards the broader agricultural market rather than the turf nursery and
ornamental market segment being served today.
The primary source of competition for the Company's EnviroPlastic(R) and
Aquadro(TM) products currently comes from suppliers of conventional
non-degradable plastic products. The use of non-degradable products and current
methods of solid waste disposal are well established and accepted by both
consumers and the industry, many of whom may be indifferent to the benefits
offered by Planet's technologies. Many of the Company's competitors, who provide
these non-degradable products, have significantly greater financial, technical
and human resources than the Company. Direct competition with respect to
degradable polymer materials is limited. Technologies which the Company believes
to be potentially competitive include polyvinyl alcohol, starch-based polymers
and polylactic acid. A lessening of political or consumer concern for
environmental aspects of waste disposal could significantly harm the Company's
competitive position.
There can be no assurance that any one of these potentially competitive
technologies will not obtain a significant market share prior to the
commercialization of the Company's products. The development of a competing or
superior technology or the commercialization of such technology by any one of
the Company's potential competitors could have a material adverse effect on the
Company's sales or operating profits.
The degradable plastics market is currently highly fragmented, with no single
manufacturer commanding significant market share. However, the natural
consolidation associated with industry maturity could result in increased
competition, leading to price reduction, reduced margins and a loss of market
share. The Company believes that its technologies compete favorably with respect
to the principal competition factors of the Company's markets, i.e., price,
processability, quality, environmental impact and convenience.
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MANUFACTURING AND SUPPLIERS
The Company manufactures AQUAMIM(TM) feedstock compound at its facility in
San Diego, California. The Company believes that it currently has equipment and
space enabling it to make commercial quantities of feedstock but anticipates
needs for equipment upgrade. The components for AQUAMIM(TM) feedstock are metal
powder and polymers available from numerous suppliers. To date, Planet has
manufactured only limited quantities for product testing purposes.
Planet manufactures polymer materials in pellet form from base raw materials
purchased from third party vendors. The Company has manufactured only limited
production quantities of its products at its facility in San Diego, California,
and continues to use contract manufacturers to produce larger quantities of
materials when required. The components for Planet's polymer blends, alloys and
coating products are available from several suppliers such as Union Carbide
Corporation, The Dow Chemical Company, Eastman Chemical Company and Air Products
and Chemicals, Inc. as well as other sources. The Company has not executed
long-term supply agreements with any of its vendors.
To date, the Company has obtained adequate quantities of raw materials on
acceptable terms to meet its requirements and with volume purchase orders on
some items in order to obtain quantity discounts. The Company does not
anticipate significant difficulties in obtaining raw materials in sufficient
quantities to meet its anticipated needs. Should supply problems arise, however,
the Company's inability to develop alternative cost-effective sources could
materially impair the Company's ability to manufacture and deliver products.
Additionally, an interruption or reduction in the source of supply of any of the
component materials, or an unanticipated increase in vendor prices, could
materially and adversely affect the Company's operating results and damage
customer relationships.
Deltco purchases the majority of its scrap resins from Minnesota Mining and
Manufacturing Company ("3M") and its affiliates. A formal supply agreement has
been executed with 3M. The agreement has an indefinite term and may be
terminated by either party upon thirty-days prior written notice. There can be
no assurance, however, that the supply of raw materials from 3M or other sources
will not be interrupted. In addition, although the Company has identified
potential alternative sources of raw material for Deltco, there can be no
assurance that such alternative sources will be able to provide raw materials
meeting the Company's quality control standards, if at all.
RESEARCH AND DEVELOPMENT
Research and development expenditures during the years ended December 31,
1998 and 1997 were approximately $634,000 and $491,000 respectively, of which
approximately $122,000 and $144,000 respectively, were customer funded. Planet
believes that its long-term success depends on the continued development and
commercialization of cost-effective solutions consisting of engineered
environmentally compatible polymer materials. The Company currently has three
Ph.D. polymer scientists, one research scientist and one process technician
engaged in product development programs, which include polymer synthesis,
polymer blending, process development, pilot and full scale manufacturing and
testing. The Company aims to design and develop new products internally and,
where appropriate, acquire existing technologies for commercialization, although
the Company currently has no plans for any such acquisitions. The Company
anticipates that some of the 1999 research and development expenditures in the
agrotechnology area will be reimbursed by Agway under its Feasibility Agreement.
From October 1998 to December 1998, the Company recorded a revenue of
approximately $62,000 from Agway.
Historically, Planet's research and development efforts have been focused
primarily on hydrodegradable polymers (EnviroPlastic(R) H and Aquadro(TM)),
controlled-release degradable fertilizer coatings (EnviroPlastic(R) CRT), and
manufacturing methodologies relating to all of the Company's proprietary
technologies. In 1998, the Company commenced and continued several new research
and development projects including AQUAMIM(TM). The Company expects to continue
these projects in 1999. These research and development projects are in trial
phases, however, and there can be no assurance that the Company will be
successful in completing the development or commercial implementation of any
technologies or products that are the subject of such projects.
8
<PAGE> 10
INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGIES
The Company believes that, although the ownership of patents is a significant
competitive advantage in its business, its success also depends on the
innovative skills, technical competence, and marketing ability of its
scientific, engineering, and sales and marketing personnel. The Company intends
to continue to design and develop proprietary engineered environmentally
compatible polymer blends and alloys, as well as enhancements and improvements
on existing products, and will seek patent and trademark protection for such
inventions, improvements and enhancements as appropriate.
In 1998, the Company expanded its existing patent portfolio with the issuance
of a patent for the Company's EnviroPlastic(R) CRT technology which was
developed for Agrium. All other technologies of the Company are considered trade
secrets and patent protection will be pursued as appropriate.
While the Company believes that a competitor with substantial financial
resources and technical expertise could develop polymer materials equivalent to
Planet's, the Company believes that its lead times, continued research and
development efforts and relationship driven strategic alliances with customers
provide it with a competitive advantage. The Company relies on trade secrets,
proprietary know-how and process technology, which it seeks to protect, in part,
by confidentiality agreements with its employees, consultants and customers.
There can be no assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach or that the Company's trade
secrets and proprietary know-how will not otherwise become known or be
independently discovered by others.
In addition, there can be no assurance that the Company's pending patent
applications will be approved, that the Company will develop additional
proprietary materials or processes that are patentable, that any patents issued
to the Company or any of its licenses will provide the Company with competitive
advantages or will not be successfully challenged by third parties or that the
patents of others will not have an adverse effect on the ability of the Company
to conduct its business. Furthermore, there can be no assurance that others will
not independently develop similar or superior technologies, duplicate any of the
Company's processes or design around the patented materials developed by the
Company. The Company believes that its products, patents, trademarks and other
proprietary rights do not infringe the property rights of third parties. There
can be no assurance, however, that third parties will not assert infringement
claims in the future. It is possible that the Company may need to acquire
licenses to, or to contest the validity of, issued or pending patents of third
parties relating to the Company's technology. There can be no assurance that
licenses under such patents would be made available to the Company on acceptable
terms, if at all, or that the Company would prevail in any such contest. In
addition, the Company could incur substantial costs defending itself in suits
brought against the Company with respect to patents or in bringing suits against
other parties.
GOVERNMENT REGULATION
Certain end products into which the Company's products are incorporated may
be subject to significant regulation and approval by federal, state and local
entities such as the Food and Drug Administration (the "FDA") and the
Environmental Protection Agency (the "EPA"). Similar regulatory agencies exist
worldwide. The Company may be required to provide its customers with technical
information on its products to be used by the customer in the regulatory
process. The Company's customers will have primary responsibility for obtaining
any required governmental approvals. The approval process could be costly and
lengthy and potential sales of the Company's products could be significantly
delayed and/or eliminated as to end products subject to such regulatory
approval.
EMPLOYEES
The Company currently has eight full-time employees and one part-time
employee at its corporate headquarters in San Diego, California, three of whom
hold doctoral degrees. Five employees are engaged in research and development
activities, one is involved in sales and marketing, and three are in
administrative, business development, operations and research support positions.
9
<PAGE> 11
Deltco currently has twenty-five full-time employees at its facility in
Ashland, Wisconsin. Three employees are in administrative, business development
and support positions and the remaining twenty-two are in production and
material handling positions.
Competition for employees in the Company's industry is intense. The Company
believes that its future success will depend in part on its ability to recruit,
retain and motivate qualified management, marketing, technical and
administrative employees. The Company has an employment agreement with one key
employee. None of the Company's employees are covered by collective bargaining
agreements, and management considers relations with employees to be good.
FINANCIAL INFORMATION
For financial information about the Company's two business segments, see Note
12 "Segment Information" to the Company's Consolidated Financial Statements in
the Appendix attached hereto and incorporated by reference.
RISK FACTORS
Our History of Operating Losses. Our revenues to date have consisted
primarily of revenues generated by Deltco and contract research and development
revenues. We have incurred losses since inception. For the years ended December
31, 1998 and 1997, we had net losses of approximately $1,629,000 and $975,000,
respectively. As of December 31, 1998, we had an accumulated deficit of
approximately $9.9 million. Planet's product shipments to date have related
primarily to the research and development efforts and customer pilot trials.
Planet has generated minimal revenues from product sales. Due to lengthy
customer evaluation and acceptance periods, we expect that negative cash flow
from operations will continue for the foreseeable future. Other than the
Feasibility Agreement with Agway, we have not received significant commitments
beyond the research, development and testing stage from any customer regarding
purchases of our products or technologies. Full-scale commercial use of any of
our products will require additional development and testing. We cannot
guarantee the timing of the commercial deployment of our products or that our
products and technology will ever receive widespread market acceptance.
Seasonality and Fluctuations in Quarterly Results. Deltco has experienced
seasonal fluctuations in quarterly revenues and operating results and we cannot
guarantee that Deltco will be profitable in any particular period. Seasonal
fluctuations at Deltco may cause volatility in the price of our Common Stock.
Deltco's sales and income have historically been lower in the first and fourth
quarters and higher in the second and third quarters of the years reflecting the
general pattern associated with much of the manufacturing industry. Furthermore,
announcements by us or our competitors of new products and technologies could
cause customers to defer or cancel purchases of Deltco's products, which could
adversely affect our business, financial condition and results of operations.
Additional factors that may cause our revenues, gross margins and results of
operations to vary significantly from period to period include:
- mix of products sold;
- availability of inventory;
- costs;
- price discounts;
- market acceptance and the time and availability of new products by us or
our customers;
- usage of different distribution and sales channels;
- customization of products;
- general economic and political conditions.
We cannot guarantee that we will realize positive operating results in the
future, and even if so realized, we cannot guarantee the level of operating
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Future Capital Needs; Uncertainty of Additional Funding. Our future capital
requirements will depend on many factors, including:
- the cost of manufacturing scale-up;
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<PAGE> 12
- the timing of market acceptance of our products;
- competing technological and market developments and the costs involved in
filing;
- prosecuting and enforcing patent claims.
We anticipate that our existing resources will enable us to maintain our
current and planned operations through at least the next twelve months. We
cannot guarantee that changes in our plans or other events affecting our
operating expenses will not result in the expenditure of such resources before
such time.
We intend to seek additional funding through partnership arrangements or the
extension of existing arrangements or through public or private equity or debt
financing. We cannot guarantee that additional financing will be available on
acceptable terms, or at all. Insufficient funds may require us to delay, scale
back or eliminate some or all of our activities or to obtain funds through
arrangements with third parties that may require us to relinquish rights to
certain of our technologies, product candidates or products that we would
otherwise seek to develop or commercialize ourselves.
Continued Quotation On The Nasdaq SmallCap Market. Our ability to raise
capital may be dependent upon the stock being quoted on the Nasdaq SmallCap
Market. Our Common Stock is quoted on the Nasdaq SmallCap Market. We cannot
guarantee that we will be able to satisfy the criteria for continued quotation
on the Nasdaq SmallCap Market. For example, one of the criteria for continued
quotation is that we will maintain net tangible assets of $2 million. As of
December 31, 1998, our net tangible assets were approximately $1.4 million.
Failure to meet the maintenance criteria in the future may result in our Common
Stock not being eligible for quotation. In such event, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the market
value of, our Common Stock.
If our Common Stock is delisted from the Nasdaq SmallCap Market, trading, if
any, in our Common Stock would thereafter have to be conducted in the
over-the-counter market in the so-called "pink sheets" or, if available, Nasdaq
OTC Bulletin Board. As a result, an investor would find it more difficult to
dispose of, and to obtain accurate quotations as to the value of, our Common
Stock. In addition, our ability to raise additional funding may be impeded
should we not maintain the continued listing requirements at the Nasdaq SmallCap
Market.
Penny Stock Regulations. If our Common Stock is delisted from the Nasdaq
SmallCap Market and the trading price of our Common Stock is less than $5.00 per
share, trading in our Common Stock would also be subject to the requirements of
Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Under such rule, broker/dealers who recommend such
low-priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements, including a
requirement that they make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also requires additional disclosure in connection with any trades involving
a stock defined as a penny stock (generally, according to recent regulations
adopted by the Commission, any equity security not traded on an exchange or
quoted on Nasdaq that has a market price of less than $5.00 per share, subject
to certain exceptions), including delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith. Such requirements could severely limit the market
liquidity of our Common Stock and the ability purchasers of our Common Stock to
sell such shares in the secondary market. We cannot guarantee that our Common
Stock will not be delisted from the Nasdaq SmallCap Market or treated as a penny
stock.
Availability of Raw Materials; Dependence upon Key Supplier. Although certain
raw materials used in the our products are available from several sources,
should supply problems arise, our inability to develop alternative sources of
supply quickly and on a cost-effective basis could materially impair our ability
to manufacture and deliver our products. Deltco purchases the majority of its
scrap resins from 3M. A formal supply agreement has been executed with 3M. The
agreement has an indefinite term and may be terminated by either party upon
thirty-days prior written notice. Should demand for our products substantially
exceed current expectations, or if supply problems should arise with current
vendors, we cannot guarantee that we would be able to obtain sufficient
quantities of raw materials from our current sources, or that alternate sources
could be found without disrupting the manufacturing process.
Cyclicality of Recycled Plastic Industry. Deltco's recycled polypropylene
generally replaces higher priced virgin polypropylene in its customer's end
products to reduce costs. Deltco's business depends substantially upon
11
<PAGE> 13
the availability and price of this virgin polypropylene as well as the price of
oil. If the virgin polypropylene supply becomes imbalanced due to excess
polypropylene capacity, the price of the virgin material will decrease creating
a lessened demand for Deltco's recycled material. Price downturns in the virgin
polypropylene market will have a material adverse effect on our business,
financial condition and results of operations.
Uncertainty of Market Acceptance. Our success is dependent on the commercial
acceptance of our technologies by the various industries targeted by our
products. Although our products have undergone numerous product trials with
customers, to date no customer has made a significant commitment to purchase any
of our products. There can be no certainty as to the amount of time required to
achieve full-scale commercialization, and the commercialization process of any
new product could take several years. We cannot guarantee that any customer will
adopt our technology or that our products will receive broad market acceptance
as an economically acceptable alternative. Broad market acceptance of our
products will depend upon our ability to demonstrate to potential customers that
our products can compete favorably with alternative solutions. We cannot
guarantee that any of our targeted markets will result in a significant
commercial opportunity, that unforeseen problems will not develop with respect
to our technology or products or that we will be successful in completing the
commercial implementation of our technology. A significant risk remains as to
the timing of commercial implementation and the prospects of commercial success
for our technology and products. In addition, we will need to achieve further
product cost reductions to compete successfully in the future. Although we
intend to achieve such reductions through a combination of engineering and
process improvements and economies of scale, we cannot guarantee that we will
achieve our cost objectives.
Technological Uncertainty. We are developing an innovative approach to
address problems and concerns of many industries. We cannot guarantee that
unforeseen problems will not develop with respect to our technology or products
or that we will be successful in completing the development or the commercial
implementation of our technology. In order to be successful, we must be able to
provide our products with a price-value relationship that is competitive with
alternative solutions. A significant risk remains as to the technological
performance, the implementation schedule and the prospects of commercial success
of our technology and products.
Limited Manufacturing Experience and Capability. Our facility in San Diego,
California is a pilot production facility with limited manufacturing capability.
Deltco's facility is in Ashland, Wisconsin. In the event that production at
either facility were interrupted by fire, earthquakes, floods or other acts of
God, regulatory actions or other causes, we would be unable to continue to
develop and manufacture our products. Such an interruption would materially and
adversely affect our business and results of operations. To date we have
manufactured and sold only small quantities of our products for commercial use.
Our San Diego facility has limited capacity to handle higher commercial volume
manufacturing. To increase production capability, we will need to either expand
the production capabilities of the San Diego facility and or Deltco facility or
seek additional facilities, either of which would require significant
expenditures and additional personnel. Although we plan to establish
manufacturing relationships with contract manufacturers, no manufacturer has
produced significant volumes of our products to date. To be successful, our
products must be manufactured in commercial quantities at competitive costs. If
we are unable to develop or contract for manufacturing capabilities on
acceptable terms, our competitive position and our ability to achieve
profitability could be materially impaired.
Reliance on Strategic Relationships. Our technologies are designed to serve
multiple industries. An important part of our strategy is to promote acceptance
of our products through technology and product alliances with certain customers.
Our dependence on these customers raises certain risks with respect to the
future success of our business. We have focused our product development efforts
by working in close collaboration with our customers. Certain of our customers
are concurrently engaged in similar development and testing programs with other
companies involving competing products and technologies. Our success is
dependent on the successful completion and commercial deployment of our products
and on the future commitment of our customers to our products and technology. We
cannot guarantee that our collaboration with our customers will result in
products that are accepted by our customers or widely accepted in the
marketplace. In addition, our reliance on collaborations with third parties may
require us to relinquish rights to certain of our technologies, product
candidates or products that we would otherwise seek to develop or commercialize
ourselves. For example, pursuant to our License Agreement with Agway, Agway has
certain rights to our technologies. In addition, the Agway agreement places
certain limitations on us with respect to the use of our technologies in certain
areas of business. We cannot guarantee that we will not enter into similar
collaborations in the future.
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<PAGE> 14
Management of Growth. Future company growth may challenge our management,
operational and financial resources. We may experience problems associated with
the design, engineering and manufacturing scale-up of our products. Our ability
to manage growth effectively will require us to continue to implement and
improve our management, operational and financial systems and to expand, train
and manage our employees.
Management of growth is especially challenging for a company with a short
operating history and limited financial resources, and the failure to
effectively manage growth could have a material adverse effect on our results of
operations. In addition, Planet has no experience in the operation of a
large-scale production facility and we can not guarantee that we will not
encounter unforeseen difficulties in the operation of a production facility that
would adversely affect our results of operations in future periods. Failure to
upgrade operating and financial control systems or difficulties encountered
during such upgrades could adversely affect our business and results of
operations. Although we believe that our systems and controls are adequate to
address our current needs, we cannot guarantee that such systems and controls
will be adequate to address future changes in our business.
Competition. We consider our competition for our AQUAMIM(TM) product to be
from competing technologies rather than from direct competitors. The competing
technologies include: solvent debinding technologies based on a wax binder by
Advanced Forming Technology, catalytic debinding based on a polyacetal binder by
BASF Corporation, air dry debinding based on a water-based binder by
AlliedSignal Inc. and thermal debinding based on an acrylic binder by Rohm &
Haas Company. In the manufacture and marketing of controlled-release urea, the
Company competes indirectly with Pursell Inc. and The Scotts Company in the
United States and Haifa Chemical Company in Israel. Many of our competitors have
significantly greater financial, technical and human resources than we do.
The primary source of competition for our EnviroPlastic(R) and Aquadro(TM)
products currently comes from suppliers of conventional non-degradable plastic
products. The use of non-degradable products is well-established and accepted by
both consumers and the industry, many of whom may be indifferent to the benefits
offered by our products. Many of our competitors who provide these
non-degradable products have significantly greater financial, technical and
human resources than we do. Changes in political and consumer emphasis on
environmental factors in waste disposal could significantly harm our competitive
position relative to these established solutions with respect to certain of our
products whose principal advantage is degradability. Such changes may be
imminent in light of the current political climate, the unlikelihood of
increased environmental regulation and the possibility of a reduction in
environmental regulation. In addition, we are subject to competition from other
specialty chemical companies offering alternative solutions.
We cannot guarantee that our competitors will not succeed in developing
products or technologies that are more effective than any which have been or are
being developed by us or which would render our technology and products obsolete
and noncompetitive. Accordingly, our competitors may succeed in obtaining market
acceptance for products more rapidly than we do. Furthermore, if we obtain
market acceptance of our products, we will also be competing with respect to
volume manufacturing efficiency and marketing capabilities, areas in which we
have limited or no experience.
Dependence on Key Personnel. Our success depends to a significant extent upon
the continued service of Robert J. Petcavich, our Chairman, Chief Executive
Officer and President, and the loss of such key executive could have a material
adverse effect on our business or results of operations. We are also dependent
on other key personnel, and on our ability to continue to attract, retain and
motivate highly skilled personnel. The competition for such employees is
intense, and we cannot guarantee that we will be successful in attracting,
retaining or motivating key personnel. We maintain "key-person" life insurance
policies with respect to such persons to compensate us in the event of their
deaths.
Uncertainty of Protection of Patents and Proprietary Rights. Planet relies on
a combination of patent and trade secret protection, non-disclosure agreements
and licensing arrangements to establish and protect our proprietary rights. We
have filed and intend to file applications as appropriate for patents covering
our products. We cannot guarantee that patents will issue from any of the
pending applications or, if patents do issue, that claims allowed will be
sufficiently broad to protect our technology. In addition, we cannot guarantee
that any issued patents will not be challenged, invalidated or circumvented, or
that the rights granted thereunder will provide proprietary protection to us.
Since U.S. patent applications are maintained in secrecy until patents issue,
and since publication of inventions in the technical or patent literature tend
to lag behind such inventions by several months, we cannot be certain that
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<PAGE> 15
we were the first creator of inventions covered by our issued patents or pending
patent applications or that we were the first to file patent applications for
such inventions. Despite our efforts to safeguard and maintain our proprietary
rights, we cannot guarantee that we will be successful in doing so or that our
competitors will not independently develop or patent technologies that are
substantially equivalent or superior to our technologies.
Shares Eligible for Future Sale. Sales of substantial amounts of our Common
Stock in the public market or the prospect of such sales by existing
shareholders and warrant holders could materially adversely affect the market
price of our Common Stock. As of December 31, 1998, we had outstanding 5,841,062
shares of Common Stock (assuming the conversion of all outstanding shares of
Preferred Stock into shares of Common Stock). In addition, on January 11, 1999,
we issued 1,000,000 shares of our Common Stock to Agway. Other than those
1,000,000 shares issued to Agway which are unregistered, virtually all of our
outstanding shares of Common Stock are either registered and therefore freely
tradable or may be transferred pursuant to Rule 144(k) under the Securities Act,
unless held by our "affiliates" as that term is defined in Rule 144 under the
Securities Act. We have also filed a Registration Statement on Form S-8 under
the Securities Act covering 500,000 shares of Common Stock reserved for issuance
under our 1995 Stock Plan. Upon issuance, shares registered under such
Registration Statement will be, subject to Rule 144 volume limitations
applicable to our affiliates, available for sale in the open market.
Government Regulation. Certain end products into which our products are
expected to be incorporated are subject to extensive government regulation in
the United States by federal, state and local agencies including the EPA and
FDA. Similar regulatory agencies exist worldwide. Our customers who incorporate
our products into consumer products will bear primary responsibility for
obtaining any required regulatory approvals. The process of obtaining and
maintaining FDA and any other required regulatory approvals for products is
lengthy, expensive and uncertain, and regulatory authorities may delay or
prevent product introductions or require additional tests prior to introduction.
We cannot guarantee that changes in existing regulations or the adoption of new
regulations will not occur, which could prevent us or our customers from
obtaining approval or delay the approval of various products or could adversely
affect market demand for our products.
Product Liability. Product liability claims may be asserted against us in the
event that the use of our products or products which incorporate our products
are alleged to have caused injury or other adverse effects, and such claims may
involve large amounts of alleged damages and significant defense costs. We do
not maintain product liability insurance. If we obtain product liability
insurance in the future, we cannot guarantee that the liability limits or the
scope of our insurance policy would be adequate to protect against such
potential claims. Additionally, we may not be able to obtain product liability
insurance. Whether or not we obtain such insurance, a successful claim against
us could have a material adverse effect on us. In addition, our business
reputation could be adversely affected by product liability claims, regardless
of their merit or eventual outcome.
