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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1999
COMMISSION FILE NO. 0-26804
PLANET POLYMER TECHNOLOGIES, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
CALIFORNIA 33-0502606
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OF ORGANIZATION)
9985 BUSINESSPARK AVENUE, SAN DIEGO, CA 92131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER (858) 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, 1999 were
$75,600.
The aggregate market value of the voting stock held by non-affiliates of
the Issuer as of March 15, 2000 was $15,754,818, based on the average of the
4:00 p.m. closing bid and ask prices of $4.1405 as reported on the Nasdaq
SmallCap Market.
As of March 15, 2000, 7,518,709 shares of the Company's Common Stock
were outstanding and 398,000 shares of the Company's Series A Preferred Stock
were outstanding.
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Issuer's Definitive Proxy Statement to be filed with the Commission
pursuant to Regulation 14A in connection with 2000 Annual Meeting is
incorporated herein by reference into Part III of this report.
- --------------------------------------------------------------------------------
Transitional Small Business Disclosure Format (check one) [ ] yes [X] no
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PLANET POLYMER TECHNOLOGIES, INC.
FORM-10KSB
YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM
NUMBER PAGE
<S> <C>
PART I.
1. Description of Business................................................2
2. Description of Property...............................................12
3. Legal Proceedings.....................................................12
4. Submission of Matters to a Vote of Security Holders...................12
PART II.
5. Market for Common Equity and Related Stockholders Matters.............13
6. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................14
7. Financial Statements..................................................17
8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures..................................17
PART III.
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.....................18
10. Executive Compensation................................................18
11. Security Ownership of Certain Beneficial Owners and Management........18
12. Certain Relationships and Related Transactions........................18
PART IV.
13. Exhibits and Reports on Form 8-K......................................19
Signatures............................................................21
Power of Attorney.....................................................21
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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 an
advanced materials company that develops and licenses unique hydro-soluble
polymer and biodegradable materials. The Company's proprietary polymer materials
are marketed under the trademarks EnviroPlastic(R), Aquadro(TM) and AQUAMIM(R).
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(R) can be used to manufacture complex metal parts
using conventional plastics molding equipment. Planet has also developed polymer
technologies for Agway, Inc. ("Agway") in 1999 that are being marketed under the
trademarks Optigen(TM) 1200 and Fresh Seal(TM).
The Company's primary focus is on the technologies listed below:
- EnviroPlastic(R) CRT (controlled-release technology) - Polymer
coating technologies for use in agriculture and food products
- AQUAMIM(R) Metal Injection Molding - Moldable metal filled
polymers
- EnviroPlastic(R) Z - Biodegradable and compostable polymers
- Aquadro(TM) - Hydrodegradable (water dispersible) polyvinyl
alcohol ("PVOH") resin
To date, the Company has commercialized EnviroPlastic(R) CRT
technologies with Agway, EnviroPlastic(R) Z with The Toro Company's Irrigation
Division and has sold pilot production quantities of AQUAMIM(R) and Aquadro(TM)
products.
In November 1998, the Company entered into a Stock Purchase Agreement
with a subsidiary of Agway whereby Agway purchased 1,000,000 shares of Planet's
Common Stock for $1,000,000 and received a warrant to purchase up to 2,000,000
additional 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. To date, Agway has exercised warrants to purchase
1,000,000 shares of Common Stock and holds a warrant to purchase an additional
1,000,000 shares.
Contemporaneously with the execution of the Stock Purchase 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. Under the terms of the Feasibility Agreement, the
Company is reimbursed for certain qualifying research and development costs from
Agway.
Also in November 1998, the Company granted Agway 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 to other parties on the technology developed under the License
Agreement. The Company and Agway agreed to execute further sub-agreements (each
a "Sub-Agreement") to specify the royalties to be paid to the Company for
Agway's use of the Company's technology on certain specific products. In March
2000, the Company and Agway entered into a Sub-Agreement with respect to animal
feed products incorporating Planet's patented/patent pending coatings and/or
polymer systems. Also in March 2000, the Company and Agway entered into another
Sub-Agreement with respect to
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Planet's patented/patent pending coatings and/or polymer systems sold for use on
fruits, vegetables, floral and nursery items.
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. On June 23, 1999, the Company
entered into an Amending Agreement (the "Amending Agreement") with Agrium to
amend that certain Technology Development and License Agreement dated as of
January 30, 1995. The Amending Agreement provides that if the Company enters
into an arrangement or agreement with Agway with respect to the development of
certain technologies involving controlled-released coatings of fertilizers, then
the Company will grant Agrium, among other items, an option to acquire a license
and a right to produce, market and distribute such technologies on the same
terms and conditions as those offered to Agway.
Planet's research and development facility is in San Diego, California.
The Company sold its wholly owned subsidiary, Deltco of Wisconsin, Inc.
("Deltco") on January 7, 2000.
Planet was incorporated under the laws of California in August 1991. The
Company's principal executive offices are located at 9985 Businesspark Avenue,
San Diego, CA 92131, and its telephone number is 858-549-5130.
PLANET POLYMER'S PRODUCTS AND TECHNOLOGIES
Planet is using its polymer chemistry expertise to provide water soluble
and degradable technology-based solutions to the current and emerging needs of
the industrial and agricultural markets.
EnviroPlastic(R) CRT. The Company's EnviroPlastic(R) CRT
(controlled-release technology) is a proprietary polymer coating product line.
This technology allows fertilizer to be controlled for release over 120 days
(see "Strategic Alliances: Agrium Technology Development and License
Agreement"). The patent for EnviroPlastic(R) CRT is No. 5,803,946.
The controlled-released products for animal feed and fruit coating are
currently in production for Agway. The product line for the animal feed is time
released polymer coated nitrogen. The fruit coating technology allows controlled
ripening which extends the shelf life of the coated fruit. In March 2000, the
Company and Agway entered into a Sub-Agreement with respect to animal feed
products incorporating Planet's patented/patent pending coatings and/or polymer
systems. Also in March 2000, the Company and Agway entered into another
Sub-Agreement with respect to Planet's patented/patent pending coatings and/or
polymer systems sold for use on fruits, vegetables, floral and nursery items.
AQUAMIM(R) Metal Injection Molding. AQUAMIM(R) is designed for the
production of precision metal components utilizing a water debinding process,
which eliminates the need for hazardous solvents or acids. AQUAMIM(R) feedstock
is a mixture of metal powders and the Company's proprietary water soluble
polymer binder. Various industrial and consumer products can be manufactured by
the AQUAMIM(R) technology. The Company currently offers stainless steel
compounds, 316L, 17-4PH, and 420; iron-nickel; tool steels M2, and M4; and heavy
metal alloys, tungsten copper and tungsten carbide cobalt. 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(R) technology. The
patents for AQUAMIM(R) are No. 5,977,230 and No. 6,008,281.
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 and is currently in
commercial production for The Toro Company's Irrigation Division. The patent for
EnviroPlastic(R) Z is No. 5,505,830.
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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 the
municipal sewage system by dissolving the material in hot or cold water. The
development of Aquadro(TM) is an advancement of the Company's EnviroPlastic(R) H
technology, patent No. 5,367,003. The patent for Aquadro(TM) is No. 5,658,977.
MARKETS AND APPLICATIONS
The Company is focusing on specific market opportunities where the
Company believes that its polymer chemistry expertise, EnviroPlastic(R) CRT,
AQUAMIM(R), EnviroPlastic(R) Z and Aquadro(TM) 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:
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.
The Company's controlled-release technology is currently being utilized
in a product sold by Agway as a concentrated source of controlled release
nitrogen for dairy cows and is currently being developed for controlled ripening
of tropical fruits. The Company believes that Agway will continue to expand the
market areas for both of these technologies.
Industrial Manufacturing. The Company believes that potential users of
AQUAMIM(R) include commercial custom MIM parts producers, internal MIM parts
producers and new entrants including diversifying plastic injection molders.
Some of the 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(R) technology provides a simple, safe and cost effective solution for
producing metal injection molded parts.
The Company's EnviroPlastic(R) Z is currently in use by The Toro Company's
Irrigation Division as a degradable component of their sprinkler system.
Personal Hygiene and Medical Disposables. The Company's Aquadro(TM)
technology offers 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 is well
positioned to capitalize on the increasing concern for safe, efficient and
environmentally compatible disposable medical supplies.
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.
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 whereby Agway purchased 1,000,000 shares of
Planet's Common Stock for $1,000,000 and received a warrant to purchase up to
2,000,000 additional 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. Additionally, in February 1999, the Company received a
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commitment from Agway whereby Agway agreed to exercise its warrant to acquire up
to 500,000 shares of the Company's Common Stock after July 1, 1999 at the
Company's request, in the event that the Company's cash flows were less than
currently projected or were insufficient to fund its operating requirements. On
November 5, 1999, at the Company's request, Agway exercised the warrant with
respect to 500,000 shares of the Company's Common Stock on the terms, and
subject to conditions, set forth in the warrant and the Company received
$500,000 in connection with such exercise. To date, Agway has exercised warrants
to purchase 1,000,000 shares of Common Stock and holds a warrant to purchase an
additional 1,000,000 shares.
Contemporaneously with the execution of the Stock Purchase 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. Under the terms of the Feasibility Agreement, the
Company is reimbursed for certain qualifying research and development costs from
Agway.
Also in November 1998, the Company granted Agway 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 to other parties on the technology developed under the License
Agreement. During the term of the License Agreement, however, the Company may
not conduct any development work of the same nature or type as that performed
under the License 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. The Company and Agway agreed to execute further sub-agreements (each
a "Sub-Agreement") to specify the royalties to be paid to the Company for
Agway's use of the Company's technology on certain specific products. In March
2000, the Company and Agway entered into a Sub-Agreement with respect to animal
feed products incorporating Planet's patented/patent pending coatings and/or
polymer systems. Also in March 2000, the Company and Agway entered into another
Sub-Agreement with respect to Planet's patented/patent pending coatings and/or
polymer systems sold for use on fruits, vegetables, floral and nursery items.
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. On June
23, 1999, the Company entered into an Amending Agreement (the "Amending
Agreement") with Agrium, Inc. to amend that certain Technology Development and
License Agreement dated as of January 30, 1995. The Amending Agreement provides
that if the Company enters into an arrangement or agreement with Agway with
respect to the development of certain technologies involving controlled-released
coatings of fertilizers, then the Company will grant Agrium, among other items,
an option to acquire a license and a right to produce, market and distribute
such technologies on the same terms and conditions as those offered to Agway.
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
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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 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(R) 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 Honeywell,
Inc. and thermal debinding based on an acrylic binder by Rohm & Haas Company.
In the manufacture and marketing of controlled-release fertilizer, 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.
MANUFACTURING AND SUPPLIERS
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
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suppliers such as Union Carbide Corporation, The Dow Chemical Company, Dupont,
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.
RESEARCH AND DEVELOPMENT
Research and development expenditures during the years ended December
31, 1999 and 1998 were approximately $727,000 and $634,000 respectively, of
which approximately $497,000 and $122,000 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 MS 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 2000 research and development expenditures in the
agrotechnology area will be reimbursed by Agway under its Feasibility Agreement.
In 1999, the Company recorded reimbursable research and development costs of
approximately $355,000 from Agway.
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 1999, the Company expanded its existing patent portfolio with the
issuance of US name registration and patents for the Company's AQUAMIM(R)
technology, and US patent allowed on fresh produce coating technology. 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
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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 ten full-time employees 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 four are in administrative, business development,
operations and research support positions. 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
On January 7, 2000, the Company sold all of its common stock shares of
Deltco. In accordance with the Stock Purchase Agreement, dated December 30,
1999, the Company received on January 7, 2000 total proceeds of $1,000,000 in
the form of $900,000 in cash and $100,000 in a secured promissory note in
consideration of the sale of its Deltco common stock. This note is
collateralized by all of the equipment, accounts, inventory, supplies and
personal property now held or hereafter acquired by Deltco. The accompanying
financial statements present the results of operations of Deltco as a
discontinued operation. Accordingly, the Company's continuing operations are now
comprised of one segment, the "Research and Development" business segment.
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, 1999 and 1998, we had net losses of approximately $1,561,000 and $1,629,000,
respectively. As of December 31, 1999, we had an accumulated deficit of
approximately $11.5 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.
Future Capital Needs; Uncertainty of Additional Funding. Our future
capital requirements will depend on many factors, including:
- the cost of manufacturing scale-up;
- the timing of market acceptance of our products;
- competing technological and market developments; and
- the costs involved in filing, prosecuting and enforcing patent
claims.
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<PAGE> 10
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, 1999, our net tangible assets were approximately $1.8 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.
Uncertainty of Market Acceptance. Our success is dependent upon the
commercial acceptance of our technologies by the various industries targeted by
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 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. 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.
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
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<PAGE> 11
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 and we must rely upon them to produce, market
and distribute the technologies licensed to them. In addition, the Agway
agreement places certain limitations on us with respect to the use of our
technologies in certain areas of business. We may enter into similar
collaborations in the future.
Management of Growth. Future company growth may challenge our
management, operational and financial resources. 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. 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(R) 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
Honeywell, Inc. and thermal debinding based on an acrylic binder by Rohm & Haas
Company. In the manufacture and marketing of controlled-release fertilizer, 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
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<PAGE> 12
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 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, 1999, we had outstanding 7,464,211
shares of Common Stock (assuming the conversion of all outstanding shares of
Preferred Stock into shares of Common Stock). 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 and plan to file a Registration Statement on Form S-8
for the proposed 2000 Stock Incentive Plan. Upon issuance, shares registered
under such Registration Statements 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.
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<PAGE> 13
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 space in San Diego, California. On August 1, 1999, the Company
entered into a new three-year standard industrial lease. The lease will expire
on July 31, 2002 and the monthly rental payment is $5,168 for the first twelve
months, $5,349 for the second twelve months and $5,536 until expiration. The
Company believes its current facility is suitable for its present and future
needs.
ITEM 3. LEGAL PROCEEDINGS
In November 1998, the Company initiated litigation against Brian To, a
former director, officer and consultant of the Company, Tarrenz Inc. and Tarrenz
Management Consultants, Inc., entities owned by Brian To ("collectively referred
to as the "defendants"), 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. In response to
the Complaint, the defendants filed a Motion to Compel Arbitration. The Court
issued an order compelling the case to arbitration on Friday, March 12, 1999. On
April 26, 1999, the defendants answered and denied the allegations of the
complaint and filed a cross-complaint against the Company alleging breach of
contract, misrepresentation, slander, intentional infliction of emotional
distress and fraud. The arbitration date, previously set for February 28, 2000,
will be rescheduled due to a potential conflict of interest which was discovered
with respect to defendants' counsel. In light of the limited discovery allowed
in arbitration, it is difficult to evaluate defendants' claims, however, in the
opinion of management, the ultimate resolution of this litigation is not
expected to have a material adverse effect on the Company's financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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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, 1998 through December 31, 1999 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, 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
Fiscal year ended December 31, 1999
First Quarter 2 1/4 1 1/8
Second Quarter 2 3/8 1 3/8
Third Quarter 3 1/2 1 1/12
Fourth Quarter 3 1/8 2
</TABLE>
On March 15, 2000, the last reported sale price of the Company's Common
Stock on the Nasdaq SmallCap market was $4.25. As of March 15, 2000, there were
approximately 139 holders of record of the Company's Common Stock with 7,518,709
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 dated as of
September 19, 1997, between the Company and Special Situations Private Equity
Fund, L.P., holder of the Company's Series A Preferred Shares (the "Investor")
and related Amended and Restated Certificate of Determination of the Company
filed with the California Secretary of State on September 19, 1997, the Investor
is entitled to receive, quarterly as a dividend, 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 Shares, divided by (b) the average
4:00 p.m. closing bid price of the Company's Common Stock on the Nasdaq SmallCap
Market over a period of five (5) consecutive trading days prior to the dividend
distribution date. Accordingly, in 1998, the Company issued to the Investor
dividends of 40,918 shares of Common Stock, valued at approximately $60,000 and
in 1999, issued 29,914 shares of Common Stock valued at approximately $60,000.
Except to the Investor as set forth above, the Company has never
declared or paid a cash dividend. The Company has not paid and does not intend
to pay any Common Stock dividends to Common Stock shareholders in the
foreseeable future and intends to retain any future earnings for capital
expenditures and otherwise to fund the Company's operations. Any payment of
dividends in the future will depend upon the Company's earnings, capital
requirements, financial condition and such other factors as the Board of
Directors may deem relevant.
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 after July 1, 1999 at the Company's request, in the event
that the Company's cash flows were less than currently projected or were
insufficient to fund its operating requirements. On November 5, 1999, at the
Company's request, Agway exercised the warrant with respect to 500,000 shares of
the Company's Common Stock on the terms, and subject to conditions, set forth in
the warrant and the Company received $500,000 in connection with such exercise.
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<PAGE> 15
RECENT SALES OF UNREGISTERED SECURITIES
In 1999, the Company paid Common Stock dividends to the Investor. The
June 15, 1999, September 15, 1999 and December 15, 1999 dividend payments of
9,677 shares, 5,106 shares and 5,454 shares, respectively, were issued pursuant
to an exemption from registration for transactions not involving a public
offering. The March 15, 1999 dividend payment of 9,677 shares was registered
under the Form S-3 Registration Statement filed with the Securities and Exchange
Commission on March 30, 1999.
