-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RYAB84WYM+qV8EeYjrEdrubHetvvOgUG2zzTVgdzHGNkSgI5eYWMvVXmEz0uvG7V t9KSnYvijJ4sZGsfrNQPEw== /in/edgar/work/0001095811-00-003533/0001095811-00-003533.txt : 20000927 0001095811-00-003533.hdr.sgml : 20000927 ACCESSION NUMBER: 0001095811-00-003533 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20000922 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLANET POLYMER TECHNOLOGIES INC CENTRAL INDEX KEY: 0000896861 STANDARD INDUSTRIAL CLASSIFICATION: [2821 ] IRS NUMBER: 330502606 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-46474 FILM NUMBER: 727580 BUSINESS ADDRESS: STREET 1: 9985 BUSINESS PARK WAY STE A CITY: SAN DIEGO STATE: CA ZIP: 92131 BUSINESS PHONE: 6195495130 MAIL ADDRESS: STREET 1: 9985 BUSINESSPARK AVE STREET 2: STE A CITY: SAN DIEGO STATE: CA ZIP: 92131 FORMER COMPANY: FORMER CONFORMED NAME: PLANET POLYMER TECHNOLOGY INC DATE OF NAME CHANGE: 19950511 SB-2 1 a65820sb-2.txt FORM SB-2 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 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 Copies to: Robert W. Blanchard, Esq. BLANCHARD KRASNER & FRENCH 800 Silverado Street, Second Floor La Jolla, California 92037 (858) 551-2440 If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, please check the following box. [x] CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------ Title of each class of Amount Amount of securities to to be Offering Price Aggregate registration be registered registered per unit Offering Price fee - ------------------------------------------------------------------------------------ Common stock 2,032,212 $2.25(1) $4,572,477.00(2) $1,207.13 - ------------------------------------------------------------------------------------ Common stock underlying warrants 175,000 $2.5781 $434,762.50(3) $114.78 - ------------------------------------------------------------------------------------ Common stock underlying options 5,000 $2.50 $12,500.00 $3.30 - ------------------------------------------------------------------------------------
(1) Based upon the closing price of the common stock on the day preceding the date of filing this registration statement, the actual price per common share will vary based on the market price of the shares at the time shares are sold. (2) This represents the maximum amount of this offering which Planet expects to offer and sell during the two-year period following the effective date of this registration statement. (3) Based upon a warrant to purchase 125,000 shares at $2.5781 per share and a warrant to purchase 50,000 shares at $2.25 per share. 2 CROSS REFERENCE TABLE
Item Number in Form SB-2 Caption or Location in Prospectus - ------------------------ --------------------------------- 1. Front of Registration Statement and Outside Front Cover Page of Outside Front Cover of Prospectus Prospectus 2. Inside Front and Outside Back Cover Inside Front and Outside Back Cover Cover Pages of Prospectus Pages of the Prospectus 3. Summary Information and Risk Factors Disclosure Regarding Forward- Looking Statements; Prospectus Summary; Risk Factors 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Price Not Applicable 6. Dilution Dilution 7. Selling Security Holders Selling Security Holders 8. Plan of Distribution Plan of Distribution 9. Legal Proceedings Legal Proceedings 10. Directors, Executive Officers, Directors, Executive Officers, Promoters and Control Persons Promoters and Control Persons 11. Security Ownership of Certain Security Ownership of Certain Beneficial Owners and Management Beneficial Owners and Management 12. Description of Securities Description of Securities 13. Interest of Named Experts and Counsel Not Applicable 14. Disclosure of Commission Position Disclosure of Commission Position on Indemnification for Securities on Indemnification for Securities Act Liabilities Act Liabilities 15. Organization within Last Five Years Certain Relationships and Related Transactions 16. Description of Business Description of Business 17. Management's Discussion and Management's Discussion and Analysis of Financial Condition and Analysis of Financial Condition and Results of Operations Results of Operations 18. Description of Property Description of Property 19. Certain Relationships and Related Certain Relationships and Related Transactions Transactions 20. Market for Common Equity and Market for Common Equity and Related Stockholder Matters Related Stockholder Matters 21. Executive Compensation Executive Compensation 22. Financial Statements Financial Statements 23. Changes in and Disagreements with Not Applicable Accountants on Accounting and Financial Disclosure
3 The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. SUBJECT TO COMPLETION, DATED August 31, 2000 PROSPECTUS PLANET POLYMER TECHNOLOGIES, INC. Up to 2,032,212 shares of common stock 175,000 shares of common stock underlying warrants 5,000 shares of common stock underlying option This Prospectus relates to up to 2,000,000 shares of common stock of Planet Polymer Technologies, Inc. issuable to Triton West Group, Inc. by Planet upon Planet's exercise from time to time of the right to sell shares to Triton pursuant to the Private Equity Line of Credit Agreement between Planet and Triton dated August 15, 2000, and 125,000 shares of Planet common stock issuable by Planet upon the exercise of a warrant held by Triton at $2.5781 per share. Triton is an "underwriter" within the meaning of the Securities Act of 1933 with respect to this offering. This prospectus also relates to 87,212 shares offered by certain selling shareholders and shares issuable under a warrant and stock option held by certain shareholders. Planet will not receive any of the proceeds from the sale of shares of Planet common stock by selling shareholders. However, Planet will receive the selling price of common stock sold to Triton under the Triton Stock Purchase Agreement or upon Triton's exercise of the Triton Warrant or upon the exercise of a certain warrant and a certain stock option held by selling shareholders. The total dollar amount of this offering will not exceed $7,530,016. The common stock of Planet is traded on the Nasdaq SmallCap Market System under the symbol "POLY." On August 31, 2000, the last reported sales price of Planet's Common stock was $2.56. ----------------------- THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING AT PAGE 3. ----------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is August 31, 2000. The Information in this prospectus is not complete and may be changed. Planet may not sell these Securities until the registration statement filed with the SEC is effective. This prospectus is not an offer to sell these Securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. 4 PLANET POLYMER TECHNOLOGIES, INC. TABLE OF CONTENTS
PAGE Disclosure Regarding Forward-Looking Statements............................ 1 Prospectus Summary......................... ............................... 1 Risk Factors............................................................... 3 Use of Proceeds............................................................ 7 Dilution................................................................... 8 Selling Security Holders................................................... 8 Legal Proceedings.......................................................... 9 Directors, Executive Officers, Promoters and Control Persons............... 10 Security Ownership of Certain Beneficial Owners and Management............. 11 Description of Securities.................................................. 13 Shares Eligible for Future Sale............................................ 15 Plan of Distribution....................................................... 15 Disclosure of Commission Position on Indemnification for Securities Act Liabilities......................................... 16 Description of Business.................................................... 16 Management's Discussion and Analysis of Financial Condition and Results of Operations. ............................................ 23 Description of Property.................................................... 26 Certain Relationships and Related Transactions............................. 27 Market for Common Equity and Related Stockholder Matters................... 27 Executive Compensation..................................................... 28 Financial Statements....................................................... F-1