Absence of Dividends. We have not paid any cash dividends on our Common Stock
since our inception and do not anticipate paying cash dividends in the
foreseeable future.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices, as well as research laboratories and a
limited production facility, are located in approximately 6,080 square feet of
leased office and manufacturing space in San Diego, California. The lease on
this space will expire in July 1999 and the monthly rental payment is $4,364
until expiration. The Company is currently negotiating for an extension on its
current office space in San Diego. There can be no assurance that the Company
will be able to successfully negotiate such extension or that the Company would
be able to find comparable space for a comparable price. Deltco currently leases
approximately 35,000 square feet of space in Ashland, Wisconsin. The leases on
Deltco's space will expire in 2003 and the monthly rental payment is $9,481. The
Company may expand its manufacturing capabilities as demand increases for the
Company's products. Additional debt or equity financing will be required prior
to obtaining significant manufacturing facilities.
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ITEM 3. LEGAL PROCEEDINGS
In November 1998, the Company initiated litigation against Brian To, a former
director of the Company, and Tarrenz Management Consultants, Inc., an entity
owned by Brian To, in the Superior Court of the State of California for the
County of San Diego. The complaint alleges breach of contract, breach of
fiduciary duty and other tort claims arising from services the defendants
performed for or on behalf of the Company. The Company is seeking recovery of
compensation, stock, stock options and expense reimbursements. It is too early
to determine the impact, if any, of this proceeding on the Company, its
financial condition or the results of the Company's operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Shareholders of Planet Polymer Technologies, Inc. was
held on January 6, 1999 in San Diego, California. A description of the proposal
at the Special Meeting is more fully described in the Company's proxy statement
dated as of December 14, 1998.
Proposal 1 - To approve the issuances of securities of the Company
exceeding twenty percent of the outstanding Common Stock of the Company
as described in the Proxy Statement dated as of December 14, 1998.
<TABLE>
<CAPTION>
Votes For Votes Against Votes Abstained
--------- ------------- ---------------
<S> <C> <C>
3,071,243 1,319,562 8,765
</TABLE>
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<PAGE> 17
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the Nasdaq SmallCap tier of the
Nasdaq Stock Market ("Nasdaq") under the symbol "POLY," since the Company's
initial public offering on September 21, 1995. The following table sets forth
the high and low sales prices of the Company's Common Stock for the period from
January 1, 1997 through December 31, 1998 as furnished by Nasdaq. These prices
reflect prices between dealers without retail markups, markdowns or commissions,
and may not necessarily represent actual transactions:
<TABLE>
<CAPTION>
Trade Prices
--------------
High Low
---- ---
<S> <C> <C>
Fiscal year ended December 31, 1997
First Quarter 4 1/4 2
Second Quarter 4 1/8 1 3/4
Third Quarter 4 5/8 2
Fourth Quarter 3 1/2 1
Fiscal year ended December 31, 1998
First Quarter 2 1/4 1 5/16
Second Quarter 2 5/8 1 3/16
Third Quarter 1 5/8 7/8
Fourth Quarter 2 1/8 5/8
</TABLE>
On February 25, 1999, the last reported sale price of the Company's Common
Stock on the Nasdaq SmallCap market was $1.625. As of February 25, 1999, there
were approximately 129 holders of record of the Company's Common Stock with
6,341,062 shares outstanding. The market price of shares of Common Stock, like
that of the common stock of many other emerging growth companies, has been and
is likely to continue to be highly volatile.
Under the terms of the Securities Purchase Agreement between the Company and
the investor of the Series A Preferred (the "Investor") dated as of September
19, 1997, the Investor is entitled to receive, quarterly, such number of shares
of Common Stock (or, if the Company is unable to distribute shares of Common
Stock, cash) equal to (a) one and one-half percent (1.5%) multiplied by the
liquidation preference of the Series A Preferred, divided by (b) the average
closing price of the Company's Common Stock on the Nasdaq SmallCap Market over a
period of 5 consecutive trading days prior to the dividend distribution date.
Accordingly, during each of 1998 and 1997, the Company has issued to the
Investor dividends of 40,918 shares and 7,337 shares of Common Stock,
respectively, valued at approximately $60,000 and $13,665, respectively.
No cash dividends have been declared or paid on the Company's Common Stock
and the Company does not expect to pay any cash dividends in the foreseeable
future.
RECENT SALES OF UNREGISTERED SECURITIES
In November 1998, the Company entered into a Stock Purchase Agreement with a
subsidiary of Agway, Inc. ("Agway") whereby Agway would purchase 1,000,000
shares of Planet's Common Stock for $1,000,000 and receive a warrant to purchase
up to 2,000,000 shares of Common Stock at a price of $1.00 per share. The
transaction was completed in January 1999 with the Company's shareholders'
approval. The 1,000,000 shares of Common Stock issued to Agway in January 1999
were issued in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D under the Securities Act of 1933, as amended.
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<PAGE> 18
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Except for the historical information contained herein, the discussion in
this report contains forward-looking statements that involve certain risks and
uncertainties. The Company's actual results could differ materially from those
discussed in this report. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Item 1 -
Description of Business," including the section therein entitled "Risk Factors,"
this Item 6, and those discussed in any documents incorporated herein by
reference.
Since the Company was founded in 1991, with exception of resources expended
in connection with the purchase and ongoing operation of Deltco, substantially
all of the Company's resources have been devoted to the development and
commercialization of its technologies and products. This has included the
expenditure of funds to develop the Company's corporate infrastructure, support
the Company's marketing efforts and establish a pilot production facility, in
addition to research and development. In January 1996, Planet acquired Deltco, a
manufacturer and reprocessor of plastic resins located in Ashland, Wisconsin.
Planet maintains Deltco as a wholly-owned subsidiary. Prior to the acquisition
of Deltco, essentially all revenue recognized was from customer-funded research
and development activities, which included service and product sales for
customer pilot trials. Planet has incurred operating losses since inception and
had an accumulated deficit as of December 31, 1998 of approximately $9.9
million. Pending commercial deployment of and related volume orders for the
Company's products, the Company expects to incur additional losses.
In November 1998, the Company entered into a Stock Purchase Agreement with a
subsidiary of Agway Inc. ("Agway") whereby Agway would purchase 1,000,000 shares
of Planet's Common Stock for $1,000,000 and receive a warrant to purchase up to
2,000,000 shares of Common Stock at a price of $1.00 per share. The stock
purchase transaction was completed in January 1999 with the Company's
shareholders' approval. Contemporaneously with the execution of the agreement,
Planet and Agway entered into an agreement relating to the funding by Agway of a
feasibility study (the "Feasibility Agreement") of Planet's polymer technology
for use in agricultural products (other than fertilizers and certain biological
products) and food products and an exclusive worldwide license (the "License
Agreement") to all current and future products that utilize Planet's polymer
technology for agricultural and food related purposes (other than products
already covered by existing agreements). Under the terms of the License
Agreement, Agway has the exclusive right to grant licenses and sublicenses on
the technology developed under the License Agreement to other parties. In return
for the rights granted to Agway, Agway is required to pay royalties to the
Company determined in accordance with the terms of the License Agreement. In
addition, in February 1999, the Company received a commitment from Agway whereby
Agway agreed to exercise its warrant to acquire up to 500,000 shares of the
Company's Common Stock as early as July 1, 1999 at the Company's request, in the
event that the Company's cash flows are less than currently projected and/or
insufficient to fund its operating requirements.
RESULTS OF OPERATIONS
The Company operates in two segments: (1) research and development of polymer
technologies and materials in San Diego, California and (2) manufacturing and
reprocessing of thermoplastic scrap resins by Deltco in Ashland, Wisconsin. The
technologies and products developed in California are currently in a research
and development stage; and therefore, no revenues and cost of sales were
reported under this segment in 1998 and 1997.
The Company's revenues, which were all related to Deltco, decreased from
approximately $3,020,000 for the year ended December 31, 1997 to approximately
$1,615,000 for the year ended December 31, 1998. This decrease was primarily
attributed to declines in both sales volume and sales price of approximately 19%
and 26%, respectively, for Deltco's recycled polypropylene due to price
decreases in virgin polypropylene. Since Deltco's recycled polypropylene is
generally a lower cost substitute for virgin polypropylene, such price decreases
lessened demand for Deltco's recycled material. The price decreases in virgin
polypropylene were substantially related to the low cost of oil, a decrease in
demand for polypropylene in Asia and the General Motors strike. The Company has
noted a slight increase in sales volume in early 1999; however, it expects
prices to continue to be low for the foreseeable future.
17
<PAGE> 19
Cost of sales, which were all related to Deltco, decreased from approximately
$2,259,000 for the year ended December 31, 1997 to approximately $1,734,000 for
the year ended December 31, 1998. This decrease was primarily attributable to
lower sales volume at Deltco, offset by write-down of certain inventory to
market of approximately $102,000.
General and administrative expenses decreased $146,000 from approximately
$962,000 for the year ended December 31, 1997 to approximately $816,000 for the
year ended December 31, 1998. Expenses for the San Diego research and
development segment decreased approximately $103,000 in 1998, which was
primarily due to decreased costs of outside services. Also, in June 1998,
Deltco's president resigned to pursue other career opportunities. Due to his
departure and decreased costs of outside services, Deltco's general and
administrative expenses decreased approximately $43,000 in 1998.
Marketing expenses decreased $196,000 from approximately $434,000 for the
year ended December 31, 1997 to approximately $238,000 for the year ended
December 31, 1998. Marketing expenses for the San Diego research and development
segment and the Deltco segment decreased approximately $128,000 and $68,000,
respectively, in 1998. Both decreases were primarily attributable to reductions
in outside services and sales and marketing personnel.
The Company's net research and development expenses increased from
approximately $347,000 for the year ended December 31, 1997 to approximately
$512,000 for the year ended December 31, 1998. This increase was primarily due
to the addition of research and development personnel and increased costs
associated with advancing AQUAMIM(TM) technology, including customer production
trials and efficacy and safety testing. Additionally, offsetting research and
development revenue decreased from approximately $144,000 from the year ended
December 31, 1997 to approximately $122,000 for the year ended December 31,
1998.
The Company's net loss increased from approximately $975,000 during the year
ended December 31, 1997 to approximately $1,629,000 during the year ended
December 31, 1998 as a result of the aforementioned contributing factors.
As of December 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $8.6 million, and for California
and Wisconsin state tax purposes of approximately $3.8 million and $0.2 million,
respectively. The Company's annual utilization of net operating loss and tax
credit carryforwards may be limited if the Company's ownership were to change in
the future, as defined by Sections 382 and 383 of the Internal Revenue Code.
The Company's quarterly results of operations have and continue to fluctuate
materially depending on, among other things the mix of products sold,
availability of inventory, costs, price discounts, market acceptance and the
timing and availability of new products by the Company or its customers,
customization of products, and general economic and political conditions.
Deltco's sales and income are also subject to seasonal fluctuations and have
been historically lower in the first and fourth quarters of the years reflecting
the general pattern associated with much of the manufacturing industry. Because
of these fluctuations in net sales and net income, the results of operations of
any quarter are not necessarily indicative of the results that may be achieved
for a full fiscal year or any future quarter. See "Risk Factors - Seasonality
and Fluctuations in Quarterly Results."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Planet has financed its operations primarily through the
sale of equity securities and revenue from customer development agreements. The
Company has raised approximately $4 million (net of issuance costs) from the
private sale of Common Stock and exercise of warrants to purchase Common Stock.
In September 1995 the Company completed its initial public offering in which it
sold an aggregate of 1,150,000 shares of Common Stock to the public and received
net proceeds of approximately $5.6 million.
In January 1996, the Company used $1,125,000 in cash and issued 96,775 shares
of restricted Common Stock valued at approximately $508,000 to acquire Deltco in
a purchase transaction. In connection with the purchase, the Company had one
outstanding debt agreement related to a Small Business Administration loan
collateralized by a
18
<PAGE> 20
certificate of deposit and inventory at Deltco. As of December 31, 1998, the
loan balance was approximately $95,000. In January 1999, the loan was paid in
full with cash obtained from the redemption of the certificate of deposit.
In September 1997, the Company issued 500,000 shares of Series A Convertible
Preferred Stock and warrants to purchase Common Stock for an aggregate purchase
price of approximately $882,000, net of issuance costs.
In January 1999, with the Company's shareholders' approval, the Company
issued 1,000,000 shares of Common Stock to Agway and received proceeds of
$1,000,000 before any issuance costs. In addition, from October 1998 to December
1998, the Company recorded a research and development revenue of approximately
$62,000 from Agway under the Feasibility Agreement. The Company anticipates that
some of the 1999 research and development expenditures in the agrotechnology
area will be reimbursed by Agway under the Feasibility Agreement. In addition,
in February 1999, the Company received a commitment from Agway whereby Agway
agreed to exercise its warrant to acquire up to 500,000 shares of the Company's
Common Stock as early as July 1, 1999 at the Company's request, in the event
that the Company's cash flows are less than currently projected and/or
insufficient to fund its operating requirements.
The Company has no material commitments for capital expenditures but
anticipates expenditures in 1999 of approximately $40,000 to update its computer
hardware and software as discussed below.
The Company used approximately $1,110,000 for operations for the year ended
December 31, 1998. Such funds were used for research and development activities,
marketing efforts and administrative support.
The Company used approximately $74,000 for investing activities for the year
ended December 31, 1998. Such funds were used for the preparation and filing of
patents and for the purchase of equipment.
The Company used approximately $183,000 for financing activities for the year
ended December 31, 1998. Such funds were used for the repayment of debt and
payment for costs related to the Common Stock issuance to Agway.
The Company believes that its existing sources of liquidity and anticipated
revenue, including revenues generated from Deltco, proceeds from the January
1999 issuance of Common Stock to Agway and Agway's commitment to exercise its
warrants to acquire up to 500,000 shares of Common Stock as early as July 1,
1999 at the Company's request, in the event that the Company's cash flows are
less than currently projected and/or insufficient to fund its operating
requirements will satisfy the Company's projected working capital and other cash
requirements through at least the next twelve months. There can be no assurance,
however, that future revenue decreases or changes in the Company's plans or
other events affecting the Company's operating expenses will not result in the
expenditure of the Company's resources. The Company expects that it will need to
raise substantial additional funds to continue its current and planned
operations. The Company intends to seek additional funding from existing and
potential customers or through public or private equity or debt financing. There
can be no assurance that additional financing will be available on acceptable
terms, or at all. The Company's ability to raise additional capital may be
dependent upon the stock being quoted on the Nasdaq SmallCap Market. There can
be no assurance that the Company will be able to satisfy the criteria for
continued quotations on the Nasdaq SmallCap Market.
YEAR 2000
The Company recognizes the need to ensure that its operations will not be
impacted by the year 2000 issue that results from computer applications being
written along two digits rather than four to define the application year. As a
result of the year 2000 issue, computer applications may recognize a date using
"00" as the year 1900 rather than the year 2000, resulting in system failures or
miscalculations causing disruption of operations. The Company has reviewed its
material computer applications for year 2000 compliance and is working with
vendors and suppliers to make its computer applications year 2000 compliant.
Thus, the Company has developed a plan to modify its information technology in
recognition of the year 2000 issue. The plan calls for updating existing
software and hardware to newer versions that incorporate corrections to
eliminate the problem. The Company has estimated that the total cost of updating
the Company's accounting system in order to be year 2000 compliant will be
approximately $30,000 and the cost of improving the Company's computers and
network will be approximately $10,000. The Company does not expect the year 2000
issue and the plan to resolve it to have a significant impact on its operations.
However, if such plans cannot be completed on a timely basis, the year 2000
issue could have a material adverse impact on the Company's business, financial
condition and results of operations. Because of the many uncertainties
associated with year 2000 compliance issues, and because the Company's
assessment is necessarily based on information from third party vendors and
suppliers, there can be no assurance as to whether
19
<PAGE> 21
such assessment is correct or as to the materiality or effect if such assessment
is not correct. For example, to the extent that customers would be unable to
order products or pay invoices or suppliers would be unable to manufacture or
deliver product, the Company's operations would be affected.
ITEM 7. FINANCIAL STATEMENTS
The information required by this item is included in the Appendix attached
hereto and incorporated by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this item is incorporated by reference from
Issuer's Definitive Proxy Statement to be filed with the Commission pursuant to
Regulation 14A in connection with its 1999 Annual Meeting of Shareholders (the
"Proxy Statement") under the headings "Proposal 2 - Election of Directors,"
"Compliance with Section 16(a) of the Securities Exchange Act of 1934," and
"Additional Information - Management."
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Proxy Statement under the heading "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Certain Relationships and Related
Transactions."
20
<PAGE> 22
PART IV.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. Financial statements are attached as the
Appendix to this report. The index to the financial statements is
found on page F-1 of the Appendix.
2. Financial Statement Schedules. All schedules are omitted since the
required information is not present or is not present in amounts
sufficient to require a submission of the schedules, or because the
information required is included in the financial statements and
notes thereto.
3. Exhibits. See Exhibit Index in part (c), below.
(b) The Company did not file any reports on Form 8-K during the quarter
ended December 31, 1998.
<TABLE>
<CAPTION>
(c) Exhibit Number Description
-------------- -----------
<S> <C>
3.1(1) Restated Articles of Incorporation of the Registrant.
3.2(1) Restated Bylaws of the Registrant.
3.3(6) Amended and Restated Certificate of Determination of
Preferences of Series A Convertible Preferred Stock.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2(1) Form of warrant issued to Underwriters.
4.3(1) Form of Class B Warrant, with related schedule of
warrantholders.
4.4(1) Warrant issued to Reynolds Kendrick Stratton.
4.5(1) Form of warrant issued to advisors, with related
schedule of warrantholders.
4.6(1) Specimen Stock Certificate.
4.7(2) Non-statutory Stock Options granted in September 1994 to
Dr. Petcavich and Messrs. Wright and To.
4.8(1) Warrant issued to Am-Re Services, Inc.
5.1(6) Opinion of Cooley Godward LLP.
10.1(1) Form of Indemnity Agreement entered into between the
Registrant and each of its executive officers and
directors.
10.2(1) Registrant's 1995 Stock Option Plan (the "Option Plan").
10.3(1) Form of Incentive Stock Option Grant under the Option
Plan.
10.4(1) Form of Non-statutory Stock Option Grant under the
Option Plan.
10.5(1) Standard Industrial Gross Lease, dated June 1, 1992,
between the Registrant and The Trustees Under the Will
and of the Estate of James Campbell, Deceased, as
amended August 13, 1992 and May 3, 1994.
10.6(1) Agreement to Assign Proprietary Rights between the
Registrant and Dr. Robert J. Petcavich.
10.7(1) Form of Confidential Information Agreement entered into
between the Registrant and its employees.
10.8(3) Purchase and Sale Agreement dated as of January 1, 1996,
by and among the Registrant, Deltco of Wisconsin, Inc.,
and Jack G. Martinsen.
10.9(4) Executive Employment Agreement dated January 1, 1996,
between the Registrant and Dr. Robert J. Petcavich.
10.10(10) Executive Employment Agreement dated November 18, 1998
and effective January 1, 1999, between the Registrant
and Dr. Robert J. Petcavich.
10.11(5)(9) Technology Development and License Agreement, dated
January 30, 1995, between the Company and Cominco
Fertilizers, Ltd.
10.12(5) Fourth Amendment to Lease, dated August 1, 1997 between
the Company and The Trustees Under the Will and of the
Estate of James Campbell.
10.13(6) Securities Purchase Agreement, dated September 19, 1997,
between the Registrant and Special Situations Private
Equity Fund, L.P.
10.14(6) Warrant to Purchase Common Stock, dated September 24,
1997, issued by the Registrant to Special Situations
Private Equity Fund, L.P.
10.15(7)(9) Scrap Purchase Agreement, dated June 28, 1996, between
Deltco and 3M.
</TABLE>
21
<PAGE> 23
<TABLE>
<S> <C>
10.16(8) Stock Purchase Agreement, dated November 12, 1998
between the Company and Agway Holdings Inc.
10.17(8) Warrant to Purchase Common Stock, dated January 11,
1999, issued by the Company to Agway Holdings Inc.
10.18(10) Registration Rights Agreement, dated January 11, 1999,
between the Company and Agway Holdings Inc.
10.19(10) Product Feasibility Agreement dated as of November 12,
1998 between the Company and Agway Consumer Products,
Inc.
10.20(10) License Agreement dated as of November 12, 1998 between
the Company and Agway Consumer Products, Inc.
11.1(10) Statement of Computation of Common and Common Equivalent
Shares.
23.1(10) Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney. Reference is made to page 23.
27.1(10) Financial Data Schedule.
</TABLE>
(1) Previously filed as an exhibit to the Registration statement on Form SB-2,
as amended (No. 33-91984 LA) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Registration Statement on Form S-8
(No. 333-1042) filed on February 5, 1996 and incorporated herein by
reference.
(3) Previously filed as an exhibit to the current report on Form 8K filed on
January 11, 1996, as amended by the current report on Form 8-K/A
(Amendment No. 1) filed by the Company on March 15, 1996 and incorporated
herein by reference.
(4) Previously filed as an Exhibit to Registrant's Annual Report on Form
10-KSB filed for the fiscal year ended December 31, 1995 and incorporated
herein by reference.
(5) Previously filed as an Exhibit to Registrant's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1997 and incorporated herein by
reference.
(6) Previously filed as an Exhibit to the Registration Statement on Form S-3
(No. 333-39845) filed on November 7, 1997, amended on December 31, 1997
and incorporated herein by reference.
(7) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-KSB filed for the fiscal year ended December 31, 1997 and incorporated
herein by reference.
(8) Previously filed with the Definitive Proxy Statement filed on December 14,
1998 and incorporated herein by reference.
(9) Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions will be filed separately with the
Securities and Exchange Commission.
(10) Filed as an Exhibit to this annual report on Form 10-KSB.
22
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Planet Polymer Technologies, Inc.
Dated March 8, 1999 By: /s/ ROBERT J. PETCAVICH
----------------------------------
Robert J. Petcavich
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert J. Petcavich, his attorney-in-fact, each
with the power of substitution, for him, in any and all capacities, to sign any
amendments to this report, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and conforming all that each the attorney in-fact, or his
substitute may do or cause to be done by virtue hereof.