After receiving the $1,000,000 proceeds from Agway pursuant to its
purchase of Common Stock on January 11, 1999, the Company was required to (i)
pay a $60,000 cash transaction fee to the finder, LBC Capital Resources, Inc.
("LBC"), and (ii) issue LBC five-year warrants to purchase 50,000 shares of
Common Stock with an exercise price of $4.125 per warrant, in exchange for
$2,500. These warrants were issued March 29, 1999, pursuant to an exemption from
registration for transactions not involving a public offering. In connection
with Agway's stock purchase transaction in January 1999 and pursuant to the
terms of the warrants issued to LBC, the Company was required to increase the
number of shares of Common Stock per the warrants to 59,243 and reduce the
exercise price to $3.5131 per warrant.
Agway exercised warrants to purchase 500,000 shares of Common Stock on
November 5, 1999 and March 3, 2000. After receiving cumulative proceeds of
$1,000,000 from Agway, the Company was required to (i) pay a $60,000 cash
transaction fee to LBC, and (ii) issue LBC five-year warrants to purchase 50,000
shares of Common Stock with an exercise price of $4.1625 per warrant, in
exchange for $2,500. These warrants were issued March 9, 2000 pursuant to an
exemption from registration for transactions not involving a public offering. In
connection with Agway's stock purchase transaction in January 1999 and pursuant
to the terms of the warrants issued to LBC, the Company may be required to make
certain anti-dilution adjustments to the warrants issued to LBC. Accordingly,
the Company may issue additional shares of Common Stock and reduce the exercise
price of the outstanding warrants. It is too early to determine the
anti-dilution amount, if any.
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 the 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 2000,
Planet sold its wholly owned subsidiary, Deltco, a manufacturer and reprocessor
of plastic resins located in Ashland, Wisconsin. Planet has incurred operating
losses since inception and had an accumulated deficit as of December 31, 1999 of
approximately $11.5 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 whereby Agway purchased 1,000,000 shares of Planet's
Common Stock for $1,000,000 and received a warrant to purchase up to 2,000,000
additional 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. Additionally, 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 the Company's cash flows were less than
projections and/or insufficient to fund its operating requirements. On November
5, 1999, at the Company's request, Agway exercised the warrant with respect to
500,000 shares of the
14
<PAGE> 16
Company's Common Stock on the terms, and subject to conditions, set forth in the
warrant and the Company received $500,000 in connection with such exercise. To
date, Agway has exercised warrants to purchase 1,000,000 shares of Common Stock
and holds a warrant to purchase an additional 1,000,000 shares.
Contemporaneously with the execution of the Stock Purchase 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. Under the terms of the Feasibility Agreement, the
Company is reimbursed for certain qualifying research and development costs from
Agway.
Also in November 1998, the Company granted Agway 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 to other parties on the technology developed under the License
Agreement. During the term of the License Agreement, however, the Company may
not conduct any development work of the same nature or type as that performed
under the License 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. The Company and Agway agreed to execute further sub-agreements (each
a "Sub-Agreement") to specify the royalties to be paid to the Company for
Agway's use of the Company's technology on certain specific products. In March
2000, the Company and Agway entered into a Sub-Agreement with respect to animal
feed products incorporating Planet's patented/patent pending coatings and/or
polymer systems. Also in March 2000, the Company and Agway entered into another
Sub-Agreement with respect to Planet's patented/patent pending coatings and/or
polymer systems sold for use on fruits, vegetables, floral and nursery items.
RESULTS OF OPERATIONS
On January 7, 2000, the Company sold all of its common stock shares of
Deltco. In accordance with the Stock Purchase Agreement, the Company received
total proceeds of $1,000,000 in the form of $900,000 in cash and $100,000 in a
secured promissory note in consideration of the sale of its Deltco common stock.
This note is collateralized by all of the equipment, accounts, inventory,
supplies and personal property now held or hereafter acquired by Deltco. The
accompanying financial statements present the results of operations of the
Company and Deltco as a discontinued operation. Accordingly, the Company's
continuing operations are now comprised of one segment, the "Research and
Development" business segment. The following discussion of results of operations
relates solely to the Company's continuing operations.
The Company's revenues increased from approximately $0 for the year
ended December 31, 1998 to approximately $76,000 for the year ended December 31,
1999. This increase was primarily attributable to the successful commercial
deployment of EnviroPlastic(R) Z for The Toro's Company's Irrigation Division.
Cost of sales increased from approximately $0 for the year ended
December 31, 1998 to approximately $54,000 for the year ended December 31, 1999.
This increase was primarily due to the costs associated with the
commercialization of EnviroPlastic(R) Z.
General and administrative expenses increased $156,000 from
approximately $732,000 for the year ended December 31, 1998 to approximately
$888,000 for the year ended December 31, 1999. This increase was primarily
attributable to increased legal fees and an increase in outside services
relating to costs associated with becoming Year 2000 compliant.
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<PAGE> 17
Marketing expenses increased $5,000 from approximately $178,000 for the
year ended December 31, 1998 to approximately $183,000 for the year ended
December 31, 1999.
The Company's net research and development expenses decreased from
approximately $512,000 for the year ended December 31, 1998 to approximately
$230,000 for the year ended December 31, 1999. This decrease was primarily due
to the Feasibility Agreement entered into with Agway and a reduction in research
and development travel expenditures. Planet has allocated research and
development resources to projects that are reimbursable by Agway and other
customers. Offsetting research and development revenue from customers other than
Agway increased from approximately $60,000 for the year ended December 31, 1998
to approximately $142,000 for the same period in 1999. This increase was
primarily due to the advancement of AQUAMIM(R) and Aquadro(TM). Offsetting
reimbursable research and development costs from Agway increased from
approximately $62,000 for the year ended December 31, 1998 to approximately
$355,000 for the same period in 1999. This increase was due primarily to the
commercial scale up of animal feed and an increase in costs associated with
developing fruit coating. A net advance of funds of approximately $61,000
existed as of December 31, 1999.
The Company had recorded an obligation in 1996 in the amount of
$113,000. The Company has subsequently determined that such obligation is no
longer payable. As a result, the obligation has been reversed and other income
was recognized in the three months ended September 30, 1999 in the amount of
$113,000.
The Company's net loss decreased from approximately $1,629,000 during
the year ended December 31, 1998 to approximately $1,561,000 during the year
ended December 31, 1999 as a result of the aforementioned contributing factors,
offset by the loss on the sale of Deltco of approximately $561,000.
As of December 31, 1999, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $9,815,000, and
for California and Wisconsin state tax purposes of approximately $3,372,000 and
$141,000, 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.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Planet has financed its operations primarily through
the sale of equity securities and revenue from customer development agreements.
During 1991 to 1994, the Company 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 certificate of deposit and inventory at Deltco. 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 January 1999 to December
1999, the Company recorded reimbursable research and development costs of
approximately $355,000 from Agway under the Feasibility Agreement. The Company
anticipates that some of the 2000 research and development expenditures in the
agrotechnology area will be reimbursed by Agway under the Feasibility Agreement.
16
<PAGE> 18
Additionally, 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 the Company's cash flows were less than projections and/or
insufficient to fund its operating requirements. On November 5, 1999, at the
Company's request, Agway exercised the warrant with respect to 500,000 shares of
the Company's Common Stock on the terms, and subject to conditions, set forth in
the warrant and the Company received $500,000 in connection with such exercise.
On March 3, 2000, Agway exercised a warrant to purchase an additional 500,000
shares of Common Stock. To date, Agway has exercised warrants to purchase
1,000,000 shares of Common Stock and holds a warrant to purchase an additional
1,000,000 shares.
The Company used approximately $1,208,000 for continuing operations for
the year ended December 31, 1999. Such funds were used for research and
development activities, marketing efforts and administrative support. Net cash
provided by discontinued operations of approximately $55,000 for the year ended
December 31, 1999 resulted from Deltco's manufacturing and reprocessing
activities.
The Company used approximately $148,000 for investing activities for the
year ended December 31, 1999. Such funds were used for the purchase of equipment
and for the preparation and filing of patents, offset by proceeds from the sale
of equipment.
Net cash provided by financing activities of approximately $1,507,000
for the year ended December 31, 1999 resulted from net proceeds of approximately
$1,438,000 from the issuance of Common Stock and warrants, net advance of funds
of approximately $61,000 from Agway and $115,000 from the conversion of
restricted cash to cash and cash equivalents, offset by approximately $107,000
used for the repayment of debt and capital lease obligations.
At December 31, 1999, the Company's cash and cash equivalents were
approximately $356,000. On January 7, 2000, the Company received $900,000 in
cash from the sale of Deltco. The Company believes that its existing sources of
liquidity and anticipated revenue, cash proceeds from the sale of Deltco and
proceeds from Agway's warrant exercise for 500,000 shares of Common Stock on
March 3, 2000, 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.
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.
17
<PAGE> 19
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 2000 Annual Meeting of Shareholders (the
"Proxy Statement") under the headings "Proposal 1 - 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."
18
<PAGE> 20
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, 1999.
<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 "1995 Option Plan").
10.3(1) Form of Incentive Stock Option Grant under the 1995 Option Plan.
10.4(1) Form of Non-statutory Stock Option Grant under the 1995 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 Registrant and Cominco Fertilizers, Ltd.
10.12(5) Fourth Amendment to Lease, dated August 1, 1997 between the
Registrant 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>
19
<PAGE> 21
<TABLE>
<S> <C>
10.16(8) Stock Purchase Agreement, dated November 12, 1998 between the
Registrant and Agway Holdings, Inc.
10.17(8) Warrant to Purchase Common Stock, dated January 11, 1999,
issued by the Registrant to Agway Holdings, Inc.
10.18(10) Registration Rights Agreement, dated January 11, 1999, between
the Registrant and Agway Holdings, Inc.
10.19(10) Product Feasibility Agreement dated as of November 12, 1998
between the Registrant and Agway Consumer Products, Inc.
10.20(10) License Agreement dated as of November 12, 1998 between the
Registrant and Agway Consumer Products, Inc.
10.21(11) Amendment No.1 dated as of February 25, 1999 to the Form of
the Warrant dated January 11, 1999 issued by the Registrant to
Agway Holdings, Inc.
10.22(13) Warrant to Purchase Common Stock, dated March 29, 1999, issued
by the Registrant to LBC Capital Resources, Inc.
10.23(12) Amended Technology Development and License Agreement, dated
June 23, 1999, between the Registrant and Agrium Inc. (formerly
known as Cominco Fertilizers Ltd.).
10.24(13) Sub-Agreement to License Agreement (Animal Feed) effective as
of March 1, 2000 between the Registrant and Agway, Inc.
10.25(13) Sub-Agreement to License Agreement (Fruits, Vegetables, Etc.)
effective as of March 1, 2000 between the Registrant and Agway,
Inc.
10.26(13) Warrant to Purchase Common Stock, dated March 9, 2000, issued
by the Registrant to LBC Capital Resources, Inc.
11.1(13) Statement of Computation of Common and Common Equivalent
Shares.
23.1(13) Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney. Reference is made to page 21.
27.1(13) Financial Data Schedule.
</TABLE>
(1) Previously filed as an exhibit to the Registrant's 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 Registrant's 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 Registrant's Current Report on Form
8-K filed on January 11, 1996, as amended by the Registrant's Current Report
on Form 8-K/A (Amendment No. 1) filed on March 15, 1996 and incorporated
herein by reference.
(4) Previously filed as an exhibit to the 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 the 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 Registrant's 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 Registrant's 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) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-KSB filed for the fiscal year ended December 31, 1998 and incorporated
herein by reference.
(11) Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended March 31, 1999 and incorporated herein by
reference.
(12) Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1999 and incorporated herein by
reference.
(13) Filed as an exhibit to this Annual Report on Form 10-KSB.
20
<PAGE> 22
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 30, 2000 By: /s/ Robert J. Petcavich
-------------------------------------
Robert J. Petcavich
Chairman and Chief Executive Officer
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 Chairman and Chief Executive Officer March 30, 2000
- ----------------------- (Principal Executive Officer)
Robert J. Petcavich (Principal Financial and Accounting Officer)
/s/ H. M. Busby Director March 30, 2000
- -----------------------
H. M. Busby
/s/ Michael M. Coleman Director March 30, 2000
- -----------------------
Michael M. Coleman
/s/ Dennis J. LaHood Director March 30, 2000
- -----------------------
Dennis J. LaHood
/s/ Thomas A. Landshof Director March 30, 2000
- -----------------------
Thomas A. Landshof
</TABLE>
21
<PAGE> 23
APPENDIX
FINANCIAL STATEMENTS
<PAGE> 24
INDEX TO FINANCIAL STATEMENTS -- ITEM 7 OF FORM 10-KSB
<TABLE>
<S> <C>
Report of Independent Accountants..........................................................F-2
Consolidated Financial Statements and Notes:
Balance Sheet as of December 31, 1999......................................................F-3
Statements of Operations for the Years Ended December 31, 1999 and 1998....................F-4
Statements of Shareholders' Equity for the Years Ended December 31, 1999 and 1998..........F-5
Statements of Cash Flows for the Years Ended December 31, 1999 and 1998....................F-6
Notes to Consolidated Financial Statements.................................................F-7
</TABLE>
F-1
<PAGE> 25
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, 1999, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States, 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 27, 2000
F-2
<PAGE> 26
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
---------------
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 355,645
Accounts receivable 134,917
Inventories, net 153,435
Prepaid expenses 48,740
Net assets of discontinued operations held for sale 914,639
------------
Total current assets 1,607,376
Property and equipment, net of accumulated depreciation of $214,302 205,757
Patents and trademarks, net of accumulated amortization of $127,912 325,897
Other assets 7,630
------------
Total assets $ 2,146,660
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 73,269
Accrued payroll and vacation 32,056
Other accrued expenses 41,053
Advances from related party 61,484
Current portion of capital lease obligations 7,006
------------
Total current liabilities 214,868
Capital lease obligations, less current portion 15,798
Other liabilities 152,886
------------
Total liabilities 383,552
------------
Commitments (Notes 8, 12) --
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
6,875,976 shares issued and outstanding 12,426,143
Accumulated deficit (11,467,470)
------------
Total shareholders' equity 1,763,108
------------
Total liabilities and shareholders' equity $ 2,146,660
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 27
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Sales $ 75,600 $ --
Cost of sales 53,862 --
----------- -----------
Gross profit 21,738 --
----------- -----------
Operating expenses:
General and administrative 888,256 731,846
Marketing 183,001 178,484
Research and development, net 230,129 511,804
----------- -----------
Total operating expenses 1,301,386 1,422,134
----------- -----------
Loss from operations (1,279,648) (1,422,134)
Other income, net 116,777 23,834
----------- -----------
Loss from continuing operations before income taxes (1,162,871) (1,398,300)
Income tax expense (800) (800)
----------- -----------
Loss from continuing operations (1,163,671) (1,399,100)
Discontinued operations:
Income (loss) from discontinued operations, net of tax expense (benefit)
of $13,286 and ($23,838), respectively 164,390 (229,443)
Loss on disposal of discontinued operations, net of tax expense of $0 (561,277) --
----------- -----------
Loss from discontinued operations (396,887) $ (229,443)
----------- ===========
Net loss $(1,560,558) $(1,628,543)
=========== ===========
Loss per share from continuing operations (basic and diluted) $ (0.18) $ (0.26)
=========== ===========
Loss per share from discontinued operations (basic and diluted) $ (0.06) $ (0.05)
=========== ===========
Net loss per share (basic and diluted) $ (0.24) $ (0.31)
=========== ===========
Shares used in per share computations 6,406,145 5,317,297
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 28
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, 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
Issuance of Common Stock and related Warrants -- -- 1,000,000 1,000,000 -- 1,000,000
Common Stock issuance costs -- -- -- (154,940) -- (154,940)
Issuance of Warrants to the finder -- -- -- 2,500 -- 2,500
Issuance of Common Stock as a dividend on
Convertible Preferred Stock on March 15, 1999 -- -- 9,677 15,000 (15,000) --
Issuance of Common Stock as a dividend on
Convertible Preferred Stock on June 15, 1999 -- -- 9,677 15,000 (15,000) --
Issuance of Common Stock as a dividend on
Convertible Preferred Stock on September 15, 1999 -- -- 5,106 15,000 (15,000) --
Issuance of Common Stock as a dividend on
Convertible Preferred Stock on December 15, 1999 -- -- 5,454 15,000 (15,000) --
Warrant exercised -- -- 500,000 500,000 -- 500,000
Stock option exercised -- -- 5,000 9,375 -- 9,375
Net loss for year -- -- -- -- (1,560,558) (1,560,558)
-------- ---------- --------- ------------ ------------ -----------
Balance at December 31, 1999 500,000 $ 804,435 6,875,976 $ 12,426,143 $(11,467,470) $ 1,763,108
======== ========== ========= ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 29
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,560,558) $(1,628,543)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 136,299 141,463
Loss on disposal of assets 9,994 --
Deferred income taxes -- (22,649)
Non-cash compensation expense -- 8,241
(Income) loss from discontinued operations (164,390) 254,385
Loss on sale of discontinued operations 561,277 --
Changes in assets and liabilities:
Accounts receivable (70,801) (4,437)
Inventories, net (116,635) 19,107
Prepaid expenses and other assets (10,473) 18,318
Accounts payable and accrued expenses (29,638) 112,732
Other liabilities 37,044 --
----------- -----------
Net cash used by continuing operations (1,207,881) (1,101,383)
Net cash provided (used) by discontinued operations 54,955 (9,018)
----------- -----------
Net cash used by operating activities (1,152,926) (1,110,401)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (130,343) (45,219)
Proceeds from the sale of property and equipment 14,000 --
Cost of patents and other (31,639) (28,425)
----------- -----------
Net cash used by investing activities (147,982) (73,644)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of Common Stock 1,509,375 --
Proceeds from issuance of warrants 2,500 --
Payment of equity issuance costs (73,952) (80,988)
Principal payments on borrowings and capital lease obligations (106,851) (95,652)
Advances from related party 61,484 --
Restricted cash in connection with borrowings 114,880 (6,603)
----------- -----------
Net cash provided (used) by financing activities 1,507,436 (183,243)
----------- -----------
Net increase (decrease) in cash and cash equivalents 206,528 (1,367,288)
Cash and cash equivalents at beginning of year 149,117 1,516,405
----------- -----------
Cash and cash equivalents at end of year $ 355,645 $ 149,117
=========== ===========
Supplemental disclosure of non-cash activity:
Cash paid during the year for:
Interest paid $ 5,236 $ 18,768
Income taxes paid 13,092 30,968
Non-cash activities:
Equipment purchased under capital lease obligations $ -- $ 18,035
Fair market value of stock options granted to non-employees -- 8,241
Issuance of Common Stock dividends on Preferred Stock 60,000 60,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 30
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Planet Polymer Technologies, Inc. ("Planet" or 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(R).