5 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When words such as "intend," "anticipate," "believe," "estimate," "plan," "expect," or similar phrases are used, Planet is making forward-looking statements. Planet believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, based on information available to it on the date of this prospectus, but Planet cannot assure you that these assumptions and expectations will prove to have been correct or that Planet will take any action that it may presently be planning. Planet has disclosed certain important factors that could cause its actual results to differ materially from its current expectations under "Risk Factors" and elsewhere in this prospectus. You should understand that forward-looking statements made in connection with this offering are necessarily qualified by these factors. Planet is not undertaking to publicly update or revise any forward-looking statement if it obtains new information or upon the occurrence of future events or otherwise. PROSPECTUS SUMMARY Since this is a summary, it does not contain all the information that may be important to you in evaluating your investment. You should read the following summary, and the "Risk Factors" section, along with the more detailed information and Financial Statements and the notes to the Financial Statements appearing elsewhere in this prospectus or incorporated by reference in this prospectus, prior to purchasing securities of Planet. PLANET POLYMER TECHNOLOGIES, INC. Planet Polymer Technologies, Inc. is an advanced materials company that develops and licenses unique hydro-soluble polymer and biodegradable materials. Planet's proprietary polymer materials can be used to produce films, coatings and injection molded parts that serve as environmentally compatible alternatives to conventional plastics. Planet produces and markets its products to the current and emerging needs of the industrial and agricultural markets. For example, Planet currently licenses its technology for agricultural and food related purposes including use as coatings in animal feed products and on fruits, vegetables, floral and nursery items. Planet was incorporated under the laws of California in August 1991. Planet's principal executive offices are located at 9985 Businesspark Avenue, San Diego, CA 92131, and its telephone number is 858-549-5130. Planet has a research and development facility in San Diego, California, but recently sold its wholly owned subsidiary, Deltco of Wisconsin, Inc. on January 7, 2000. Planet is focusing on specific market opportunities where Planet believes that its polymer chemistry expertise and technologies may address current or emerging market requirements. However, there can be no assurance that Planet's products or that new products, if developed, will be able to capture market share or be profitable. To facilitate the development and commercialization of Planet's products, Planet has pursued a strategy of aligning itself with a number of companies in the areas of product development and marketing. Planet intends to continue developing strategic relationships that may help it promote its products or that might extend the range of product solutions provided by Planet's technologies. There can be no assurance that Planet 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 Planet 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. Most of Planet's technologies are designed to be specially engineered to enhance, and become incorporated into, customers' products. Due to this high degree of product specialization, Planet 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 1 6 commercial manufacture. A significant amount of time and energy is required by Planet's staff to educate the customer, understand the customer's unique application requirements and recommend and develop the appropriate solution. THE OFFERING Securities Offered 2,125,000 shares of common stock, upon exercise of rights by Planet from time to time under the Triton Stock Purchase Agreement, and exercise by Triton from time to time of the Triton Warrant, not to exceed $7,322,262.50 in the aggregate; and 27,212 SHARES and 5,000 shares of common stock held by Special Situations Private Equity Fund, L.P. and Triton West Group, Inc., respectively, and 50,000 shares issuable to LBC Capital Resources under a warrant and 5,000 shares issuable to Tom Connelly under a non-statutory stock option. Common stock to be outstanding after the offering 9,639,947 shares, assuming all shares purchased under the Triton Stock Purchase Agreement are sold. Use of Proceeds General working capital to continue development of Planet's business. Funds may also be used from time to time to acquire technology or business opportunities. Risk Factors The common stock offered hereby involves a high degree of risk. See "Risk Factors." Nasdaq SmallCap System trading symbol "POLY" This prospectus covers up to 2,125,000 shares of Planet's common stock to be issued to Triton West Group, Inc. under the Private Equity Line of Credit Agreement and Stock Purchase Warrant, both dated August 15, 2000. Under the Triton Stock Purchase Agreement, Triton committed up to $7,000,000 to purchase Planet's common stock over a period of thirty-six (36) months. The Triton Stock Purchase Agreement establishes what is sometimes termed an equity line of credit or an equity drawdown facility. In general, the equity line of credit operates like this: Triton has committed to provide us up to $7,000,000 as we request it over a 36 month period in return for common stock we issue to Triton. From time to time, we may request a drawdown, also called a put, of up to $1,250,000. The maximum amount we can actually draw down upon each request is subject to a floating number based on our common stock's closing bid price and our average trading volume in a thirty-day period. For example, if our common stock trades between $3.01 and $4.50 per share and the average 30-day trading volume is between 15,001 and 50,000 shares, we may request up to a $250,000 drawdown from Triton under the Triton Stock Purchase Agreement. However, we are under no obligation to request a draw for any period. In connection with the Triton Stock Purchase Agreement, Planet issued to Triton 5,000 shares of Planet common stock and a warrant to purchase 125,000 shares of Planet common stock at an exercise price of $2.5781; agreed to pay the fees of Triton's counsel in the amount of $15,000; and agreed to pay a commitment fee of $23,333 for each of the first six drawdowns requested by Planet. The common stock already issued and the common stock issuable to Triton upon exercise of the Triton Warrant is included in this prospectus. This prospectus also covers 32,212 shares of Planet common stock, 50,000 shares of Planet common stock issuable under a warrant and 5,000 shares issuable 2 7 under a stock option, to be