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert J. Petcavich President, March 8, 1999
- --------------------------- Chief Executive Officer and Director
Robert J. Petcavich (Principal Executive Officer)
(Principal Financial and Accounting Officer)
/s/ Michael M. Coleman Director March 8, 1999
- ---------------------------
Michael M. Coleman
/s/ Thomas M. Connelly Director March 8, 1999
- ---------------------------
Thomas M. Connelly
/s/ H. M. Busby Director March 8, 1999
- ---------------------------
H.M. Busby
/s/ Thomas A. Landshof Director March 8, 1999
- ---------------------------
Thomas A. Landshof
</TABLE>
23
<PAGE> 25
APPENDIX
FINANCIAL STATEMENTS
<PAGE> 26
<TABLE>
INDEX TO FINANCIAL STATEMENTS -- ITEM 7 OF FORM 10-KSB
<S> <C>
Report of Independent Accountants..........................................................F-2
Consolidated Financial Statements and Notes:
Balance Sheet as of December 31, 1998......................................................F-3
Statements of Operations for the Years Ended December 31, 1998 and 1997....................F-4
Statements of Shareholders' Equity for the Years Ended December 31, 1998 and 1997..........F-5
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997....................F-6
Notes to Consolidated Financial Statements.................................................F-7
</TABLE>
F-1
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Planet Polymer Technologies, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Planet
Polymer Technologies, Inc. and its subsidiary at December 31, 1998, and the
results of their operations and their cash flows for each of the two years in
the period then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Diego, California
March 2, 1999
F-2
<PAGE> 28
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
---------------
<TABLE>
<CAPTION>
DECEMBER 31,
1998
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 149,117
Restricted cash 114,880
Accounts receivable, net of allowance for doubtful accounts of $10,000 292,914
Inventories, net 300,236
Prepaid expenses 49,919
Income tax receivable 30,168
------------
Total current assets 937,234
Property and equipment, net of accumulated depreciation of $895,014 729,597
Goodwill, net of accumulated amortization of $96,003 544,019
Patents and trademarks, net of accumulated amortization of $115,370 319,452
Other assets 86,260
Deferred income taxes, net 32,424
------------
Total assets $ 2,648,986
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 189,894
Accrued payroll and vacation 40,061
Other accrued expenses 48,479
Current portion of capital lease obligations 11,904
Loan Payable 94,947
------------
Total current liabilities 385,285
Capital lease obligations, less current portion 31,128
Other liabilities 265,842
------------
Total liabilities 682,255
------------
Commitments (Notes 7, 13) --
Shareholders' equity:
Preferred Stock, no par value
4,250,000 shares authorized
No shares issued or outstanding --
Series A Convertible Preferred Stock, no par value
750,000 shares authorized
500,000 shares issued and outstanding
Liquidation preference $1,000,000 804,435
Common Stock, no par value
20,000,000 shares authorized
5,341,062 shares issued and outstanding 11,009,208
Accumulated deficit (9,846,912)
------------
Total shareholders' equity 1,966,731
------------
Total liabilities and shareholders' equity $ 2,648,986
============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE> 29
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Sales $ 1,615,124 $ 3,020,081
Cost of sales 1,734,230 2,258,760
----------- -----------
Gross profit (119,106) 761,321
----------- -----------
Operating expenses:
General and administrative 816,296 962,361
Marketing 237,599 433,658
Research and development, net 511,804 346,823
----------- -----------
Total operating expenses 1,565,699 1,742,842
----------- -----------
Loss from operations (1,684,805) (981,521)
Other income, net 33,224 36,803
----------- -----------
Loss before income taxes (1,651,581) (944,718)
Income tax benefit (expense) 23,038 (30,286)
----------- -----------
Net loss $(1,628,543) $ (975,004)
=========== ===========
Loss per share (basic and diluted) $ (0.31) $ (0.18)
=========== ===========
Shares used in per share computations 5,317,297 5,271,635
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE> 30
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A PREFERRED STOCK COMMON STOCK
------------------------ ------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
------- -------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 -- $ -- 5,271,269 $10,774,079 $(7,169,700) $ 3,604,379
Issuance of Common Stock as incentive
compensation -- -- 21,538 24,129 -- 24,129
Issuance of warrants -- -- -- 77,500 -- 77,500
Fair market value of stock options granted to
non-employees -- -- -- 51,594 -- 51,594
Issuance of Series A Convertible Preferred
Stock, net 500,000 804,435 -- -- -- 804,435
Issuance of Common Stock as a dividend on
Convertible Preferred Stock on December 15, 1997 -- -- 7,337 13,665 (13,665) --
Net loss for year -- -- -- -- (975,004) (975,004)
------- -------- --------- ----------- ----------- -----------
Balance at December 31, 1997 500,000 $804,435 5,300,144 $10,940,967 $(8,158,369) $ 3,587,033
Issuance of Common Stock as a dividend on
Convertible Preferred Stock on March 15, 1998 -- -- 10,169 15,000 (15,000) --
Issuance of Common Stock as a dividend on
Convertible Preferred Stock on June 15, 1998 -- -- 8,695 15,000 (15,000) --
Issuance of Common Stock as a dividend on
Convertible Preferred Stock on September 15, 1998 -- -- 13,483 15,000 (15,000) --
Fair market value of stock options granted to
non-employees -- -- -- 8,241 -- 8,241
Issuance of Common Stock as a dividend on
Convertible Preferred Stock on December 15, 1998 -- -- 8,571 15,000 (15,000) --
Net loss for year -- -- -- -- (1,628,543) (1,628,543)
------- -------- --------- ----------- ----------- -----------
Balance at December 31, 1998 500,000 $804,435 5,341,062 $11,009,208 $(9,846,912) $ 1,966,731
======= ======== ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE> 31
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,628,543) $ (975,004)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 214,565 203,789
Non-cash compensation expense 8,241 75,723
Loss on disposal of assets -- 23,106
Deferred income taxes (23,838) (6,714)
Changes in assets and liabilities:
Accounts receivable 93,143 285,709
Inventories, net 142,197 (72,858)
Prepaid expenses and other 38,629 (24,410)
Income tax receivable (30,168) --
Accounts payable and accrued expenses 75,373 (152,778)
Other liabilities -- (41,928)
----------- -----------
Net cash used by operating activities (1,110,401) (685,365)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (45,219) (39,478)
Proceeds from the sale of property and equipment -- 4,335
Cost of patents and other (28,425) (19,886)
----------- -----------
Net cash used by investing activities (73,644) (55,029)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of Series A Preferred Stock -- 925,000
Proceeds from issuance of warrants -- 77,500
Payment of equity issuance costs (80,988) (120,565)
Principal payments on borrowings and capital lease obligations (95,652) (157,251)
Restricted cash in connection with borrowings (6,603) (108,277)
----------- -----------
Net cash (used) provided by financing activities (183,243) 616,407
----------- -----------
Net decrease in cash and cash equivalents (1,367,288) (123,987)
Cash and cash equivalents at beginning of year 1,516,405 1,640,392
----------- -----------
Cash and cash equivalents at end of year $ 149,117 $ 1,516,405
=========== ===========
Supplemental disclosure of non-cash activity:
Cash paid during the year for:
Interest paid $ 18,768 $ 29,822
Income taxes paid 30,968 74,825
Non-cash activities:
Equipment purchased under capital lease obligations $ 18,035 $ 34,950
Fair market value of stock options granted to non-employees 8,241 51,594
Issuance of Common Stock as incentive compensation -- 24,129
Issuance of Common Stock dividends on Preferred Stock 60,000 13,665
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE> 32
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Planet Polymer Technologies, Inc. (the "Company") was incorporated in August,
1991 in the State of California for the purpose of engaging in the design,
development, manufacture and marketing of degradable and recycled polymer
materials. The Company's proprietary polymer materials are marketed under the
trademarks EnviroPlastic(R), Aquadro(TM) and AQUAMIM(TM). EnviroPlastic(R) and
Aquadro(TM) can be used to produce films, coatings and injection molded parts
that serve as environmentally-compatible alternatives to conventional plastics.
AQUAMIM(TM), developed by the Company in 1998, can be used to manufacture
complex metal parts using conventional plastics molding equipment.
The Company emerged from the development stage as a result of its acquisition
of Deltco of Wisconsin, Inc., a Wisconsin corporation ("Deltco"), effective
January 1, 1996. Prior to this acquisition, substantially all of the Company's
resources had been devoted to the development and commercialization of its
polymer technologies and products. Deltco was incorporated in 1984 in the State
of Wisconsin. Deltco is a manufacturer and reprocessor of thermoplastic scrap
resins located in Ashland, Wisconsin. The Company has continued to use Deltco's
plant, equipment and other physical property in the manner in which it was used
prior to the acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include accounts of the
Company and its wholly-owned subsidiary, Deltco. All intercompany balances and
transactions have been eliminated in consolidation. Certain prior year amounts
have been reclassified to conform with the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Reprocessed thermoplastic sales revenue is recognized upon shipment of goods
to customers.
Research and Development
Company-sponsored research and development costs related to future products
and re-design of present products are expensed as incurred. Research and
development revenues from customers for research and development projects
partially offset those incurred costs. Those revenues are recognized when
services have been rendered or products have been shipped. The components of
research and development, net are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Research and development expenses $ 633,520 $ 491,077
Research and development revenues (121,716) (144,254)
--------- ---------
Research and development, net $ 511,804 $ 346,823
========= =========
</TABLE>
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and U.S. Treasury bills with
original maturities of three months or less. Restricted cash relates to a
certain certificate of deposit which serves as collateral on a loan balance
(Note 8).
F-7
<PAGE> 33
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
The carrying amounts shown for the Company's financial instruments
approximate their fair values at December 31, 1998.
Inventories
Inventories, which consist primarily of raw materials and finished goods, are
stated at the lower of cost or market. Cost is determined using the average cost
method.
Property and Equipment
Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives ranging from three to ten
years. When assets are sold or retired, the cost and associated accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
operations.
Goodwill
Goodwill, representing the excess of the purchase price of Deltco over the
fair value of the net assets acquired, is being amortized on a straight-line
basis over the estimated benefit period of twenty years.
Patents
Costs incurred to obtain patents, principally legal fees, are capitalized.
The Company amortizes these costs on a straight-line basis over the estimated
benefit period, not to exceed eighteen years.
Long-Lived Assets
The Company assesses potential impairments to its long-lived assets when
there is evidence that events or changes in circumstances have made recovery of
the asset's carrying value unlikely. An impairment loss would be recognized when
the sum of the expected future net cash flows is less than the carrying amount
of the asset. No such impairment losses have been identified by the Company
during 1998 or 1997.
Income Taxes
The Company accounts for income taxes using the liability method. Under this
method, deferred income taxes are recognized for the tax consequences in future
years for differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end ("temporary differences") based on
enacted tax laws and statutory rates applicable to the periods in which the
temporary differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Stock-Based Compensation
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net loss as if the fair value method had been applied in
measuring compensation expense. Compensation charges for non-employee
stock-based compensation is measured using fair value-based methods.
F-8
<PAGE> 34
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Per Share Information
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Shares ("SFAS 128") in 1997. SFAS 128 requires
the presentation of basic and diluted earnings per share ("EPS"). Basic EPS is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period, without
consideration for common stock equivalents. Diluted EPS is computed giving
effect to all dilutive potential common shares that are outstanding during the
period. Dilutive potential common shares consist of the incremental common
shares issuable upon conversion of convertible preferred stock (using the "if
converted" method) and exercise of stock options and warrants for all periods.
The Company reported a net loss during each of 1998 and 1997. As a result,
the common stock equivalents (inclusive of shares issuable upon the conversion
of the Series A Preferred Stock and upon exercise of outstanding stock options
and warrants) at December 31, 1998 and 1997 of 1,733,386 and 1,569,886,
respectively, were determined to be antidilutive. Therefore, there was no
difference between the weighted average number of shares used to calculate basic
EPS and the number used to calculate diluted EPS for 1998 and 1997.
New Accounting Pronouncement
In 1998, the Company adopted Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 supersedes Statement of Financial Accounting Standards No. 14,
Financial Reporting for Segments of a Business Enterprise, replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about products
and services, geographic areas, and major customers. The adoption of SFAS 131
did not affect results of operations or financial position but did affect the
disclosure of segment information. For products and services, the Company has
determined that it has two reportable segments. Related segment information is
summarized in Note 12. The Company does not have any non-U.S. revenues;
accordingly, no separate disclosure of geographic information is provided. Major
customer information is provided in Note 4.
3. LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred losses since inception. For the years ended December
31, 1998 and 1997, the Company had net losses of approximately $1,629,000 and
$975,000, respectively. As of December 31, 1998, the Company had an accumulated
deficit of approximately $9,847,000. The Company believes that its existing
sources of liquidity and anticipated revenue, including revenues generated from
Deltco, proceeds from the January 1999 issuance of Common Stock to a subsidiary
of Agway Inc. ("Agway") and Agway's commitment to exercise its warrants to
acquire up to 500,000 shares of Common Stock as early as July 1, 1999 at the
Company's request, in the event that the Company's cash flows are less than
currently projected and/or insufficient to fund its operating requirements (Note
14) will satisfy the Company's projected working capital and other cash
requirements through at least the next twelve months. Thereafter, the Company's
future capital requirements will be dependent upon many factors, including, but
not limited to, costs associated with the continued research and development of
the Company's proprietary polymer materials, costs associated with the filing
and enforcement of the Company's patents, costs associated with manufacturing
scale-up, and the timing of market acceptance of the Company's products. The
Company will likely need to secure additional financing through partnership
arrangements or through the issuance of additional equity and/or debt securities
or through other means. There can be no assurance that additional financing will
be available to the Company on acceptable terms, or at all. Further, there can
be no assurance that the Company will be able to generate positive cash flows or
profitability in the future.
F-9
<PAGE> 35
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents and trade
accounts receivable. The Company invests its excess cash in interest bearing
deposits with major banks, United States government securities and money market
funds. The Company limits the amount of credit exposure to any one entity. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for doubtful accounts based on factors surrounding the credit risk of
specific customers, historical trends and other information. Credit losses were
not significant to the Company during 1998 or 1997.
The Company purchased approximately 87% of its thermoplastic scrap resins
from one supplier and its affiliates in both 1998 and 1997. The Company has
executed a formal agreement with the supplier. The Company has had a long-term
relationship with this supplier and has obtained adequate quantities of raw
materials on acceptable terms to meet its requirements. However, there can be no
assurance that the quality and quantity of raw materials from this supplier will
be adequate to meet future operating needs. Management believes that other
suppliers could provide similar scrap resins on comparable terms. A change in
suppliers, however, could cause delays in production and possible loss of sales,
which could adversely affect operating results.
During 1998 and 1997, approximately 37% and 33% of the Company's revenues
were derived from three customers, respectively. At December 31, 1998,
approximately 16% of the Company's accounts receivable balance was due from
these three customers.
5. INVENTORIES
Inventories at December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Raw materials $ 134,035
Finished goods 271,455
Supplies 17,951
---------
423,441
Less: Allowance (123,205)
---------
$ 300,236
=========
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following at December 31, 1998:
<TABLE>
<S> <C>
Machinery and equipment $ 1,471,047
Building and improvements 88,441
Furniture and fixtures 24,359
Vehicles and trailers 40,764
-----------
1,624,611
Less: Accumulated (895,014)
-----------
$ 729,597
===========
</TABLE>
Depreciation expense charged to operations in 1998 and 1997 was $151,968 and
$151,473, respectively.
F-10
<PAGE> 36
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMITMENTS
The Company leases certain office facilities under non-cancelable operating
leases which expire on various dates through January 1, 2003. The Company also
leases certain equipment under capital leases that mature on various dates
through October 1, 2002 and have interest rates ranging from 4.6% to 15.8%. As
of December 31, 1998 and 1997, $52,985 and $34,950, respectively, of such leased
equipment is included in property and equipment ($44,060 and $27,378 net of
accumulated depreciation, respectively).
Future minimum payments under non-cancelable leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
<S> <C> <C>
1999 $ 16,566 $151,725
2000 16,567 118,431
2001 12,267 117,317
2002 8,149 113,772
-------- --------
Total minimum lease payments 53,549 $501,245
========
Less: Interest portion (10,517)
--------
Present value of net minimum
lease payments 43,032
Less: Current portion of capital
lease obligations (11,904)
--------
Long-term capital lease obligations $ 31,128
========
</TABLE>
Rent expense charged to operations in 1998 and 1997 was $175,990 and
$188,690, respectively.
In November 1998, the Company entered into a five-year employment agreement,
effective January 1, 1999, with the Company's Chief Executive Officer. The
employment agreement stipulates an annual salary of $210,000 and provides that,
if the officer were to be terminated for any reason other than for cause during
the term of employment (as defined), the Company would engage the officer to
perform services to the Company pursuant to a separate consulting agreement.
8. LOAN PAYABLE
As of December 31, 1998, the Company had a loan balance of $94,947 with First
Star of Manitowac. The loan, bearing interest at 8.75%, was collaterized by a
$114,880 certificate of deposit, bearing interest at the rate of 5.92%, and
substantially all of Deltco's inventory. In January 1999, the loan was paid off
in full with cash obtained from the redemption of the certificate of deposit.
F-11
<PAGE> 37
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES
The components of income tax benefit (expense) are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Federal
<S> <C> <C>
Current $ -- $ --
Deferred -- --
State
Current (800) (37,000)
Deferred 23,838 6,714
-------- --------
Total $ 23,038 $(30,286)
======== ========
</TABLE>
The differences between income tax benefit (expense) provided at the
Company's effective rate and the federal statutory rate (34%) are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Federal benefit at statutory rate $ 561,810 $ 331,501
State taxes, net of federal benefit 15,206 (19,989)
Nondeductible expenses (13,966) (15,388)
Valuation allowance (540,012) (326,410)
--------- ---------
Total $ 23,038 $ (30,286)
========= =========
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Net operating loss carryforwards $ 3,285,643
Tax credit carryforwards 75,031
Reserves, accrued expenses and other 369,599
Property and equipment and intangible assets (157,830)
-----------
3,572,443
Less: Valuation allowance (3,540,019)
-----------
Net deferred tax asset $ 32,424
===========
</TABLE>
The Company has determined that a full valuation allowance for Federal and
California tax purposes is necessary due to the Company's lack of historical
earnings. The net deferred tax asset balance reflected above relates to deferred
taxes associated with the state of Wisconsin where Deltco has historically
generated income despite its loss in 1998 (Note 12). The Company believes that
it is "more likely than not" that Deltco will in the future generate positive
taxable income and that it will be able to realize the benefit of such deferred
tax assets.
At December 31, 1998, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $8,634,000 and for California and
Wisconsin state tax purposes of approximately $3,767,000 and $214,000,
respectively. The Company's California loss carryforwards began to expire in
1997 and Federal loss carryforwards begin to expire in 2006. Loss carryforwards
related to Wisconsin expire in 2014. The Company also has available tax credit
carryforwards for Federal, California and Wisconsin tax purposes of
approximately $39,000, $30,000 and $6,000, respectively. Some of these tax
credit carryforwards will begin to expire in 2007.
The Company's annual utilization of net operating loss and tax credit
carryforwards may be limited if the Company's ownership were to change in the
future, as defined by Sections 382 and 383 of the Internal Revenue Code.
F-12
<PAGE> 38
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SHAREHOLDERS' EQUITY
Preferred Stock
On September 19, 1997, the Company issued to one investor (the "Investor")
500,000 shares of its Series A Convertible Preferred Stock ("Series A
Preferred") at $1.85 per share. The holder of the Series A Preferred is entitled
to receive quarterly dividends at an annual rate of 6% payable in shares of the
Company's Common Stock. Each share of Series A Preferred is convertible at the
option of the holder into shares of Common Stock of the Company. As of December
31, 1998, the conversion rate of the Series A Preferred into shares of the
Company's Common Stock was one-to-one. Due to certain anti-dilution adjustments
as a result of the private equity transaction consummated on January 11, 1999
(Note 14), the conversion rate of the Series A Preferred into shares of Common
Stock was adjusted to approximately 1 to 1.17647. The Series A Preferred will
automatically convert if the average market price of the Company's Common Stock
for a certain number of consecutive days is $6.00 or above. At the option of the
Company, the Series A Preferred can be redeemed at any time if the average
market price of the Company's Common Stock for a certain number of consecutive
days is $5.00 or above. The holder of the Series A Preferred is entitled to one
vote for each share of Common Stock issuable upon conversion. Upon liquidation
or dissolution of the Company, the Series A Preferred has a liquidation
preference of $2.00 per share. All per share rights and benefits are subject to
adjustment upon the occurrence of certain events.
Warrants
On September 24, 1997, the Company issued to the Investor of the Series A
Preferred, for $75,000, a warrant to purchase up to 375,000 shares of the
Company's Common Stock at an exercise price of $2.75 per share. In addition, as
partial consideration for services rendered in connection with the issuance of
the Series A Preferred and the Warrant to the Investor, the Company issued to
the finder, for $2,500, a five-year warrant to purchase up to 50,000 shares of
the Company's Common Stock at an exercise price of $4.16 per share. No warrants
were issued during 1998.
At December 31, 1998, the following exercisable warrants to purchase the
Company's Common Stock were outstanding:
<TABLE>
<CAPTION>
Underlying
Shares Exercise Price Expiration Date
------ -------------- ---------------
<S> <C> <C> <C>
Advisor warrants 47,153 $3.00 - $3.875 2000 - 2003
Underwriter warrants 115,000 $7.20 2000
Investor warrants 375,000 $2.75 2002
Other warrants 50,000 $4.16 2002
-------
587,153
=======
</TABLE>
All per share rights and benefits are subject to adjustment upon the
occurrence of certain events. As a result of the private equity transaction
consummated on January 11, 1999, the Company would be required to issue
additional shares of Common Stock upon the exercise of certain of its
outstanding warrants (Note 14).
F-13
<PAGE> 39
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SHAREHOLDERS' EQUITY (CONTINUED)
Options
The Company has a 1995 Stock Option Plan (the "Plan") under which incentive
stock options (within the meaning of Section 422A of the Internal Revenue Code)
and non-statutory stock options to acquire an aggregate of 500,000 shares of
Common Stock may be granted to employees, non-employee directors and consultants
to the Company. Incentive stock options may be granted only to employees of the
Company whereas non-statutory options may be granted to employees, directors and
consultants. The terms of stock options granted under the Plan are determined by
the Board of Directors. Stock options may be granted for periods of up to ten
years at a price per share not less than the fair market value of the Company's
Common Stock at the date of grant for incentive stock options and not less than
85% of the fair market value of the Company's Common Stock at the date of grant
for non-statutory stock options. In the case of stock options granted under the
Plan to employees, directors or consultants who, at the time of grant of such
options, own stock possessing more than 10% of the voting power of all classes
of stock of the Company, the exercise price shall be no less than 110% of the
fair market value of the Company's Common Stock at the date of grant.
Additionally, the term of stock option grants under the Plan is limited to five
years if the grantee owns in excess of 10% of the voting power of all classes of
stock of the Company at the time of grant. The vesting provisions of individual
options may vary but in each case will provide for vesting of at least 20% per
year of the total number of shares subject to the option.
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net loss as if the fair value method had been applied in
measuring compensation expense. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value method at
the grant dates for awards under this plan, the Company's net loss and loss per
share for 1998 and 1997 would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997
------------------------------- --------------------------------
Net Loss Loss per Share Net Loss Loss per Share
----------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
As reported $(1,628,543) $ (0.31) $ (975,004) $ (0.18)
Pro forma $(1,720,645) $ (0.32) $ (995,259) $ (0.19)
</TABLE>
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions for 1998 and 1997: an expected life of 3.7 and 2.1 years, expected
volatility of 82.49% and 65.48%, no dividend yield and a risk-free interest rate
of 4.96% and 5.75%, respectively, represented by the interest rate on U.S.
Treasury securities with a term of maturity equal to the option's expected time
to exercise on the dates of grant. The weighted average fair value of options
granted during 1998 and 1997 was approximately $0.96 and $1.07 per option,
respectively.
On February 13, 1998, the Company's Board of Directors granted incentive
stock options to purchase 5,000 shares of Common Stock at an exercise price of
$1.875 per share to an employee under the Plan. These options were fully vested
as of the date of grant and expire on February 12, 2008. As of December 31,
1998, none of these options have been exercised.
F-14
<PAGE> 40
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SHAREHOLDERS' EQUITY (CONTINUED)
On April 29, 1998, the Company's Board of Directors granted non-statutory
stock options to purchase 10,000 shares of Common Stock at an exercise price of
$1.75 per share to a scientific advisor of the Company under the Plan. These
options vest ratably over one year and expire on April 28, 2008. In connection
with this transaction, the Company recorded a charge to income of $8,241 based
upon application of the Black-Scholes option pricing model. As of December 31,
1998, none of these options have been exercised.
On May 21, 1998, the Company's Board of Directors granted non-statutory stock
options to purchase 36,000 shares of Common Stock at an exercise price of $2.00
per share to non-employee directors under the Plan. These options were fully
vested at the date of grant and expire on May 20, 2008. As of December 31, 1998,
none of these options have been exercised.
On July 1, 1998, the Company's Board of Directors granted incentive stock
options to purchase 12,500 shares of Common Stock at an exercise price of $1.625
per share to an employee under the Plan. These options became fully vested on
December 31, 1998 and expire on June 30, 2008. As of December 31, 1998, none of
these options have been exercised.
On November 18, 1998, the Company's Board of Directors granted incentive
stock options to purchase 125,000 shares of Common Stock at an exercise price of
$1.65 per share to the Company's Chief Executive Officer who is also a
significant shareholder of the Company under the Plan. These options were
granted in connection with a certain employment agreement between the officer
and the Company (Note 7). Of such options, 25,000 were immediately vested at the
grant date whereas the remaining options vest ratably over a three-year period.
All of such options expire on November 17, 2003. As of December 31, 1998, none
of these options have been exercised.
On April 11, 1997, the Company's Board of Directors granted incentive stock
options to purchase 10,000 shares of Common Stock at an exercise price of $2.50
per share to employees under the Plan. These options were fully vested as of the
date of the grant and expire on April 10, 2007. As of December 31, 1998, none of
these options have been exercised.
On May 22, 1997, the Company's Board of Directors granted non-statutory stock
options to purchase 10,000 shares of Common Stock at an exercise price of $3.00
per share to an outside consultant of the Company under the Plan. These options
vest monthly over one-year and expire on May 22, 2007. In connection with this
transaction, the Company recorded a charge to income of $8,367 based upon
application of the Black-Scholes option pricing model. As of December 31, 1998,
none of these options have been exercised.
On September 26, 1997, the Company's Board of Directors granted non-statutory
stock options to purchase an aggregate of 9,600 shares of Common Stock at an
exercise of $4.125 per share to non-employee directors under the Plan. These
options vest monthly over eight months and expire on September 25, 2007. As of
December 31, 1998, none of these options have been exercised.
On October 30, 1997, the Company's Board of Directors cancelled previously
issued, fully vested, non-statutory stock options to purchase an aggregate of
242,000 shares of Common Stock at an exercise price of $8.938 per share under
the Plan. Upon cancellation, the Company's Board of Directors reissued
non-statutory stock options to purchase an aggregate of 101,239 shares of Common
Stock under the Plan to the original recipients of the stock options. The terms
of reissued stock options include annual vesting over two years, an exercise
price of $3.025 per share, and expire on October 29, 2002. In connection with
this transaction, the Company recorded a charge to income of $43,227 based upon
application of the Black-Scholes option pricing model. As of December 31, 1998,
none of these options have been exercised.