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(R) can be used to manufacture complex metal parts
using conventional plastics molding equipment. Planet has also developed polymer
technologies for Agway, Inc. ("Agway") in 1999 that are being marketed under the
trademarks OptigenTM 1200 and Fresh SealTM.
The Company sold its wholly owned subsidiary, Deltco of Wisconsin, Inc.
("Deltco") on January 7, 2000. The accompanying financial statements present the
results of operations of Deltco as a discontinued operation. Accordingly, the
Company's continuing operations are now comprised of one segment, the "Research
and Development" business segment.
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 accounting
principles generally accepted in the United States 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
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 other than Agway and reimbursable
research and development costs from Agway partially offset those incurred costs.
The research and development revenues are recognized when services have been
rendered or products have been shipped. The reimbursable research and
development costs are recognized when services and/or products have been paid in
full. The components of research and development, net are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Research and development expenses $ 727,151 $ 633,520
Research and development revenues (141,566) (60,082)
Reimbursable research and development costs (355,456) (61,634)
--------- ---------
Research and development, net $ 230,129 $ 511,804
========= =========
</TABLE>
Cash and Cash Equivalents
Cash and cash equivalents include U.S. Treasury bills with original
maturities of three months or less.
F-7
<PAGE> 31
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, 1999.
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
weighted 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.
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. The Company has identified no such impairment losses during 1999
or 1998.
Income Taxes
The Company accounts for income taxes using the liability method.
Current income tax expense is the amount of income taxes expected to be payable
for the current year. 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> 32
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings (Loss) Per Share
Earnings (loss) per share is computed using the weighted average number
of shares of common stock outstanding and is presented for basic and diluted
earnings (loss) per share. Basic earnings (loss) per share is computed by
dividing income (loss) available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings (loss) per
share is computed by dividing income (loss) available to common shareholders by
the weighted average number of common shares outstanding during the period
increased to include, if dilutive, the number of additional common shares that
would have been outstanding if the potential common shares had been issued.
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 (using the
treasury stock method) for all periods.
The Company has excluded all convertible preferred stock and outstanding
stock options and warrants from the calculation of diluted loss per share for
the years ended December 31, 1999 and 1998 because all such securities are
anti-dilutive for these periods. The total number of potential common shares
excluded from the calculation of diluted loss per share for the years ended
December 31, 1999 and 1998 was 3,472,900 and 1,733,386, respectively.
401 (K) Plan
The Company provides a defined contribution 401(k) savings plan (the
"401(k) Plan") in which all full-time employees of the Company are eligible to
participate. Eligible employees may contribute up to fifteen percent (15%) of
their pre-tax salary to the 401(k) Plan subject to IRS limitations. Company
contributions to the 401(k) Plan are at the discretion of the Board of
Directors. There were no Company contributions charged to operations related to
the 401(k) Plan in 1999.
3. DISCONTINUED OPERATIONS
On December 30, 1999, the Company and its wholly owned subsidiary Deltco
entered into a Stock Purchase Agreement (the "Purchase Agreement") with Daniel
B. Mettler and Randy J. Larson (together, the "Buyers") whereby the Company
agreed to sell and the Buyers agreed to purchase all of the outstanding shares
of stock of Deltco for an aggregate purchase price of $1,000,000. The Buyers are
management employees of Deltco and the purchase price was determined during
arms-length negotiations between the parties.
Deltco, which was previously reported as part of the "Manufacturing and
Reprocessing" business segment, is being reported as a discontinued operation as
of December 31, 1999. Deltco's net revenues for the year ended December 31, 1999
were approximately $2,032,000 and the Company recognized a net loss from
discontinued operations of approximately $397,000. The net assets held for sale
that are included in the accompanying financial statements consist primarily of
Deltco's accounts receivable of $405,000, inventories of $187,000, property and
equipment of $478,000 and accounts payable and other liabilities of $147,000.
The sale of Deltco was finalized on January 7, 2000. The Company
received $900,000 in cash and a secured promissory note in the amount of
$100,000. This note is collateralized by all of the equipment, accounts,
inventory, supplies and personal property now held or hereafter acquired by
Deltco.
F-9
<PAGE> 33
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred losses since inception. For the years ended
December 31, 1999 and 1998, the Company had net losses of approximately
$1,561,000 and $1,629,000, respectively. As of December 31, 1999, the Company
had an accumulated deficit of approximately $11,467,000. The Company believes
that its existing sources of liquidity and anticipated revenue, cash proceeds
from the sale of Deltco (Note 3) and proceeds from Agway's warrant exercise for
500,000 shares of Common Stock on March 3, 2000 (Note 13), 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
market acceptance, and the timing thereof, 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.
5. 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 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 1999 or 1998.
During 1999, 100% of the Company's revenues was derived from one
customer. At December 31, 1999, approximately 85% of the Company's accounts
receivable balance was due from this customer.
6. INVENTORIES
Inventories at December 31, 1999 consist of the following:
<TABLE>
<S> <C>
Raw materials $63,070
Finished goods 90,365
--------
$153,435
========
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following at December 31,
1999:
<TABLE>
<S> <C>
Machinery and equipment $ 384,477
Furniture and fixtures 26,274
Vehicles and trailers 9,308
---------
420,059
Less: Accumulated depreciation (214,302)
---------
$ 205,757
=========
</TABLE>
Depreciation expense charged to continuing operations in 1999 and 1998
was $80,258 and $80,126, respectively. Depreciation expense charged to
discontinued operations in 1999 and 1998 was $71,433 and $71,842, respectively.
F-10
<PAGE> 34
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS
The Company leases its facility and certain office equipment under
non-cancelable operating leases which expire on various dates through October 9,
2004. The Company also leases certain equipment under a capital lease with a
maturity date of October 1, 2002 and interest rate of 15.8%. Machinery and
equipment under capital lease obligations totaled $34,950 and related
accumulated amortization totaled $14,563 as of December 31, 1999.
Future minimum payments under non-cancelable leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- --------
<S> <C> <C>
2000 $ 10,116 $ 69,176
2001 10,116 70,590
2002 8,149 41,029
2003 -- 2,277
2004 -- 1,708
-------- --------
Total minimum lease payments 28,381 $184,780
========
Less: Interest portion (5,577)
--------
Present value of net minimum
lease payments 22,804
Less: Current portion of capital
lease obligations (7,006)
--------
Long-term capital lease obligations $ 15,798
========
</TABLE>
Rent expense charged to continuing operations in 1999 and 1998 was
$63,655 and $61,563, respectively. Rent expense charged to discontinued
operations in 1999 and 1998 was $114,263 and $114,427, 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.
F-11
<PAGE> 35
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES
The components of income tax (expense) benefit are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Federal
Current $ -- $ --
Deferred -- --
State
Current (800) (800)
Deferred 23,838 (13,286)
-------- --------
Total $ 23,038 $(14,086)
======== ========
</TABLE>
The differences between income tax (expense) benefit provided at the
Company's effective rate and the federal statutory rate (34%) are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Federal benefit at statutory rate $ 525,492 $ 561,810
State taxes, net of federal benefit (9,297) 15,206
Disallowed losses (190,525) --
Nondeductible expenses (14,976) (13,966)
Valuation allowance (324,780) (540,012)
--------- ---------
Total $ (14,086) $ 23,038
========= =========
</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, 1999 are as
follows:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Net operating loss carryforwards $ 3,646,352
Tax credit carryforwards 99,641
Reserves, accrued expenses and other 310,367
Property and equipment and intangible assets (172,421)
-----------
3,883,939
Less: Valuation allowance (3,864,801)
-----------
Net deferred tax asset $ 19,138
===========
</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.
At December 31, 1999, the Company had net operating loss carryforwards
for Federal income tax purposes of approximately $9,815,000 and for California
and Wisconsin state tax purposes of approximately $3,372,000 and $141,000,
respectively. The Company's California loss carryforwards expire in 2000 through
2004 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 $50,000, $42,000 and $8,000, 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> 36
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. Due to certain anti-dilution adjustments as a result of the private
equity transaction consummated on January 11, 1999, the conversion rate of the
Series A Preferred into shares of Common Stock was adjusted from one-to-one 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. On January 20, 2000, the Investor converted
102,000 shares of Preferred Stock into 119,997 shares of Common Stock. 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.
Common Stock
In November 1998, the Company entered into a Stock Purchase Agreement
with a subsidiary of Agway whereby Agway purchased 1,000,000 shares of Planet's
Common Stock for $1,000,000 and received a warrant to purchase up to 2,000,000
additional 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. Additionally, 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 after July 1, 1999 at the
Company's request, in the event that the Company's cash flows are less than
currently projected and are insufficient to fund its operating requirements. On
November 5, 1999, at the Company's request, Agway exercised the warrant with
respect to 500,000 shares of the Company's Common Stock on the terms, and
subject to conditions, set forth in the warrant and the Company received
$500,000 in connection with such exercise.
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. Upon
receiving the $1,000,000 proceeds from the Common Stock issuance to Agway on
January 11, 1999, the Company was required to make certain anti-dilution
adjustments to the warrant issued to the finder. The number of shares issuable
under the warrant and the exercise price per warrant were adjusted to 64,635
shares and an exercise price of $3.22 per warrant, respectively.
After receiving the $1,000,000 proceeds from Agway pursuant to its
purchase of Common Stock on January 11, 1999, the Company was required to (i)
pay a $60,000 cash transaction fee to the finder, LBC Capital Resources, Inc.
("LBC"), and (ii) issue LBC five-year warrants to purchase 50,000 shares of
Common Stock with an exercise price of $4.125 per warrant, in exchange for
$2,500. These warrants were issued March 29, 1999, pursuant to an exemption from
registration for transactions not involving a public offering. In connection
with Agway's stock purchase transaction in January 1999 and pursuant to the
terms of the warrants issued to LBC, the Company was required to increase the
number of shares of Common Stock per the warrants to 59,243 and reduce the
exercise price to $3.5131 per warrant.
F-13
<PAGE> 37
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SHAREHOLDERS' EQUITY (CONTINUED)
At December 31, 1999, 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 59,723 $2.23 - $3.88 2000 - 2003
Underwriter warrants 115,000 $7.20 2000
Investor warrants 1,962,444 $1.00 - $2.23 2000 - 2002
Other warrants 123,757 $3.22 - $3.51 2002 - 2004
---------
2,260,924
=========
</TABLE>
All per share rights and benefits are subject to adjustment upon the
occurrence of certain events. All the numbers in the above table reflect the
anti-dilution adjustments due to the private equity transaction consummated on
January 11, 1999.
Options
The Company has a 1995 Stock Option Plan (the "1995 Option Plan") under
which incentive stock options 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 1995 Option 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 1995
Option 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 1995 Option 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 1999 and 1998 would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998
------------------------------- -------------------------------
Net Loss Loss per Share Net Loss Loss per Share
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
As reported $(1,560,558) $(0.24) $(1,628,543) $(0.31)
Pro forma $(1,683,226) $(0.26) $(1,720,645) $(0.32)
</TABLE>
F-14
<PAGE> 38
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SHAREHOLDERS' EQUITY (CONTINUED)
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 1999 and 1998: an expected life of 4 and 3.7 years, expected
volatility of 93.10% and 82.49%, no dividend yield and a risk-free interest rate
of 5.62% and 4.96%, 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 1999 and 1998 was approximately $1.20 and $0.96 per option,
respectively.
On July 1, 1999, the Company's Board of Directors granted incentive
stock options to purchase 12,500 shares of Common Stock at an exercise price of
$1.50 per share to an employee under the 1995 Option Plan. Of such options,
4,166 shall vest on June 30, 2000, 4,167 shall vest on June 30, 2001 and 4,167
shall vest on June 30, 2002. All of such options expire on June 30, 2009. As of
December 31, 1999, none of these options have been exercised.
On May 21, 1999, the Company's Board of Directors granted non-statutory
stock options to purchase 66,083 shares of Common Stock at an exercise price of
$1.813 per share to non-employee directors under the 1995 Option Plan. These
options were fully vested at the date of grant and expire on May 20, 2009. As of
December 31, 1999, none of these options have been exercised.
On February 24, 1999, the Company's Board of Directors granted
non-statutory stock options to purchase 6,000 shares of Common Stock at an
exercise price of $1.563 per share to a non-employee director under the 1995
Option Plan. These options were fully vested at the date of grant and expire on
February 23, 2009. As of December 31, 1999, 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 1995 Option Plan. These options
were granted in connection with a certain employment agreement between the
officer and the Company (Note 8). Of such options, 25,000 were immediately
vested at the grant date, 35,000 shall vest on the first anniversary, 35,000 on
the second anniversary and 30,000 on the third anniversary. All of such options
expire on November 17, 2003. As of December 31, 1999, 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 1995 Option Plan. These options became
fully vested on December 31, 1998 and expire on June 30, 2008. As of December
31, 1999, 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 1995 Option Plan. These
options were fully vested at the date of grant and expire on May 20, 2008. As of
December 31, 1999, none of these options have been exercised.
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 1995 Option 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, 1999, none of these options have been
exercised.
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 1995 Option Plan. These options were
fully vested as of the date of grant and expire on February 12, 2008. On March
30, 1999, these options were exercised.
F-15
<PAGE> 39
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SHAREHOLDERS' EQUITY (CONTINUED)
A summary of stock option activity during 1999 and 1998 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, 1997 256,459 $4.631 226,274 $4.591
Granted / reissued 188,500 1.726 -- --
Exercised -- -- -- --
Forfeited / expired (25,000) 3.875 -- --
---------- ----------
Outstanding at December 31, 1998 419,959 3.373 226,274 4.591
Granted 84,583 1.749 -- --
Exercised (5,000) 1.875 -- --
Forfeited / expired (75,620) 7.753 (26,455) 3.780
---------- ----------
Outstanding at December 31, 1999 423,922 2.285 199,819 4.699
========== ==========
</TABLE>
Other Options listed above include non-statutory stock options issued to
key personnel prior to the adoption of the 1995 Stock Option Plan.
The following table summarizes information about stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Weighted-
Outstanding Average Exercisable
Range of as of Remaining as of
Exercise December Contractual December
Prices 31, 1999 Life (years) 31, 1999
-------- ----------- ------------ -----------
<S> <C> <C> <C>
$1.500 to $2.500 273,083 8.91 195,583
$2.750 to $4.125 256,658 2.61 256,658
$5.100 to $6.000 94,000 4.08 94,000
----------- -----------
623,741 5.13 546,241
=========== ===========
</TABLE>
11. RELATED PARTY TRANSACTIONS
In November 1998, the Company and Agway entered into an agreement
relating to the funding by Agway of a feasibility study (the "Feasibility
Agreement") of the Company's polymer technology for use in agricultural products
(other than fertilizers and certain biological products) and food products.
Under the terms of the Feasibility Agreement, Planet will be reimbursed for
certain qualifying research and development costs relating to such applications.
During 1999 and 1998, the Company recorded reimbursable research and development
costs of $355,456 and $61,634, respectively from Agway under the Feasibility
Agreement.
Also in November 1998, the Company granted Agway an exclusive worldwide
license in connection with the Company's technology for time-release coatings
for a variety of agricultural and food products (the "License Agreement"). The
License Agreement outlines the general terms and conditions for the rights
granted Agway thereunder. The Company and Agway agreed to execute further
sub-agreements specifying the royalties to be paid to the Company for Agway's
use of the Company's technology with certain products. During 1999 and 1998, the
Company received no royalties payments from Agway.
Agway Holdings Inc., an indirect wholly owned subsidiary of Agway, is a
beneficial owner of more than 10% of the Company's Common Stock since January
11, 1999.