sold by certain selling shareholders identified in this prospectus. RISK FACTORS Before purchasing the shares offered by this prospectus, you should carefully consider the risks described below, in addition to the other information presented in this prospectus or incorporated by reference into this prospectus. If any of the following risks actually occur, they could adversely affect Planet's business, financial condition or results of operations. In such case, the trading price of Planet's common stock could decline and you may lose all or part of your investment. WE HAVE EXPERIENCED LOSSES SINCE INCEPTION, WE EXPECT FUTURE LOSSES AND WE MAY NOT BECOME PROFITABLE. We have incurred losses since inception. Our revenues to date have consisted primarily of revenues generated by Deltco and contract research and development revenues. For the years ended December 31, 1999 and 1998, we had net losses of approximately $1,561,000 and $1,629,000, respectively. The net loss for the six months ended June 30, 2000 was $593,740. As of June 30, 2000, we had an accumulated deficit of approximately $12.1 million. Since we have historically incurred net losses, we expect this trend to continue until some indefinite date in the future. We may not become profitable. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. WE MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE WHICH MAY NOT BE AVAILABLE. 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. We anticipate that our existing resources combined with revenues and without utilization of proceeds from sales under the Triton Stock Purchase Agreement will enable us to maintain our current and planned operations through February 2001. The Triton Stock Purchase Agreement provides Planet with an additional source of capital. However, if our stock price and trading volume stay at current levels, we will not be able to draw down all $7,000,000 from the Equity Line of Credit since it could result in Triton's ownership of more than 9.9% of Planet's outstanding shares of common stock, which is prohibited under the terms of the Triton Stock Purchase Agreement. We cannot guarantee that changes in our plans or other events affecting our operating expenses will not result in the expenditure of our existing resources sooner than expected. We intend to seek additional funding through partnership arrangements or the extension of existing arrangements. 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. 3 8 DUE TO CERTAIN REQUIREMENTS OF THE NASDAQ, WE MAY BE DELISTED FROM THE NASDAQ SMALLCAP MARKET FOR FAILING TO SATISFY THESE REQUIREMENTS, WHICH COULD MAKE IT MORE DIFFICULT TO DISPOSE OF OUR COMMON STOCK. Our common stock is quoted on the Nasdaq SmallCap Market. Our ability to raise capital may be dependent upon the stock being 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, defined for purposes of this test as Total Assets, excluding goodwill, minus Total Liabilities. As of June 30, 2000, our net tangible assets as so defined were approximately $1,700,000. In our discussion with a representative from NASDAQ, we were given until November 15, 2000 to comply with the $2,000,000 net tangible asset requirement. Failure to meet the maintenance criteria by November 15, 2000 or failure to meet the criteria in the future after meeting it by November 15, 2000, 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 of the Nasdaq SmallCap Market. IF WE ARE DELISTED FROM THE NASDAQ SMALLCAP MARKET, WE MAY BE SUBJECT TO CERTAIN 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. 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 of purchasers of our common stock to sell such shares in the secondary market. We cannot guarantee that our common stock will remain listed on the Nasdaq SmallCap Market or that it will not be treated as a penny stock. WE ARE UNCERTAIN AS TO WHETHER OUR PRODUCTS AND TECHNOLOGIES WILL BE COMMERCIALLY ACCEPTED. Our success is dependent upon the commercial acceptance of our technologies by the various industries targeted by us. 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. 4 9 WE MAY EXPERIENCE PROBLEMS WITH OUR TECHNOLOGY IN THE FUTURE. 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. WE INCREASINGLY RELY ON STRATEGIC RELATIONSHIPS TO PROMOTE OUR PRODUCTS. Our technologies are designed to serve multiple industries. An important part of our strategy is to promote acceptance of our products through technology and product alliances with certain customers. Our dependence on these customers raises certain risks with respect to the future success of our business. We have focused our product development efforts by working in close collaboration with our customers. Certain of our customers are concurrently engaged in similar development and testing programs with other companies involving competing products and technologies. Our success is dependent on the successful completion and commercial deployment of our products and on the future commitment of our customers to our products and technology. We cannot guarantee that our collaboration with our customers will result in products that are accepted by our customers or widely accepted in the marketplace. In addition, our reliance on collaborations with third parties may require us to relinquish rights to certain of our technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves. For example, pursuant to our License Agreement with Agway, Inc., a Delaware corporation ("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. WE MAY HAVE DIFFICULTY MANAGING ANY FUTURE 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. MANY OF OUR COMPETITORS HAVE SIGNIFICANTLY GREATER FINANCIAL, TECHNICAL AND HUMAN RESOURCES AND MARKET PRODUCTS THAT ARE WELL-ESTABLISHED AND ACCEPTED. 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, Planet 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(R) 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 5 10 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. WE ARE LARGELY DEPENDENT ON KEY PERSONNEL AND MAY NOT BE ABLE TO CONTINUE TO ATTRACT, RETAIN AND MOTIVATE HIGHLY SKILLED PERSONNEL. Our success depends to a significant extent upon the continued service of Robert J. Petcavich, Ph.D., our Chairman, Chief Executive Officer and President, and the loss of such a key executive could have a material adverse effect on our business or results of operations. We are also dependent on other key personnel, and on our ability to continue to attract, retain and motivate highly skilled personnel. The competition for such employees is intense, and we cannot guarantee that we will be successful in attracting, retaining or motivating key personnel. We maintain "key-person" life insurance policies with respect to such persons to compensate us in the event of their deaths. WE FACE RISKS THAT OUR PATENTS AND PROPRIETARY RIGHTS, WHICH ARE IMPORTANT IN OUR BUSINESS, ARE NOT ADEQUATELY PROTECTED OR ARE SUPERIOR TO THOSE OF OUR COMPETITORS. 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 to us as owners of the patents 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. FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE. 