F-15
<PAGE> 41
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SHAREHOLDERS' EQUITY (CONTINUED)
A summary of stock option activity during 1998 and 1997 follows:
<TABLE>
<CAPTION>
1995 Stock Option Plan Other Options
---------------------------- ------------------------
Weighted Weighted
Underlying Avg. Exercise Underlying Avg. Exercise
Shares Price Shares Price
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1996 427,620 $7.442 226,274 $4.591
Granted / reissued 130,839 3.064 -- --
Exercised -- -- -- --
Forfeited / expired (60,000) 3.875 -- --
Cancelled (242,000) 8.938 -- --
-------- ------ ------- ------
Outstanding at December 31, 1997 256,459 $4.631 226,274 $4.591
Granted 188,500 1.726 -- --
Exercised -- -- -- --
Forfeited / expired (25,000) 3.875 -- --
-------- ------ ------- ------
Outstanding at December 31, 1998 419,959 $3.373 226,274 $4.591
======== ====== ======= ======
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Weighted-
Outstanding Average Exercisable
Range of as of Remaining as of
Exercise December 31, Contractual December 31,
Prices 1998 Life (years) 1998
- ------------- ------------- ----------- ------------
<S> <C> <C> <C>
$1.625 to $2.500 198,500 9.2 95,167
$3.000 to $4.125 283,113 3.3 232,493
$5.100 to $8.125 164,620 5.1 164,620
--------- -------
646,233 492,280
========= =======
</TABLE>
11. RELATED PARTY TRANSACTIONS
During the period October 1998 to December 1998, the Company recorded
research and development revenue of $61,635 from Agway under a feasibility
agreement. In January 1999, Agway became a significant shareholder of the
Company (Note 14).
During 1998, a director of the Company provided consulting services to the
Company and received $1,725.
The Company leases primarily all of Deltco's operating facilities from the
brother of Deltco's former president and from a partnership owned 50% by
Deltco's former president. Rents of $56,886 and $113,772 were paid in 1998 and
1997, respectively, prior to the former President's resignation in June 1998.
During 1997, the Company, through Deltco, also sold materials of $11,072 to a
customer in which the former President of Deltco is a shareholder.
During 1997, each director of the Company was paid a monthly fee of $1,000
from January to September 1997. This resulted in an aggregate compensation of
$32,000. Beginning in September 1997, non-employee directors have been granted
with stock options as compensation in lieu of cash payments (Note 10).
F-16
<PAGE> 42
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. RELATED PARTY TRANSACTIONS (CONTINUED)
In May 1997, the Company and a director, prior to his appointment to the
Company's Board, entered into a one-year general business consulting agreement
whereby he received an option to purchase 10,000 shares of the Company's Common
Stock in exchange for consulting services to be rendered to the Company (Note
10).
During 1993, the Company retained the services of a consultant who is now a
significant shareholder and was a member of the Board of Directors until April
1997. In January 1996, the Company formalized this consulting relationship and
entered into a three year consulting agreement. The services furnished under the
terms of this agreement included organizational development, strategic
marketing, and general management of the Company. This agreement provided that
the Company would reimburse the consultant for certain business expenses,
inclusive of travel and entertainment costs. In addition to the consulting fees
of $46,750, reimbursable expenses of $24,746 were paid during 1997 in connection
with this consulting agreement. As allowed by its provisions, the consultant
terminated the agreement in April 1997. In 1997, consulting fees and
reimbursable expenses of $20,255 were also paid in connection with services
provided by a relative of that consultant.
12. SEGMENT INFORMATION
In 1998, the Company adopted SFAS 131. The 1998 and 1997 segment information
presented below reflects the Company's two reportable segments - (1) research
and development of polymer technologies and materials in San Diego, California
and (2) manufacturing and reprocessing of thermoplastic scrap resins by Deltco
in Ashland, Wisconsin. The accounting policies of the segments are the same as
those described in Note 2. The technologies and products developed in California
are currently in a research and development stage; and therefore, no revenues
were reported under this segment during 1998 or 1997.
The Company evaluates the performance of its segments based on income or loss
before depreciation and amortization. The table below presents information about
reported segments for 1998 and 1997.
<TABLE>
<CAPTION>
Manufacturing
Research and and
1998 Development Reprocessing Total
----------- ------------ -----------
<S> <C> <C> <C>
Revenues $ -- $ 1,615,124 $ 1,615,124
----------- ----------- ===========
Loss before depreciation and amortization $(1,232,695) $ (181,283) $(1,413,978)
----------- -----------
Depreciation and amortization (214,565)
-----------
Net loss $(1,628,543)
===========
Total assets $ 1,594,438 $ 1,054,548 $ 2,648,986
----------- ----------- ===========
1997
Revenues $ -- $ 3,020,081 $ 3,020,081
----------- ----------- ===========
(Loss) income before depreciation and amortization $(1,319,253) $ 548,038 $ (771,215)
----------- -----------
Depreciation and amortization (203,789)
-----------
Net loss $ (975,004)
===========
Total assets $ 2,702,742 $ 1,578,512 $ 4,281,254
----------- ----------- ===========
</TABLE>
F-17
<PAGE> 43
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. LEGAL PROCEEDINGS
In November 1998, the Company initiated litigation against Brian To, a former
director of the Company, and Tarrenz Management Consultants, Inc., an entity
owned by Brian To, in the Superior Court of the State of California for the
County of San Diego. The complaint alleges breach of contract, breach of
fiduciary duty and other tort claims arising from services the defendants
performed for or on behalf of the Company. The Company is seeking recovery of
compensation, stock, stock options and expense reimbursements. It is too early
to determine the impact, if any, of this proceeding on the Company, its
financial condition or the results of the Company's operations.
14. SUBSEQUENT EVENTS
In November 1998, the Company entered into a Stock Purchase Agreement with
Agway whereby Agway would purchase 1,000,000 shares of Planet's Common Stock for
$1,000,000 and receive a warrant to purchase up to 2,000,000 shares of Common
Stock at a price of $1.00 per share. The Company's shareholders approved the
transaction on January 6, 1999. The transaction was completed on January 11,
1999 and the Company received proceeds of $1,000,000 from Agway before any
issuance costs. Contemporaneously with the execution of the agreement, Planet
and Agway entered into an agreement relating to the funding by Agway of a
feasibility study of Planet's polymer technology for use in agricultural
products (other than fertilizers and certain biological products) and food
products and an exclusive worldwide license to all current and future products
that utilize Planet's polymer technology for agricultural and food related
purposes (other than products already covered by existing agreements). Under the
terms of the agreement, Agway has the exclusive right to grant licenses and
sublicenses on the technology developed under the agreement to other parties. In
return for the rights granted to Agway, Agway is required to pay royalties to
the Company determined in accordance with the terms of the agreement.
In connection with the transaction, the Company was required to make
anti-dilution adjustments to certain of its outstanding warrants and the Series
A Preferred. Such anti-dilution adjustments included reducing the exercise price
or the conversion price, as applicable, of the outstanding warrants and the
Series A Preferred, respectively. As a result, upon the exercise of certain of
its outstanding warrants, the Company would be required to issue approximately
114,649 additional shares of Common Stock and upon the conversion of the Series
A Preferred, the Company would be required to issue approximately 88,235
additional shares of Common Stock.
After receiving the $1,000,000 proceeds from the Common Stock issuance, the
Company was required to pay approximately $60,000 of fees to the finder and
issue the finder, for $2,500, a five-year warrant to purchase up to 50,000
shares of the Company's Common Stock. If the Agway warrant is exercised in full,
the Company will be required to pay approximately $120,000 of additional fees to
the finder and issue another warrant to the finder to purchase up to 100,000
shares of the Company's Common Stock subject to certain maximum limits.
In February 1999, the Company received a commitment from Agway whereby Agway
agreed to exercise its warrant to purchase up to 500,000 shares of the Company's
Common Stock as early as July 1, 1999 at the Company's request, in the event
that the Company's cash flows are less than currently projected and/or
insufficient to fund its operating requirements.
F-18
<PAGE> 1
EXHIBIT 10.10
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made effective
as of January 1, 1999 (the "Effective Date"), by and between PLANET POLYMER
TECHNOLOGIES, INC., a California corporation (the "Company"), and Robert J.
Petcavich (the "Executive"), with respect to the following facts:
WHEREAS, The Company desires to retain the Executive and to avail itself
of the Executive's skill, knowledge and expertise to ensure the successful
management and growth of the Company.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions set forth herein, and in consideration of the employment of Executive
by the Company, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM.
a. EMPLOYMENT. The Company hereby engages the Executive to serve
as a key executive of the Company to serve in such capacity or capacities as may
be determined by the Board of Directors (the "Board") and the Executive hereby
accepts such engagement by the Company, upon the terms and conditions set forth
herein.
b. TERM. The Company agrees to continue the Executive's
employment, and the Executive agrees to remain in the employ of the Company,
from the Effective Date until the earlier of (i) the date that is five (5) years
from the Effective Date (the "Term of Employment") or (ii) the date when the
Executive's employment terminates pursuant to the provisions of Sections 6 and 7
this Agreement. Upon the expiration of the five year Term of Employment, the
Consulting Agreement, a form of which is attached as Exhibit A (the "Consulting
Agreement"), shall have no effect and shall not be binding upon either the
Company or Executive, provided that Executive's employment has not been
terminated with or without cause or Executive has not resigned prior to the
expiration of the Term of Employment.
2. DUTIES OF THE EXECUTIVE.
a. DUTIES. The Executive shall perform all the duties and
obligations as shall be established by the bylaws of the Company and, from time
to time, by the Board of Directors of the Company. The Executive shall perform
the services contemplated herein faithfully, diligently and to the best of his
ability. The Executive shall report directly to and shall be responsible to the
Board of Directors of the Company regarding his services.
1.
<PAGE> 2
b. EXCLUSIVE SERVICES. The Executive shall devote his entire
business time, attention, energies, skills, learning and best efforts to the
business of the Company. The Executive may serve on the board of directors of
other corporations only with the express prior written consent of the Company's
Board of Directors. In addition, the Executive may participate in social, civic
or professional associations only so far as such services do not materially
interfere with the duties and obligations of the Executive contemplated by this
Agreement.
3. COMPENSATION.
a. SALARY. In consideration of the Executive's services
hereunder, the Company shall pay or cause to be paid to the Executive, in
accordance with the Company's normal payroll practices, a salary (the "Salary")
of $210,000 per year, in equal monthly payments, less required deductions for
state and federal withholding tax, Social Security and other employee taxes or
on such other schedule as the Company may adopt for its other employees
generally. Such Salary shall be pro-rated for any partial employment on the
basis of a 365-day fiscal year.
b. ADJUSTMENT TO SALARY. The Board of Directors shall review
Executive's performance and the Company's financial and operating results on at
least an annual basis and may in its sole discretion increase Executive's base
salary as it deems appropriate based on such review.
c. BONUS. The Executive shall be entitled to a bonus of $25,000
payable within 60 days after the close of business for the fiscal year ending
December 31, 1999. For every year thereafter, annual bonuses, if approved by the
Board of Directors, are anticipated to be 10% or more of Executive's base Salary
if Executive achieves or exceeds certain performance goals jointly established
by the Board and the Executive.
d. OPTIONS. Upon execution of this Agreement, Executive will be
granted an option (the "Option") to purchase up to 125,000 shares of the
Company's Common Stock (the "Option Shares") at a price equal to 110% of the
fair market value of such stock on the date of grant. 25,000 of the Option
Shares shall vest upon execution of this Agreement, 35,000 of the Option Shares
shall vest on the first anniversary of this Agreement, 35,000 on the second
anniversary of this Agreement, and 30,000 of the Option Shares shall vest on the
third anniversary of this Agreement.
4. EXECUTIVE BENEFITS.
a. VACATION. The Executive shall be entitled to six (6) weeks of
vacation per year, without reduction in salary. Any vacation time not used in
any year shall accumulate and carry forward to the next year, up to a maximum
accrual at any one time of eight (8) weeks.
2.
<PAGE> 3
b. BENEFITS. During the term of his employment under this
Agreement, the Executive shall be entitled to the full benefits for which
Executive is eligible under the employee benefit plans and executive
compensation programs maintained by the Company, including (without limitation)
pension plans, savings or profit-sharing plans, deferred compensation plans,
supplemental retirement or excess-benefit plans, stock option, incentive or
other bonus plans, life, disability, health, accident and other insurance
programs, paid vacation and sabbatical, and similar plans or programs, subject
in each case to the generally applicable terms and conditions of the plan or
program in question.
c. FRINGE BENEFITS. The Executive, the Executive's spouse and
children who qualify as dependents under the Internal Revenue Code shall receive
all group and supplementary insurance and pension plan benefits and any other
benefits on the same basis as the Company may from time to time offer to its
senior management employees and their qualifying spouses and children generally,
including accidental death and dismemberment coverage.
5. REIMBURSEMENT FOR BUSINESS EXPENSES.
a. BUSINESS EXPENSES. The Executive shall be reimbursed by the
Company for all ordinary and necessary expenses incurred by the Executive in the
performance of his duties during the term of this Agreement. Such expenses shall
be limited to entertainment, meals, travel expenses, conventions, meetings and
seminars. The Executive shall keep accurate and complete records of all such
expenses, including, but not limited to, proof of payment, and shall account
fully for all such expenses. Each such expenditure shall be reimbursable within
forty-five (45) days of receipt by the Company of adequate records and
documentary evidence required by federal and state statutes and regulations
issued by the appropriate taxing authorities for the substantiation of that
expenditure as an income tax deduction. Failure to provide evidence of such
expenditure within fifteen (15) days of the incursion of the expenditure may
result in forfeiture of the right to recover.
b. MAINTENANCE OF RECORDS. With respect to the reimbursement of
business expenses, the Executive shall acquire and maintain, in a form required
by the state or federal tax authorities, copies of all receipts, records of
payment, bills or other documents evidencing expenditures for business purposes.
Such records shall be maintained for all time periods required by applicable
law. The Executive further understands that he shall not be entitled to
reimbursement for any business expense for which such records are not
maintained. Additionally, the Executive understands that should, upon audit, it
be determined that the business records which he maintained for expenses for
which he was reimbursed are found to be inadequate, and the tax deductions for
such expenses are denied to the Company, the Executive shall reimburse the
Company for each such denied deduction.
3.
<PAGE> 4
6. TERMINATION.
a. DEFINITION. As used herein, the following definitions shall
apply:
i. "CAUSE" shall mean the termination of employment of
Executive shall have taken place as a result of:
(1) The Executive's willful failure or refusal to
perform the duties of his employment, in the estimation of the Board of
Directors, under the provisions of this Agreement, including, without
limitation, the breach by Executive of Section 2(b) hereof, which failure is not
cured within ten (10) days after receipt of written notice;
(2) The Executive's knowing participation in any
activity which, in the estimation of the Board of Directors, is competitive with
or intentionally injurious to the Company and which is not cured to the
satisfaction of the Board of Directors after ten (10) days written notice by the
Board of Directors of a breach of this Section 6(a)(ii)(2);
(3) The Executive's commission of any fraud
against the Company, or unauthorized use or appropriation of any funds or
properties of the Company for the Executive's personal gain;
(4) The Executive's conviction of a felony or any
crime involving moral turpitude;
(5) The Executive's knowing misappropriation of
trade secrets or proprietary information of the Company or of third parties; or
(6) The breach by Executive of the Proprietary
Information Agreement (as defined below).
ii. "CHANGE IN CONTROL" shall mean (a) any merger or
consolidation of the Company with, or any sale of all or substantially all of
the Company's assets to, any other corporation or entity, unless as a result of
such merger, consolidation or sale of assets the holders of the Company's voting
securities prior thereto hold at least fifty percent (50%) of the total voting
power represented by the voting securities of the surviving or successor
corporation or entity after such transaction, or (b) the acquisition by any
Person or Beneficial Owner (as such terms are defined in the Securities Exchange
Act of 1934, as amended, or the rules and regulations thereunder), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities.
4.
<PAGE> 5
iii. "CONSTRUCTIVE TERMINATION" shall mean (i) a
reduction in Executive's salary or a material reduction in benefits not agreed
to by Executive (except in connection with a decrease to be applied because the
Company's performance has decreased and which is also applied on the same basis
to other officers, and excluding the substitution of substantially equivalent
compensation and benefits), or (ii) a material change in Executive's
responsibilities not agreed to by Executive.
iv. "DISABILITY" shall mean the total mental or physical
incapacity of the Executive, which continues for not less than six (6)
consecutive months and is based upon a certification of such incapacity by
Executive's regularly attending physician, or, if not available, then by a duly
licensed physician selected by the Board of Directors of the Company.
b. TERMINATION BY THE COMPANY. The Company may terminate
Executive's employment at any time, for any reason or for no reason by giving
notice of termination to Executive. Executive's termination shall be effective
immediately on the date of such notice of termination (the "Notice Date").
i. TERMINATION WITHOUT CAUSE. If the Company terminates
Executive's employment during the term of this Agreement for any reason
whatsoever, other than a termination for Cause or a termination upon Change in
Control, then upon Executive's furnishing to the Company an executed waiver and
release of claims, a form of which is attached hereto as Exhibit B (the "Waiver
and Release"), Executive shall agree to be engaged to perform services pursuant
to the Consulting Agreement. In addition, Executive shall be entitled to receive
as compensation Executive's Salary as of the date of termination prorated to the
date of termination and any accrued but unused vacation pay. No other amounts
shall be payable to Executive except pursuant to the Consulting Agreement.
ii. TERMINATION FOR CAUSE. If the Company terminates
Executive's employment for Cause during the term of this Agreement, Executive
shall be entitled to receive as compensation Executive's Salary as of the date
of termination prorated to the date of termination, and any accrued but unused
vacation pay, and Executive shall agree to be engaged to perform services
pursuant to the consulting Agreement; provided that, at the Company's sole
option, the Company may elect not to engage Executive under the Consulting
Agreement, in which event Executive shall receive only the prorated salary to
the date of termination and any accrued but unused vacation pay.
iii. TERMINATION UPON CHANGE IN CONTROL; CONSTRUCTIVE
TERMINATION. If the Company terminates Executive's employment during the term of
this Agreement for any reason within 90 days of a Change in Control, or if
Executive terminates his employment hereunder by giving written notice to the
Company within 90
5.
<PAGE> 6
days of any Constructive Termination, then upon Executive's furnishing to the
Company an executed Waiver and Release, Executive shall agree to be engaged to
perform services pursuant to the Consulting Agreement. In addition, Executive
shall be entitled to receive as compensation Executive's Salary as of the date
of termination prorated to the date of termination and any accrued but unused
vacation pay. No other amounts shall be payable to Executive except pursuant to
the Consulting Agreement.
c. TERMINATION ON DEATH OR DISABILITY. This Agreement shall
terminate without notice upon the date of Executive's death or Disability. Upon
such termination, upon Executive's or his estate or personal representative's
furnishing to the Company an executed Waiver and Release, the Executive or his
estate or personal representative, as the case may be, shall be entitled to
receive the Executive's then current salary and benefits for a period of one (1)
year following the date of Executive's death or Disability. In addition, the
Executive shall receive disability payments as provided in the Company's
standard benefit plans.
d. TERMINATION BY THE EXECUTIVE. If Executive terminates his
employment hereunder by giving prior written notice to the Company, Executive
shall be entitled to receive as compensation Executive's Salary as of the date
of termination prorated to the date of termination, and any accrued but unused
vacation pay, and Executive shall agree to be engaged to perform services for
the Company pursuant to the Consulting Agreement, provided that, at the
Company's sole option, the Company may elect not to engage Executive under the
Consulting Agreement, in which event Executive shall only receive the prorated
salary to the date of termination and any accrued but unused vacation pay.
e. WAIVER OF NOTICE. Any waiver of notice shall be valid only if
it is made in writing and expressly refers to the applicable notice requirement
in this Section.
7. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Executive shall
enter into and abide by the terms of the Proprietary Information and Inventions
Agreement (the "Proprietary Information Agreement") in the form attached hereto
as Exhibit C.
8. SUCCESSORS.
a. COMPANY'S SUCCESSORS. Any successors to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume this Agreement and agree expressly to perform this
Agreement in the same manner and to the same extent as the Company would be
required to perform it in the absence of a succession. For all purposes under
this Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the
6.
<PAGE> 7
assumption agreement described in this subsection (a) or which becomes bound by
this Agreement by operation of law.
b. EXECUTIVE'S SUCCESSORS. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of, and be enforceable by, the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
9. NOTICE. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or five days after being mailed by U.S. registered or
certified mail return receipt requested and postage prepaid. In the case of the
Executive, mailed notices shall be addressed to him at the home address which he
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notice shall be directed to the attention of its Secretary.
10. TERMINATION OF AGREEMENT. The provisions of Sections 1, 2, 3, 4,
5 and 6 of this Agreement shall terminate five (5) years from the date of this
Agreement, and no payments, compensation or other benefits under such Sections
of this Agreement shall be required for any termination of employment occurring
after five (5) years from the date of this Agreement. Such termination shall not
affect any other provisions of this Agreement, and all such other provisions
shall remain in full force and effect.
11. MISCELLANEOUS PROVISIONS.
a. WAIVER. No provisions of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Executive and by the Chairman of the Board or a
director of the Company (other than the Executive). No waiver by either party of
any breach of, or of compliance with, any condition or provisions of this
Agreement by the other party shall be considered a waiver of any other condition
or provision or of the same condition or provision at another time.
b. WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement, including the exhibits hereto,
have been made or entered into by either party with respect to the subject
matter hereof.
C. CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
7.
<PAGE> 8
d. SEVERABILITY. The invalidity or unenforceability of any
provisions or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
e. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
San Diego County, California, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The Executive shall be
entitled to receive attorneys' fees and costs in connection with any dispute
under this Agreement if he is the prevailing party.
f. NO ASSIGNMENT OF BENEFITS. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
g. EMPLOYMENT AT WILL; LIMITATION OF REMEDIES. The Company and
the Executive acknowledge that the Executive's employment is at will, as defined
under applicable law. If the Executives employment terminates for any reason,
the Executive shall not be entitled to any payments, benefits, damages, awards
or compensation other than as provided by this Agreement.
h. EMPLOYMENT TAXES. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
i. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
8.
<PAGE> 9
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
PLANET POLYMER TECHNOLOGIES, INC.
By: /s/ THOMAS LANDSHOF
---------------------------------------
EXECUTIVE
/s/ ROBERT J. PETCAVICH 11/18/98
------------------------------------------
Robert J. Petcavich, Ph.D.
9.
<PAGE> 10
EXHIBIT A
CONSULTING AGREEMENT
<PAGE> 11
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into
effective as of January 1, 1999 by and between PLANET POLYMER TECHNOLOGIES,
INC., a California corporation (the "Company") and ROBERT J. PETCAVICH
("Consultant").
A. The Company designs, develops, manufactures and markets polymer
materials;
B. Consultant is a key executive of the Company pursuant to an
employment agreement dated as of the date hereof (the "Employment Agreement");
and
C. Because of Consultant's intimate knowledge of the business of the
Company, the Company desires the option to engage the services of Consultant,
and Consultant desires to be so engaged, upon notice of termination of
employment pursuant to the Employment Agreement.
NOW, THEREFORE, in consideration of the above facts and the mutual
promises set forth in this Agreement, the parties agree as follows:
1. SERVICES. In the event Consultant's employment under the Employment
Agreement is terminated, by either the Company or by Consultant, for any reason
other than death or disability, then for a period of two (2) years following the
date of either party's notice to the other of such termination (the "Notice
Date"), the Company shall engage Consultant and Consultant hereby agrees to be
engaged to perform the services and undertake the duties and responsibilities
set forth in Schedule A attached hereto and incorporated herein (collectively,
the "Services"), provided that, at the Company's sole option, the Company may
elect within 30 days of the Notice Date, in the event of a termination by the
Company for "cause" pursuant to Section 6(b)(ii) of the Employment Agreement or
the termination by Consultant pursuant to Section 6(d) of the Employment
Agreement not to engage Consultant under this Agreement. Consultant agrees to
render the Services under the terms and conditions set forth in this Agreement.
2. TERM. The term of this Agreement (the "Term") shall commence upon the
Notice Date and shall remain in full force and effect for two (2) years
following the Notice Date. In the event the Company does not elect to engage
Consultant within 30 days of the Notice Date in the event of a termination by
the Company for "cause" pursuant to Section 6(b)(ii) of the Employment Agreement
or the termination by Consultant pursuant to Section 6(d) of the Employment
Agreement, then this Agreement shall have no effect and shall not be binding
upon either the Company or upon Consultant. In addition, the Company, may, at
its sole option, elect to terminate this Agreement prior to the expiration of
the Term if the Company terminated Consultant's employment for "cause" or if
Consultant terminated his employment with the Company. In no event may
Consultant terminate this Agreement.
3. CONSULTING FEES. As payment for the Services, Consultant shall
receive cash fees as set forth in Schedule B attached hereto and incorporated
herein, which shall constitute complete payment for the Services. The Company
shall be entitled to set off against the consulting fees any other income
Consultant receives during the Term from other employment or
1
<PAGE> 12
from contracting engagements with any entity other than the Company. Consultant
agrees to immediately inform the Company of any other such income he earns
during the Term.