F-16
<PAGE> 40
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company leased 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 were paid in 1998, prior to the
former President's resignation in June 1998.
12. LEGAL PROCEEDINGS
In November 1998, the Company initiated litigation against Brian To, a
former director, officer and consultant of the Company, Tarrenz Inc. and Tarrenz
Management Consultants, Inc., entities owned by Brian To (collectively referred
to as the "defendants"), 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. In response to
the Complaint, the defendants filed a Motion to Compel Arbitration. The Court
issued an order compelling the case to arbitration on Friday, March 12, 1999. On
April 26, 1999, the defendants answered and denied the allegations of the
complaint and filed a cross-complaint against the Company alleging breach of
contract, misrepresentation, slander, intentional infliction of emotional
distress and fraud. The arbitration date, previously set for February 28, 2000,
will be rescheduled due to a potential conflict of interest which was discovered
with respect to defendants' counsel. In light of the limited discovery allowed
in arbitration, it is difficult to evaluate defendants' claims, however, in the
opinion of management, the ultimate resolution of this litigation is not
expected to have a material adverse effect on the Company's financial position
or results of operations.
13. SUBSEQUENT EVENTS
Agway exercised warrants to purchase 500,000 shares of Common Stock on
November 5, 1999 and March 3, 2000. After receiving cumulative proceeds of
$1,000,000 from Agway, the Company was required to (i) pay a $60,000 cash
transaction fee to LBC, and (ii) issue LBC five-year warrants to purchase 50,000
shares of Common Stock with an exercise price of $4.1625 per warrant, in
exchange for $2,500. These warrants were issued March 9, 2000 pursuant to an
exemption from registration for transactions not involving a public offering. In
connection with Agway's stock purchase transaction in January 1999 and pursuant
to the terms of the warrants issued to LBC, the Company may be required to make
certain anti-dilution adjustments to the warrants issued to LBC. Accordingly,
the Company may issue additional shares of Common Stock and reduce the exercise
price of the outstanding warrants. It is too early to determine the
anti-dilution amount, if any.
Also in November 1998, the Company granted Agway 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 to other parties on the technology developed under the License
Agreement. The Company and Agway agreed to execute further sub-agreements
("Sub-Agreement") to specify the royalties to be paid to the Company for Agway's
use of the Company's technology on certain specific products. In March 2000, the
Company and Agway entered into a Sub-Agreement with respect to animal feed
products incorporating Planet's patented/patent pending coatings and/or polymer
systems. Also in March 2000, the Company and Agway entered into another
Sub-Agreement with respect to Planet's patented/patent pending coatings and/or
polymer systems sold for use on fruits, vegetables, floral and nursery items.
The sale of Deltco (Note 3) was finalized on January 7, 2000. The
Company received $900,000 in cash and a secured promissory note in the amount of
$100,000. This note is collateralized by all of the equipment, accounts,
inventory, supplies and personal property now held or hereafter acquired by
Deltco.
F-17
<PAGE> 1
EXHIBIT 10.22
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES
MAY NOT BE OFFERED, SOLD OR TRANSFERRED ABSENT SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT.
PLANET POLYMER TECHNOLOGIES, INC.
WARRANT TO PURCHASE UP TO A MAXIMUM OF
50,000 SHARES OF COMMON STOCK
In consideration of the sum of good and valuable consideration, the
receipt of which is hereby acknowledged by PLANET POLYMER TECHNOLOGIES, INC., a
California corporation (the "Company"), LBC CAPITAL (the "Holder"), is hereby
granted the right to purchase, at any time from the date hereof until 5:00 P.M.,
Pacific Standard Time, on March 30, 2004 (the "Expiration Date") up to all or
any part of fifty thousand (50,000) fully paid and non-assessable shares of the
Company's common stock, without par value ("Common Stock").
1. EXERCISE OF WARRANT. This Warrant is exercisable at a price of $4.1250 per
share of Common Stock issuable hereunder (the "Exercise Price") payable in cash
or by certified or official bank check. Upon surrender of this Warrant together
with a subscription form substantially in the form of Exhibit A hereto duly
executed, together with payment of the Exercise Price for the shares of Common
Stock purchased, at the principal executive offices of the Company, 9985
Businesspark Avenue, Suite A, San Diego, California, 92131, or at such other
office as the Company may designate by notice in writing, the Holder shall be
entitled to receive, as promptly as practicable after surrender of the Warrant,
a certificate or certificates for the shares of Common Stock so purchased. Upon
exercise of this Warrant as set forth in the preceding sentence, the Holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise.
The purchase rights represented by this Warrant are exercisable at the option of
the Holder hereof, in whole or in part (but not as to fractional shares of the
Common Stock), during any period in which this Warrant may be exercised as set
forth above. In the case of the purchase of less than all the shares of Common
Stock purchasable under this Warrant, the Company shall cancel this Warrant upon
the surrender hereof and shall execute and deliver a new Warrant of like kind
for the balance of the shares of Common Stock purchasable hereunder.
2. ISSUANCE OF STOCK CERTIFICATES. The issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the Holder hereof any tax which may be payable in respect to the issuance
thereof, and such certificates shall (subject to the provisions of Sections 3
and 5 hereof) be issued in the name of, or in such names as may be directed by,
the Holder hereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect to any transfer involved in the
issuance and delivery of any such certificate in a name other than that of the
Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid, and
provided that the issuance of certificates for such shares of Common Stock shall
not violate the securities laws.
1.
<PAGE> 2
3. TRANSFER, DIVISION AND COMBINATION.
3.1 TRANSFER. Subject to compliance with Section 5.9, the Holder of this
Warrant may transfer this Warrant at any time to any subsidiary or affiliate of
the Holder. Transfer of this Warrant and all rights hereunder, in whole or in
part, shall be registered on the books of the Company to be maintained for such
purpose, upon surrender of this Warrant at the principal office of the Company
or the office or agency designated by the Company, together with a written
assignment of this Warrant substantially in the form of Exhibit B hereto duly
executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 5.9,
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denomination specified in such instrument of assignment,
and shall issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be canceled. A Warrant,
if properly assigned in compliance with Section 5.9, may be exercised by a new
Holder for the purchase of shares of Common Stock without having a new Warrant
issued.
3.2 DIVISION AND COMBINATION. Subject to Section 5.9, this Warrant may
be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 5, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3 EXPENSES. The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4 MAINTENANCE OF BOOKS. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
4. EXERCISE PRICE. The exercise price of this Warrant shall be $4.1250 per share
of Common Stock.
5. REGISTRATION AND REGISTRATION RIGHTS.
5.1 RESTRICTED SECURITIES. The shares of Common Stock issuable upon
exercise of this Warrant (the "Warrant Stock") have not been registered under
the Securities Act of 1933, as amended ("the Securities Act").
Except as otherwise provided in this Section 5, upon exercise, in part
or in whole, of this Warrant, the Warrant Stock shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
shares have been acquired for investment and may not be sold,
transferred, pledged or hypothecated in the absence of an
effective registration statement for the shares under the
Securities Act of 1933 or an opinion of counsel of the Company
that registration is not required under said Act."
2.
<PAGE> 3
5.2 DEFINITIONS. For purposes of Section 5:
(a) The term "Commission" means the Securities and Exchange
Commission;
(b) The term "Exchange Act" means the Securities Exchange Act of
1934, as amended;
(c) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of
effectiveness of such registration statement;
(d) The term "Registrable Securities" means Common Stock issuable
or issued upon exercise of Warrants to purchase Common Stock of the Company
outstanding as of the filing of any registration statement subject to the
provisions of Section 5.3;
(e) The term "Holder" means any investor holding Registrable
Securities and any other person holding Registrable Securities to whom these
registration rights have been transferred pursuant to Sections 3 and 5; and
(f) The term "Securities Act" means the Securities Act of 1933,
as amended.
5.3 COMPANY REGISTRATION.
(a) If the Company at any time proposes to file on its behalf
and/or on behalf of any of its security holders (the "demanding security
holders") a registration statement under the Securities Act on any form (other
than a Registration Statement on Form S-4 or S-8 or any successor form for
securities to be offered in a transaction of the type referred to in Rule 145
under the Securities Act or to employees of the Company pursuant to any employee
benefit plan, respectively) for the general registration of securities to be
sold for cash with respect to its Common Stock or any other class of equity
security (as defined in Section 3(a)(11) of the Exchange Act) of the Company, it
will give written notice to all holders of Warrants or Warrant Stock at least
ten (10) days before the initial filing with the Commission of such registration
statement, which notice shall set forth the intended method of disposition of
the securities proposed to be registered by the Company. The notice shall offer
to include in such filing the aggregate number of shares of Warrant Stock, and
the number of shares of Common Stock for which this Warrant is exercisable, as
such holders may request.
(b) Each holder of any such Warrants or any such Warrant Stock
desiring to have Warrant Stock registered under this Section 5.3 shall advise
the Company in writing within ten (10) days after the date of receipt of such
offer from the Company, setting forth the amount of such Warrant Stock for which
registration is requested. The Company shall thereupon include in such filing
the number of shares of Warrant Stock for which registration is so requested,
subject to the paragraph 5.3(c) below, and shall use its best efforts to effect
registration under the Securities Act of such shares.
(c) If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company shall so
indicate in the notice given pursuant to Section 5.3(a). In such event the right
of any Holder to registration pursuant to this Section 5.3 shall be conditioned
upon such Holder's agreeing to participate in such underwriting
3.
<PAGE> 4
and in the inclusion of the securities of the Holder to be so registered in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 5.3, if the underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the underwriter may exclude some or all of the securities of the
Holders from such registration and underwriting (hereinafter an "Underwriter
Cutback"). In the event of an Underwriter Cutback, the Company shall so advise
the Holders distributing their securities through such underwriting, and the
number of Registrable Securities that may be included in the registration and
underwriting shall be allocated among the Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders at the time of filing the registration statement; provided that in no
event shall the Company be required to include in the registration less than one
thousand (1,000) shares held by any Holder. If any Holder disapproves of the
terms of any such underwriting, such Holder may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
Except as otherwise provided in Section 5.5, all expenses of such registration
shall be borne by the Company.
5.4 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 5 that the
Holders shall furnish to the Company such information regarding them, the
Registrable Securities held by them, and the intended method of disposition of
such securities as the Company shall reasonably request and as shall be required
in connection with the action to be taken by the Company.
5.5 COMPANY REGISTRATION EXPENSES. All expenses incurred in complying
with Section 5, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, the
reasonable fees and expenses of one counsel for the selling security holders
(selected by those holding a majority of the shares being registered), expenses
of any special audits incident to or required by any such registration and
expenses of complying with the securities or blue sky laws of any jurisdictions
pursuant to Section 5, shall be paid by the Company, except that the Company
shall not be liable for any fees, discounts or commissions to any underwriter or
any fees or disbursements of counsel for any underwriter in respect of the
securities sold by such Holder of Warrant Stock.
5.6 DELAY OF REGISTRATION. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 5.
5.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Section 5:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, each of such Holder's directors and officers and
each other person who is requesting or joining in a registration, any
underwriter (as defined in the Securities Act) for it, and each other person, if
any, who controls such Holder or underwriter within the meaning of the
Securities Act, against any losses, claims, damages, or liabilities, joint or
several, to which they may become subject under the Securities Act or otherwise,
insofar as such losses, claims,
4.
<PAGE> 5
damages, or liabilities (or actions in respect thereof) arise out of or are
based on any untrue or alleged untrue statement of any material fact contained
in such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading or arise out of any violation by the Company of any rule
or regulation promulgated under the Securities Act applicable to the Company and
relating to action or inaction required of the Company in connection with any
such registration; and will reimburse each such Holder, director, officer,
participating person, underwriter, or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this Section 5.7(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
connection with such registration statement, preliminary prospectus, final
prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, director, officer, other
participating person, underwriter, or controlling person. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Holder or such director, officer, participating person,
underwriter or controlling person, and shall survive the transfer of such
Securities by such Holder.
(b) To the extent permitted by law, each Holder requesting or
joining in a registration will indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the registration statement,
each person, if any, who controls the Company within the meaning of the
Securities Act, and each agent and any underwriter for the Company (within the
meaning of the Securities Act) against any losses, claims, damages, or
liabilities to which the Company or any such director, officer, controlling
person, agent, or underwriter may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary or final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
agent, or underwriter in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 5.7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld).
5.
<PAGE> 6
(c) Promptly after receipt by an indemnified party under this
section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this section, notify the indemnifying party in writing of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties. The failure to notify an indemnifying
party promptly of the commencement of any such action, if prejudicial to his
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this section, but the omission so to
notify the indemnifying party will not relieve him of any liability that he may
have to any indemnified party otherwise than under this section.
5.8 REPORTS UNDER THE EXCHANGE ACT. With a view to making available to
the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the Commission that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to use its best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times subsequent to the date
hereof;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to any Holder so long as such Holder owns any of the
Registrable Securities forthwith upon request a written statement of the Company
that it has complied with the reporting requirements of Rule 144, and of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Company as may be reasonably requested in availing any Holder of any rule or
regulation of the Commission permitting the selling of any such securities
without registration.
5.9 LOCKUP AGREEMENT. In consideration for the Company agreeing to its
obligations under this Section 5, each Holder agrees in connection with any
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any underwritten offering of the Company's
securities, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Warrants or Warrant Stock (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed one hundred eighty (180) days) from the effective date of such
registration as the Company or the underwriters may specify.
6. ADJUSTMENTS OF PURCHASE PRICE AND NUMBER OF SHARES.
6.1 SUBDIVISION AND COMBINATION. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
6.2 ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Section 6 (including Sections 6.4
through 6.7 below), the
6.
<PAGE> 7
number of shares of Common Stock issuable upon the exercise of each Warrant
shall be adjusted to the nearest full share by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of the Warrant immediately prior to such adjustment
and dividing the product so obtained by the adjusted Exercise Price.
6.3 ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of this
Warrant shall also be subject to adjustment from time to time upon the happening
of any of the events set forth in Sections 6.4 through 6.7.
6.4 In the event the Company shall issue or sell any shares of Common
Stock (except as provided in Section 6.7) for a consideration per share less
than the Exercise Price in effect immediately prior to such issue or sale, then
the Exercise Price in effect immediately prior to such issue or sale shall be
reduced to such lesser price (calculated to the nearest cent) as shall be
determined by multiplying the Exercise Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of (i) the number of
shares of Common Stock outstanding immediately prior to the issuance or sale of
such additional shares and (ii) the number of shares of Common Stock which the
aggregate consideration received for the issuance or sale of such additional
shares would purchase at the Exercise Price then in effect, and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
after the issuance or sale of such additional shares. For purposes of this
Section 6.4, all shares of Common Stock issuable upon exercise of outstanding
options and warrants, and all shares of Common Stock issuable upon exercise of
this Warrant, shall be deemed to be outstanding.
6.5 For the purposes of Section 6.4 above, the following subparagraphs
(a) to (d), inclusive, shall be applicable:
(a) If at any time the Company shall issue or sell any rights to
subscribe for, or any rights or options to purchase, Common Stock or any stock
or other securities convertible into or exchangeable for Common Stock (such
convertible or exchangeable stock or securities being hereinafter called
"Convertible Securities"), whether or not such rights or options or the right to
convert or exchange any such Convertible Securities shall be immediately
exercisable, and the price per share for which Common Stock shall be issuable
upon the exercise of such rights or options or upon conversion or exchange of
such Convertible Securities (determined by dividing (1) the total amount, if
any, received or receivable by the Company as consideration for the granting of
such rights or options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of such rights or
options, plus, in the case of any such rights or options which shall relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (2) the total number
of shares of Common Stock issuable upon the exercise of such rights or options
or upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such rights or options) shall be less than the Exercise
Price in effect immediately prior to the time of the issue or sale of such
rights or options, then the total number of shares of Common Stock issuable upon
the exercise of such rights or options or upon conversion or exchange of the
total amount of such Convertible Securities issuable upon the exercise of such
rights or options shall (as of the date of granting of such rights or options)
be deemed to be outstanding and to have been issued for such price per share,
and except as provided in Section 6.6, no further adjustments of the Exercise
Price shall be made upon the actual issue of
7.
<PAGE> 8
such Common Stock or of such Convertible Securities, upon the exercise of such
rights or options or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities.
(b) If at any time the Company shall issue or sell any
Convertible Securities, whether or not the rights to exchange or convert
thereunder shall be immediately exercisable, and the price per share for which
Common Stock shall be issuable upon such conversion or exchange (determined by
dividing (1) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (2) the total number of
shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Exercise Price in effect
immediately prior to the time of such issue or sale, then the total number of
shares of Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been issued for
such price per share, and, except as provided in Section 6.6 no further
adjustments of the Exercise Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities. In
addition, if any issue or sale of such Convertible Securities shall be made upon
exercise of any rights to subscribe for or to purchase or any option to purchase
any such Convertible Securities for which adjustments of the Exercise Price
shall have been or shall be made pursuant to other provisions of this Section
6.5, no further adjustment of the Exercise Price shall be made by reason of such
issue or sale.