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 August 31, 2000, we had outstanding 8,018,182 shares of common stock (assuming the conversion of all outstanding shares of preferred stock into shares of common stock). A large majority 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. In September 1997, we filed with the California Secretary of State a Certificate of Determination of Preferences of Series A Convertible Preferred Stock which entitles the holders of the 750,000 authorized shares of preferred stock to dividend payments of a certain number of shares of the common stock every March 15, June 15, September 15, and December 15 of each year. In May 1995, we filed a 6 11 Registration Statement on Form S-8 under the Securities Act covering 500,000 shares of common stock issuable under our 1995 Stock Option Plan. As of August 31, 2000 there were 109,278 remaining shares available for grant under the 1995 Plan. In June 2000, we 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 2000 Stock Incentive Plan. As of August 31, 2000, 325,500 shares are available for grant under the 2000 Plan, in addition to the remaining shares available for grant under the 1995 Plan, which may also be granted under the 2000 Plan. Upon issuance, shares registered under such Registration Statement will be, subject to Rule 144 volume limitations applicable to our affiliates, available for sale in the open market. On November 12, 1998, Planet entered into a Stock Purchase Agreement with Agway Holdings, Inc., a subsidiary of Agway, Inc., whereby Agway Holdings was given a right of first refusal to purchase its pro-rata share of any common stock or other security of Planet that Planet proposed to sell or issue after the date of the AHI Stock Purchase Agreement. Under Section 5(b) of the Agreement, Planet is required to give Agway Holdings written notice of its intention, describing the securities to be issued, the price and the terms and conditions upon which Planet proposes to issue the securities and gives Agway Holdings twenty days from that date to purchase its pro-rata share. Agway Holdings may also waive its right of first refusal in writing. Thus, upon each exercise by Planet of the right to sell shares to Triton under the Triton Stock Purchase Agreement and exercise of the Triton Warrant, Agway Holdings will have the right to purchase additional shares of the common stock. OUR PRODUCTS ARE SUBJECT TO GOVERNMENT REGULATION, WHICH ARE SUBJECT TO CHANGE AND WHICH MAY ADVERSELY AFFECT DEMAND FOR OUR PRODUCTS AND OUR OPERATIONS. 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. WE MAY BE SUBJECT TO PRODUCT LIABILITY, WHICH MAY NOT BE COVERED BY LIABILITY INSURANCE. 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. 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. USE OF PROCEEDS We intend to use the proceeds from drawdowns under the Triton Stock Purchase Agreement for general working capital purposes, including the development or acquisition of new products or businesses. We have a maximum of $7,000,000 available under such credit facility, excluding the exercise of the Triton Warrant. The use of any proceeds from the exercise of this Warrant, and the timing of such use, will depend on the availability to us of cash from other sources. Proceeds not 7 12 immediately required for the purposes described above will be invested by us principally in United States government obligations, short term certificates of deposit, money market funds or other short term, interest bearing investments. DILUTION The issuance of further shares to certain shareholders under certain anti-dilution rights, the issuance of further shares to Triton under the Triton Stock Purchase Agreement, and the eligibility of issued shares and shares issued upon the exercise of warrants, for resale, will dilute our common stock and may lower the price of our common stock. If you invest in our common stock, your interest will be diluted by the issuance of additional shares to Triton and certain shareholders holding anti-dilution rights. On November 12, 1998, Planet entered into a Stock Purchase Agreement with Agway Holdings, Inc., a subsidiary of Agway, Inc., whereby Agway Holdings was given a right of first refusal to purchase its pro-rata share of any common stock or other security of Planet that Planet proposed to sell or issue after the date of the Agway Holdings Stock Purchase Agreement. Under Section 5(b) of the Agway Holdings Stock Purchase Agreement, Planet is required to give Agway Holdings written notice of its intention, describing the securities to be issued, the price and the terms and conditions upon which Planet proposes to issue the securities and gives Agway Holdings twenty days from that date to purchase its pro-rata share. Agway Holdings may also waive its right of first refusal in writing. Thus, upon each exercise by Planet of the right to sell shares to Triton under the Triton Stock Purchase Agreement and exercise of the Triton Warrant, Agway Holdings will have the right to purchase additional shares of the common stock. On September 19, 1997, Planet filed with the California Secretary of State a Certificate of Determination of Preferences of Series A Convertible Preferred Stock which entitles the holders of such shares to convert shares of their preferred stock to shares of common stock. Section 5(d) of the Certificate of Determination provides that the conversion price will be adjusted if Planet issues or sells any shares of common stock for less than the greater of the conversion price and eighty-five percent (85%) of the market price on the date of such issue or sale. Similarly, LBC Capital Resources was issued warrants on May 4, 1998, March 29, 1999 and March 9, 2000; AM-RE Services, Inc. was issued a warrant on June 8, 1995; and Special Situations Private Equity Fund, L.P. was issued a warrant on September 24, 1997. Under the LBC Warrants and the AM-RE Warrant, the exercise prices may be adjusted if Planet issues or sells any shares of the common stock for less than the respective exercise prices stated in the LBC Warrants and the AM-RE Warrant. Likewise, under the Special Situations Warrant, the exercise price will be adjusted if Planet issues or sells any shares of common stock for less than the greater of the exercise price and eighty-five percent (85%) of the market price on the date of such issue or sale. Thus, the exercise prices stated in the LBC Warrants, the AM-RE Warrant and the Special Situations Warrant may be reduced with each exercise of a drawdown by Planet under the Triton Stock Purchase Agreement. As of August 31, 2000, there are outstanding options and warrants to purchase in the aggregate of about 2.5 million shares of Planet common stock and up to 321,500 shares of preferred stock that pay dividends of Planet common stock every quarter. Furthermore, we may issue additional shares, stock options and warrants and we may grant additional stock options to our employees, officers, directors and consultants under our 1995 Stock Option Plan and 2000 Stock Incentive Plan, any of which may further dilute our stock price. SELLING SECURITY HOLDERS Triton West Group, Inc. Triton West Group, Inc. is engaged in the business of investing in publicly traded investment securities for its own account. Triton is located in Georgetown, Grand Cayman. Triton was given 5,000 shares of Planet common stock and a warrant to purchase 125,000 shares of Planet common stock in connection with the closing of the 8 13 Private Equity Line of Credit Agreement entered into by and between Triton and Planet on August 15, 2000. Under the Triton Stock Purchase Agreement, Triton has committed up to $7,000,000 to purchase Planet's common stock over a period of thirty-six (36) months. Other than its obligation to purchase Planet common stock under the Triton Stock Purchase Agreement, Triton has no other commitments or arrangements to purchase or sell any of Planet's securities. A copy of the Triton Stock Purchase Agreement and exhibits are attached as exhibits to this registration statement. Other Selling Security Holders The remaining selling security holders of this offering are included in the following table:
- ---------------------------------------------------------------------------------------------- PRIOR TO OFFERING NO. OF SHARES AFTER OFFERING NAME NO. OF SHARES PERCENT TO BE SOLD NO. OF SHARES PERCENT - ---------------------------------------------------------------------------------------------- COMMON STOCK DIVIDEND SHARES Special Situations Private Equity Fund, L.P. 27,212** * 27,212 - - - ---------------------------------------------------------------------------------------------- WARRANT SHARES LBC Capital Resources 50,000*** * 50,000 - - - ---------------------------------------------------------------------------------------------- OPTION SHARES Tom Connelly 5,000**** * 5,000 - - - ----------------------------------------------------------------------------------------------
* Less than 1% ** These shares constitute dividend payments from Planet's Series A Convertible Preferred Stock. *** These shares are issuable upon exercise of a warrant dated March 9, 2000 received as compensation for past services rendered to Planet. **** These shares are issuable upon exercise of a stock option dated May 1, 2000 received as compensation for past services rendered to Planet. LEGAL PROCEEDINGS In November 1998, Planet initiated litigation against Brian To, a former director, officer and consultant of Planet, Tarrenz Inc. and Tarrenz Management Consultants, Inc., entities owned by Brian To, in the Superior Court of the State of California for the County of San Diego. The complaint alleges breach of contract, breach of fiduciary duty and other tort claims arising from services the defendants performed for or on behalf of Planet. Planet 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 Planet alleging breach of contract, misrepresentation, slander, intentional infliction of emotional distress and fraud. In response to a motion filed by Planet, the arbitrator issued a ruling on May 1, 2000 disqualifying defendants' counsel based on a finding that said counsel had previously represented Planet in a related matter. As a result, the arbitration previously set for February 28, 2000 was rescheduled for September 11, 2000. However, the defendants filed a motion in San Diego Superior Court to vacate the arbitrator's order granting Planet's motion to disqualify defendants' counsel. The Court has scheduled a hearing on this issue for September 22, 2000. The arbitration will be rescheduled after the Superior Court rules on defendants' motion to vacate. 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 Planet's financial position or results of operations. 9 14 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS ROBERT J. PETCAVICH is the founder of Planet and has been Chairman since August 1991. He currently is Chairman of the Board, President and Chief Executive Officer of Planet. Mr. Petcavich is also Chairman of the Board of A-Life Medical, Inc., a San Diego-based company. In 1988, Dr. Petcavich founded AlphaScribe Express Inc., an electronic medical records company, where he served as Chief Executive Officer until September 1995. Dr. Petcavich is the inventor of seventeen issued United States patents. Dr. Petcavich has a Ph.D. in Polymer Science, a Master of Science degree in Solid State Science, and a Bachelor of Science degree in Chemistry from Pennsylvania State University, and has completed an executive management program (PMD) at the Harvard University Graduate School of Business. H. M. "MAC" BUSBY has been a director of Planet since August 1997 when he was elected by the members of the Board of Directors to fill a vacancy on the Board. He is currently a director of A-Life Medical, Inc., a San Diego-based company. He is Chairman of the Board of Sun-Gard USA, Inc. and Mac's Ventures, Inc., both privately held companies. Mr. Busby began his career in 1966 at Wisconsin Centrifugal, Inc. which included the position of Manager of Industrial and Public Relations. Mr. Busby has also served as Vice President of Human Relations and Administration for MCA Financial, Inc. a subsidiary of MCA, Inc. Mr. Busby earned his B.S. in Business Administration from Indiana University. MICHAEL M. COLEMAN has been a director of Planet since April 1996. He has been a Professor of Polymer Science at Pennsylvania State University since 1982. From 1983 to 1991, Dr. Coleman was the head of the Department of Materials Science and Engineering at Pennsylvania State University. Dr. Coleman received a Ph.D. and a Master of Science degree in Macromolecular Science from Case Western Reserve University, Cleveland, Ohio, in 1973 and 1971, respectively. He also holds a B.S. degree in Polymer Science from Borough Polytechnic, London. DENNIS J. LAHOOD has been a director of Planet since April 1999 when he was nominated to serve as a director pursuant to an understanding between Planet and Agway, Inc., which has been a major shareholder since January 1999. He has been the President of Agway Inc.'s Country Products Group since February 1995. Mr. LaHood joined Agway in 1969 and has held various management positions. From 1987 to November 1992, he was President of Agway Data Services following his position as Agway's Chief Information Officer. From November 1992 to February 1995, Mr. LaHood was Agway's Director of Country Foods and President of Country Foods, Inc. THOMAS A. LANDSHOF has been a director of Planet since March 1998 when he was nominated to serve as a director pursuant to a Securities Purchase Agreement, dated September 19, 1997, between Planet and purchasers of Planet's preferred stock, Special Situations Private Equity Fund, L.P. Pursuant to that agreement, Special Situations may appoint one reasonably acceptable person as a director on the Board of Directors of Planet. Such right will continue so long as Special Situations holds at least 200,000 shares of preferred stock or at least 10% of the outstanding common stock. Mr. Landshof was the President, Chief Executive Officer and a director of Hitox Corporation of America, a publicly held manufacturer of prime pigments and extenders for the plastics, coatings and other markets from August 1994 until November 1997. Mr. Landshof served as President of Consultants Group from April 1992 to August 1994 and Corporate Vice President of Lilly Industries, Inc. prior to April 1992. Mr. Landshof earned his B.S. in Chemistry from Tufts University. PETER J. O'NEILL has been the Senior Vice President and Chief Financial Officer for Agway Inc. since October 1992. Mr. O'Neill was recently voted as a director of Planet at Planet's last annual meeting in May 2000. RONALD B. SUNDERLAND is currently Sr. Vice President Business / Legal Affairs of AsSeenIn.com where he has been since 1999. From 1997 to 1999, Mr. Sunderland was the Senior Vice President of Aaron Spelling Television, Inc. During the years 1978 to 1996 he was with the American Broadcasting Company, Inc. where he eventually became Executive Vice-President, Business Affairs and Contracts. Mr. Sunderland received a Bachelor's degree in Political Science from the University of California at Los Angeles and a Juris Doctor from Loyola University School of Law. Mr. Sunderland was recently voted as a director of Planet at Planet's last annual 10 15 meeting. Mr. Sunderland was recently voted as a director of Planet at Planet's last annual meeting in May 2000. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the ownership of Planet's Stock as of August 31, 2000 by: (i) each director; (ii) each of the Executive Officers named in the Summary Compensation Table; (iii) all executive officers and directors of Planet as a group; and (iv) all those known by Planet to be beneficial owners of more than five percent (5%) of any class of Planet's Stock.