4. NO OTHER BENEFITS. During the Term, Consultant shall not be entitled
to any other compensation or benefits, including benefits provided generally to
employees of the Company, and Consultant's compensation shall not be subject to
withholding, unless, in the Company's view, withholding is required by
applicable law.
5. CONFIDENTIAL INFORMATION. In connection with the performance of
Services hereunder, Consultant may become familiar with trade secrets and
confidential information of the Company (which shall include all trade secrets
and work product resulting from Consultant's provision of the Services to the
Company), which derive independent economic value, actual or potential, from not
being generally known to the public or to other persons who can obtain economic
value from its disclosure or use ("Confidential Information"). Except as may be
reasonably necessary while providing the Services, Consultant agrees that,
during the Term of this Agreement and thereafter, Consultant and any agents and
employees of Consultant will not disclose or utilize any of the Confidential
Information (including without limitation details regarding the Company's
services, plans for new services, supplier and customer information and
relationships, information regarding the Company's employees, and business and
financial information relating to the actual or planned business, products,
practices and techniques of the Company) to which Consultant has been privy,
unless Consultant becomes legally required to disclose any such Confidential
Information, in which event Consultant shall provide the Company with prompt
notice thereof so that the Company may seek a protective order or other
appropriate remedy. Upon the termination of this Agreement, Consultant shall
deliver to the Company all equipment, notes, documents, memoranda, reports,
files, books, correspondence, lists or other written or graphic records and the
like belonging to the Company which are or have been in Consultant's possession
or control.
6. PRESERVATION OF CONFIDENTIAL INFORMATION; NONCOMPETITION.
Consultant agrees that in order to protect the Confidential
Information of the Company and in consideration of the fees receives hereunder
and the Company's execution of the Employment Agreement, during the Term of this
Agreement, Consultant shall not engage as an advisor, principal, agent, partner,
officer, director, stockholder, employee, member of any association or otherwise
in any business or activity conducted within the United States or Canada which:
6.1 is substantially similar to any business or activity of the
Company as the same is conducted or proposed to be conducted (as evidenced by a
written plan) by the Company as of the first day of the Term; or
6.2 is competitive with any business or activity of the Company
as the same is conducted or proposed to be conducted (as evidenced by a written
plan) by the Company on the first day of the Term.
7. CUSTOMERS AND EMPLOYEES. Consultant agrees that during the Term and
for a period of one year thereafter, he will not solicit or cause to be
solicited (i) any of the existing
2
<PAGE> 13
customers of the Company for purposes of obtaining their custom or trade for a
business which is competitive with the business which is conducted by the
Company as of the Notice Date or during the Term, or (ii) any of the existing
employees of the Company for purposes of obtaining their employment services.
8. SEVERABILITY. To the extent any provision of this Agreement shall be
adjudicated to be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected, such deletion to apply only with respect to the operation of this
Agreement in the particular jurisdiction in which such adjudication is made. In
furtherance and not in limitation of the foregoing, should the duration or
geographical extent of, or business activities covered by, any provision of this
Agreement be in excess of that which is valid and enforceable under applicable
law, then such provision shall be construed to cover only the duration, extent
or activities which may validly and enforceably be covered.
9. REMEDIES. In any event of a breach of Consultant's obligations under
this Agreement, Consultant agrees that (a) any and all proceeds, funds, payments
and proprietary interests, of every kind and description, arising from, or
attributable to, such breach shall be the sole and exclusive property of the
Company and (b) the Company shall be entitled to recover any additional actual
damages incurred as a result of such breach.
10. INJUNCTIVE RELIEF. Consultant understands and agrees that the
Company could not be reasonably or adequately compensated in damages in an
action at law for Consultant's breach of his obligations under this Agreement.
Accordingly, Consultant specifically agrees that the Company shall be entitled
to an injunction enjoining Consultant or any person or persons acting for or
with Consultant in any capacity whatsoever from violating any of the terms
herein. This provision with respect to injunctive relief shall not diminish the
right of the Company to claim and recover damages pursuant to Section 9 in
addition to injunctive relief.
11. REPRESENTATIONS AND WARRANTIES. Consultant represents and warrants
that (a) Consultant is not restricted or prohibited, contractually or otherwise,
from entering into and performing each of the terms and covenants contained in
this Agreement, and (b) Consultant's execution and performance of this Agreement
is not a violation or breach of any other agreement to which Consultant is a
party.
12. GOVERNING LAW. This Agreement is made in San Diego, California and
shall be interpreted and enforced under the internal laws of the State of
California.
13. ENTIRE AGREEMENT. This Agreement and any agreements referenced
herein constitute the entire agreement between the parties and may be waived,
modified or amended only by an agreement in writing signed by both parties.
14. ASSIGNMENT. This Agreement shall inure to the benefit of, and be
binding upon, the successors and permitted assigns of the parties hereto. This
Agreement may not be assigned by Consultant. This Agreement may not be assigned
by the Company except in connection with a merger of the Company or pursuant to
the sale, transfer or other conveyance of all or substantially all of the assets
of the Company.
3
<PAGE> 14
15. WAIVER. No covenant, term or condition of this Agreement or breach
thereof shall be deemed waived unless the waiver is in writing, signed by the
party against whom enforcement is sought, and any waiver shall not be deemed to
be a waiver of any preceding or succeeding breach of the same or any other
covenant, term or condition.
16. NOTICE. All notices and other communications required or permitted
to be given under this Agreement shall be in writing and shall be deemed to have
been given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses or to such
other address as either party to this Agreement shall specify by notice to the
other:
If to Company:
PLANET POLYMER TECHNOLOGIES, INC.
9985 Businesspark Ave., Suite A
San Diego, California 92131
Attn: Chairman
If to Consultant:
-------------------------
-------------------------
-------------------------
17. HEADINGS. Headings or captions of paragraphs or sections of this
Agreement are for convenience of reference only and shall not be considered in
the interpretation of this Agreement.
18. ATTORNEY CONSULTATION. Each party has been informed of his/its right
to consult with his/its attorney prior to signing this Agreement and has either
done so or has considered the matter and decided not to do so.
The Company:
PLANET POLYMER TECHNOLOGIES, INC.
a California corporation
By:______________________________
Name: ___________________________
Title: ____________________________
Consultant:
/s/ ROBERT J. PETCAVICH
----------------------------------
Robert J. Petcavich
4
<PAGE> 15
SCHEDULE A
SERVICES, DUTIES AND RESPONSIBILITIES
During the Term, Consultant shall, upon request, consult with the
Company by telephone, by mail and in person from time to time on a part-time
basis during regular business hours. The consultation shall concern the
management, operation, research, product development, marketing, sales,
purchasing, leasing, financing and other aspects of the business of the Company,
and may include Consultant's direct contacting of third parties at the
reasonable request of the Company. Unless otherwise agreed in writing by the
parties, the consultation shall not exceed ten (10) hours per week on average
during the Term.
<PAGE> 16
SCHEDULE B
CONSULTING FEE
The Company shall pay to Consultant for the Services, a consulting fee
equal to the Salary as defined in the Employment Agreement or Consultant's
salary on the Notice Date, whichever is higher, paid according to the Company's
regular payroll during the Term as provided herein.
The Company shall pay on Consultant's behalf, or reimburse Consultant
for, any expenses reasonably incurred in connection with his rendering of the
Services and which are not incurred in violation of any policy or policies
regarding expenses which may be adopted by the Board of Directors from time to
time. Consultant agrees to submit receipts and other documentation to support
the above expenses as a condition of reimbursement therefor.
<PAGE> 17
EXHIBIT B
RELEASE AND WAIVER OF CLAIMS
In exchange for payment to me of amounts pursuant to Sections 6(b)(i),
6(b)(iii) and 6(c) (and for the other benefits provided therein) of my
Employment Agreement (the "Agreement"), to which this form is attached, I hereby
furnish Planet Polymer Technologies, Inc. (the "Company") with the following
release and waiver.
I hereby release, and forever discharge the Company, its officers,
directors, agents, employees, stockholders, successors, assigns and affiliates,
of and from any and all claims, liabilities, demands, causes of action, costs,
expenses, attorneys' fees, damages, indemnities and obligations of every kind
and nature, in law, equity, or otherwise, known and unknown, suspected and
unsuspected, disclosed and undisclosed, arising at any time prior to and
including my employment termination date with respect to any claims relating to
my employment and the termination of my employment, including but not limited
to, claims pursuant to any federal, state or local law relating to employment,
including, but not limited to, discrimination claims, claims under the
California Fair Employment and Housing Act, and the Federal Age Discrimination
in Employment Act of 1967, as amended ("ADEA"), or claims for wrongful
termination, breach of the covenant of good faith, contract claims, tort claims,
and wage or benefit claims, including but not limited to, claims for salary,
bonuses, commissions, stock, stock options, vacation pay, fringe benefits,
severance pay or any form of compensation (other than the obligations under
Sections 6(b)(i), 6(b)(iii) and 6(c) of the Agreement.)
I also acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to any claims I may have against the
Company.
I acknowledge that, among other rights, I am waiving and releasing any
rights I may have under ADEA, that this waiver and release is knowing and
voluntary, and that the consideration given for this waiver and release is in
addition to anything of value to which I was already entitled as an employee of
the Company. I further acknowledge that I have been advised, as required by the
Older Workers Benefit Protection Act, that: (a) the waiver and release granted
herein does not relate to claims which may arise after this agreement is
executed; (b) I have the right to consult with an attorney prior to executing
this agreement (although I may choose voluntarily not to do so); (c) I have
twenty-one (21) days from the date I receive this agreement, in which to
consider this agreement (although I may choose voluntarily to execute this
agreement earlier); (d) I have seven (7) days following the execution of this
agreement to revoke my consent to the agreement; and (e) this agreement shall
not be effective until the seven (7) day revocation period has expired.
Date: __________________ By:____________________________
1-1
<PAGE> 18
EXHIBIT C
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
1-2
<PAGE> 19
PLANET POLYMER TECHNOLOGIES, INC.
EMPLOYEE PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by Planet
Polymer Technologies, Inc. (the "Company"), and the compensation now and
hereafter paid to me, I hereby agree as follows:
1. NONDISCLOSURE
1.1 RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all times during
my employment and thereafter, I will hold in strictest confidence and will not
disclose, use, lecture upon or publish any of the Company's Proprietary
Information (defined below), except as such disclosure, use or publication may
be required in connection with my work for the Company, or unless an officer of
the Company expressly authorizes such in writing. I will obtain Company's
written approval before publishing or submitting for publication any material
(written, verbal, or otherwise) that relates to my work at Company and/or
incorporates any Proprietary Information. I hereby assign to the Company any
rights I may have or acquire in such Proprietary Information and recognize that
all Proprietary Information shall be the sole property of the Company and its
assigns.
1.2 PROPRIETARY INFORMATION. The term "PROPRIETARY INFORMATION" shall
mean any and all confidential and/or proprietary knowledge, data or information
of the Company. By way of illustration but not limitation, "PROPRIETARY
INFORMATION" includes (a) trade secrets, inventions, mask works, ideas,
processes, formulas, source and object codes, data, programs, other works of
authorship, know-how, improvements, discoveries, developments, designs and
techniques (hereinafter collectively referred to as "INVENTIONS"); and (b)
information regarding plans for research, development, new products, marketing
and selling, business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers; and (c) information
regarding the skills and compensation of other employees of the Company.
Notwithstanding the foregoing, it is understood that, at all such times, I am
free to use information which is generally known in the trade or industry, which
is not gained as result of a breach of this Agreement, and my own, skill,
knowledge, know-how and experience to whatever extent and in whichever way I
wish.
1.3 THIRD PARTY INFORMATION. I understand, in addition, that the Company
has received and in the future will receive from third parties confidential or
proprietary information ("THIRD PARTY INFORMATION") subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. During the term of my employment and
thereafter, I will hold Third Party Information in the strictest confidence and
will not disclose to anyone (other than Company personnel who need to know such
information in connection with their work for the Company) or use, except in
connection with my work for the Company, Third Party Information unless
expressly authorized by an officer of the Company in writing.
1.4 NO IMPROPER USE OF INFORMATION OF PRIOR EMPLOYERS AND OTHERS. During
my employment by the Company I will not improperly use or disclose any
confidential information or trade secrets, if any, of any former employer or any
other person to whom I have an obligation of confidentiality, and I will not
bring onto the premises of the Company any unpublished documents or any property
belonging to any former employer or any other person to whom I have an
obligation of confidentiality unless consented to in writing by that former
employer or person. I will use in the performance of my duties only information
which is generally known and used by persons with training and experience
comparable to my own, which is common knowledge in the industry or otherwise
legally in the public domain, or which is otherwise provided or developed by the
Company.
2. ASSIGNMENT OF INVENTIONS.
2.1 PROPRIETARY RIGHTS. The term "PROPRIETARY RIGHTS" shall mean all
trade secret, patent, copyright, mask work and other intellectual property
rights throughout the world.
2.2 PRIOR INVENTIONS. Inventions, if any, patented or unpatented, which
I made prior to the commencement of my employment with the Company are excluded
from the scope of this Agreement. To preclude any possible uncertainty, I have
set forth on Exhibit B (Previous Inventions) attached hereto a
1.
<PAGE> 20
complete list of all Inventions that I have, alone or jointly with others,
conceived, developed or reduced to practice or caused to be conceived, developed
or reduced to practice prior to the commencement of my employment with the
Company, that I consider to be my property or the property of third parties and
that I wish to have excluded from the scope of this Agreement (collectively
referred to as "PRIOR INVENTIONS"). If disclosure of any such Prior Invention
would cause me to violate any prior confidentiality agreement, I understand that
I am not to list such Prior Inventions in Exhibit B but am only to disclose a
cursory name for each such invention, a listing of the party(ies) to whom it
belongs and the fact that full disclosure as to such inventions has not been
made for that reason. A space is provided on Exhibit B for such purpose. If no
such disclosure is attached, I represent that there are no Prior Inventions. If,
in the course of my employment with the Company, I incorporate a Prior Invention
into a Company product, process or machine, the Company is hereby granted and
shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide
license (with rights to sublicense through multiple tiers of sublicensees) to
make, have made, modify, use and sell such Prior Invention. Notwithstanding the
foregoing, I agree that I will not incorporate, or permit to be incorporated,
Prior Inventions in any Company Inventions without the Company's prior written
consent.
2.3 ASSIGNMENT OF INVENTIONS. Subject to Sections 2.4, and 2.6, I hereby
assign and agree to assign in the future (when any such Inventions or
Proprietary Rights are first reduced to practice or first fixed in a tangible
medium, as applicable) to the Company all my right, title and interest in and to
any and all Inventions (and all Proprietary Rights with respect thereto) whether
or not patentable or registrable under copyright or similar statutes, made or
conceived or reduced to practice or learned by me, either alone or jointly with
others, during the period of my employment with the Company. Inventions assigned
to the Company, or to a third party as directed by the Company pursuant to this
Section 2, are hereinafter referred to as "COMPANY INVENTIONS."
2.4 NONASSIGNABLE INVENTIONS. This Agreement does not apply to an
Invention which qualifies fully as a nonassignable Invention under Section 2870
of the California Labor Code (hereinafter "Section 2870"). I have reviewed the
notification on Exhibit A (Limited Exclusion Notification) and agree that my
signature acknowledges receipt of the notification.
2.5 OBLIGATION TO KEEP COMPANY INFORMED. During the period of my
employment and for six (6) months after termination of my employment with the
Company, I will promptly disclose to the Company fully and in writing all
Inventions authored, conceived or reduced to practice by me, either alone or
jointly with others. In addition, I will promptly disclose to the Company all
patent applications filed by me or on my behalf within a year after termination
of employment. At the time of each such disclosure, I will advise the Company in
writing of any Inventions that I believe fully qualify for protection under
Section 2870; and I will at that time provide to the Company in writing all
evidence necessary to substantiate that belief. The Company will keep in
confidence and will not use for any purpose or disclose to third parties without
my consent any confidential information disclosed in writing to the Company
pursuant to this Agreement relating to Inventions that qualify fully for
protection under the provisions of Section 2870. I will preserve the
confidentiality of any Invention that does not fully qualify for protection
under Section 2870.
2.6 GOVERNMENT OR THIRD PARTY. I also agree to assign all my right,
title and interest in and to any particular Company Invention to a third party,
including without limitation the United States, as directed by the Company.
2.7 WORKS FOR HIRE. I acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of my
employment and which are protectable by copyright are "works made for hire,"
pursuant to United States Copyright Act (17 U.S.C., Section 101).
2.8 ENFORCEMENT OF PROPRIETARY RIGHTS. I will assist the Company in
every proper way to obtain, and from time to time enforce, United States and
foreign Proprietary Rights relating to Company Inventions in any and all
countries. To that end I will execute, verify and deliver such documents and
perform such other acts (including appearances as a witness) as the Company may
reasonably request for use in applying for, obtaining, perfecting, evidencing,
sustaining and enforcing such Proprietary Rights and the assignment thereof. In
addition, I will execute, verify and deliver assignments of such Proprietary
Rights to the Company or its designee. My obligation to assist the Company with
respect to Proprietary Rights relating to such Company Inventions in any and all
countries shall continue beyond the termination of my employment, but the
Company shall compensate me at a reasonable rate after my
2.
<PAGE> 21
termination for the time actually spent by me at the Company's request on such
assistance.
In the event the Company is unable for any reason, after reasonable effort, to
secure my signature on any document needed in connection with the actions
specified in the preceding paragraph, I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agent and attorney
in fact, which appointment is coupled with an interest, to act for and in my
behalf to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by me. I hereby waive and
quitclaim to the Company any and all claims, of any nature whatsoever, which I
now or may hereafter have for infringement of any Proprietary Rights assigned
hereunder to the Company.
3. RECORDS. I agree to keep and maintain adequate and current records (in the
form of notes, sketches, drawings and in any other form that may be required by
the Company) of all Proprietary Information developed by me and all Inventions
made by me during the period of my employment at the Company, which records
shall be available to and remain the sole property of the Company at all times.
4. ADDITIONAL ACTIVITIES. I agree that during the period of my employment by the
Company I will not, without the Company's express written consent, engage in any
employment or business activity which is competitive with, or would otherwise
conflict with, my employment by the Company. I agree further that for the period
of my employment by the Company and for one (l) year after the date of
termination of my employment by the Company I will not induce any employee of
the Company to leave the employ of the Company.
5. NO CONFLICTING OBLIGATION. I represent that my performance of all the terms
of this Agreement and as an employee of the Company does not and will not breach
any agreement to keep in confidence information acquired by me in confidence or
in trust prior to my employment by the Company. I have not entered into, and I
agree I will not enter into, any agreement either written or oral in conflict
herewith.
6. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I will
deliver to the Company any and all drawings, notes, memoranda, specifications,
devices, formulas, and documents, together with all copies thereof, and any
other material containing or disclosing any Company Inventions, Third Party
Information or Proprietary Information of the Company. I further agree that any
property situated on the Company's premises and owned by the Company, including
disks and other storage media, filing cabinets or other work areas, is subject
to inspection by Company personnel at any time with or without notice. Prior to
leaving, I will cooperate with the Company in completing and signing the
Company's termination statement.
7. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and unique and
because I may have access to and become acquainted with the Proprietary
Information of the Company, the Company shall have the right to enforce this
Agreement and any of its provisions by injunction, specific performance or other
equitable relief, without bond and without prejudice to any other rights and
remedies that the Company may have for a breach of this Agreement.
8. NOTICES. Any notices required or permitted hereunder shall be given to the
appropriate party at the address specified below or at such other address as the
party shall specify in writing. Such notice shall be deemed given upon personal
delivery to the appropriate address or if sent by certified or registered mail,
three (3) days after the date of mailing.
9. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the
Company, I hereby consent to the notification of my new employer of my rights
and obligations under this Agreement.
10. GENERAL PROVISIONS.
10.1 GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This Agreement
will be governed by and construed according to the laws of the State of
California, as such laws are applied to agreements entered into and to be
performed entirely within California between California residents. I hereby
expressly consent to the personal jurisdiction of the state and federal courts
located in San Diego County, California for any lawsuit filed there against me
by Company arising from or related to this Agreement.
10.2 SEVERABILITY. In case any one or more of the provisions contained
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity,
3.
<PAGE> 22
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. If moreover, any one or
more of the provisions contained in this Agreement shall for any reason be held
to be excessively broad as to duration, geographical scope, activity or subject,
it shall be construed by limiting and reducing it, so as to be enforceable to
the extent compatible with the applicable law as it shall then appear.
10.3 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns.
10.4 SURVIVAL. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the Company
to any successor in interest or other assignee.
10.5 EMPLOYMENT. I agree and understand that nothing in this Agreement
shall confer any right with respect to continuation of employment by the
Company, nor shall it interfere in any way with my right or the Company's right
to terminate my employment at any time, with or without cause.
10.6 WAIVER. No waiver by the Company of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of any
other right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.
10.7 CENTIRE AGREEMENT. The obligations pursuant to Sections 1 and 2 of
this Agreement shall apply to any time during which I was previously employed,
or am in the future employed, by the Company as a consultant if no other
agreement governs nondisclosure and assignment of inventions during such period.
This Agreement is the final, complete and exclusive agreement of the parties
with respect to the subject matter hereof and supersedes and merges all prior
discussions between us. No modification of or amendment to this Agreement, nor
any waiver of any rights under this Agreement, will be effective unless in
writing and signed by the party to be charged. Any subsequent change or changes
in my duties, salary or compensation will not affect the validity or scope of
this Agreement.
This Agreement shall be effective as of the first day of my employment
with the Company, namely: _______________, 19__.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT B TO THIS AGREEMENT.
Dated: ___________
- ---------------------------------------
(SIGNATURE)
- ---------------------------------------
(PRINTED NAME)
ACCEPTED AND AGREED TO:
PLANET POLYMER TECHNOLOGIES, INC.
By:
------------------------------------
Title:
----------------------------------
9985 Business Park Avenue, Suite A
San Diego, CA 92131
Dated: _______
4.
<PAGE> 23
EXHIBIT A
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and the Company does not
require you to assign or offer to assign to the Company any invention that you
developed entirely on your own time without using the Company's equipment,
supplies, facilities or trade secret information except for those inventions
that either:
1. Relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company;
2. Result from any work performed by you for the Company.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered
by a contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By:
-----------------------------------
Date:
----------------------------------
WITNESSED BY:
- -----------------------------------
(PRINTED NAME OF REPRESENTATIVE)
A-1.
<PAGE> 24
EXHIBIT B
TO: PLANET POLYMER TECHNOLOGIES, INC.
FROM:
-------------------------------
DATE:
-------------------------------
SUBJECT: PREVIOUS INVENTIONS
1. Except as listed in Section 2 below, the following is a complete list of all
inventions or improvements relevant to the subject matter of my employment by
Planet Polymer Technologies, Inc. (the "COMPANY") that have been made or
conceived or first reduced to practice by me alone or jointly with others prior
to my engagement by the Company: [ ] No inventions or improvements.
[ ] See below:
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
[ ] Additional sheets attached.
2. Due to a prior confidentiality agreement, I cannot complete the
disclosure under Section 1 above with respect to inventions or improvements
generally listed below, the proprietary rights and duty of confidentiality with
respect to which I owe to the following party(ies):
INVENTION OR IMPROVEMENT PARTY(IES) RELATIONSHIP
1.
------------------------ ------------------ ---------------------
2.
------------------------ ------------------ ---------------------
3.
------------------------ ------------------ ---------------------
[ ] Additional sheets attached.
<PAGE> 1
EXHIBIT 10.18
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
- ----------------- , 1998, by and among Planet Polymer Technologies, Inc., a
California corporation, with headquarters located at 9985 Business Park Avenue,
Suite A, San Diego, California 92131 (the "Company"), and the undersigned buyer
("Buyer").