(c) If at any time any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions or discounts paid or allowed by the
Company in connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company shall be deemed to be the fair value of such consideration as determined
by the Board of Directors, without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions or discounts paid or allowed by
the Company in connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued in connection with any merger of
another corporation into the Company, the amount of consideration therefor shall
be deemed to be the fair value of the net assets of such merged corporation as
determined by the Board of Directors after deducting therefrom all cash and
other consideration (if any) paid by the Company in connection with such merger.
(d) The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of the
Company, provided that such shares are neither issued, sold or otherwise
distributed by the Company.
6.6 If the purchase or exercise price provided for in any right or
option referred to in Section 6.5, or the rate at which any Convertible
Securities referred to in Section 6.5 (a) or (b) shall be convertible into or
exchangeable for Common Stock, shall change or a different purchase or exercise
price or rate shall become effective at any time or from time to time (including
any change resulting from termination of such right, option or convertible
security),
8.
<PAGE> 9
then, upon such change becoming effective, the Exercise Price then in effect
hereunder shall forthwith be increased or decreased to such Exercise Price as
would have been obtained had the adjustments made upon the granting or issuance
of such rights or options or Convertible Securities been made upon the basis of
(a) the issuance of the number of shares of Common Stock theretofore actually
delivered upon the exercise of such options or rights or upon the conversion or
exchange of such Convertible Securities for the consideration received therefor
and (b) the granting or issuance at the time of such change of any such options,
rights or Convertible Securities then still outstanding for the consideration,
if any, received by the Company therefor and to be received on the basis of such
changed price.
6.7 The Company shall not be required to make any adjustment to the
Exercise Price in the case of:
(a) the granting, after the date hereof, by the Company of stock
options under the Company's 1995 Stock Option Plan, so long as the shares of
Common Stock underlying such options are covered by the 500,000 shares currently
reserved for issuance under such Plan as of the date hereof;
(b) the issuance of shares of Common Stock, pursuant to the
exercise of the options referred to in Section 6.7(a) above or the exercise of
any other options or warrants outstanding as of the date hereof;
(c) the issuance of shares of Common Stock upon the conversion of
any shares of the Company's Series A Convertible Preferred Stock or upon the
exercise of any of the Warrants originally issued to Special Situations Private
Equity Fund, L.P. on September 24, 1997; and
(d) the issuance of shares of Common Stock upon the exercise of
any options or warrants outstanding as of the date hereof.
6.8 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or conveyance to another corporation of the property
of the Company as an entirety), the Holder of this Warrant shall thereafter have
the right to purchase the kind and number of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance at an aggregate price equal to the
product of (x) the number of shares issuable upon exercise of this Warrant and
(y) the Exercise Price in effect immediately prior to the record date for such
reclassification, change, consolidation, merger, sale or conveyance as if such
Holder had exercised this Warrant prior to such record date.
9.
<PAGE> 10
6.9 APPROVAL AND NOTICE OF ADJUSTMENT IN EXERCISE PRICE. Any adjustment
of the Exercise Price made pursuant to this Section 6 shall be made or approved
by the Company's independent public accountants at the time of such adjustment.
7. FINANCIAL AND BUSINESS INFORMATION.
7.1 ANNUAL INFORMATION. The Company will deliver to each Holder as soon
as practicable after the end of each fiscal year of the Company, and in any
event within 90 days thereafter, one copy of:
(a) an audited consolidated balance sheet of the Company and its
subsidiaries as at the end of such year, and
(b) audited consolidated statements of income, retained earnings
and changes in financial position of the Company and its subsidiaries for such
year; setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year; all prepared in accordance
with GAAP, and which audited financial statements shall be accompanied by (i) an
opinion thereon of the independent certified public accountants regularly
retained by the Company, or any other form of independent certified public
accountants of recognized national standing selected by the Company and (ii) a
report of such independent certified public accountants confirming any
adjustment made pursuant to Section 6 during such year.
8. REPRESENTATIONS OF HOLDER.
8.1 ACQUISITION OF WARRANT FOR PERSONAL ACCOUNT. The Holder represents
and warrants that it is acquiring the Warrant solely for its account for
investment and not with a view to or for sale or distribution of said Warrant or
any part thereof. The Holder also represents that the entire legal and
beneficial interests of the Warrant and Warrant Stock is being acquired for, and
will be held for, its account only.
8.2 SECURITIES ARE NOT REGISTERED.
(a) The Holder recognizes that this Warrant and Warrant Stock
being acquired by it must be held indefinitely unless they are subsequently
registered under the Act or an exemption from such registration is available.
The Holder recognizes that, except as set forth in Section 5 hereof, the Company
does not have any obligation to register this Warrant or the Warrant Stock or to
comply with any exemption from such registration.
(b) The Holder is aware that neither this Warrant nor the Warrant
Stock may be sold pursuant to Rule 144 adopted under the Act unless certain
conditions are met and until the Holder has held the Warrant Stock for at least
one year. Among the conditions for use of Rule 144 is the availability of
current information to the public about the Company. The Holder understands that
the Company has not made such information available and has no present plans to
do so.
(c) The Holder represents and warrants that it is an "accredited
investor" as such term is defined in Rule 501(a) under the Act. Specifically,
the Holder represents and
10.
<PAGE> 11
warrants that it is either a corporation or partnership, not formed for the
specific purpose of acquiring securities of the Company, with total assets in
excess of $5,000,000.
8.3 DISPOSITION OF WARRANT AND WARRANT STOCK.
(a) The Holder further agrees not to make any disposition of all
or any part of this Warrant or the Warrant Stock in any event unless and until:
(i) The Company shall have received a letter secured by
the Holder from the Securities and Exchange Commission stating that no action
will be recommended to the Commission with respect to the proposed disposition;
or
(ii) There is then in effect a registration statement
under the Act covering such proposed disposition and such disposition is made in
accordance with said registration statement; or
(iii) The Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, the Holder
shall have furnished the Company with an opinion of counsel for the Holder to
the effect that such disposition will not require registration of such Warrant
or shares under the Act, and such opinion of counsel for the Holder shall have
been concurred in by the Company's counsel and the Company shall advise the
Holder of such concurrence.
(iv) Notwithstanding the provisions of paragraphs (i),
(ii) and (iii) above, no such Securities and Exchange Commission letter,
registration statement or opinion of counsel shall be required (i) for any
transfer of this Warrant or any shares issuable upon exercise of this Warrant in
compliance with SEC Rule 144 or 144A, or (ii) for any transfer of this Warrant
or shares issuable upon exercise of this Warrant by a Holder that is a
partnership or a corporation to (A) a partner of such partnership or shareholder
or affiliate of such corporation, (B) a retired partner or shareholder, or (iii)
for the transfer by gift, will or intestate succession by any Holder to his or
her spouse or lineal descendants or ancestors or any trust for any of the
foregoing.
9. EXCHANGE AND REPLACEMENT OF WARRANT. This Warrant is exchangeable without
expense, upon the surrender hereof by the registered Holder at the principal
executive office of the Company, for a new Warrant of like kind and date
representing in the aggregate the right to purchase the same number of shares as
are purchasable hereunder in such denominations and in the name(s) of such
assignee(s) as shall be designated by the registered Holder hereof at the time
of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft or destruction of this Warrant, of indemnity or security
reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new Warrant of
like kind, in lieu of this Warrant.
10. FRACTIONAL SHARES. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for
11.
<PAGE> 12
upon any exercise hereof, the Company shall pay to the Holder an amount in cash
equal to such fraction multiplied by the current market value of a share of
Common Stock, as determined in good faith by the Board of Directors of the
Company.
11. RESERVATION AND LISTING OF SHARES. The Company shall at all times reserve
and keep available out of its authorized shares of Common Stock, solely for the
purpose of issuance upon the exercise of this Warrant, such number of shares of
Common Stock as shall be issuable upon the exercise hereof. The Company
covenants and agrees that, upon exercise of this Warrant and payment of the
Exercise Price therefor, all shares of Common Stock issuable upon such exercise
shall be duly and validly issued, fully paid and non-assessable, provided that
the Exercise Price per share shall equal or exceed the par value of the Common
Stock. As long as the Warrant shall be outstanding, the Company shall use its
best efforts to cause all shares of Common Stock issuable upon the exercise of
the Warrant to be listed (subject to official notice of issuance) on all
securities exchanges on which the Common Stock may then be listed.
12. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Exercise Price, the Company, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to the Holder a certificate of the chief financial officer
of the Company setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon the written request at any time of the Holder, furnish to
the Holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Exercise Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the exercise of this Warrant.
13. RIGHTS OF WARRANT HOLDERS. Nothing contained in this Warrant shall be
construed as conferring upon the Holder hereof the right to vote or to consent
or to receive notice as a shareholder in respect of any meetings or shareholders
for the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company.
14. NOTICES. All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered in
person, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder or Holders of this Warrant, to
the address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the first page
of this Warrant or to such other address as the Company may designate by notice
to the Holders.
15. REMEDIES. Each holder of Warrant and Warrant Stock, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under Section 5 of this
Warrant. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of Section 5 of this Warrant and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
16. AMENDMENT. This Warrant and all other Warrants may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder or Holders,
12.
<PAGE> 13
provided that no such Warrant may be modified or amended to reduce the number of
shares of Common Stock for which such Warrant is exercisable or to increase the
price at which such shares may be purchased upon exercise of such Warrant
(before giving effect to any adjustment as provided therein) without the prior
written consent of the Holder thereof.
17. SEVERABILITY. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Warrant.
18. SUCCESSORS. All the covenants, agreements, representations and warranties
contained in this Warrant shall bind the parties hereto and their respective
heirs, executors, administrators, distributes, successors and assigns.
19. HEADINGS. The Section headings in this Warrant are inserted for purposes of
convenience only and shall have no substantive effect.
20. LAW GOVERNING. This Warrant shall be construed and enforced in accordance
with, and governed by, the laws of the State of California.
WITNESS the seal of the Company and the signature of its duly authorized
officer.
Dated: March 29, 1999
PLANET POLYMER TECHNOLOGIES, INC.
By:
------------------------------------------
Robert J. Petcavich,
Chief Executive Officer
13.
<PAGE> 14
EXHIBIT A
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in Order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the right to
purchase _____ shares of Common Stock of Planet Polymer Technologies, Inc.
covered by the Warrant to which this Exhibit A is attached, according to the
conditions of such Warrant, and herewith makes payment of the Exercise Price of
such shares in full.
INSTRUCTIONS FOR REGISTRATION OF STOCK
NAME
----------------------------------
ADDRESS
-------------------------------
-------------------------------------
Signature
Dated:
--------------------------------
<PAGE> 15
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of the Warrant to
which this Exhibit B is attached hereby sells, assigns and transfers unto the
Assignee named below all of the rights of the undersigned under such Warrant,
with respect to the number of shares of Common stock set forth below:
NAME AND ADDRESS OF ASSIGNEE NO. OF SHARES OF COMMON STOCK
- -------------------------------------- -------------------------------------
and does hereby irrevocably constitute and appoint _________ attorney-in-fact to
register such transfer on the books of Planet Polymer Technologies, Inc.
maintained for the purpose, with full power of substitution in the premises.
Dated: -------------------------------------
------------------------ Signature
<PAGE> 1
EXHIBIT 10.24
THE PORTIONS OF THIS DOCUMENT OMITTED AND MARKED WITH ASTERISKS AND
BRACKETS IS SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY
WITH THE SEC.
SUB-AGREEMENT
TO
LICENSE AGREEMENT
(ANIMAL FEED)
This Sub-Agreement is made effective as of the 1st day of March 2000
(the "Effective Date") by and between Agway, Inc., successor by merger to Agway
Consumer Products, Inc. ("Agway") and Planet Polymer Technologies, Inc.
("Planet").
RECITALS:
A. Agway and Planet entered into a License Agreement ("License
Agreement") effective November 12, 1998, pursuant to which Planet granted to
Agway an exclusive worldwide license in connection with time-release coatings
for a variety of Agricultural Products and Food Products as defined in the
License Agreement.
B. Pursuant to paragraph 4 of the License Agreement, Agway and Planet
are entering into this Sub-Agreement for animal feed (hereinafter, the
"Product") marketed by Agway's CPG Nutrients Division ("CPG Nutrients")
utilizing the technology granted to Agway under the License Agreement.
C. Terms that are not otherwise defined in this Sub-Agreement shall have
the meanings set forth in the License Agreement.
D. The parties entered into a Sub-Agreement effective as of September
22, 1999, and the parties desire to replace the September 22, 1999 Sub-Agreement
with this Sub-Agreement.
WITNESSETH:
For good and valuable consideration, the parties, intending to be
legally bound, agree as follows:
1. This Sub-Agreement covers the following Product and Market Area:
Product: All animal feed products incorporating Planet patented/patent
pending coatings and/or Planet patented/patent pending polymer
systems.
Market Area: The world.
1
<PAGE> 2
THE PORTIONS OF THIS DOCUMENT OMITTED AND MARKED WITH
ASTERISKS AND BRACKETS IS SUBJECT TO A CONFIDENTIAL
TREATMENT REQUEST FILED SEPARATELY WITH THE SEC
1.1 Definitions. As used in this Sub-Agreement, the following terms shall be
defined as follows:
Animal Feed Projects
CPG Nutrients, or any of its successors, work in connection with or
related to the Product.
Net Sales and Revenues
CPG Nutrients or any of its successors' gross Product sales and
revenues, less adjustments for returns, allowances and discounts, as
recognized under generally accepted accounting principles and under
methods historically used and consistently applied by CPG Nutrients. Any
and all sales or revenues from sales of products incorporating polymer
coatings and/or polymer systems for other than animal feed (for example,
sales of damaged goods as fertilizer) shall not be considered Net Sales
and Revenues.
Pre-Tax Earnings/(Loss) Before Sales Royalty
Net income or loss before Sales Royalty and a provision for federal
income tax liability for the Animal Feed Projects in accordance with generally
accepted accounting principles and with methods historically used and
consistently applied by CPG Nutrients or any of its successors.
Optigen Project
CPG Nutrients, or any of its successors, work in connection with or
related to [* * * * *].
Optigen Project Operating Results
Net income earned or loss incurred before income taxes by CPG Nutrients
or any of its successors solely with respect to the Optigen Project calculated
in accordance with generally accepted accounting principles and with methods
historically used and consistently applied by CPG Nutrients or any of its
successors.
Optigen Project To Date Losses
The cumulative Optigen Project Operating Results since January 1, 1999.
Since January 1, 1999 to December 31, 1999 the total Optigen Project To Date
Losses are in the total sum of [*]. The Optigen Project To Date Losses shall be
increased or decreased by the Optigen Project Operating Results from January 1,
2000.
Full Fiscal Year
For purposes of this Sub-Agreement, the Full Fiscal Year shall be the
accounting and reporting cycle of Agway, which is a 52 or 53 week year ending
the last Saturday of June.
2. Sales Royalty
2.a) Agway shall pay Sales Royalty amounts to Planet on Net Sales and
Revenues during the term of this Sub-Agreement, such Sales Royalty
amounts being payable for the term of [*] immediately following the
Effective Date of this Sub-Agreement, provided however, that Sales
Royalty amounts will be payable only for as long as the manufacture, use
or sale of such Product is covered by a claim of an unexpired licensed
U. S. patent or U. S. patent
2
<PAGE> 3
THE PORTIONS OF THIS DOCUMENT OMITTED AND MARKED WITH
ASTERISKS AND BRACKETS IS SUBJECT TO A CONFIDENTIAL
TREATMENT REQUEST FILED SEPARATELY WITH THE SEC
pending of Planet which has not been held to be either invalid or
unenforceable by a final decision from which no appeal is or can be
taken.
2.b) The Sales Royalty amount due Planet under sub-paragraph 2.a) above shall
be calculated as follows; apply the following percentages based on Net
Sales and Revenues for each of Agway's Full Fiscal Years during the term
of this Sub-Agreement except that the calculation of Net Sales and
Revenues shall commence with the start of the first quarter in which the
Optigen Project has a profitable quarter:
[*};
[**]; and,
[***].
2.c) Notwithstanding the calculation of a Sales Royalty under subparagraph
2.b) above, whether any payment is due Planet under subparagraph 2.b)
above and the amount of any such payment shall be subject to the
following three rules.
Rule No. 1. Determine whether the Optigen Project was profitable for the
fiscal quarter being measured; if the Optigen Project was profitable for
said quarter, the Sales Royalty payment due Planet shall be calculated
as set forth under subparagraph 2.b) above; however, if the Optigen
Project was not profitable for said quarter, no Sales Royalty shall be
due Planet for said quarter;
Rule No. 2. The quarterly Sales Royalty payment to Planet shall not
exceed [*] of the quarterly Pre-Tax Earnings/(Loss) Before Sales
Royalty; if the quarterly Sales Royalty payment otherwise due Planet
exceeds [**] of the quarterly Pre-Tax Earnings/(Loss) Before Sales
Royalty, then, the quarterly Sales Royalty payment due Planet shall be
reduced to an amount equal to [***] of the quarterly Pre-Tax
Earnings/(Loss) before Sales Royalty; and,
Rule No. 3. Determine whether the Optigen Project To Date Losses have
been reduced to [*]; if said losses have been reduced to [**], the
quarterly Sales Royalty payment due Planet shall be paid to Planet;
however, if the Optigen Project To Date Losses have not been reduced to
[***], then, the quarterly Sales Royalty payment due Planet as
calculated under subparagraph 2.b) and modified as specified under
subparagraph 2.c) Rule No. 1 and Rule No. 2 shall be reduced by [****].
If the reduction in payment from the application of this Rule No. 3
exceeds the remaining Optigen Project To Date Losses, the percentage
reduction shall be reduced to such lower percentage as necessary to
bring the Optigen Project To Date Losses to [*****].
2.d) It is the intent of the parties that the following principles apply:
(i) No quarterly Sales Royalty under subparagraph 2.b) above will
become due or payable unless and until CPG Nutrients or any of
its successors has [*].
3
<PAGE> 4
THE PORTIONS OF THIS DOCUMENT OMITTED AND MARKED WITH
ASTERISKS AND BRACKETS IS SUBJECT TO A CONFIDENTIAL
TREATMENT REQUEST FILED SEPARATELY WITH THE SEC
(ii) The quarterly Sales Royalty due and payable to Planet under
subparagraph 2.b) above shall not exceed CPG Nutrients or any of
its successors quarterly Pre-Tax Earnings Before Sales Royalty
on the Product; if CPG Nutrients or any of its successors
quarterly Pre-Tax Earnings Before Sales Royalty on the Product
is less than [*] the quarterly Sales Royalty due Planet, the
quarterly Sales Royalty payable to Planet will be reduced to be
equal to [**] of CPG Nutrients or any of its successors
quarterly Pre-Tax Earnings Before Sales Royalty; and,
(iii) Until and unless CPG Nutrients or any of its successors has
recouped the Optigen Project To Date Losses, the quarterly Sales
Royalty payable, as calculated under subparagraph 2.b) above, to
Planet will be [*] the Sales Royalty amount otherwise determined
under this Sub-Agreement.
2.e) The Sales Royalty payment as calculated above becomes due at the end of
each fiscal quarter, and payable within 45 days thereafter. With each
such payment, CPG Nutrients or any of its successors shall furnish
Planet a report in sufficient detail to permit confirmation of the
accuracy of the Sales Royalty payment made, including without
limitation, the sales of the Product during the fiscal quarter being
reported, the Sales Royalty payment in United States dollars, the method
used to calculate the Sales Royalty payment and the exchange rate used.
2.f) At the end of each Full Fiscal Year, an annual Sales Royalty true-up
will be calculated. The Sales Royalty annual true-up will apply the
calculation provisions of paragraphs 2.b) and 2.c) to the Net Sales and
Revenues for the Full Fiscal Year to determine the actual amount due
Planet for the Full Fiscal Year. This amount will be compared to the
amounts calculated as due Planet under the four quarterly calculations
for that corresponding Full Fiscal Year. If the annual calculation
indicates a higher amount due Planet, that payment is due 90 days after
the end of the Full Fiscal Year. If the annual calculation indicates a
lower amount is due Planet, the difference will be deducted from the
next succeeding payment(s) due Planet. CPG Nutrients or any of its
successors shall furnish Planet a report in sufficient detail to permit
confirmation of the accuracy of the Sales Royalty true-up, including
without limitation, the sales of the Product during the fiscal year
being reported, the Sales Royalty payment in United States dollars, the
method used to calculate the Sales Royalty payment and the exchange rate
used.
3. Minimum Annual Royalty. The sole purpose of the Minimum Annual Royalty
is to compensate Planet for granting exclusive license rights to Agway
for the Product under this Sub-Agreement.
3.a) If the annual Sales Royalty amount, solely as calculated in subparagraph
2.b) above, is less than the Minimum Annual Royalty, as identified in
subparagraph 3.b) below, for the corresponding Full Fiscal Year, then,
payment of this incremental difference is due to Planet resulting in
full satisfaction of the Minimum Annual Royalty.
If the annual Sales Royalty amount, solely as calculated in subparagraph
2.b) above, is greater than the Minimum Annual Royalty, as identified in
subparagraph 3.b) below, for the
4
<PAGE> 5
THE PORTIONS OF THIS DOCUMENT OMITTED AND MARKED WITH
ASTERISKS AND BRACKETS IS SUBJECT TO A CONFIDENTIAL
TREATMENT REQUEST FILED SEPARATELY WITH THE SEC
corresponding Full Fiscal Year, then, the intent of the Minimum Annual
Royalty has been fully satisfied. Therefore, the Minimum Annual Royalty
provision is not applicable for the corresponding Full Fiscal Year.
3.b) Minimum Annual Royalty Schedule:
<TABLE>
<CAPTION>
Full Fiscal Year Minimum Annual Royalty
---------------- ----------------------
<S> <C>
Fiscal Year One [*]
Fiscal Year Two [**]
Fiscal Year Three [***]
Fiscal Year Four [****]
Fiscal Year Five [*****]
Fiscal Year Six [******]
Fiscal Year Seven [*******]
Fiscal Year Eight [********]
Each Subsequent Fiscal Year Thereafter [*********]
</TABLE>
Fiscal Year One shall commence on the first day of the Full Fiscal Year
immediately following receipt of an Association of America Feed Control
Officials, Inc. (AAFCO") feed ingredient definition for [* * * * *]. If
the AAFCO feed ingredient definition is received within the first 60
calendar days of a Full Fiscal Year, then, the AAFCO receipt shall be
deemed to have been received in the prior Full Fiscal Year, and Fiscal
Year One shall commence as of the first day of the Full Fiscal Year in
which the AAFCO receipt was received.
3.c) In order to maintain exclusive license rights to Product, the Minimum
Annual Royalty amount due as determined in subparagraph 3.a) will be
made by October 31 immediately following the Full Fiscal Year of
measurement. Agway may choose to not pay the Minimum Annual Royalty for
any and all Full Fiscal Years, and Planet shall have no rights or
recourse against Agway for such payment for that year or for any future
Full Fiscal Years. However, if Agway fails to make a timely Minimum
Annual Royalty payment, Planet reserves the right to provide Agway with
a written notice of such failure to pay, and Agway will have 60 days
from receipt of such notice to remedy such shortfall in payment. If
Agway does not cure its failure to make the Minimum Annual Royalty
payment within the 60-day cure period, then, Planet's only recourse and
remedy will be to grant non-exclusive license rights to Product to other
parties. Despite Agway's failure to make Minimum Annual Royalty
payments, this Sub-Agreement shall continue in full force and effect but
on a non-exclusive basis, and no Minimum Annual Royalty shall be due
from Agway.
4. In the event that any Sales Royalty payments due hereunder are not made
when due, the payments shall accrue interest from the due date at the
prime lending rate as of said date as published in The Wall Street
Journal; provided, however, that in no event shall such rate exceed the
maximum legal annual interest rate. The payment of such interest shall
not limit Planet from exercising any other rights it may have as a
consequence of the lateness of any payment.
5
<PAGE> 6
THE PORTIONS OF THIS DOCUMENT OMITTED AND MARKED WITH
ASTERISKS AND BRACKETS IS SUBJECT TO A CONFIDENTIAL
TREATMENT REQUEST FILED SEPARATELY WITH THE SEC
5. All payments owed under this Sub-Agreement shall be made by wire
transfer to a bank account designated by Planet, unless otherwise
specified in writing by Planet. All payments due Planet under this
Sub-Agreement shall be paid in United States dollars, free of taxes
payable in any foreign country, except for such taxes as result in, and
to the extent that the same do result in a foreign tax credit applicable
to the United States taxes payable by Planet. With respect to each
quarter, for countries other than the United States, whenever conversion
of payments from any foreign currency shall be required, such conversion
shall be made at the rate of exchange required of CPG Nutrients or any
of its successors under generally accepted accounting principles for the
applicable accounting period.
6. Agway and its affiliates shall keep accurate books and records as
reasonably needed for determination of Sales Royalty payments due under
paragraph 2 above. Such books and records shall be maintained for a
period of at least three years from the expiration of the relevant Sales
Royalty payment period.
7. Not more than once in each fiscal year, Planet may have the books and
records of CPG Nutrients, or any of its successors, audited by an
independent certified public accounting firm (CPA Firm) reasonably
acceptable to Agway to the extent necessary to verify the correctness of
any Sales Royalty payment report furnished under this Sub-Agreement. If
such independent CPA Firm should determine that an underpayment of Sales
Royalty may have occurred, Agway may have Agway's independent
accountants review the CPG Nutrients records and the report and
calculations of the CPA Firm to determine Agway's independent
accountants' assessment of the amount due under this Sub-Agreement. If
the CPA Firm and Agway's independent accountants do not agree and the
parties cannot agree to a mutually satisfactory resolution, then, a
third mutually agreeable nationally recognized independent certified
public accounting firm shall be hired by the parties to finally resolve
the correct amount due. The determination by the third independent
certified public accounting firm shall be final. The CPA Firm and any
third firm shall keep all information received in connection with any
audit confidential, and they shall report to Planet and Agway only the
accuracy of and/or any deficiencies in any such Sales Royalty payment
report. The fee for such CPA Firm and any third firm shall be paid by
Planet, unless the audit finally results in an upward adjustment of
Sales Royalty payments due Planet by more than 5% of the amount due
under this Sub-Agreement; in such case, Agway shall pay the full cost of
such audits. In any event, Agway shall pay any finally determined
underpayment with interest in accordance with paragraph 4 above.
8. The Sub-Agreement effective as of September 22, 1999 is hereby
terminated and is replaced with this Sub-Agreement as of the Effective
Date of this Sub-Agreement, and this Sub-Agreement shall be a part of
the License Agreement entered into between Agway and Planet effective
the 12th day of November, 1998 and incorporates all the terms thereof to
the extent they are not inconsistent herewith. In the event of any
inconsistency between the terms of the License Agreement and this
Sub-Agreement, this Sub-Agreement shall govern the rights, duties,
privileges and obligations of the parties.
6
<PAGE> 7
THE PORTIONS OF THIS DOCUMENT OMITTED AND MARKED WITH
ASTERISKS AND BRACKETS IS SUBJECT TO A CONFIDENTIAL
TREATMENT REQUEST FILED SEPARATELY WITH THE SEC
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above mentioned.
AGWAY, INC.
By:
--------------------------------------
As:
--------------------------------------
PLANET POLYMER TECHNOLOGIES, INC.
By:
--------------------------------------
As:
--------------------------------------
7
<PAGE> 1
EXHIBIT 10.25
THE PORTIONS OF THIS DOCUMENT OMITTED AND MARKED WITH ASTERISKS AND
BRACKETS IS SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY
WITH THE SEC.
SUB-AGREEMENT
TO
LICENSE AGREEMENT
(FRUITS, VEGETABLES, ETC.)
This Sub-Agreement is made effective as of the 1st day of March 2000
(the "Effective Date") by and between Agway, Inc., successor by merger to Agway
Consumer Products, Inc. ("Agway") and Planet Polymer Technologies, Inc.
("Planet").
RECITALS:
A. Agway and Planet entered into a License Agreement ("License
Agreement") effective November 12, 1998, pursuant to which Planet granted to
Agway an exclusive worldwide license in connection with time-release coatings
for a variety of Agricultural Products and Food Products as defined in the
License Agreement.
B. Pursuant to paragraph 4 of the License Agreement, Agway and Planet
are entering into this Sub-Agreement for fruits, vegetables, floral and nursery
items (hereinafter collectively, the "Product") marketed by Agway's CPG
Technologies International Division ("CPGTI") utilizing the technology granted
to Agway under the License Agreement.
C. Terms that are not otherwise defined in this Sub-Agreement shall have
the meanings set forth in the License Agreement.
WITNESSETH:
For good and valuable consideration, the parties, intending to be
legally bound, agree as follows:
1. This Sub-Agreement covers the following Product and Market Area:
Product: Planet patented/patent pending coatings and Planet
patented/patent pending polymer systems sold for use on fruits,
vegetables, floral and nursery items.
Market Area: The world.
1.1 Definitions. As used in this Sub-Agreement, the following terms shall be
defined as follows:
Fruits, Vegetables, Floral and Nursery (FVFN) Projects
CPGTI's, or any of its successors', work in connection with or related
to the Product.
1
<PAGE> 2
THE PORTIONS OF THIS DOCUMENT OMITTED AND MARKED WITH ASTERISKS AND
BRACKETS IS SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY
WITH THE SEC
Net Sales and Revenues
CPGTI or any of its successors' gross Product sales and revenues, less
adjustments for returns, allowances and discounts, as recognized under generally
accepted accounting principles and under methods historically used and
consistently applied by CPGTI.
Pre-Tax Earnings/(Loss) Before Sales Royalty
Net income or loss before Sales Royalty and a provision for federal
income tax liability for FVFN Projects in accordance with generally accepted
accounting principles and with methods historically used and consistently
applied by CPGTI or any of its successors.
Full Fiscal Year
For purposes of this Sub-Agreement, the Full Fiscal Year shall be the
accounting and reporting cycle of Agway, which is a 52 or 53 week year ending
the last Saturday of June.
2. Sales Royalty
2.a) Agway shall pay Sales Royalty amounts to Planet on Net Sales and
Revenues during the term of this Sub-Agreement, such Sales Royalty
amounts being payable for the term of [*] years immediately following
the Effective Date of this Sub-Agreement, provided however, that Sales
Royalty amounts will be payable only for as long as the manufacture, use
or sale of such Product is covered by a claim of an unexpired licensed
U. S. patent or U. S. patent pending of Planet which has not been held
to be either invalid or unenforceable by a final decision from which no
appeal is or can be taken.
2.b) The Sales Royalty amounts due Planet under sub-paragraph 2.a) above
shall be calculated as follows; apply the following percentages based on
Net Sales and Revenues for each of Agway's Full Fiscal Years during the
term of this Sub-Agreement except that the calculation of Net Sales and
Revenues shall commence with the start of the first quarter in which
FVFN Projects have a profitable quarter:
[*];
[**],
[***].
2.c) Notwithstanding the calculation of a Sales Royalty under subparagraph
2.b) above, whether any payment is due Planet under subparagraph 2.b)
above and the amount of any such payment shall be subject to the
following two rules.
Rule No. 1. Determine whether the FVFN Projects were profitable for the
fiscal quarter being measured; if the FVFN Projects were profitable for
said quarter, the Sales Royalty payment due Planet shall be calculated
as set forth under subparagraph 2.b) above; however, if the FVFN
Projects were not profitable for said quarter, no Sales Royalty shall be
due Planet for said quarter; and,
2
<PAGE> 3
THE PORTIONS OF THIS DOCUMENT OMITTED AND MARKED WITH ASTERISKS AND
BRACKETS IS SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY
WITH THE SEC
Rule No. 2. The quarterly Sales Royalty payment to Planet shall not
exceed [*] of the quarterly Pre-Tax Earnings/(Loss) Before Sales
Royalty; if the quarterly Sales Royalty payment otherwise due Planet
exceeds [**] of the quarterly Pre-Tax Earnings/(Loss) Before Sales
Royalty, then, the quarterly Sales Royalty payment due Planet shall be
reduced to an amount equal to [***] of the quarterly Pre-Tax
Earnings/(Loss) before Sales Royalty.
2.d) It is the intent of the parties that the following principles apply:
(i) No quarterly Sales Royalty under subparagraph 2.b) above will
become due or payable unless and until the FVFN Projects have
[*]; and,
(ii) The quarterly Sales Royalty due and payable to Planet under
subparagraph 2.b) above shall not exceed the FVFN Projects'
quarterly Pre-Tax Earnings Before Sales Royalty on the Product;
if CPTGI or any of its successors quarterly Pre-Tax Earnings
Before Sales Royalty on the Product is less than [*] the
quarterly Sales Royalty due Planet, the quarterly Sales Royalty
payable to Planet will be reduced to be equal to [*] of the FVFN
Projects' quarterly Pre-Tax Earnings Before Sales Royalty.
2.e) The Sales Royalty payment as calculated above becomes due at the end of
each fiscal quarter and payable within 45 days thereafter. With each
such payment, CPGTI or any of its successors shall furnish Planet a
report in sufficient detail to permit confirmation of the accuracy of
the Sales Royalty payment made, including without limitation, the sales
of the Product during the fiscal quarter being reported, the Sales
Royalty payment in United States dollars, the method used to calculate
the Sales Royalty payment and the exchange rate used.
2.f) At the end of each Full Fiscal Year, an annual Sales Royalty true-up
will be calculated. The Sales Royalty annual true-up will apply the
calculation provisions of paragraphs 2.b) and 2.c) to the Net Sales and
Revenues for the Full Fiscal Year to determine the actual amount due
Planet for the Full Fiscal Year. This amount will be compared to the
amounts calculated as due Planet under the four quarterly calculations
for that corresponding Full Fiscal Year. If the annual calculation
indicates a higher amount due Planet, that payment is due 90 days after
the end of the Full Fiscal Year. If the annual calculation indicates a
lower amount is due Planet, the difference will be deducted from the
next succeeding payment(s) due Planet. CPGTI or any of its successors
shall furnish Planet a report in sufficient detail to permit
confirmation of the accuracy of the Sales Royalty true-up, including
without limitation, the sales of the Product during the fiscal year
being reported, the Sales Royalty payment in United States dollars, the
method used to calculate the Sales Royalty payment and the exchange rate
used.
3. Minimum Annual Royalty. The sole purpose of the Minimum Annual Royalty
is to compensate Planet for granting exclusive license rights to Agway
for the Product under this Sub-Agreement.