WHEREAS:
A. In connection with the Stock Purchase Agreement of even date
herewith entered into between the Company and the Buyer (the "Stock Purchase
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Stock Purchase Agreement to issue and sell to the Buyers (i)
shares (the "Shares") of the Company's common stock, no par value (the "Common
Stock"), and (ii) warrants (the "Warrants"), which are exercisable for shares of
the Company's common stock, no par value (such shares issued upon exercise of
the Warrants to be referred to herein as the "Warrant Shares"); and
B. To induce the Buyers to execute and deliver the Stock Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and Buyer
hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
a. "business day" means any day on which banks are not
required or authorized to close in New York City, New York.
b. "Investor" means Buyer and any permitted transferee or
assignee thereof to whom the Buyer assigns this Agreement and who
agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement
or Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or
ordering
1
<PAGE> 2
of effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "SEC").
d. "Registrable Securities" means the Shares and the Warrant
Shares and any shares of Common Stock issued in respect of the Shares
or Warrant Shares as a result of any stock split, stock dividend,
recapitalization or similar event, including without limitation the
issuance of shares of common stock in satisfaction of the undersigned's
rights of first refusal under Section 5 of the Stock Purchase
Agreement.
e. "Registration Statement" or "Registration Statements" means
a registration statement or statements of the Company filed under the
1933 Act.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Stock Purchase Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall use its best
efforts to prepare, and, on or before April 1, 1999 (such date of
filing, the "Initial Filing Date"), file with the SEC a Registration
Statement or Registration Statements (as is necessary) on Form S-3 (or,
if such form is unavailable for such a registration, on such other form
as is available for such a registration), covering the resale of the
amount of Registrable Securities identified below, which Registration
Statement(s), to the extent allowable under the 1933 Act and the rules
promulgated thereunder (including Rule 416), shall state that such
Registration Statement(s) also covers such indeterminate number of
additional shares of Common Stock as may become issuable (i) upon
conversion of the Shares or exercise of the Warrants to prevent
dilution resulting from stock splits, stock dividends or similar
transactions, (ii) by reason of changes in the exercise price of the
Warrants in accordance with the terms thereof, and (iii) by reason of
the exercise by Buyer of its right of first refusal as set forth in
Section 5 of the Stock Purchase Agreement. The number of shares of
Common Stock initially included in such Registration Statement(s) shall
be no less than 3,000,000 shares of Common Stock that are issuable upon
the Initial Filing Date and the exercise of Warrants in accordance with
their terms. The Company shall use its best efforts to have such
Registration Statement(s) declared effective by the SEC within ninety
(90) days after the filing of the Registration Statement. The Company
further undertakes to take all steps necessary to ensure that a
Registration Statement is or Registration Statements are effective
during the Registration Period (as defined below) with respect to all
Registrable Securities and the resale thereof at all times during the
Registration Period. Any Registration Statement(s) referred to in this
Section 2(a) (and each amendment or supplement thereto, and each
request for acceleration of effectiveness thereof) shall be provided to
and approved by Buyer and its legal counsel prior to the Company's
filing or other submission (such approval not to be unreasonably
withheld)
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and the Company will not file any document in a form to which such
counsel reasonably objects.
b. PIGGY-BACK REGISTRATIONS. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the
Company determines to file with the SEC a Registration Statement
relating to an offering for its own account or the account of others
under the 1933 Act of any of its Common Stock (other than on Form S-4
or Form S-8 or their then-equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or
business or equity securities issuable in connection with employee
stock option or other employee benefit plans), the Company shall send
to each Investor who is entitled to registration rights under Section
2(a) written notice of such determination. If within twenty (20) days
after receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all
or any part of the Registrable Securities such Investor requests to be
registered, except that if, in connection with any underwritten public
offering for the account of the Company, the managing underwriter(s)
thereof shall impose a limitation on the number of shares of Common
Stock which may be included in the Registration Statement because, in
such underwriter(s)' reasonable good faith judgment, marketing or other
factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion
hereunder as may be determined by such managing underwriter(s);
provided that no portion of the Common Stock which the Company is
offering for its own account shall be excluded; provided, further that
the Company shall be entitled to exclude Registrable Securities to the
extent necessary to avoid breaching obligations existing prior to the
date hereof to other stockholders of the Company. Any exclusion of
Registrable Securities shall be made pro rata among the Investors
seeking to include Registrable Securities, in proportion to the number
of Registrable Securities sought to be included by such Investors;
provided, however, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding
securities, the holders of which are not entitled to pro rata inclusion
of such securities in such Registration Statement or are not entitled
to pro rata inclusion with the Registrable Securities; and provided
further, however, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be
made pro rata with holders of other securities having the right to
include such securities in the Registration Statement other than
holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand or similar registration
rights or whose registration rights existed prior to the date hereof.
No right to registration of Registrable Securities under this Section
2(b) shall be construed to limit any registration required under
Section 2(a) hereof.
c. ELIGIBILITY FOR FORM S-3. The Company represents and
warrants that it meets the requirements for the use of Form S-3 for
registration of the sale by the Buyers
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and any other Investor of the Registrable Securities and the Company
shall use its best efforts to file all reports required to be filed by
the Company with the SEC in a timely manner so as to maintain such
eligibility for the use of Form S-3. In the event that Form S-3 is not
available for sale by the Investors of the Registrable Securities, the
Company shall register the sale on another appropriate form.
3. RELATED OBLIGATIONS.
a. The Company shall use its best efforts to cause the
Registration Statement(s) relating to Registrable Securities referred
to in Section 2(a) to become effective as soon as possible after such
filing, and keep the Registration Statement(s) effective pursuant to
Rule 415 at all times until the earlier of (i) the date as of which the
Investors may sell all of the Registrable Securities without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto), or (ii) the date on which (A) the Investors shall
have sold all the Registrable Securities and (B) none of the Warrants
is outstanding (the "Registration Period"), which Registration
Statement(s) (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading.
b. In the event that the Registration Statement referred to in
Section 2(a) has not been declared effective by the 90th day following
the Initial Filing Date for failure by the Company to exercise its best
efforts in pursuing such registration, for each successive 30 day
period thereafter and until such Registration Statement is declared
effective, the Company agrees to pay to each Buyer, as liquidated
damages and not as a penalty, an amount equal to three percent (3%) of
the aggregate original purchase price of the Shares purchased by such
Buyer, payable in cash commencing on the 120th day following the
Initial Filing Date and on every 30th day thereafter (or sooner, as
provided in the next sentence) (any such payment referred to as an
"Additional Payment"). On the date that such Registration Statement is
declared effective, the Company shall pay to each Buyer all Additional
Payments due to such Buyer, in cash, pro rata according to the number
of days since the last Additional Payment (or, if no Additional Payment
has been paid, since the 90th day following the Initial Closing Date).
c. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement(s) referred to in Section 2(a) and the related
prospectus(es) used in connection with such Registration Statement(s)
as may be necessary to keep the Registration Statement(s) effective at
all times during the Registration Period, and, during such period, and
the Company and the Investors shall comply with the provisions of the
1933 Act with respect to the disposition of all Registrable Securities
of the Company covered by such Registration Statement(s) until such
time as all such Registrable Securities shall have
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<PAGE> 5
been disposed of in accordance with the intended methods of disposition
by the seller or sellers thereof as set forth in such Registration
Statement(s).
d. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement(s)
referred to in Sections 2(a) and 2(b) (i) promptly after the same as
prepared and publicly distributed, filed with the SEC, or received by
the Company, one copy of such Registration Statement and any amendment
thereto, and (ii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and
such other documents as such Investor may reasonably request in order
to facilitate the disposition of the Registrable Securities owned by
such Investor pursuant to such Registration Statement(s).
e. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by the Registration
Statement(s) referred to in Section 2(a) under such other securities or
"blue sky" laws of such jurisdictions in the United States as the
Investors who hold a majority of the Registrable Securities being
offered in connection therewith reasonably request, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as
may be necessary to maintain the effectiveness thereof during the
Registration Period, (iii) take such other actions as may be necessary
to maintain such registrations and qualifications in effect at all
times during the Registration Period, and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto
to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (b) subject
itself to general taxation in any such jurisdiction, (c) file a general
consent to service of process in any such jurisdiction, or (d) make any
change in its charter or bylaws, which in each case the Board of
Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders. The Company shall
promptly notify each Investor who holds Registrable Securities of the
receipt by the Company of any notification with respect to the
suspension of such registration or qualification of any of the
Registrable Securities for sale under the securities or "blue sky" laws
of any jurisdiction in the United States or its receipt of actual
notice of the initiation or threatening of any proceeding for such
purpose.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any
event, of which the Company has knowledge, as a result of which the
prospectus included in a Registration Statement, as then in effect,
includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare and
file a supplement or amendment to the Registration Statement to correct
such untrue statement or omission, and deliver at least one copy and
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<PAGE> 6
such number of additional copies of such supplement or amendment to
each Investor as such Investor may reasonably request. The Company
shall also, within five (5) days after its release, provide to each
Investor (other than Buyer and its affiliates, whose rights to receive
financial and related information concerning the Company are set forth
in the Stock Purchase Agreement and Warrant) a copy of the Company's
Annual Report and Form 10-KSB and quarterly report on Form 10-QSB, as
filed with the SEC.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify
each Investor who holds Registrable Securities being sold (and, in the
event of an underwritten offering, the managing underwriters) of the
issuance of such order and the resolution thereof or its receipt of
actual notice of the initiation or threat of any proceeding for such
purpose.
h. The Company shall furnish, on the date that Registrable
Securities are delivered to an underwriter, if any, for sale in
connection with a Registration Statement referred to in Section 2(b) if
and only if required by an underwriter, a letter, dated such date, from
the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering
("Accountant's Comfort Letter"), addressed to the underwriters, and the
Investors, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement,
in form, scope and substance as is customarily given in an underwritten
public offering, addressed to the underwriters and the Investors. If,
in the opinion of counsel to any Investor, such Investor could
reasonably be deemed to be an underwriter (as defined in the 1933 Act)
in connection with its resale of the securities under Section 2(a)
hereof, such Investor may require that the Company deliver to the
Investor an Accountant's Comfort Letter addressed to such Investor;
provided, however, that any request by an Investor for such an
Accountant's Comfort Letter may be made not more than once during any
given six month period, and the Company shall not be required to expend
in excess of $10,000 in accountant fees in respect of any such comfort
letter.
i. To the extent reasonably required to satisfy their
obligations, if any, as sellers of Common Stock, the Company shall make
available for inspection by (i) any Investor, and (ii) one firm of
attorneys and one firm of accountants or other agents retained by the
Investors (collectively, the "Inspectors") all pertinent financial and
other records, and pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its
due diligence responsibility, if any, and cause the Company's officers,
directors and employees to supply all such information which any
Inspector may reasonably request; provided, however, that each
Inspector shall hold in strict confidence and shall not make any
disclosure (except to an Investor) or use of any Record or other
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<PAGE> 7
information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is, in the opinion of
counsel of recognized status, required by law, regulation or
administrative authority or such release is ordered pursuant to a
final, non-appealable subpoena or order from a court or government body
of competent jurisdiction, or (c) the information in such Records has
been made generally available to the public other than by disclosure in
violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such Records to
any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the
Company) with the Company with respect thereto, substantially in form
and substance reasonably requested by the Company. Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought
in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the
Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein shall be deemed to limit the Investor's
ability to sell Registrable Securities in a manner which is otherwise
consistent with applicable laws and regulations.
j. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the
Company unless (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) the disclosure of
such information is necessary to avoid or correct a misstatement or
omission in any Registration Statement, (iii) the release of such
information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this
or any other agreement. The Company agrees that it shall, upon learning
that disclosure of such information concerning an Investor is sought in
or by a court or governmental body of competent jurisdiction or through
other means, give prompt notice to such Investor and allow such
Investor, at the Investor"s expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such
information.
k. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to
be listed on each national securities exchange on which securities of
the same class or series issued by the Company are then listed, if any,
if the listing of such Registrable Securities is then permitted under
the rules of such exchange, or (ii) secure designation and quotation of
all the Registrable Securities covered by the Registration Statement on
the Nasdaq SmallCap Market system and, without limiting the generality
of the foregoing, to arrange for at least two market makers to register
with the National Association of Securities Dealers, Inc. ("NASD") as
such with respect to such Registrable Securities.
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l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities sold pursuant to a
Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the managing
underwriter or underwriters, if any, or, if there is no managing
underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters,
if any, or the Investors may request. Not later than the date on which
any Registration Statement registering the resale of Registrable
Securities is declared effective, the Company shall deliver to its
transfer agent instructions authorizing the removal of any legends on
the Registrable Securities upon the sale thereof pursuant to such
Registration Statement, accompanied by any reasonably required opinion
of counsel, to permit sales thereof in a timely fashion that complies
with applicable securities laws and then mandated securities settlement
procedures for regular way market transactions.
m. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration Statement.
n. The Company and the Investors shall otherwise use its best
efforts to comply with all applicable rules and regulations of the SEC
in connection with any registration hereunder.
4. OTHER OBLIGATIONS.
a. At least five (5) business days prior to the first
anticipated filing date of the Registration Statement referred to in
Section 2, the Company shall notify each Investor of the information
the Company requires from each such Investor if such Investor elects to
have any of such Investor's Registrable Securities included in the
Registration Statement. It shall be a condition precedent to the
obligations of the Company to complete any registration pursuant to
this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company
such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably
request.
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as
reasonably requested by the Company in connection with the preparation
and filing of the Registration Statement(s) hereunder, unless such
Investor has notified the Company in writing of such Investor's
election to exclude all of such Investor's Registerable Securities from
the Registration Statement.
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c. Each Investor agrees that, upon receipt of any notice from
the Company or the happening of any event of the kind described in
Section 3(f), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the applicable Registration
Statement(s) covering such Registrable Securities until such Investor's
receipt of copies of the supplemented or amended prospectus
contemplated by Section 3(f), and, if so directed by the Company, such
Investor shall deliver to the Company (at the expense of the Company)
or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering
such Registrable Securities current at the time of receipt of such
notice.
d. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such
Investor's Registrable Securities on the basis provided in any
underwriting arrangements established by the Company, (ii) completes
and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under
the terms of such underwriting arrangements, and (iii) agrees to pay
its pro rata share of all underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions and fees and disbursements of Investors' counsel, accountants,
investment bankers or other advisors or agents, incurred in connection with
registrations, filings or qualifications pursuant to Sections 2 and 3,
including, without limitation, all registration, listing and qualifications
fees, printers and accounting fees, and fees and disbursements of counsel for
the Company shall be borne by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend each Investor who holds such Registrable
Securities, the partners, directors, officers, employees and agents of,
and each person who controls, any Investor within the meaning of the
1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), if any, and any underwriter (as defined in the 1933 Act) for the
Investors, and the partners, directors, officers, employees and agents
of, and each person, if any, who controls, any such underwriter within
the meaning of the 1933 Act or the 1934 Act (each, an "Indemnified
Person"), against any losses, claims, damages, liabilities, attorneys'
fees and expenses, amounts paid in settlement or expenses
(collectively, "Claims") to which any of them may become subject
insofar as such Claims (or actions or proceedings in respect thereof,
whether or not commenced or threatened by
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or before the date the Registration Statement is declared effective and
whether or not an Indemnified Person is party thereto) arise out of or
are based upon: (i) any untrue statement or alleged untrue statement of
a material fact in a Registration Statement or in any filing made in
connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable
Securities are offered ("Blue Sky Filing"), or the omission or alleged
omission to state a material fact therein required to be stated or
necessary to make the statements therein, in light of the circumstances
in which such statements were made, not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to
state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements
therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations").
Subject to the restrictions set forth in Section 6(d) with respect to
the number of legal counsel, the Company shall reimburse the
Indemnified Persons promptly as such expenses are incurred and are due
and payable, for any legal fees or other reasonable expenses incurred
by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not
apply to a Claim arising out of or based upon a Violation which occurs
in reliance upon and in conformity with information furnished in
writing to the Company by any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement, any
related prospectus or any such amendment thereof or supplement thereto,
if such Registration Statement or prospectus was timely made available
by the Company pursuant to Section 3(d) hereof; (ii) with respect to
any preliminary prospectus, shall not inure to the benefit of any such
person from whom the person asserting any such Claim purchased the
Registrable Securities that are the subject thereof (or to the benefit
of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the
Company pursuant to Section 3(d) hereof; (iii) shall not be available
to the extent such Claim is based on a failure of the Investor to
deliver or cause to be delivered a preliminary or final prospectus made
available on a timely basis by the Company; and (iv) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected
without prior written consent of the Company, which consent shall not
be unreasonably withheld or delayed. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
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b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify, hold
harmless and defend, to the same extent and in the same manner as is
set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934
Act, any underwriter and any other stockholder selling securities
pursuant to the Registration Statement or any of its directors or
officers or any person who controls such stockholder or underwriter
within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an "Indemnified Party"), against
any Claim to which any of them may become subject, under the 1933 Act,
the 1934 Act or otherwise, insofar as such Claims arise out of or are
based upon any Violation, in each case to the extent (and only to the
extent) that such violation occurs in reliance upon and in conformity
with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and
such Investor will reimburse any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
Claim; provided, however, that the indemnity agreement contained in
this Section 6(b) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent
of such Investor, which consent shall not be unreasonably withheld;
provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of Claims as does not exceed the
net proceeds to such Investor as a result of the sale of Registrable
Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the
transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein,
the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of
any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely
basis in the related final prospectus, as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of
any action (including any governmental action), such Indemnified Person
or Indemnified Party shall, if a Claim in respect thereof is made
against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and
the indemnifying party shall have the right to assume control of the
defense thereof with counsel reasonably satisfactory to the Indemnified
Person or the Indemnified Party, as the case may be; provided, however,
that an Indemnified Person or Indemnified Party, as the case may be,
shall have the right to employ its own counsel in any such action, but
the fees, expenses and other charges of such counsel will be at the
expense of such Indemnified Person or Indemnified Party unless (1) the
employment of counsel by the Indemnified Person or Indemnified Party
has been authorized in writing by the indemnifying party, (2) the
Indemnified Person or Indemnified Party has reasonably concluded (based
on advice
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of counsel) that there may be legal defenses available to it or any
other Indemnified Person or Indemnified Parties that are different from
or in addition to those available to the indemnifying party, (3) a
conflict or potential conflict exists (based on advice of counsel to
the Indemnified Person or Indemnified Party) between the Indemnified
Person or Indemnified Party and the indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of
such action on behalf of the Indemnified Person or Indemnified Party)
or (4) the indemnifying party has not in fact employed counsel to
assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel
will be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm admitted to practice in
such jurisdiction at any one time for all such Indemnified Persons or
Indemnified Party or parties. An indemnifying party will not be liable
for any settlement of any action or claim effected without its written
consent (which consent will not be unreasonably withheld). The failure
to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action.
The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the
investigation or defense, as such Claims are incurred or bills therefor
are received and are due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, each indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 in such proportions as shall be appropriate to reflect all
equitable principles, including without limitation the relative benefits
received by the relevant parties; provided, however, that (i) no contribution
shall be made under circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6, (ii) no seller
of Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
the Company or any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation, and (iii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
12
<PAGE> 13
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to
use its best efforts to:
a. make and keep public information available as those
terms are used in paragraph (a) of Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under Section 13 or 15(d) of the 1934
Act so long as the Company remains subject to such requirements (it
being understood that nothing herein shall limit the Company's
obligations under Section 4(c) of the Stock Purchase Agreement).
c. furnish to each Investor so long as such Investor owns
Registrable Securities promptly upon request, (i) a written statement
by the Company that it has complied with the reporting requirements
referred to in Section 8(b) above, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and
documents so filed by the Company and (iii) such other information as
may be reasonably requested to permit the investors to sell such
securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities pursuant
to this Agreement shall be assignable by the Investors to any transferee of all
or any portion of Registrable Securities if: (i) the Investor agrees in writing
with the transferee or assignee to assign the related rights and obligations,
and a copy of such agreement is furnished to the Company within a reasonable
time after such assignment, (ii) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the 1933 Act
and applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein and to reimburse the Company for any expenses
that may be incurred by the Company as a result of such assignment and transfer
that would not otherwise have been incurred by the Company, including any costs
associated with the amendment of any Registration Statement or prospectus, (v)
such transfer shall have been made in accordance with the applicable
requirements of the
13
<PAGE> 14
Stock Purchase Agreement, and (vi) such transferee shall be an "accredited
investor" as that term defined in Rule 501 of Regulation D promulgated under the
1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold two-thirds of the Registrable Securities. Any amendment
or waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company. Notwithstanding the foregoing: (i) no amendment or
waiver of this Agreement with respect to shares of Common Stock which have been
previously sold under a Registration Statement contemplated by this Agreement
shall be effective with respect to the holder of such shares who participated in
such registration unless consented to this writing by such holder; and (ii) no
amendment or waiver which adversely affects any holder of Registrable Securities
in a manner which does not adversely affect the other holders of Registrable
Securities shall be effective with respect to such holder unless consented to in
writing by such holder.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or entities
with respect to the same Registrable Securities, the Company shall act
upon the basis of instructions, notice or election received from the
registered owner of such Registrable Securities.
b. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by registered or certified mail,
return receipt requested, or delivered personally or by courier and
shall be effective three days after being place in the mail if mailed,
or upon receipt, if delivered personally or by courier or facsimile
(with a copy by U.S. mail), in each case properly addressed to the
party to receive such notice. The addresses for such communications
shall be:
If to the Company:
9985 Business Park Avenue
Suite A
San Diego, California 92131
Telephone: 619 549-5130
Facsimile: 619 549-5133
Attention: Robert J. Petcavich
14
<PAGE> 15
With Copy to:
Lance W. Bridges, Esq.
Cooley Godward, LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121-2128
If to the Buyer:
Agway Holdings Inc.
P.O. Box 4933
Syracuse, NY 13227-4933
Telephone: 315 449-6568
Facsimile: 315 449-7451
Attention: Peter J. O'Neill, V.P.
With a copy to: David M. Hayes, Esq., General Counsel
Each party shall provide notice to the other party of any
change in address in the manner provided herein.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York without regard to the
principles of conflict of laws. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of
the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other
jurisdiction.
e. This Agreement and the Stock Purchase Agreement (together
with the Schedules and Exhibits thereto), the Warrant and the other
agreements and instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein
and therein and, except as specifically set forth herein or therein,
neither the Company nor Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in
writing signed by the party to be charged with enforcement.
15
<PAGE> 16
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the
permitted successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement. This Agreement, once
executed by a party, may be delivered to the other party hereto by
facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
Dated:
AGWAY HOLDINGS INC.
By: /s/
-------------------------------------
NAME:
TITLE :
ACCEPTED AND AGREED:
PLANET POLYMER TECHNOLOGIES, INC.
By: /s/
-------------------------------------
NAME:
TITLE:
16
<PAGE> 1
EXHIBIT 10.19
PRODUCT FEASIBILITY AGREEMENT
This Agreement is made effective the 12th day of November,
1998 (the "Effective Date"), by and between Agway Consumer Products, Inc., a
Delaware corporation with offices at 333 Butternut Drive, Dewitt, New York 13214
(hereinafter "Agway"), and Planet Polymer Technologies, Inc., a California
corporation with offices at 9985 Businesspark Avenue, Suite A, San Diego,
California 92131 (hereinafter "Planet").
WHEREAS, Planet has developed technology relating to time-
release coatings and protective coatings; and
WHEREAS, Agway wishes to have Planet conduct product
feasibility work in connection with time-release coatings for a variety of
Agricultural Products (as hereafter defined) and in connection with protective
coatings for a variety of Food Products (as hereafter defined).
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS:
1.1 "Agricultural Products" shall mean products for use in Agriculture,
including, but not be limited to, animal feeds and other products
intended for animal consumption, but shall exclude Fertilizer Products,
as defined in 1.4 below, and Biological Products as defined in the
agreement between Planet and Agrium, Inc. dated January 30, 1995.
Agriculture shall mean the production of crops, livestock, dairy
products, poultry products, meats, and other products produced for
and/or produced from a farm operation.
1.2 "Food Products" shall mean products intended for human dietary
consumption, including, but not be limited to, dairy products, poultry
products, meat products, fruits and vegetables.
1.3 "Other Products" shall mean coated urea for melting ice at airports,
and packaging for Agricultural Products and Food Products.
1.4 "Fertilizer Products" shall mean plant nutrients and other products
intended for use in fertilizers, including the specific urea fertilizer
coating ("Enviroplastic CRT) developed by Planet for Agrium, Inc., as
covered by U.S. patent no. 5,803,946.
1.5 "Agway's Field of Business" shall mean the production, distribution
and/or marketing of Agricultural Products, Food Products, Other
Products and any other products as may be mutually agreed upon
in writing by Agway and Planet (individually a "Product" and
collectively the "Products").
<PAGE> 2
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1.6 "Affiliate" shall mean any company which, directly or indirectly is
controlled by, or controls, a party to this Agreement, or is under
common control with a party to this Agreement. Ownership of 50% or more
of the voting stock of, or membership interest in a company shall be
regarded as control.
1.7 "Control" shall mean possession of the ability to grant a license or
sublicense as provided for herein without violating the terms of any
agreement or other arrangement with any third party.
1.8 "Know-How" shall mean all know-how, trade secrets, inventions, data,
processes, techniques, procedures, compositions, devices, methods,
formulas, protocols and information, whether or not patentable, which
are not generally publicly known, including, without limitation, all
chemical, biochemical, toxicological, and scientific research
information.
1.9 "Commercially Feasible" shall mean a product that will generate a
minimum of $500,000.00 in net profits annually to be shared between
Planet and Agway, beginning no later than the second year following
product introduction.
1.10 "Patent Rights" shall mean all rights under patents and patent
applications, and any and all patents issuing therefrom (including
utility, model and design patents and certificates of invention),
together with any and all substitutions, extensions (including
supplemental protection certificates), registrations, confirmations,
reissues, divisionals, continuations, continuations-in-part,
re-examinations, renewals and foreign counterparts of the foregoing.