3.a) If the annual Sales Royalty amount, solely as calculated in subparagraph
2.b) above, is less than the Minimum Annual Royalty, as identified in
subparagraph 3.b) below, for the
3
<PAGE> 4
THE PORTIONS OF THIS DOCUMENT OMITTED AND MARKED WITH ASTERISKS AND
BRACKETS IS SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST FILED SEPARATELY
WITH THE SEC
corresponding Full Fiscal Year, then, payment of this incremental
difference is due to Planet resulting in full satisfaction of the
Minimum Annual Royalty.
If the annual Sales Royalty amount, solely as calculated in subparagraph
2.b) above, is greater than the Minimum Annual Royalty, as identified in
subparagraph 3.b) below, for the corresponding Full Fiscal Year, then,
the intent of the Minimum Annual Royalty has been fully satisfied.
Therefore, the Minimum Annual Royalty provision is not applicable for
the corresponding Full Fiscal Year.
3.b) Minimum Annual Royalty Schedule:
<TABLE>
<CAPTION>
Full Fiscal Year Minimum Annual Royalty
---------------- ----------------------
<S> <C>
Fiscal Year One [*]
Fiscal Year Two [**]
Fiscal Year Three [***]
Fiscal Year Four [****]
Fiscal Year Five [*****]
Fiscal Year Six [******]
Fiscal Year Seven [*******]
Fiscal Year Eight [********]
Fiscal Year Nine [*********]
Fiscal Year Ten [**********]
Fiscal Year Eleven [***********]
Fiscal Year Twelve [************]
Fiscal Year Thirteen [*************]
Fiscal Year Fourteen [**************]
Fiscal Year Fifteen [***************]
</TABLE>
Fiscal Year One shall commence with Agway's 2000-2001 fiscal year.
3.c) In order to maintain exclusive license rights to Product, the Minimum
Annual Royalty amount due as determined in subparagraph 3.a) will be
made by October 31 immediately following the Full Fiscal Year of
measurement. Agway may choose to not pay the Minimum Annual Royalty for
any and all Full Fiscal Years, and Planet shall have no rights or
recourse against Agway for such payment for that year or for any future
Full Fiscal Years. However, if Agway fails to make a timely Minimum
Annual Royalty payment, Planet reserves the right to provide Agway with
a written notice of such failure to pay, and Agway will have 60 days
from receipt of such notice to remedy such shortfall in payment. If
Agway does not cure its failure to make the Minimum Annual Royalty
payment within the 60-day cure period, then, Planet's only recourse and
remedy will be to grant non-exclusive license rights to Product to other
parties. Despite Agway's failure to make Minimum Annual Royalty
payments, this Sub-Agreement shall continue in full force and effect but
on a non-exclusive basis, and no Minimum Annual Royalty shall be due
from Agway.
4. In the event that any Sales Royalty payments due hereunder are not made
when due, the
4
<PAGE> 5
THE PORTIONS OF THIS DOCUMENT OMITTED AND MARKED WITH
ASTERISKS AND BRACKETS IS SUBJECT TO A CONFIDENTIAL
TREATMENT REQUEST FILED SEPARATELY WITH THE SEC
payments shall accrue interest from the due date at the prime lending
rate as of said date as published in The Wall Street Journal; provided,
however, that in no event shall such rate exceed the maximum legal
annual interest rate. The payment of such interest shall not limit
Planet from exercising any other rights it may have as a consequence of
the lateness of any payment.
5. All payments owed under this Sub-Agreement shall be made by wire
transfer to a bank account designated by Planet, unless otherwise
specified in writing by Planet. All payments due Planet under this
Sub-Agreement shall be paid in United States dollars, free of taxes
payable in any foreign country, except for such taxes as result in, and
to the extent that the same do result in a foreign tax credit applicable
to the United States taxes payable by Planet. With respect to each
quarter, for countries other than the United States, whenever conversion
of payments from any foreign currency shall be required, such conversion
shall be made at the rate of exchange required of CPGTI or any of its
successors under generally accepted accounting principles for the
applicable accounting period.
6. Agway and its affiliates shall keep accurate books and records as
reasonably needed for determination of Sales Royalty payments due under
paragraph 2 above. Such books and records shall be maintained for a
period of at least three years from the expiration of the relevant Sales
Royalty payment period.
7. Not more than once in each fiscal year, Planet may have the books and
records of CPGTI, or any of its successors, audited by an independent
certified public accounting firm (CPA Firm) reasonably acceptable to
Agway to the extent necessary to verify the correctness of any Sales
Royalty payment report furnished under this Sub-Agreement. If such
independent CPA Firm should determine that an underpayment of Sales
Royalty may have occurred, Agway may have Agway's independent
accountants review the CPGTI records and the report and calculations of
the CPA Firm to determine Agway's independent accountants' assessment of
the amount due under this Sub-Agreement. If the CPA Firm and Agway's
independent accountants do not agree, and the parties cannot agree to a
mutually satisfactory resolution, then, a third mutually agreeable
nationally recognized independent certified public accounting firm shall
be hired by the parties to finally resolve the correct amount due. The
determination by the third independent certified public accounting firm
shall be final. The CPA Firm and any third firm shall keep all
information received in connection with any audit confidential, and they
shall report to Planet and Agway only the accuracy of and/or any
deficiencies in any such Sales Royalty payment report. The fee for such
CPA Firm and any third firm shall be paid by Planet, unless the audit
finally results in an upward adjustment of Sales Royalty payments due
Planet by more than 5% of the amount due under this Sub- Agreement; in
such case, Agway shall pay the full cost of such audits. In any event,
Agway shall pay any finally determined underpayment with interest in
accordance with paragraph 4 above.
8. This Sub-Agreement shall be a part of the License Agreement entered into
between Agway and Planet effective the 12th day of November, 1998 and
incorporates all the terms thereof to the extent they are not
inconsistent herewith. In the event of any inconsistency between
5
<PAGE> 6
THE PORTIONS OF THIS DOCUMENT OMITTED AND MARKED WITH
ASTERISKS AND BRACKETS IS SUBJECT TO A CONFIDENTIAL
TREATMENT REQUEST FILED SEPARATELY WITH THE SEC
the terms of the License Agreement and this Sub-Agreement, this
Sub-Agreement shall govern the rights, duties, privileges and
obligations of the parties.
IN WITNESS WHEREOF, the parties have executed this Sub-Agreement as of
the date first above mentioned.
AGWAY, INC.
By:
----------------------------------------
As:
----------------------------------------
PLANET POLYMER TECHNOLOGIES, INC.
By:
----------------------------------------
As:
----------------------------------------
6
<PAGE> 1
EXHIBIT 10.26
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THESE SECURITIES MAY NOT BE OFFERED, SOLD OR TRANSFERRED ABSENT SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
PLANET POLYMER TECHNOLOGIES, INC.
WARRANT TO PURCHASE UP TO A MAXIMUM OF
50,000 SHARES OF COMMON STOCK
In consideration of the sum of good and valuable consideration, the
receipt of which is hereby acknowledged by PLANET POLYMER TECHNOLOGIES, INC., a
California corporation (the "Company"), LBC CAPITAL RESOURCES, INC., (the
"Holder"), is hereby granted the right to purchase at any time from the date
hereof until 5:00 p.m., Pacific Standard Time, on March 3, 2005 (the "First
Expiration Date") up to all or any part of Fifty Thousand (50,000) fully paid
and non-assessable shares of the Company's common stock, without par value
("Common Stock").
1. EXERCISE OF WARRANT. This Warrant is exercisable at a price of
$4.1625 per share of Common Stock issuable hereunder (the "Exercise Price")
payable in cash or by certified or official bank check. Upon surrender of this
Warrant, together with a subscription form substantially in the form of "Exhibit
A" hereto duly executed, together with payment of the Exercise Price for the
shares of Common Stock purchased, at the principal executive offices of the
Company, 9985 Business Park Avenue, Suite A, San Diego, California, 92131, or at
such other office as the Company may designate by notice in writing, the Holder
shall be entitled to receive, as promptly as practicable after surrender of the
Warrant, a certificate or certificates for the shares of Common Stock so
purchased. Upon exercise of this Warrant as set forth in the preceding sentence,
the Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise.
The purchase rights represented by this Warrant are exercisable at the option of
the Holder hereof, in whole or in part (but not as to fractional shares of the
Common Stock), during any period in which this Warrant may be exercised as set
forth above. In the case of the purchase of less than all the shares of Common
Stock purchasable under this Warrant, the Company shall cancel this Warrant upon
the surrender hereof and shall execute and deliver a new Warrant of like kind
for the balance of the shares of Common Stock purchasable hereunder.
2. ISSUANCE OF STOCK CERTIFICATES. The issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof of any tax which may be payable in respect to the
issuance thereof, and such certificates shall (subject to the provisions of
Sections 3 and 5 hereof) be issued in the name of, or in such names as may be
directed by, the Holder hereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect to any transfer involved
in the issuance and delivery of any such certificate in a name other than that
of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or
1
<PAGE> 2
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid, and provided that the issuance of certificates for
such shares of Common Stock shall not violate the securities laws.
3. TRANSFER, DIVISION AND COMBINATION.
3.1 Transfer. Subject to compliance with Section 8, the Holder of
this Warrant may transfer this Warrant at any time to any subsidiary or
affiliate of the Holder. Transfer of this Warrant and all rights hereunder, in
whole or in part, shall be registered on the books of the Company to be
maintained for such purpose, upon surrender of this Warrant at the principal
office of the Company or the office or agency designated by the Company,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer.
Upon such surrender and, if required, such payment, the Company shall, subject
to Section 8, execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the portion
of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A
Warrant, if properly assigned in compliance with Section 8, may be exercised by
a new Holder for the purchase of shares of Common Stock without having a new
Warrant issued.
3.2 Division and Combination. Subject to Section 8, this Warrant
may be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 8, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3 Expenses. The Company shall prepare, issue and deliver at its
own expense (other than transfer taxes) the new Warrant or Warrants under this
Section.
3.4 Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
4. EXERCISE PRICE. The exercise price of this Warrant shall be $4.1625
per share of Common Stock.
5. REGISTRATION AND REGISTRATION RIGHTS.
5.1 Restricted Securities. The shares of Common Stock issuable
upon exercise of this Warrant (the "Warrant Shares") have not been registered
under the Securities Act of 1933, as amended (the "Securities Act").
2
<PAGE> 3
Except as otherwise provided in this Section, upon exercise, in part or
in whole, of this Warrant, the Warrant Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY
ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT. ANY SUCH OFFER, SALE,
ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH APPLICABLE STATE
SECURITIES LAWS."
5.2 Definitions. For purposes of Section 5.
(a) The term "Commission" means the Securities and
Exchange Commission;
(b) The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended;
(c) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and the declaration or ordering
of effectiveness of such registration statement;
(d) The term "Registrable Securities" means Common Stock
issuable or issued upon exercise of Warrants to purchase Common Stock of the
Company outstanding as of the filing of any registration statement subject to
the provisions of Section 5.3;
(e) The term "Holder" means any investor holding
Registrable Securities and any other person holding Registrable Securities to
whom these registration rights have been transferred pursuant to Sections 3 and
5; and
(f) The term "Securities Act" means the Securities Act of
1933, as amended.
3
<PAGE> 4
5.3 Company Registration.
(a) If the Company at any time proposes to file on its
behalf and/or on behalf of any of its security holders (the "demanding security
holders") a registration statement under the Securities Act on any form (other
than a Registration Statement on Form S-4 or S-8 or any successor form for
securities to be offered in a transaction of the type referred to in Rule 145
under the Securities Act or to employees of the Company pursuant to any employee
benefit plan, respectively) for the general registration of securities to be
sold for cash with respect to its Common Stock or any other class of equity
security (as defined in Section 3(a)(11) of the Exchange Act) of the Company, it
will give written notice to all holders of Warrants or Warrant Stock at least
ten (10) days before the initial filing with the Commission of such registration
statement, which notice shall set forth the intended method of disposition of
the securities proposed to be registered by the Company. The notice shall offer
to include in such filing the aggregate number of shares of Warrant Stock, and
the number of shares of Common Stock for which this Warrant is exercisable, as
such holders may request.
(b) Each holder of any such Warrants or any such Warrant
Stock desiring to have Warrant Stock registered under this Section 5.3 shall
advise the Company in writing within ten (10) days after the date of receipt of
such offer from the Company, setting forth the amount of such Warrant Stock for
which registration is requested. The Company shall thereupon include in such
filing the number of shares of Warrant Stock for which registration is so
requested, subject to the paragraph 5.3 (c) below, and shall use its best
efforts to effect registration under the Securities Act of such shares.
(c) If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so indicate in the notice given pursuant to Section 5.3(a). In such event the
right of any Holder to registration pursuant to this Section 5.3 shall be
conditioned upon such Holder's agreeing to participate in such underwriting and
in the inclusion of the securities of the Holder to be so registered in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 5.3, if the underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the underwriter may exclude some or all of the securities of the
Holders from such registration and underwriting (hereinafter an "Underwriter
Cutback"). In the event of an Underwriter Cutback, the Company shall so advise
the Holders distributing their securities through such underwriting, and the
number of Registrable Securities that may be included in the registration and
underwriting shall be allocated among the Holder in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders at the time of filing the registration statement; provided that in no
event shall the Company be required to include in the registration less than one
thousand (1,000) shares held by any Holder. If any Holder disapproves of the
terms of any such underwriting, such Holder may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any securities excluded or
withdrawn from such underwriting
4
<PAGE> 5
shall be withdrawn from such registration. Except as otherwise provided in
Section 5.5, all expenses of such registration shall be borne by the Company.
5.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 5 that the
Holders shall furnish to the Company such information regarding them, the
Registrable Securities held by them, and the intended method of disposition of
such securities as the Company shall reasonably request and as shall be required
in connection with the action to be taken by the Company.
5.5 Company Registration Expenses. All expenses incurred in
complying with Section 5, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, the reasonable fees and expenses of one counsel for the selling
security holders (selected by those holding a majority of the shares being
registered), expenses of any special audits incident to or required by any such
registration and expenses of complying with the securities or blue sky laws of
any jurisdictions pursuant of Section 5, shall be paid by the Company, except
that the Company shall not be liable for any fees, discounts or commissions to
any underwriter or any fees or disbursements of counsel for any underwriter in
respect of the securities sold by such Holder of Warrant Stock.
5.6 Delay of Registration. No Holder shall have any right to take
any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 5.
5.7 Indemnification. In the event any Registrable Securities are
included in a registration statement under Section 5:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, each of such Holder's directors and
officers and each other person who is requesting or joining in a registration,
any underwriter (as defined in the Securities Act) for it, and each other
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act, against any losses, claims, damages, or liabilities, joint
or several, to which they may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based on any untrue or alleged untrue
statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained herein or any
amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated herein, or necessary to make the statements therein not misleading or
arise out of any violation by the Company of any rule or regulation promulgated
under the Securities Act applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration; and
will reimburse each such Holder, director, officer, participating person,
underwriter, or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 5.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company nor shall the Company
be liable in any such case for any
5
<PAGE> 6
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in connection with such registration statement,
preliminary prospectus, final prospectus, or amendments or supplements thereto,
in reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by any such Holder, director,
officer, other participating person, underwriter, or controlling person. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Holder or such director, officer participating
person underwriter or controlling person, and shall survive the transfer of such
Securities by such Holder.
(b) To the extent permitted by law, each Holder requesting
or joining in a registration will indemnify and hold harmless the Company, each
of its directors each of its officers who has signed the registration statement,
each person, if any, who controls the Company within the meaning of the
Securities Act, and each agent and any underwriter for the Company (within the
meaning of the Securities Act) against any losses, claims, damages, or
liabilities to which the Company or any such director, officer, controlling
person, agent, or underwriter may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
herein or any amendments or supplements thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary or final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
agent, or underwriter in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 5.7 (b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld).
(c) Promptly after receipt by an indemnified party under
this section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this section, notify the indemnifying party in writing of the commencement
thereof and the indemnifying party shall have the right to participate in and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties. The failure to notify an indemnifying
party promptly of the commencement of any such action, if prejudicial to his
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this section, but the omission so to
notify the indemnifying party will not relieve him of any liability that he may
have to any indemnified party otherwise than under this section.
6
<PAGE> 7
5.8 Reports Under the Exchange Act. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the Commission that may at
any time permit a Holder to sell securities of the Company to the public without
registration, the Company agrees to use its best efforts to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144, at all times subsequent to the
date hereof;
(b) file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and
(c) furnish to any Holder so long as such Holder owns any
of the Registrable Securities forthwith upon request a written statement of the
Company that it has complied with the reporting requirements of rule 144, and of
the Securities Act and the Exchange Act (at any time after it has become subject
to such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Company as may be reasonably requested in availing any Holder of any rule or
regulation of the Commission permitting the selling of any such securities
without registration.
5.9 Lockup Agreement. In consideration for the Company agreeing
to its obligations under this Section 5, each Holder agrees in connection with
any registration of the Company's securities that, upon the request of the
Company or the underwriters managing any underwritten offering of the Company's
securities, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Warrants or Warrant Stock (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed one hundred eighty (180) days) from the effective date of such
registration as the Company or the underwriters may specify.
6. ADJUSTMENTS OF PURCHASE PRICE AND NUMBER OF SHARES.
6.1 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
6.2 Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 6 (including 6.4
through 6.7 below), the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted to the nearest full share of
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of shares of Common Stock issuable upon exercise of the Warrant
immediately prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price.
6.3 Anti-Dilution Provisions. The Exercise Price in effect at any
time and the number and kind of securities purchasable upon the exercise of this
Warrant shall also be subject
7
<PAGE> 8
to adjustment from time to time upon the happening of any of the events set
forth in Sections 6.4 through 6.7.
6.4 In the event the Company shall issue or sell any shares of
Common Stock (except as provided in Section 6.7) for a consideration per share
less than the Exercise Price in effect immediately prior to such issue or sale,
then the Exercise Price in effect immediately prior to such issue or sale shall
be reduced to such lesser price (calculated to the nearest cent) as shall be
determined by multiplying the Exercise Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of: (i) the number of
shares of Common Stock outstanding immediately prior to the issuance or sale of
such additional share; and (ii) the number of shares of Common Stock which the
aggregate consideration received for the issuance or sale of such additional
shares would purchase at the Exercise Price then in effect, and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
after the issuance or sale of such additional shares. For purposes of this
Section, all shares of Common Stock issuable upon exercise of outstanding
options and warrants, and all shares of Common Stock issuable upon exercise of
this Warrant, shall be deemed to be outstanding.
6.5 For the purposes of Section 6.4 above, the following
subparagraphs (a) to (d), inclusive, shall be applicable:
(a) If at any time the Company shall issue or sell any
rights to subscribe for, or any rights or options to purchase, Common Stock or
any stock or other securities convertible into or exchangeable for Common Stock
(such convertible or exchangeable stock or securities being hereinafter called
"Convertible Securities"), whether or not such rights or options or the right to
convert or exchange any such Convertible Securities shall be immediately
exercisable, and the price per share for which Common Stock shall be issuable
upon the exercise of such rights or options or upon conversion or exchange of
such Convertible Securities (determined by dividing: (1) the total amount, if
any, received or receivable by the Company as consideration for the granting of
such rights or options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of such rights or
options, plus, in the case of any such rights or options which shall relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (2) the total number
of shares of Common Stock issuable upon the exercise of such rights or options
or upon the conversion or exchange of all such Convertible Securities issuable
upon the exercise of such rights or options) shall be less than the Exercise
Price in effect immediately prior to the time of the issue or sale of such
rights or options, then the total number of shares of Common Stock issuable upon
the exercise of such rights or options or upon conversion or exchange of the
total amount of such Convertible Securities issuable upon the exercise of such
rights or options shall (as of the date of granting of such rights or options)
be deemed to be outstanding and to have been issued for such price per share,
and except as provided in Section 6.6, no further adjustments of the Exercise
price shall be made upon the actual issue of such Common Stock or of such
Convertible Securities, upon the exercise of such rights or upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities.
8
<PAGE> 9
(b) If at any time the Company shall issue or sell or any
Convertible Securities, whether or not the rights to exchange or convert
thereunder shall be immediately exercisable, and the price per share for which
Common Stock shall be issuable upon such conversion or exchange (determined by
dividing (1) the total amount received or receivable by the Company as
consideration for the issue and sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any payable to the
Company upon the conversion or exchange thereof, by (2) the total number of
shares of Common Stock distributable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Exercise Price in effect
immediately prior to the time of such issue or sale, and the total number of
shares of Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been issued for
such price per share, and, except as provided in Section 6.6 no further
adjustments of the Exercise Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities. In
addition, if any issue or sale of such Convertible Securities shall be made upon
exercise of any rights to subscribe for or to purchase or any option to purchase
any such Convertible Securities for which adjustments of the Exercise Price
shall have been or shall be made pursuant to other provisions of this Section
6.5, no further adjustments with the Exercise Price shall be made by reason of
such issue or sale.
(c) If at any time any shares of Common Stock or
Convertible Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or sold for cash, the
consideration received therefore shall be deemed to be the amount actually
received by the Company therefore, after deduction therefrom of any expenses
incurred or any underwriting commissions or concessions or discounts paid or
allowed by the Company in connection therewith. In case any shares of Common
Stock or Convertible Securities or any rights or options to purchase any such
Common Stock or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than cash
actually received by the Company shall be deemed to be the fair value of such
consideration as determined by the Board of Directors, after deduction therefrom
of any expenses incurred or any underwriting commission or concessions or
discounts paid or allowed by the Company in connection therewith. In case any
shares of Common Stock or Convertible Securities or any rights or options to
purchase any such Common Stock or Convertible Securities shall be issued in
connection with any merger or another corporation into the Company, the amount
of consideration therefore shall be deemed to be the greater of the fair market
value of the shares issued in connection with the merger after taking into
account the effects of the merger or the fair market value of the net assets of
such merged corporation as determined by the Board of Directors after deducting
therefrom all cash and other consideration (if any) paid by the Company in
connection with such merger.
(c) The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Company, provided that such shares are neither issued, sold or otherwise
distributed by the Company.
6.6 If the purchase or exercise price provided for in any right
or option referred to in Section 6.5, or the rate at which any Convertible
Securities referred to in
9
<PAGE> 10
Section 6.5(a) or (b) shall be convertible into or exchangeable for Common
Stock, shall change or a different purchase or exercise price or rate shall
become effective at any time or from time to time (including any change
resulting from termination of such right, option or convertible security), the,
upon such change becoming effective, the Exercise Price then in effect hereunder
shall forthwith be increased or decreased to such Exercise Price as would have
been obtained had the adjustments made upon the granting or issuance of such
rights or options or Convertible Securities been made upon the basis of: (a) the
issuance of the number of shares of Common Stock theretofore actually delivered
upon the exercise of such options or rights or upon the conversion or exchange
of such Convertible Securities for the considerations received therefore; and
(b) the granting or issuance at the time of such change of any such options,
rights or Convertible Securities then still outstanding for the consideration,
if any, received by the Company therefor and to be received on the basis of such
changed price.
6.7 The Company shall not be required to make any adjustment to
the Exercise Price in the case of:
(a) the granting, after the date hereof, by the Company of
stock options under the Company's 1995 Stock Option Plan, so long as the shares
of Common Stock underlying such options are covered by the Five Hundred Thousand
(500,000) shares currently reserved for issuance under such Plan as of the date
hereof; or
(b) the issuance of shares of Common Stock, pursuant to
the exercise of the options referred to in Section 6.7 (a) above; and
(c) shares of Common Stock issued upon the exercise or
conversion, as the case may be, or under the dividend provisions thereof, if
any, of any options, warrants, preferred stock, convertible securities or other
rights to purchase Common Stock which options, warrants, preferred stock,
convertible securities or other rights are issued and outstanding on the date
hereof.
6.8 Reclassification, Consolidation, Merger, Etc., In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or conveyance to another corporation of the property
of the Company as an entirety), the Holder of this Warrant shall thereafter have
the right to purchase the kind and number of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance at an aggregate price equal to the
product of: (x) the number of shares issuable upon exercise of this Warrant and
(y) the Exercise Price in effect immediately prior to the record date for such
reclassification, change, consolidation, merger, sale or conveyance as if such
Holder had exercised this Warrant prior to such record date.
10
<PAGE> 11
6.9 Approval and Notice of Adjustment in Exercise Price. Any
adjustment of the Exercise Price made pursuant to this Section 6 shall be made
or approved by the Company's independent public accountants at the time of such
adjustment.
7. FINANCIAL AND BUSINESS INFORMATION.
7.1 Annual Information. The Company will deliver to each Holder
as soon as practicable after the end of fiscal year of the Company, and in any
event within ninety (90) days thereafter, (a) one copy of an unaudited
consolidated balance sheet of the Company and its subsidiaries as at the end of
such year, and (b) unaudited consolidated statements of income, retained
earnings and changes in financial position of the Company and its subsidiaries
for such year; setting forth in each case in comparative form the figures for
the corresponding periods in the previous fiscal year; all prepared in
accordance with GAAP, and which audited financial statements shall be
accompanied by: (i) an opinion thereon of the independent certified public
accountants regularly retained by the Company, or any other form of independent
certified public accountants of recognized national standing selected by the
Company; and (ii) a report of such independent certified public accountants
confirming any adjustment made pursuant to Section 6 during such year.
8. REPRESENTATIONS OF HOLDER.
8.1 Acquisition of Warrant for Personal Account. The Holder
represents and warrants that it is acquiring the Warrant solely for its account
for investment and not with a view to or for sale or distribution of said
Warrant for any part thereof. The Holder also represents that the entire legal
and beneficial interests of the Warrant and Warrant Stock is being acquired for,
and will be held for, its account only.
8.2 Securities Are Not Registered.
(a) The Holder recognizes that this Warrant and Warrant
Stock being acquired by it must be held indefinitely unless they are
subsequently registered under the Act or an exemption from such registration is
available. The Holder recognizes that, except as set forth in Section 5 hereof,
the Company does not have any obligation to register this Warrant or the Warrant
Stock or to comply with any exemption from such registration.
(b) The Holder is aware that neither this Warrant nor the
Warrant Stock may be sold pursuant to Rule 144 adopted under the Act unless
certain conditions are met and until the Holder has held the Warrant Stock for
at least one year. Among the conditions for use of rule 144 is the availability
of current information to the public about the Company. The Holder understands
that the Company has not made such information available and has no present
plans to do so.
(c) The Holder represents and warrants that it is an
"accredited
11
<PAGE> 12
investor" as such term is defined in rule 501(a) under the Act. Specifically,
the Holder represents and warrants that it is either a corporation or
partnership, not formed for the specific purpose of acquiring securities of the
Company, with total assets in excess of $5,000,000.
8.3 Disposition of Warrant and Warrant Stock. The Holder further
agrees not to make any disposition of all or any part of this Warrant or the
Warrant Shares in any event unless and until:
(a) The Company shall have received a letter secured by
the Holder from the Securities and Exchange Commission stating that no action
will be recommended to the Commission with respect to the proposed proposition;
or
(b) There is then in effect a registration statement under
the Act covering such proposed disposition and such disposition is made in
accordance with said registration statement; or
(c) The Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, the Holder
shall have furnished the Company with an opinion of counsel for the Holder to
the effect that such disposition will not require registration of such Warrant
or shares under the Act, and such opinion of counsel for the Holder shall have
been concurred in by the Company's counsel and the Company's counsel and the
Company shall advise the Holder of such concurrence; or
(d) Notwithstanding the provisions of paragraphs (a), (b)
and (c) above, no such Securities and Exchange Commission letter, registration
statement or opinion of counsel shall be required: (i) for any transfer of this
Warrant or any shares issuable upon exercise of this Warrant in compliance with
SEC Rule 144 or 144A; or (ii) for any transfer of this Warrant or shares
issuable upon exercise of this Warrant by a Holder that is a partnership or a
corporation to (A) a partner of such partnership or corporation; (B) a retired
partner or shareholder; or (iii) the transfer by gift, will or intestate
succession by any Holder to his or her spouse or lineal descendents or ancestors
or any trust for any of the foregoing.
9. EXCHANGE AND REPLACEMENT OF WARRANT. This Warrant is exchangeable
without expense, upon the surrender hereof by the registered Holder at the
principal executive office of the Company, for a new Warrant of like kind and
date representing in the aggregate the right to purchase the same number of
shares as are purchasable hereunder in such denominations and in the name(s) of
such assignee(s) as shall be designated by the registered Holder hereof at the
time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft or destruction of this Warrant, of indemnity or security
reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new Warrant of
like kind, in lieu of this Warrant.
12
<PAGE> 13
10. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called upon any exercise thereof, the Company
shall pay to the Holder an amount in equal to such fraction multiplied by the
current market value of a share of Common Stock, as determined in good faith by
the Board of Directors of the Company.
11. RESERVATION AND LISTING OF SHARES. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of this Warrant, such number of
shares of Common Stock as shall be issuable upon the exercise hereof. The
Company covenants and agrees that, upon exercise of this Warrant and payment of
the Exercise Price therefore, all shares of Common Stock issuable upon such
exercise shall be duly and validly issued, fully paid and non-assessable,
provided that the Exercise Price per share shall equal or exceed the par value
of the Common Stock. As long as the Warrant shall be outstanding, the Company
shall use its best efforts to cause all shares of Common Stock issuable upon the
exercise of the Warrant to be listed (subject to official notice of issuance) on
all securities exchanges on which the Common Stock may then be listed.
12. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Exercise Price, the Company, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to the Holder a certificate of the chief
financial officer of the Company setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon the written request at any time of the Holder,
furnish to the Holder a like certificate setting forth: (i) such adjustments and
readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the exercise of this Warrant.
13. RIGHTS OF WARRANT HOLDERS. Nothing contained in this Warrant shall
be construed as conferring upon the Holder hereof the right to vote or to
consent or to receive notice as a shareholder in respect of any meetings or
shareholders for the election of directors or any other matter, or as having any
rights whatsoever as a shareholder of the Company.
14. NOTICES. All notices, requests, consents and other communications
hereunder shall be deemed to have been duly made when delivered in person, or
mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder or Holders of this Warrant, to
the address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the first page
of this Warrant or to such other address as the Company may designate by notice
to the Holders.
15. REMEDIES. Each holder of Warrant and Warrant Shares, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under Section 5
of this Warrant. The Company agrees that
13
<PAGE> 14
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of Section 5 of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
16. AMENDMENT. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived with the written consent of the Company
and the Holder or Holders, provided that no such Warrant may be modified or
amended to reduce the number of shares of Common Stock for which such Warrant is
exercisable or to increase the price at which such shares may be purchased upon
exercise of such Warrant (before giving effect to any adjustment as provided
therein) without the prior written consent of the Holder thereof.
17. SEVERABILITY. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
18. SUCCESSORS. All the covenants, agreements, representations and
warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
19. HEADINGS. The Section headings in this Warrant are inserted for
purposes of convenience only and shall have no substantive effect.
20. LAW GOVERNING. This Warrant shall be construed and enforced in
accordance with, and governed by, the laws of the State of California.
WITNESS the seal of the Company and the signature of its duly authorized
officer.
PLANET POLYMER TECHNOLOGIES, INC.
DATED: March 9, 2000 By:
-----------------------------------
Robert J. Petcavich
Chief Executive Officer
14
<PAGE> 15
EXHIBIT A
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in Order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the right to
purchase ______ shares of Common Stock of Planet Polymer Technologies, Inc.
covered by the Warrant to which this Exhibit A is attached, according to the
conditions of such Warrant, and herewith makes payment of the Exercise Price of
such shares in full.
INSTRUCTIONS FOR REGISTRATION OF STOCK
NAME
---------------------------------
ADDRESS
------------------------------
---------------------------------------
Signature
DATED:
--------------------
1
<PAGE> 16
ANNEX B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of the Warrant to
which this Exhibit B is attached hereby sells, assigns and transfers unto the
Assignee named below all of the rights of the undersigned under such Warrant,
with respect to the number of shares of Common Stock set forth below.
Name and Address of Assignee No. of Shares of Common Stock
- ---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ________________
attorney-in-fact to register such transfer on the books of Planet Polymer
Technologies Inc. maintained for the purpose, with full power of substitution in
the premises.
Dated: --------------------------------
-------------------- Signature
1
<PAGE> 1
PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY EXHIBIT 11.1
Statement of Computation of Common and Common Equivalent Shares
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Shares outstanding at beginning of period 5,300,144 5,300,144
10,169 shares issued on March 15, 1998 10,169 8,107
8,695 shares issued on June 15, 1998 8,695 4,741
13,483 shares issued on September 15, 1998 13,483 3,953
8,571 shares issued on December 15, 1998 8,571 352
--------- ---------
Weighted average number of shares 5,341,062 5,317,297
=========
1,000,000 shares issued on January 11, 1999 969,863
9,677 shares issued on March 15, 1999 7,715
5,000 shares issued on March 30, 1999 3,781
9,677 shares issued on June 15, 1999 5,276
5,106 shares issued on September 15, 1999 1,497
500,000 shares issued on November 5, 1999 76,712
5,454 shares issued on December 15, 1999 239
---------
Weighted average number of shares 6,406,145
=========
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-39845) of Planet Polymer Technologies, Inc. of
our report dated March 27, 2000 relating to the financial statements, which
appears in 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 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED DECEMBER 31, 1999 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 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, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 355,645
<SECURITIES> 0
<RECEIVABLES> 134,917
<ALLOWANCES> 0
<INVENTORY> 153,435
<CURRENT-ASSETS> 1,607,376
<PP&E> 420,059
<DEPRECIATION> (214,302)
<TOTAL-ASSETS> 2,146,660
<CURRENT-LIABILITIES> 214,868
<BONDS> 0
0
804,435
<COMMON> 12,426,143
<OTHER-SE> (11,467,470)
<TOTAL-LIABILITY-AND-EQUITY> 2,146,660
<SALES> 75,600
<TOTAL-REVENUES> 75,600
<CGS> 53,862
<TOTAL-COSTS> 53,862
<OTHER-EXPENSES> 1,301,386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,236
<INCOME-PRETAX> (1,162,871)
<INCOME-TAX> 800
<INCOME-CONTINUING> (1,163,671)
<DISCONTINUED> (396,887)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,560,558)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