1.11 "Agway Know-How" shall mean all Know-How necessary or appropriate to
develop and commercialize Products for use in Agway's Field of
Business, and which is under the Control of Agway.
1.12 "Products" shall mean Agricultural Products, Food Products, Other
Products and any other products as may be mutually agreed upon in
writing by Agway and Planet.
1.13 "Planet Know-How" shall mean all Know-How related to Planet's
proprietary coating technology, which is not covered by the Planet
Patent Rights, but is necessary or appropriate to develop and
commercialize Products for use in Agway's Field of Business, and which
is under the Control of Planet as of the Effective Date.
1.14 "Planet Patent Rights" shall mean all Patent Rights that claim Planet's
proprietary coating technology, which are necessary or appropriate to
develop and commercialize Products for use in Agway's Field of
Business, and which are under the Control of Planet as of the Effective
Date.
1.15 "Planet Technology" shall mean the Planet Patent Rights and the Planet
Know-How.
<PAGE> 3
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1.16 "New Technology" shall mean Patent Rights and Know-How including, but
not limited to, new compositions of matter, new chemical complexes,
improved chemical complexes, association compounds, blends, mixtures or
compositions of coating materials, polymer materials and new products
or processes relating thereto, developed as a result of the Work
conducted under ARTICLE 2 of this Agreement, whether developed by
Planet alone or jointly with Agway, or by Agway alone as a result of
disclosures made to it by Planet in connection with such work.
ARTICLE 2
WORK TO BE PERFORMED:
2.1 The product feasibility work to be conducted by Planet under this
Agreement (hereafter the Work) is set forth in Exhibit 1 attached
hereto and hereby made a part hereof. Exhibit 1 sets forth the Work
initially contemplated, and may be amended from time to time by mutual
written agreement of the parties to recite additional Work to be
conducted by Planet. The conduct of the Work shall include regular
meetings between representatives of Planet and representatives of
Agway, during which Agway will offer comments on samples made from
blends of materials to be supplied to Agway by Planet.
2.2 If the performance characteristics set forth in Exhibit 1 are not met
by Planet, or reasonable progress is not made by Planet toward
achieving such performance characteristics, or the work being conducted
by Planet is not performed to Agway's reasonable satisfaction, then
Agway, in its sole judgment, shall have the right to terminate the Work
pursuant to Section 9.1b) and shall have no further obligation to
Planet with respect to any fees for Work remaining to be performed, as
outlined in Exhibit 1, provided, however, that Agway shall reimburse
Planet for all reasonable costs incurred or committed to in connection
with the Work prior to receipt of such notice of termination.
ARTICLE 3
WORK SCHEDULE:
The Work to be performed shall be conducted in accordance with the time
schedule set forth in Exhibit 1, attached hereto and hereby made a part
hereof. Planet will use reasonable commercial efforts to conduct the
Work set forth in Exhibit 1, and to complete the Work in accordance
with the time schedule set forth therein.
ARTICLE 4
<PAGE> 4
-4-
PAYMENTS:
4.1 Agway agrees to pay the fees as set forth in Exhibit 1, for performance
of the Work.
4.2 Agway also agrees to reimburse Planet for its reasonable costs for
travel and lodging in connection with the meetings contemplated under
ARTICLE 2.1, when incurred at the written request of Agway, and for the
reasonable cost of the coating materials and coated Products supplied
by Planet to Agway for alpha and beta testing in accordance with
Exhibit 1, including reasonable shipping and processing costs, and for
the cost of such independent laboratory tests as may be mutually agreed
upon by the parties in writing.
ARTICLE 5
OWNERSHIP:
5.1 The New Technology, including all inventions, whether patentable or
not, arising from the Work performed and to be performed under this
Agreement, shall be owned by Planet, or by such of its Affiliates as it
may designate from time to time.
5.2 Planet agrees (a) to promptly execute and file, or to cause to be
executed and filed any and all patent applications covering any of the
New Technology and relating to any matter determined by Agway and
Planet to be feasible, and (b) to require the inventors of such New
Technology who are employees or representatives of Planet to assign
such patent applications and the inventions disclosed therein to
Planet, or as Planet may direct, and to execute all such other
documents as may be reasonably necessary to confirm the ownership
rights of Planet in the subject matter of this ARTICLE 5. Agway
agrees (a) to require the inventors of any New Technology who are
employees or
<PAGE> 5
-5-
representatives of Agway to assign their rights to such New Technology to Agway,
and (b) to assign such New Technology to Planet.
5.3 With respect to any patent applications and patents covering the New
Technology, Planet shall be responsible for all costs and expenses
related to preparing, filing and prosecuting such patent applications
and paying all maintenance fees related to any such issued patents.
After any patents covering the New Technology have issued, Planet and
Agway shall share equally all costs and expenses related to the further
prosecution and any defense and enforcement of such patents (including,
if applicable, opposition proceedings related to any European patents,
re-examination of issued patents, interference proceedings and
declaratory judgements regarding invalidity of any such issued
patents). In the event that Planet desires to abandon any patent
application or patent covering the New Technology, or if Planet later
declines responsibility for any such patent application or patent,
Planet shall provide reasonable prior written notice to Agway of such
intention to abandon or decline responsibility, and Agway shall have
the right, at its own expense, to file, prosecute and maintain such
patent application or patent. In addition, Agway shall have the right,
at its own expense, to file, prosecute and maintain such patent
application or patent upon or after the bankruptcy, dissolution or
winding up of Planet. Agway may offset its costs and expenses in
connection with any such patent application or patent against any
royalties due Planet thereunder, in an amount not to exceed 5% of such
royalties, until the total of such costs and expenses, plus accrued
interest (at the rate of 1.5% per month, up to the maximum legal annual
interest rate) on the balance of such costs and expenses remaining
after each such royalty payment to Planet, has been recouped by Agway
in this manner.
5.4 If Agway and Planet mutually decide to protect some or all of the New
Technology under laws relating to trade secrets, the parties shall
cooperate with one another in achieving such trade secret protection.
ARTICLE 6
CONFIDENTIALITY:
The terms of the Mutual Non-Disclosure Agreement between Agway and
Planet, made as of August 6, 1998 (the "NDA"), a copy of which is
attached hereto as Exhibit 2, is hereby incorporated herein and made a
part hereof. Neither party shall terminate the NDA during the term of
the Agreement. Each party may use Confidential Information (as defined
in NDA) of the other party only to the extent necessary to accomplish
the purposes of this Agreement.
<PAGE> 6
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ARTICLE 7
RIGHT OF FIRST NEGOTIATION:
Planet shall provide written notice to Agway in the event Planet
desires to develop a product with a third party, or is approached by a
third party to develop a product, for use in Agway's Field of Business.
Such notice shall include an outline of anticipated funding needs, the
anticipated length of the product feasibility study and Planet's
desired result from such study. Agway shall have 30 days following
receipt of such notice to advise Planet whether Agway considers the
product to be Commercially Feasible, and whether Agway is interested in
such a product. Agway shall have another 30 days thereafter to
negotiate a product feasibility study on terms and conditions
acceptable to Planet, including financial terms under which Agway will
fund such product feasibility study. If the parties cannot agree to
such terms and conditions within such 30 day period, or if the parties
cannot agree whether the product is or is not Commercially Feasible,
the parties agree to submit the matter to arbitration under ARTICLE 18
and Planet agrees to take no further action with respect to such
product and feasibility study during the arbitration proceeding. If the
product is considered to be Commercially Feasible, and if Agway does
not express interest in such a product within the initial 30 day
period, (i) Planet may proceed with such a third party product
feasibility study and Agway shall have no rights in connection with
such product feasibility study or with respect to any product developed
thereunder (hereinafter a "Developed Product"), and (ii) Planet shall
have the right to grant an exclusive license to a third party under the
Planet Technology and the New Technology to make, have made, use or
sell such Developed Product in Agway's Field of Business. Any such
third party license shall be limited to such Developed Product and
shall not otherwise diminish Agway's rights with respect to the Planet
Technology and to the New Technology under this Agreement. Planet
agrees that it will not, during the term of this Agreement, proceed
with such a third party feasibility study if the product is not
considered to be Commercially Feasible.
ARTICLE 8
TERM:
8.1 Except as otherwise provided herein, this Agreement shall commence as
of the date of its execution and shall continue for 5 years following
such date.
8.2 This Agreement may be extended by mutual written agreement of the
parties.
<PAGE> 7
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ARTICLE 9
TERMINATION:
9.1 This Agreement may be terminated:
a) Upon mutual written agreement of the parties; or
b) By either party for breach of any of the material terms hereof
by the other party, if the breach is not corrected within
sixty (60) days after giving written notice of such breach to
the other party; or
c) By Agway on six months' prior written notice to Planet if, in
Agway's sole opinion, the continued conduct of the Work under
this Agreement is unprofitable or otherwise not viable for
Agway: provided, however, that Agway shall not have the right
to terminate the Agreement under this subparagraph c) until
the expiration of 3 years from the Effective Date; or
d) By Agway, forthwith, upon written notice to Planet if Planet
shall become insolvent or shall make an assignment for the
benefit of creditors, or shall be placed in receivership,
reorganization, liquidation or bankruptcy (voluntary or
involuntary); or
e) By Planet, forthwith, upon written notice to Agway if Agway
shall become insolvent or shall make an assignment for the
benefit of creditors, or shall be placed in receivership,
reorganization, liquidation or bankruptcy (voluntary or
involuntary); or
f) By Planet, if the business of Agway, subject to the terms of
this Agreement, by law, decree, ordinance or other
governmental action, is vested in, or is made subject to, the
control or direction of any governmental agent, officer or
appointee, or of any other person or firm not a party or an
Affiliate of a party to this agreement; or
g) By Agway, if the business of Planet, subject to the terms of
this Agreement, by law, decree, ordinance or other
governmental action, is vested in, or is made subject to, the
control or direction of any governmental agent, officer or
appointee, or of any other person or firm not a party or an
Affiliate of a party to this Agreement; or
h) By Agway, in Agway's sole discretion forthwith upon written
notice to Planet if the shareholders of Planet do not approve
at a special meeting of its
<PAGE> 8
-8-
shareholders called for such purpose (A) the purchase by Agway
Holdings, Inc. ("AHI") of 1,000,000 shares of Planet's common
stock pursuant to a Stock Purchase Agreement between AHI and
Planet dated on or about the date of this Agreement (the
"Stock Agreement"), (B) the Warrant and the Warrant Shares (as
such terms are defined in the Stock Agreement) and (C) the
other transactions provided for in the Stock Agreement, or if
the Initial Closing (as defined in the Stock Agreement) shall
not have occurred on or before January 31, 1999 or such later
date as the parties may agree upon in writing ("Termination
Date"). If this Agreement is terminated as hereinabove
provided, then Planet shall repay to Agway all amounts paid by
Agway or any Affiliate of Agway under this Agreement on the
Termination Date.
9.2 Any termination pursuant to ARTICLE 9 shall not relieve either party of
any obligation or liability accrued under this Agreement prior to such
termination, or rescind or give rise to any right to rescind anything
done or, except as provided for in Section 9.1 h), to recover any
payments made or other consideration given under this Agreement prior
to the time such termination becomes effective, and such termination
shall not affect in any manner any rights arising under this Agreement
prior to such termination.
9.3 The Mutual Non-Disclosure Agreement attached as Exhibit 2 shall remain
in effect following the termination of this Agreement, in accordance
with its terms.
9.4 The provisions of ARTICLES 1, 5, 6, 9, 10.3, 10.4, 13, 14, 18, 20, 21
and 22 shall survive termination of this Agreement.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES:
10.1 Planet represents and warrants that:
a) It has authority to enter into this Agreement, and doing so
will not violate any agreements to which it is a party.
b) It has all necessary government licenses and approvals
required to conduct its business.
c) It has no knowledge of any impediment to its performance of
this Agreement.
<PAGE> 9
-9-
10.2 Agway represents and warrants that:
a) It has authority to enter into this Agreement, and doing so
will not violate any agreements to which it is a party.
b) It has all necessary government licenses and approvals
required to conduct its business.
c) It has no knowledge of any impediment to its performance of
this Agreement.
10.3 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES
ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY KIND, EXPRESS
OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
10.4 NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY
SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, CONSEQUENTIAL, OR PUNITIVE
DAMAGES IN CONNECTION WITH THIS AGREEMENT OR ANY WORK PERFORMED
HEREUNDER.
ARTICLE 11
NOTICES:
All notices or other communications required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have
been sufficiently given when delivered in person, or when deposited
with the United States Postal Service or Canada Post, first-class,
registered or certified mail, postage prepaid, or by fax (upon
confirmation of receipt) addressed as follows:
AGWAY:
Agway Consumer Products, Inc.
P.O. Box 4933
Syracuse, New York 13221-4933
FAX: (315) 449-6253
<PAGE> 10
-10-
Attention: Dennis LaHood
PLANET:
Planet Polymer Technologies, Inc.
9985 Businesspark Avenue, Suite A
San Diego, California U.S. 92131
FAX: (619) 549-5133
Attention: Robert J. Petcavich
or to such other address or individual as either party may
specify from time to time in writing.
ARTICLE 12
ASSIGNMENT:
This Agreement shall be binding on and inure to the benefit of the
parties to this Agreement and their successors and permitted assigns,
provided no assignment shall relieve the assigning party of its
obligations under this Agreement. The rights, duties, privileges and
obligations of each party under this Agreement shall not be assigned or
delegated without the prior written consent of the other party (which
consent shall not be unreasonably withheld); provided, however, that
either party may assign this Agreement and its rights and obligations
hereunder without the other party's consent (a) in connection with the
transfer or sale of all or substantially all of the business of such
party to which this Agreement relates to another party, whether by
merger, sale of stock, sale of assets or otherwise, or (b) to any
Affiliate. Any assignment not in accordance with this Agreement shall
be void.
ARTICLE 13
NO REFUND OR PAYMENTS:
All sums paid by Agway to Planet under this Agreement shall not be
refundable for any purpose, except for excess payment made due to
computational errors.
<PAGE> 11
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ARTICLE 14
LITIGATION:
14.1 Planet shall have no obligation to enforce rights under its patents
and/or trade secrets for the benefit of Agway or otherwise; nor shall
Planet have any obligation to defend or indemnify Agway or its
Affiliates in respect of any activities of Agway and/or its Affiliates
under this Agreement.
14.2 Agway shall have no obligation to enforce rights under its patents
and/or trade secrets for the benefit of Planet or otherwise; nor shall
Agway have any obligation to defend or indemnify Planet or its
Affiliates in respect of any activities of Planet and/or its Affiliates
under this Agreement.
ARTICLE 15
PRODUCT LIABILITY:
15.1 Agway shall hold Planet and its Affiliates harmless, and shall defend
and indemnify Planet and its Affiliates against any product liability
claim made against Planet or its Affiliates arising out of the
activities of Agway and/or its Affiliates under this Agreement.
15.2 Planet shall hold Agway and its Affiliates harmless, and shall defend
and indemnify Agway and its Affiliates against any product liability
claim made against Agway or its Affiliates arising out of the
activities of Planet and/or its Affiliates under this Agreement.
15.3 In the event either party seeks indemnification under this ARTICLE 15,
it shall inform the other party of a claim as soon as reasonably
practicable after it receives notice of the claim, shall permit the
other party to assume direction and control of the defense of the claim
(including the right to settle the claim solely for monetary
consideration), and shall cooperate as requested (at the expense of the
other party) in the defense of the claim.
ARTICLE 16
NON-WAIVER:
The failure by any party to this Agreement, at any time, to enforce or
to require strict compliance of performance by any other party of any
of the provisions of this Agreement shall not constitute a waiver of
such provisions and shall not affect or
<PAGE> 12
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impair in any way its rights at any time to enforce such provisions or
to avail itself of such remedies as it may have for any breach thereof.
ARTICLE 17
SEVERABILITY:
If any provision hereof is held invalid or unenforceable by a court of
competent jurisdiction, it shall be considered severed from this
Agreement and shall not serve to invalidate or render unenforceable the
remaining provisions hereof.
ARTICLE 18
ENTIRE AGREEMENT; AMENDMENT:
This Agreement constitutes the entire understanding between the parties
with respect to the subject matter hereof. No waiver, modification or
amendment of any terms of this Agreement shall be valid unless made in
writing specifying such waiver, modification, or amendment and signed
by the parties hereto.
ARTICLE 19
FORCE MAJEURE:
Neither party shall be held liable or responsible to the other party
nor be deemed to have defaulted under or breached this Agreement for
failure or delay in fulfilling or performing any term of this Agreement
(other than non-payment) when such failure or delay is caused by or
results from causes beyond the reasonable control of the affected
party, including, but not limited to, fire, floods, embargoes, war,
acts of war (whether war be declared or not), insurrections, riots,
civil commotions, strikes, lockouts or other labor disturbances, acts
of God or acts, omissions or delays in acting by any governmental
authority or the other party.
ARTICLE 20
DISPUTE RESOLUTION AND CHOICE OF LAW:
20.1 This Agreement will be governed by and interpreted in accordance with
the laws of the State of New York, U.S.A., without regard to its choice
of law provisions.
<PAGE> 13
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20.2 If any dispute arises between the parties relating to the
interpretation, breach or performance of this Agreement or the grounds
for the termination thereof, and the parties cannot resolve the dispute
within 30 days of a written request by either party to the other party,
the parties agree to hold a meeting, attended by a Vice President or
President of each party, to attempt in good faith to negotiate a
resolution of the dispute prior to pursuing other available remedies.
If, within 60 days after such written request, the parties have not
succeeded in negotiating a resolution of the dispute, such dispute
shall be submitted to final and binding arbitration under the then
current commercial rules and regulations of the American Arbitration
Association ("AAA") relating to voluntary arbitrations. The arbitration
proceedings shall be held in Buffalo, New York. The arbitration shall
be conducted by one arbitrator, who is knowledgeable in the subject
matter at issue in the dispute and who shall be selected by mutual
agreement of the parties or, failing such agreement, shall be selected
in accordance with the AAA rules. Each party shall initially bear its
own costs and legal fees associated with such arbitration. The
prevailing party in any such arbitration shall be entitled to recover
from the other party the reasonable attorneys' fees, costs, and
expenses incurred by such prevailing party in connection with such
arbitration. The decision of the arbitrator shall be final and binding
on the parties. The arbitrator shall prepare and deliver the parties a
written, reasoned opinion conferring its decision. Judgment on the
award so rendered may be entered in any court having competent
jurisdiction thereof.
ARTICLE 21
NO AGENCY:
It is expressly agreed that Planet and Agway shall be independent
contractors and that the relationship between the two parties shall not
constitute a partnership or agency of any kind. Neither Planet nor
Agway shall have the authority to make any statements, representations,
or commitments of any kind, or to take any action, which shall be
binding on the other party, without the prior written consent of the
other party.
ARTICLE 22
COUNTERPARTS:
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first set forth above.
AGWAY CONSUMER PRODUCTS, INC.
By:
--------------------------------
Title:
PLANET POLYMER TECHNOLOGIES INC.
By:
--------------------------------
Title:
<PAGE> 1
EXHIBIT 10.20
LICENSE AGREEMENT
This Agreement is made effective the 12th day of November,
1998 (the "Effective Date"), by and between Agway Consumer Products, Inc., a
Delaware corporation with offices at 333 Butternut Drive, Dewitt, New York 13214
(hereinafter "Agway"), and Planet Polymer Technologies, Inc., a California
corporation with offices at 9985 Businesspark Avenue, Suite A, San Diego,
California 92131 (hereinafter "Planet").
WHEREAS, Planet ha develope technology relating to time-
release coatings and protective coatings; and
WHEREAS, Agway wishes to receive an exclusive, worldwide
license from Planet in connection with time-release coatings for a variety of
Agricultural Products (as hereafter defined) and in connection with protective
coatings for a variety of Food Products (as hereafter defined).
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS:
1.1 "Agricultural Products" shall mean products for use in Agriculture,
including, but not be limited to, animal feeds and other products
intended for animal consumption, but shall exclude Fertilizer Products,
as defined in 1.4 below, and Biological Products as defined in the
agreement between Planet and Agrium, Inc. dated January 30, 1995.
Agriculture shall mean the production of crops, livestock, dairy
products, poultry products, meats, and other products produced for
and/or produced from a farm operation.
1.2 "Food Products" shall mean products intended for human dietary
consumption, including, but not be limited to, dairy products, poultry
products, meat products, fruits and vegetables.
1.3 "Other Products" shall mean coated urea for melting ice at airports,
and packaging for Agricultural Products and Food Products.
1.4 "Fertilizer Products" shall mean plant nutrients and other products
intended for use in fertilizers, including the specific urea fertilizer
coating ("Enviroplastic CRT") developed by Planet for Agrium, Inc., as
covered by U.S. Patent no. 5,803,946.
1.5 "Agway's Field of Business" shall mean the production, distribution
and/or marketing of Agricultural Products, Food Products, Other
Products and any other products as may be mutually agreed upon
in writing by Agway and Planet (individually a "Product", and
collectively the "Products").
<PAGE> 2
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1.6 "Affiliate" shall mean any company which, directly or indirectly, is
controlled by, or controls, a party to this Agreement, or is under
common control with a party to this Agreement. Ownership of 50% or more
of the voting stock of, or membership interest in a company shall be
regarded as control.
1.7 "Control" shall mean possession of the ability to grant a license or
sublicense as provided for herein without violating the terms of any
agreement or other arrangement with any third party.
1.8 "Know-How" shall mean all know-how, trade secrets, inventions, data,
processes, techniques, procedures, compositions, devices, methods,
formulas, protocols and information, whether or not patentable, which
are not generally publicly known, including, without limitation, all
chemical, biochemical, toxicological, and scientific research
information.
1.9 "Commercially Feasible" shall mean a product that will generate a
minimum of $500,000.00 in net profits annually to be shared between
Planet and Agway, beginning no later than the second year following
product introduction.
1.10 "Patent Rights" shall mean all rights under patents and patent
applications, and any and all patents issuing therefrom (including
utility, model and design patents and certificates of invention),
together with any and all substitutions, extensions (including
supplemental protection certificates), registrations, confirmations,
reissues, divisionals, continuations, continuations-in-part,
re-examinations, renewals and foreign counterparts of the foregoing.
1.11 "Agway Know-How" shall mean all Know-How necessary or appropriate to
develop and commercialize Products for use in Agway's Field of
Business, and which is under the Control of Agway.
1.12 "Products" shall mean Agricultural Products, Food Products, Other
Products and any other products as may be mutually agreed upon in
writing by Agway and Planet.
1.13 "Planet Know-How" shall mean all Know-How related to Planet's
proprietary coating technology, which is not covered by the Planet
Patent Rights, but is necessary or appropriate to develop and
commercialize Products for use in Agway's Field of Business, and which
is under the Control of Planet as of the Effective Date.
<PAGE> 3
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1.14 "Planet Patent Rights" shall mean all Patent Rights that claim Planet's
proprietary coating technology, which are necessary or appropriate to
develop and commercialize Products for use in Agway's Field of
Business, and which are under the Control of Planet as of the Effective
Date.
1.15 "Planet Technology" shall mean the Planet Patent Rights and the Planet
Know-How.
1.16 "New Technology" shall mean Patent Rights and Know-How including, but
not limited to, new compositions of matter, new chemical complexes,
improved chemical complexes, association compounds, blends, mixtures or
compositions of coating materials, polymer materials and new products
or processes relating thereto, developed as a result of the Work
conducted under ARTICLE 2 of the Product Feasibility Agreement entered
into between the parties hereto as of the effective date hereof,
whether developed by Planet alone or jointly with Agway, or by Agway
alone as a result of disclosures made to it by Planet in connection
with such work.
ARTICLE 2
LICENSES; NON-COMPETITION; DUE DILIGENCE:
2.1 Subject to the terms and conditions of this Agreement, Planet hereby
grants to Agway an exclusive, worldwide license under the Planet
Technology to use and sell Products in Agway's Field of Business. The
license granted to Agway under this paragraph 2.1 shall include the
right to grant sublicenses to third parties covering Planet Technology
to the extent necessary to use or sell Products incorporating the New
Technology in Agway's Field of Business.
2.2 Subject to the terms and conditions of this Agreement, Planet hereby
grants to Agway an exclusive, worldwide license under the New
Technology to use and sell Products in Agway's Field of Business. The
license granted to Agway under this paragraph 2.2 shall include the
right to grant sublicenses to third parties, in Agway's sole
discretion. Agway shall notify any sublicensees hereunder of all rights
and obligations of Agway under this Agreement which are sublicensed to
such sublicensee and shall notify Planet within 30 days of the grant of
any sublicense hereunder.
2.3 Subject to the terms and conditions of this Agreement, with respect to
Products which revert to Planet pursuant to Section 2.4, or pursuant to
the terms of any sub-agreement contemplated by ARTICLE 4 hereof, Agway
hereby grants to Planet a non-exclusive, worldwide, fully-paid,
royalty-free license under the Agway Know-How to make, have made, use
and sell such Products in Agway's Field of Business.
2.4 Agway shall not market, sell or distribute any polymer coated product
(either directly or indirectly) in Agway's Field of Business which is
directly competitive with any Product. In the event Agway markets,
sells or distributes any polymer coated product
<PAGE> 4
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which is directly competitive with a Product, all rights granted to
Agway under this Agreement with respect to such Product and any other
license of any Planet Technology or New Technology related thereto
shall revert to Planet and Agway shall have no further right to use,
market, sell or distribute such Product. Planet agrees that no products
sold by Agway either currently or within the immediately preceding 12
months shall be considered to be "competitive" within the meaning of
this Section 2.4. Planet shall not market, sell or distribute any
polymer coated product (either directly or indirectly) in Agway's Field
of Business which is directly competitive with any Product.
2.5 Planet shall provide written notice to Agway in the event Planet
desires to develop a product with a third party, or is approached by a
third party to develop a product, for use in Agway's Field of Business.
Such notice shall include an outline of anticipated funding needs, the
anticipated length of the product feasibility study and Planet's
desired result from such study. Agway shall have 30 days following
receipt of such notice to advise Planet whether Agway considers the
product to be Commercially Feasible, and whether Agway is interested in
such a product. Agway shall have another 30 days thereafter to
negotiate a product feasibility study on terms and conditions
acceptable to Planet, including financial terms under which Agway will
fund such product feasibility study. If the parties cannot agree to
such terms and conditions within such 30 day period, or if the parties
cannot agree whether the product is or is not Commercially Feasible,
the parties agree to submit the matter to arbitration under ARTICLE 18
and Planet agrees to take no further action with respect to such
product and feasibility study during the arbitration proceeding. If the
product is considered to be Commercially Feasible, and if Agway does
not express interest in such a product within the initial 30 day
period, (i) Planet may proceed with such a third party product
feasibility study and Agway shall have no rights in connection with
such product feasibility study or with respect to any product developed
thereunder (hereinafter a "Developed Product"), and (ii) Planet shall
have the right to grant an exclusive license to a third party under the
Planet Technology and the New Technology to make, have made, use or
sell such Developed Product in Agway's Field of Business. Any such
third party license shall be limited to such Developed Product and
shall not otherwise diminish Agway's rights with respect to the Planet
Technology and to the New Technology under this Agreement. Planet
agrees that it will not, during the term of this Agreement, proceed
with such a third party feasibility study if the product is not
considered to be Commercially Feasible.
<PAGE> 5
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2.6 Planet shall provide written notice to Agway in the event Planet
develops, totally independently of Agway, a product which demonstrates
efficacy for use in Agway's Field of Business. Agway shall have 90 days
following receipt of such notice from Planet to advise Planet whether
Agway considers the product to be Commercially Feasible, and to submit
a commercialization plan to Planet with respect to such product. Agway
shall have 60 days following Planet's receipt of such commercialization
plan to negotiate commercially reasonable license terms acceptable to
Planet with respect to such product. If the parties cannot agree to
license terms within the following 60-day period, or if the parties
cannot agree whether the product is or is not Commercially Feasible,
the parties agree to submit the matter to arbitration under ARTICLE 18
and Planet agrees to take no further action with respect to such
product during such arbitration proceeding. In the event (a) Agway
fails to provide a commercialization plan to Planet within such 90-day
period, and (b) the product is considered to be Commercially Feasible,
then (i) Agway shall have no rights to such product under this
Agreement and (ii) Planet shall have no further obligation to Agway
under this Agreement with respect to such product and shall have the
right to grant an exclusive license to a third party under the Planet
Technology and the New Technology to make, have made, use or sell such
product in Agway's Field of Business. Any such third party license
shall be limited to such product and shall not otherwise diminish
Agway's rights with respect to the Planet Technology and the New
Technology under this Agreement. Planet agrees that it will not, during
the term of this Agreement, commercialize such a product in Agway's
Field of Business if it is not considered to be Commercially Feasible.
Notwithstanding the foregoing, the notice set forth in this provision
shall not be required with respect to any product developed under a
product feasibility study, if Planet has complied with the procedures
set forth in Section 2.5.
2.7 If Planet is unwilling or unable to supply Agway's commercially
reasonable requirements of a Product which Agway has decided to market,
the licenses granted Agway under Sections 2.1 and 2.2 above shall be
extended to include a non-exclusive, worldwide license to make and have
made such Product, automatically without further action on the part of
either party to the extent necessary to compensate for Planet's
unwillingness or inability to supply Agway's requirements on
commercially reasonable terms including, without limitation, economies
of scale. If Planet subsequently becomes willing and able to supply all
or a portion of Agway's commercially reasonable requirements of such
Product, the parties agree that the transfer to Planet as supplier
shall take into account any contractual obligations of Agway to others.
<PAGE> 6
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ARTICLE 3
CONFIDENTIALITY:
The terms of the Mutual Non-Disclosure Agreement between Agway and
Planet, made as of August 6, 1998 (the "NDA"), a copy of which is
attached hereto as Exhibit 1, is hereby incorporated herein and made a
part hereof. Neither party shall terminate the NDA during the term of
the Agreement. Each party may use Confidential Information (as defined
in NDA) of the other party only to the extent necessary to accomplish
the purposes of this Agreement.
ARTICLE 4
ROYALTY:
The parties agree that a reasonable royalty for the licenses granted
Agway under this Agreement will depend upon various factors, including
the nature of the particular Product being marketed and the particular
market area. Accordingly, when Agway decides, in its sole discretion,
to market a particular Product developed as a result of the Product
Feasibility Agreement entered into between the parties hereto as of the
effective date hereof, or otherwise involving Agway, in a particular
area, the parties shall enter into a sub-agreement on commercially
reasonable terms mutually acceptable to the parties covering such
Product and market area, in the form of the sub-agreement set forth in
Exhibit 2 attached hereto and hereby incorporated herein and made a
part hereof. Agway agrees that: (a) once such a Product has been
developed which the parties agree can be reasonably expected to
generate a minimum of $1,000,000.00 in net profits annually, shared
between Planet and Agway; it will, (b) upon written request by Planet,
present to Planet a Schedule for the marketing thereof, in the form of
Exhibit 2, within one year from the date of receiving such request. All
of the terms of this Agreement shall apply to each such sub-agreement,
to the extent they are not inconsistent therewith. Any dispute between
the parties with respect to the terms of any sub-agreement shall be
resolved by arbitration pursuant to ARTICLE 18.
<PAGE> 7
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ARTICLE 5
TERM:
5.1 Except as otherwise provided herein, this Agreement shall commence as
of the date of its execution and shall continue until the expiration of
the last to expire of any patents covering the Planet Technology and/or
the New Technology.
5.2 This Agreement may be extended by mutual written agreement of the
parties.
ARTICLE 6
TERMINATION:
6.1 This Agreement may be terminated:
a) Upon mutual written agreement of the parties; or
b) By either party for material breach of any of the terms hereof
by the other party, if the breach is not corrected within
sixty (60) days after giving written notice of such breach to
the other party, it being understood and agreed that the
failure by Agway to meet performance standards in any
individual subagreement of Exhibit 2 shall not be considered a
material breach; or
c) By Agway on six months' prior written notice to Planet if, in
Agway's sole opinion, the continued marketing and sale of
Products under this Agreement is unprofitable or otherwise not
viable for Agway: provided, however, that Agway shall not have
the right to terminate the Agreement under this subparagraph
until the expiration of 3 years from the Effective Date first
above written; or
d) By Agway, forthwith, upon written notice to Planet if Planet
shall become insolvent or shall make an assignment for the
benefit of creditors, or shall be placed in receivership,
reorganization, liquidation or bankruptcy (voluntary or
involuntary); or
e) By Planet, forthwith, upon written notice to Agway if Agway
shall become insolvent or shall make an assignment for the
benefit of creditors, or shall be placed in receivership,
reorganization, liquidation or bankruptcy (voluntary or
involuntary); or
<PAGE> 8
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f) By Planet, if the business of Agway, subject to the terms of
this Agreement, by law, decree, ordinance or other
governmental action, is vested in, or is made subject to, the
control or direction of any governmental agent, officer or
appointee, or of any other person or firm not a party or an
Affiliate of a party to this Agreement; or
g) By Agway, if the business of Planet, subject to the terms of
this Agreement, by law, decree, ordinance or other
governmental action, is vested in, or is made subject to, the
control or direction of any governmental agent, officer or
appointee, or of any other person or firm not a party or an
Affiliate of a party to this Agreement; or
h) By Agway, in Agway's sole discretion forthwith upon written
notice to Planet if the shareholders of Planet do not approve
at a special meeting of its shareholders called for such
purpose (A) the purchase by Agway Holdings, Inc. ("AHI") of
1,000,000 shares of Planet's common stock pursuant to a Stock
Purchase Agreement between AHI and Planet dated on or about
the date of this Agreement (the "Stock Agreement"), (B) the
Warrant and the Warrant Shares as such terms are defined in
the Stock Agreement) and (C) the other transactions provided
for in the Stock Agreement, or if the Initial Closing (as
defined in the Stock Agreement) shall not have occurred on or
before January 31, 1999 or such later date as the parties may
agree upon in writing ("Termination Date"). If this Agreement
is terminated as hereinabove provided, then Planet shall repay
to Agway all amounts paid by Agway or any Affiliate of Agway
under this Agreement on the Termination Date.
6.2 Any termination pursuant to ARTICLE 6.1 shall not relieve either party
of any obligation or liability accrued under this Agreement prior to
such termination, or rescind or give rise to any right to rescind
anything done or, except as provided for in Section 6.1 h), to recover
any payments made or other consideration given under this Agreement
prior to the time such termination becomes effective, and such
termination shall not affect in any manner any rights arising under
this Agreement prior to such termination.
6.3 The Mutual Non-Disclosure Agreement attached as Exhibit 1 shall remain
in effect following the termination of this Agreement, in accordance
with its terms.
6.4 In the event of termination of this Agreement for any reason, Agway
shall have three months following the date of termination within which
to dispose of inventory incorporating the Planet Technology and/or the
New Technology and to fulfill orders received therefor prior to the
termination date, subject to the payment of royalties as provided in
ARTICLE 5 above.
6.5 The provisions of ARTICLES 1, 3, 6, 8.3, 8.4, 11, 12, 13, 14, 15, 16,
17, 18, 19, and 20 shall survive expiration or termination of this
Agreement.
<PAGE> 9
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ARTICLE 7
PATENT MARKING; INTELLECTUAL PROPERTY RIGHTS:
7.1 Agway and its Affiliates will use commercially reasonable efforts to
affix and/or to require its or their distributors to affix to
packaging, or in the case of bulk distribution to the accompanying
documents, for the Products a notice complying with all applicable
patent marking laws in the country or countries in which the Products
are made and the country or countries in which the Products are
distributed and sold. Planet shall from time to time inform Agway of
the appropriate patent marking in respect of Planet Technology and New
Technology.
7.2 With respect to any patent applications and patents covering the Planet
Technology and the New Technology, Planet shall be responsible for all
costs and expenses related to preparing, filing and prosecuting such
patent applications and paying all maintenance fees related to any such
issued patents. After any patents covering the Planet Technology and
the New Technology have issued, Planet and Agway shall share equally
all costs and expenses related to the further prosecution and any
defense and enforcement of such patents (including, if applicable,
opposition proceedings related to any European patents, re-examination
of issued patents, interference proceedings and declaratory judgements
regarding invalidity of any such issued patents). In the event that
Planet desires to abandon any patent application or patent covering the
Planet Technology or the New Technology, or if Planet later declines
responsibility for any such patent application or patent, Planet shall
provide reasonable prior written notice to Agway of such intention to
abandon or decline responsibility, and Agway shall have the right, at
its own expense, to file, prosecute and maintain such patent
application or patent. In addition, Agway shall have the right, at its
own expense, to file, prosecute and maintain such patent application or
patent upon or after the bankruptcy, dissolution or winding up of
Planet. Agway may offset its costs and expenses in connection with any
such patent application or patent against any royalties due Planet
thereunder, in an amount not to exceed 5% of such royalties, until the
total of such costs and expenses, plus accrued interest (at the rate of
1.5% per month, up to the maximum legal annual interest rate) on the
balance of such costs and expenses remaining after each such royalty
payment to Planet, has been recouped by Agway in this manner.
7.3 Each party agrees to cooperate fully in the preparation, filing, and
prosecution of any patent applications under this Agreement. Such
cooperation includes, but is not limited
<PAGE> 10
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to: (a) executing all papers and instruments, or requiring its
employees or agents, to execute such papers and instruments, so as to
effectuate the ownership of such patent applications (and inventions
covered by such patent applications) and to enable the other party to
apply for and to prosecute patent applications in any country, and (b)
promptly informing the other party of any matters coming to such
party's attention that may affect the preparation, filing, or
prosecution of any such patent applications.
7.4 Planet and Agway shall promptly notify the other in writing of any
allegation by a third party that the activity of either of the parties
under this Agreement infringes or may infringe the intellectual
property rights of such third party. Planet shall have the right to
control the defense of any claims with respect to the Planet Technology
or the New Technology by counsel of its own choice. If Planet fails to
proceed in a timely fashion with regard to the defense of any claims
with respect to the Planet Technology or the New Technology, Agway
shall have the right to control any such defense of such claim by
counsel of its own choice, and Planet shall have the right to be
represented in any such action by counsel of its own choice. Neither
party shall have the right to settle any patent infringement litigation
under this Section 7.4 in a manner that diminishes the rights or
interests of the other party or obligates the other party to make any
payment or take any action without the consent of such other party.
7.5 Planet and Agway shall promptly notify the other in writing of any
alleged or threatened infringement of any patent included in the Planet
Technology or the New Technology of which they become aware. Both
parties shall use their best efforts in cooperating with each other to
terminate such infringement without litigation. Planet shall have the
right to bring and control any action or proceeding with respect to
infringement of any patent included in the Planet Technology or the New
Technology by counsel of its own choice. With respect to infringement
of any patent included in the Planet Technology or the New Technology,
if Planet fails to bring an action or proceeding within (a) 90 days
following the notice of alleged infringement or (b) 10 days before the
time limit, if any, set forth in the appropriate laws and regulations
for the filing of such actions, whichever comes first, Agway shall have
the right to bring and control any such action by counsel of its own
choice, and Planet shall have the right to be represented in any such
action by counsel of its own choice. In the event a party brings an
infringement action, the other party shall cooperate fully, including
if required to bring such action, the furnishing of a power of
attorney. Neither party shall have the right to settle any patent
infringement litigation under this Section 7.5 in a manner that
diminishes the rights or interests of the other party without the prior
written consent of such other party. Except as otherwise agreed to by
the parties as part of a cost sharing arrangement, any recovery
realized as a result of such litigation, after reimbursement of any
litigation expenses of Planet and Agway, shall belong to the party who
brought the action.
<PAGE> 11
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ARTICLE 8
REPRESENTATIONS AND WARRANTIES:
8.1 Planet represents and warrants that:
a) It has authority to enter into this Agreement, and doing so
will not violate any agreements to which it is a party.
b) It has all necessary government licenses and approvals
required to conduct its business.
c) It has no knowledge of any impediment to its performance of
this Agreement.
8.2 Agway represents and warrants that:
a) It has authority to enter into this Agreement, and doing so
will not violate any agreements to which it is a party.
b) It has all necessary government licenses and approvals
required to conduct its business.
c) It has no knowledge of any impediment to its performance of
this Agreement.
8.3 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES
ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY KIND, EXPRESS
OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
8.4 NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY
SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, CONSEQUENTIAL, OR PUNITIVE
DAMAGES IN CONNECTION WITH THIS AGREEMENT OR ANY WORK PERFORMED
HEREUNDER.
ARTICLE 9
NOTICES:
<PAGE> 12
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All notices or other communications required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have
been sufficiently given when delivered in person, or when deposited
with the United States Postal Service or Canada Post, first-class,
registered or certified mail, postage prepaid, or by fax (upon
confirmation of receipt), addressed as follows:
AGWAY:
Agway Consumer Products, Inc.
P.O. Box 4933
Syracuse, New York 13221-4933
FAX: (315) 449-6253
Attention: Dennis LaHood
PLANET:
Planet Polymer Technologies, Inc.
9985 Businesspark Avenue, Suite A
San Diego, California U.S. 92131
FAX: (619) 549-5133
Attention: Robert J. Petcavich
or to such other address or individual as either party may specify from
time to time in writing.
ARTICLE 10
ASSIGNMENT:
This Agreement shall be binding on and inure to the benefit of the
parties to this Agreement and their successors and permitted assigns,
provided no assignment shall relieve the assigning party of its
obligations under this Agreement. The rights, duties, privileges and
obligations of each party under this Agreement shall not be assigned or
delegated without the prior written consent of the other party (which
consent shall not be unreasonably withheld); provided, however, that
either party may assign this Agreement and its rights and obligations
hereunder without the other party's consent (a) in connection with the
transfer or sale of all or substantially all of the business of such
party to which this Agreement relates to another party, whether by
merger, sale of stock, sale of assets or otherwise, or (b) to any
Affiliate. Any assignment not in accordance with this Agreement shall
be void.
<PAGE> 13
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ARTICLE 11
NO REFUND OR PAYMENTS:
Royalties and all other sums paid by Agway to Planet under this
Agreement shall not be refundable for any purpose, except for excess
payment made due to computational errors.
<PAGE> 14
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ARTICLE 12
LITIGATION:
12.1 Planet shall have no obligation to enforce rights under its patents
and/or trade secrets for the benefit of Agway or otherwise; nor shall
Planet have any obligation to defend or indemnify Agway or its
Affiliates in respect of any activities of Agway and/or its Affiliates
under this Agreement.
12.2 Agway shall have no obligation to enforce rights under its patents
and/or trade secrets for the benefit of Planet or otherwise; nor shall
Agway have any obligation to defend or indemnify Planet or its
Affiliates in respect of any activities of Planet and/or its Affiliates
under this Agreement.
ARTICLE 13
PRODUCT LIABILITY:
13.1 Agway shall hold Planet and its Affiliates harmless, and shall defend
and indemnify Planet and its Affiliates against any product liability
claim made against Planet or its Affiliates arising out of the
activities of Agway and/or its Affiliates under this Agreement.
13.2 Planet shall hold Agway and its Affiliates harmless, and shall defend
and indemnify Agway and its Affiliates against any product liability
claim made against Agway or its Affiliates arising out of the
activities of Planet and/or its Affiliates under this Agreement.
13.3 In the event either party seeks indemnification under this ARTICLE 13,
it shall inform the other party of a claim as soon as reasonably
practicable after it receives notice of the claim, shall permit the
other party to assume direction and control of the defense of the claim
(including the right to settle the claim solely for monetary
consideration), and shall cooperate as requested (at the expense of the
other party) in the defense of the claim.
<PAGE> 15
-15-
ARTICLE 14
NON-WAIVER:
The failure by any party to this Agreement, at any time, to enforce or
to require strict compliance of performance by any other party of any
of the provisions of this Agreement shall not constitute a waiver of
such provisions and shall not affect or impair in any way its rights at
any time to enforce such provisions or to avail itself of such remedies
as it may have for any breach thereof.
ARTICLE 15
SEVERABILITY:
If any provision hereof is held invalid or unenforceable by a court of
competent jurisdiction, it shall be considered severed from this
Agreement and shall not serve to invalidate or render unenforceable the
remaining provisions hereof.
ARTICLE 16
ENTIRE AGREEMENT; AMENDMENT:
This Agreement constitutes the entire understanding between the parties
with respect to the subject matter hereof. No waiver, modification or
amendment of any terms of this Agreement shall be valid unless made in
writing specifying such waiver, modification, or amendment and signed
by the parties hereto.
ARTICLE 17
FORCE MAJEURE:
Neither party shall be held liable or responsible to the other party
nor be deemed to have defaulted under or breached this Agreement for
failure or delay in fulfilling or performing any term of this Agreement
(other than non-payment) when such failure or delay is caused by or
results from causes beyond the reasonable control of the affected
party, including, but not limited to, fire, floods, embargoes, war,
acts of war (whether war be declared or not), insurrections, riots,
civil commotions, strikes, lockouts or other labor disturbances, acts
of God or acts, omissions or delays in acting by any governmental
authority or the other party.
<PAGE> 16
-16-
ARTICLE 18
DISPUTE RESOLUTION AND CHOICE OF LAW:
18.1 This Agreement will be governed by, and interpreted and enforced in
accordance with the laws of the State of New York, U.S.A., without
regard to its choice of law provisions.
18.2 If any dispute arises between the parties relating to the
interpretation, breach or performance of this Agreement or the grounds
for the termination thereof, and the parties cannot resolve the dispute
within 30 days of a written request by either party to the other party,
the parties agree to hold a meeting, attended by a Vice President or
President of each party, to attempt in good faith to negotiate a
resolution of the dispute prior to pursuing other available remedies.
If, within 60 days after such written request, the parties have not
succeeded in negotiating a resolution of the dispute, such dispute
shall be submitted to final and binding arbitration under the then
current commercial rules and regulations of the American Arbitration
Association ("AAA") relating to voluntary arbitrations. The arbitration
proceedings shall be held in Buffalo, New York. The arbitration shall
be conducted by one arbitrator, who is knowledgeable in the subject
matter at issue in the dispute and who shall be selected by mutual
agreement of the parties or, failing such agreement, shall be selected
in accordance with the AAA rules. Each party shall initially bear its
own costs and legal fees associated with such arbitration. The
prevailing party in any such arbitration shall be entitled to recover
from the other party the reasonable attorneys' fees, costs, and
expenses incurred by such prevailing party in connection with such
arbitration. The decision of the arbitrator shall be final and binding
on the parties. The arbitrator shall prepare and deliver the parties a
written, reasoned opinion conferring its decision. Judgment on the
award so rendered may be entered in any court having competent
jurisdiction thereof.
ARTICLE 19
NO AGENCY:
It is expressly agreed that Planet and Agway shall be independent
contractors and that the relationship between the two parties shall not
constitute a partnership or agency of any kind. Neither Planet nor
Agway shall have the authority to make any statements, representations,
or commitments of any kind, or to take any action, which shall be
binding on the other party, without the prior written consent of the
other party.
<PAGE> 17
-17-
ARTICLE 20
COUNTERPARTS:
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day
and year first set forth above.
AGWAY CONSUMER PRODUCTS, INC.
By:
--------------------------
Title:
PLANET POLYMER TECHNOLOGIES, INC.
By:
----------------------------
Title:
<PAGE> 1
PLANET POLYMER TECHNOLOGIES, INC. EXHIBIT 11.1
STATEMENT OF COMPUTATION OF COMMON AND COMMON EQUIVALENT SHARES
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Shares outstanding at beginning of period 5,271,269 5,271,269
7,337 shares issued on December 15, 1997 7,337 306
21,538 shares issued on December 31, 1997 21,538 60
--------- ---------
Weighted average number of shares 5,300,144 5,271,635
=========
10,169 shares issued on March 15, 1998 8,107
8,695 shares issued on June 15, 1998 4,741
13,483 shares issued on September 15, 1998 3,953
8,571 shares issued on December 15, 1998 352
---------
Weighted average number of shares 5,317,297
=========
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-39845) of
Planet Polymer Technologies, Inc. of our report dated March 2, 1999 appearing on
page F-2 of the Appendix to this Form 10-KSB. We also consent to the
incorporation by reference in the Registration Statement on Form S-8 (No.
333-1042) of Planet Polymer Technologies, Inc. of such report.
PricewaterhouseCoopers LLP
San Diego, California
March 5, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED DECEMBER 31, 1998 BALANCE SHEET AND STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS AS FILED IN THE COMPANY'S FORM 10-KSB FOR THE YEAR
ENDED DECEMBER 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 149,117
<SECURITIES> 0
<RECEIVABLES> 302,914
<ALLOWANCES> (10,000)
<INVENTORY> 300,236
<CURRENT-ASSETS> 937,234
<PP&E> 1,624,611
<DEPRECIATION> (895,014)
<TOTAL-ASSETS> 2,648,986
<CURRENT-LIABILITIES> 385,285
<BONDS> 94,947
0
804,435
<COMMON> 11,009,208
<OTHER-SE> (9,846,912)
<TOTAL-LIABILITY-AND-EQUITY> 2,648,986
<SALES> 1,615,124
<TOTAL-REVENUES> 1,615,124
<CGS> 1,734,230
<TOTAL-COSTS> 1,734,230
<OTHER-EXPENSES> 1,565,699
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,768
<INCOME-PRETAX> (1,651,581)
<INCOME-TAX> (23,038)
<INCOME-CONTINUING> (1,628,543)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,628,543)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