BENEFICIAL OWNERSHIP NUMBER OF PERCENTAGE OF TITLE OF CLASS BENEFICIAL OWNER SHARES (1) CLASS OWNED (2) - ---------------------------------------------------------------------------------------------- Common Agway Holdings Inc. (3) 3,000,000 34.72% P.O. Box 4933 Syracuse, NY 13221 Common Special Situations Private Equity Fund, 878,619 10.36% L.P. (4) 153 East 53rd Street, 55th Floor New York, NY 10022 Common Robert J. Petcavich, Ph.D. (5) 775,932 9.95% 9985 Businesspark Avenue San Diego, CA 92131 Common Benchmark Capital, Inc. (6) 742,900 9.72% 750 Lexington Avenue, 24th Floor New York, NY 10022 Common Lorraine DiPaolo (7) 839,000** 10.98%** 750 Lexington Avenue, 24th Floor New York, NY 10022 Common Richard Zorn (8) 742,900** 9.72%** 750 Lexington Avenue, 24th Floor New York, NY 10022 Common H. M. Busby (9) 278,592 3.62% Common Michael M. Coleman, Ph.D. (10) 52,200 * Common Dennis J. LaHood (11) 37,083 * Common Thomas A. Landshof (12) 51,000 * Common Peter J. O'Neill (13) 18,000 * Common Ronald B. Sunderland (14) 73,000 * Common All executive officers and directors as 1,285,807 16.04% a group (15) Series A Special Situations Private Equity Fund, 321,500 100.00% Preferred L.P. 153 East 53rd Street, 55th Floor New York, NY 10022
- ---------------- * Less than one percent. ** Includes shares also reported by other persons on this Table. See Footnotes. (1) This table is based upon information supplied by officers, directors and principal shareholders and Schedules 13D and 13G filed with the Securities and Exchange Commission. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, Planet believes that each of the shareholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. (2) Percentage ownership is based upon 7,639,947 shares outstanding on August 31, 2000, and any shares issuable pursuant to securities convertible into or exercisable for shares of common stock by the person or group in question on August 31, 2000 or within 60 days thereafter. 11 16 Percentage of Series A Convertible Preferred Stock is based upon 321,500 shares of Series A Convertible Preferred Stock outstanding as of August 31, 2000. (3) Includes 1,000,000 shares of common stock issuable upon exercise of a warrant within 60 days of August 31, 2000. Agway Holdings Inc. is an indirect wholly owned subsidiary of Agway, Inc. (4) Includes 37,940 shares of common stock, 378,235 shares of common stock issuable upon conversion of 321,500 shares of Series A Convertible Preferred Stock and 462,444 shares of common stock issuable upon exercise of a warrant within 60 days of August 31, 2000. Special Situations Private Equity Fund, L.P. is managed by its general partner MG Advisers, L.L.C., a New York limited liability company. The members of MG Advisers, L.L.C. are Austin W. Marxe and David M. Greenhouse, who are each deemed to beneficially own 878,619 shares of common stock by virtue of their ownership and control of MG Advisers, L.L.C. (5) Includes 157,533 shares issuable upon exercise of options that are exercisable within 60 days of August 31, 2000. (6) Benchmark, by virtue of its investment discretion over accounts of its customers and acting through its executive officers, has the sole power to vote 742,900 shares. (7) Ms. DiPaolo is the beneficial owner of 839,000 shares of common stock through the following: (i) her direct, personal ownership of 76,100 shares of common stock; (ii) the ownership of 20,000 shares of common stock by her husband; and (iii) her ownership of the Benchmark Company, Inc., a broker-dealer registered under Section 15 of the Securities Exchange Act of 1934 and an investment advisor registered under the Investment Advisors Act of 1940, in accordance with Section 240.13d-1 (b)(1)(ii)(E), by virtue of Benchmark's investment discretion over accounts of its customers that hold 742,900 shares of common stock as of December 31, 1999. (8) Mr. Zorn is the beneficial owner of 742,900 shares of common stock through the following: (i) his direct, personal ownership of 56,600 shares of common stock; (ii) his IRA account which holds 70,000 shares of common stock; (iii) his power of attorney for the management of the account of his daughter which holds 13,200 shares of common stock; (iv) his position as president of The Zorn Foundation, Inc., which owns 21,000 shares of common stock; (v) his position as Trustee of the Lillian R. Zorn Charitable Remainder Annuity Trust which owns 10,000 shares of common stock; (vi) his position as Trustee of the Lillian R. Zorn Trust for his grandchildren which owns 13,000 shares of common stock; (vii) his position as General Partner of LRZ Family Limited Partnership, which owns 30,000 shares of common stock; and (viii) his position as Executive Vice President of The Benchmark Company, Inc. a broker-dealer registered under Section 15 of the Securities Exchange Act of 1934 and an investment advisor registered under the Investment Advisors Act of 1940, in accordance with Section 240.13d-1 (b)(1)(ii)(E), by virtue of Benchmark's investment discretion over accounts of its customers that hold 529,100 shares of common stock as of December 31, 1999. (9) Includes 48,200 shares of common stock issuable upon exercise of options that are exercisable within 60 days of August 31, 2000. (10) Includes 48,200 shares of common stock issuable upon exercise of options that are exercisable within 60 days of August 31, 2000. (11) Includes 37,083 shares of common stock issuable upon exercise of options that are exercisable within 60 days of August 31, 2000. Mr. LaHood is the President of the Country Products Group of Agway, Inc., the indirect parent company of Agway Holdings, Inc. Agway Holdings Inc., is the beneficial owner of 3,000,000 shares of common stock, which includes 1,000,000 shares of common stock issuable upon exercise of a warrant 12 17 within 60 days of August 31, 2000. Mr. LaHood is also an officer of Agway Holdings, Inc. As a result of his positions within Agway and Agway Holdings, Mr. LaHood has indirect shared voting power and indirect shared investment power of Agway's shares of common stock. (12) Includes 51,000 shares of common stock issuable upon exercise of options that are exercisable within 60 days of August 31, 2000. (13) Includes 18,000 shares of common stock issuable upon exercise of options that are exercisable within 60 days of August 31, 2000. Mr. O'Neill is the Senior Vice-President and Chief Financial Officer of Agway, Inc., the indirect parent company of Agway Holdings, Inc. Agway Holdings Inc., is the beneficial owner of 3,000,000 shares of common stock, which includes 1,000,000 shares of common stock issuable upon exercise of a warrant within 60 days of August 31, 2000. Mr. O'Neill is also a director and an officer of Agway Holdings, Inc. As a result of his positions within Agway and Agway Holdings, Mr. O'Neill has indirect shared voting power and indirect shared investment power of Agway's shares of common stock. (14) Includes 18,000 shares of common stock issuable upon exercise of options that are exercisable within 60 days of August 31, 2000. (15) Includes 378,016 shares of common stock issuable upon exercise of options that are exercisable within 60 days of August 31, 2000. DESCRIPTION OF SECURITIES The authorized capital stock of Planet consists of 20,000,000 shares of common stock and 5,000,000 shares of preferred stock. COMMON STOCK Each holder of record of common stock is entitled to one vote for each share held, and each holder of record of preferred stock is entitled to one vote for each share of common stock issuable upon conversion of such preferred stock. With respect to the election of directors, shareholders may exercise cumulative voting rights, i.e., each shareholder entitled to vote for the election of directors may cast a total number of votes equal to the number of directors to be elected multiplied by the number of such shareholder shares (on an as converted basis), and may cast such total of votes for one or more candidates in such proportions as such shareholder chooses. Subject to preferences that may be applicable to any prior rights of holders of outstanding stock having prior rights as to dividends, the holders of outstanding shares of our common stock are entitled to receive dividends out of assets legally available therefore at such times and in such amounts as the Board from time to time may determine. Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding stock having prior rights on such distributions and payment of other claims of creditors. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering, will be, upon payment therefore, duly and validly issued, fully paid and nonassessable. TRITON STOCK PURCHASE AGREEMENT On August 15, 2000, we entered into a Stock Purchase Agreement with Triton West Group, Inc. Under this agreement, we have the right, until August 15, 2003, or earlier, to request a drawdown and require that Triton purchase between $100,000 and $1,250,000 of our common stock. Each request may not be less than fifteen (15) trading days apart, unless otherwise accepted by Triton. The maximum amount that we can require Triton to purchase at any given time is subject to a floating number based on our closing bid price and our average trading volume in a thirty-day period. 13 18 For example, if our common stock trades between $3.01 and $4.50 per share and the average 30-day trading volume is between 15,001 and 50,000 shares, we may request up to a $250,000 drawdown from Triton under the Triton Stock Purchase Agreement. If our common stock traded between $1.01 and $3.00 per share and the average 30-day trading volume does not exceed 15,000 shares, the maximum we could draw down would be only $35,000 for our request. However, if our common stock trades over $9.01 per share and the average 30-day trading volume exceeds 150,001 shares, we could draw down the maximum amount of $1,250,000 for our request. If our stock price and trading volume remain at the same levels as of the day of this prospectus for the remainder of the term of the Triton Stock Purchase Agreement, the maximum amount that we would be able to draw down would be $35,000 per request. In addition to the limitation regarding the maximum that we may draw down and the trading days that must separate each request under the Triton Stock Purchase Agreement, Planet may not request a drawdown which would result in: - the issuance of an aggregate number of Triton Shares issued from Planet's drawdown of the Equity Line of Credit exceeding 19.9% of the number of Planet's outstanding shares without prior shareholder approval; and - Triton and its affiliates beneficially owning more than 9.9% of the then outstanding shares of Planet's common stock, including shares exercisable under the Triton Warrant on any given date. Planet may request a drawdown by delivering written notice to Triton setting forth the investment amount that Planet intends to sell to Triton. The amount requested in the drawdown notice may not be less than $100,000 nor more than the maximum drawdown amount of $1,250,000. However, if the maximum amount is less than $100,000 because the average 30 day trading volume is less than a certain amount and the stock price is less than certain amount, then the minimum request amount must be equal to the maximum drawdown amount. The price per share to be paid by Triton for each share will be eighty-five percent (85%) of the market price of the fourth trading day following Planet's delivery of a drawdown notice to Triton. However, if the applicable market price is equal to or greater than $10, then the purchase price will consist of eighty-seven percent (87%) of the market price of the fourth trading day after Planet's drawdown notice. Unless other arrangements are made between Triton and Planet, upon receipt of the drawdown notice, Triton will deliver the specified investment amount by wire transfer to a designated escrow agent. Upon the escrow agent's receipt of the purchased Shares from Planet, the escrow agent will deliver the investment amount to Planet and the purchased shares to Triton. Triton is not obligated to purchase Planet common stock if any of the following occurs: - The shares purchased by Triton are not or no longer registered pursuant to a then-effective registration statement; - There is a material adverse effect on the business operations, properties, prospects or financial condition of Planet after the date of Planet's most recent SEC filing pursuant to the Securities Exchange Act of 1934; - The trading of Planet's common stock is suspended by the SEC or the common stock is delisted from the principal exchange on which the common stock was listed. COMPENSATION TO TRITON WEST GROUP, INC. As compensation for establishing the Equity Line of Credit under the Triton Stock Purchase Agreement, Planet issued 5,000 shares of common stock, a warrant to Triton and agreed to pay a commitment fee of $23,333 per drawdown for the first 6 drawdowns. WARRANTS In connection with the Triton Stock Purchase Agreement with Triton, Planet issued a warrant to Triton to purchase up to 125,000 shares of common stock at 14 19 $2.5781 which was equal to 125% of the lowest closing bid price during the six trading days immediately preceding the initial closing date. The Triton Warrant expires on the close of business on February 23, 2004. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the common stock is Transfer Online, located at 227 SW Pine St., Suite 300, Portland, Oregon 97204. 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 August 31, 2000, we had outstanding 8,018,182 shares of common stock (assuming the conversion of all outstanding shares of preferred stock into shares of common stock). A large majority 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. In September 1997, we filed with the California Secretary of State a Certificate of Determination of Preferences of Series A Convertible Preferred Stock which entitles the holders of the 750,000 authorized shares of preferred stock to dividend payments of a certain number of shares of the common stock every March 15, June 15, September 15, and December 15 of each year. In May 1995, we filed a Registration Statement on Form S-8 under the Securities Act covering 500,000 shares of common stock issuable under our 1995 Stock Option Plan. As of August 31, 2000, there were 109,278 remaining shares available for grant under the 1995 Plan. In June 2000, we 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 2000 Stock Incentive Plan. As of August 31, 2000, 325,500 shares are available for grant under the 2000 Plan, in addition to the remaining shares available for grant under the 1995 Plan, which may also be granted under the 2000 Plan. Upon issuance, shares registered under such Registration Statement will be, subject to Rule 144 volume limitations applicable to our affiliates, available for sale in the open market. On November 12, 1998, Planet entered into a Stock Purchase Agreement with Agway Holdings, Inc., a subsidiary of Agway, Inc., whereby Agway Holdings was given a right of first refusal to purchase its pro-rata share of any common stock or other security of Planet that Planet proposed to sell or issue after the date of the Agway Holdings Stock Purchase Agreement. Under Section 5(b) of the Agreement, Planet is required to give Agway Holdings written notice of its intention, describing the securities to be issued, the price and the terms and conditions upon which Planet proposes to issue the securities and gives Agway Holdings twenty days from that date to purchase its pro-rata share. Agway Holdings may also waive its right of first refusal in writing. Thus, upon each exercise by Planet of the right to sell shares to Triton pursuant to the Equity Line of Credit and exercise of the Triton Warrant, Agway Holdings will have the right to purchase additional shares of the common stock. PLAN OF DISTRIBUTION A majority of the shares of common stock to be registered by this registration statement, including those issuable under the Triton Warrant, are being offered to Triton West Group, Inc. under an Equity Line of Credit. The total dollar amount of this offering to Triton, excluding the Triton Warrant, will not exceed $7,000,000. Planet will receive funds upon drawdowns of the Equity Line of Credit by Planet and Triton's exercise of the Triton Warrant. Pursuant to the Triton Stock Purchase Agreement, Triton will receive the Triton Warrant (under which 125,000 shares of the common stock may be exercised by Triton), 5,000 shares of common stock, and a commitment fee of $23,333 per drawdown for the first 6 drawdowns. In this offering, Triton has agreed to be named as a statutory underwriter within the meaning of the Securities Act of 1933. However, Triton entered into the 15 20 Triton Stock Purchase Agreement for its own account and not with a view to or for sale in connection with any distribution of the common stock and Triton has no present arrangement (whether or not legally binding) at any time to sell its shares to or through any person or entity. Triton has not, however, agreed to hold the Triton Shares for any minimum or other specific term and has reserved the right to dispose of the Triton Shares at any time in accordance with federal and state securities laws applicable to such disposition. Furthermore, Triton has neither agreed, prior to any sales, to effect any offers or sales of the Triton Shares in any manner other than as specified in the prospectus nor to purchase or induce others to purchase the Triton Shares in violation of any applicable federal and state securities laws, rules and regulations and the rules and regulations of the Nasdaq National and Small Cap Markets. Planet will not receive funds from the sale of shares of Planet common stock or shares of Planet common stock issuable upon exercise of a warrant held by certain selling shareholders. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Planet's Restated Articles of Incorporation include provisions to eliminate the personal liability of its directors to the fullest extent permitted by Section 204(a)(10) under the General Corporation Law of California. Planet's Articles also include provisions that authorize Planet to indemnify its directors and officers to the fullest extent permitted by Sections 204 and 317 of the California Corporations Code. Planet's Bylaws also provide Planet with the authority to indemnify its other officers, employees and other agents as set forth in the Corporations Code. Such indemnification may be provided against expenses incurred or in connection with any suit to which an indemnified party is, or is threatened to be made, a party by reason of such party's acting for or on behalf of Planet so long as the party acted in good faith and in a manner the party reasonably believed to be in the best interests of Planet, and with respect to a manner the party reasonably believed to be in the best interests of Planet, and with respect to any criminal action, the party had no reasonable cause to believe the party's conduct was unlawful. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers, employees or agents of Planet pursuant to the foregoing paragraphs, or otherwise, Planet has been advised that in the opinion of the Securities and Exchange Commission that such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. DESCRIPTION OF BUSINESS PLANET POLYMER TECHNOLOGIES, INC. Planet Polymer Technologies, Inc. is an advanced materials company that develops and licenses unique hydro-soluble polymer and biodegradable materials. Planet's proprietary polymer materials are marketed under the trademarks EnviroPlastic(R), Aquadro(R) and AQUAMIM(R). EnviroPlastic(R) and Aquadro(R) 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. in 1999 that are being marketed under the trademarks Optigen(TM) 1200 and Fresh Seal(TM). Planet'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 16 21 - Aquadro(R) - Hydrodegradable (water dispersible) polyvinyl alcohol ("PVOH") resin To date, Planet 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(R) products. In November 1998, Planet entered into a Stock Purchase Agreement with Agway Holdings, Inc., a subsidiary of Agway, whereby Agway Holdings 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 Planet'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 Agway Holdings 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, Planet is reimbursed for certain qualifying research and development costs from Agway. Also in November 1998, Planet 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. Planet and Agway agreed to execute further sub-agreements (each a "Sub-Agreement") to specify the royalties to be paid to Planet for Agway's use of Planet's technology on certain specific products. In March 2000, Planet 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, Planet 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. In addition to the Agway alliance, Planet has sought to develop strategic alliances with other potential customers. Since 1995, Planet has had a relationship with Agrium Inc. to conduct development work in the use of coatings of fertilizer products. On June 23, 1999, Planet 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 allows Planet to enter into an arrangement or agreement with Agway with respect to the development of certain technologies involving controlled-released coatings of fertilizers. If Planet enters into such arrangements or agreements with Agway, then Planet 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 located in San Diego, California. Planet sold its wholly owned subsidiary, Deltco of Wisconsin, Inc. on January 7, 2000. Planet was incorporated under the laws of California in August 1991. Planet's principal executive offices are located at 9985 Businesspark Avenue, San Diego, CA 92131, and its telephone number is 858-549-5130. PLANET'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. Planet'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: 17 22 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, Planet 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, Planet 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 Planet's proprietary water soluble polymer binder. Various industrial and consumer products can be manufactured by the AQUAMIM(R) technology. Planet 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, Planet retained Dr. Randall German, an authority on Metal Injection Molding, commonly referred to as MIM, as a scientific advisor to Planet. To date, Planet 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. Planet'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. AQUADRO(R). Aquadro(R) 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(R) can be manufactured into blown film, extrusion cast film, and injection molded products. Aquadro(R) resins are highly versatile and can be engineered for elastomeric or rigid applications. Aquadro(R) can be disposed of through the municipal sewage system by dissolving the material in hot or cold water. The development of Aquadro(R) is an advancement of Planet's EnviroPlastic(R) H technology, patent No. 5,367,003. The patent for Aquadro(R) is No. 5,658,977. MARKETS AND APPLICATIONS Planet is focusing on specific market opportunities where Planet believes that its polymer chemistry expertise, EnviroPlastic(R) CRT, AQUAMIM(R), EnviroPlastic(R) Z and Aquadro(R) technologies, may address current or emerging market requirements. However, there can be no assurance that Planet's products or that new products, if developed, will be able to capture market share or be profitable. Planet is currently targeting the following markets: AGROTECHNOLOGY. Planet 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. 18 23 Planet'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 produce. Planet believes that Agway will continue to expand the market areas for both of these technologies. INDUSTRIAL MANUFACTURING. Planet 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. Planet believes that its AQUAMIM(R) technology provides a simple, safe and cost effective solution for producing metal injection molded parts. Planet's EnviroPlastic(R) Z is currently in use by The Toro Company's Irrigation Division as a degradable component of their sprinkler systems. PERSONAL HYGIENE AND MEDICAL DISPOSABLES. Planet's Aquadro(R) 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. Planet believes that consumers will consider this method of disposal to be more convenient and environmentally sound. Planet believes that its injection molded Aquadro(R) 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 Planet'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, Planet entered into a Stock Purchase Agreement with Agway Holdings, Inc., a subsidiary of Agway, whereby Agway Holdings 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 Planet's shareholders' approval. Additionally, in February 1999, Planet received a commitment from Agway whereby Agway agreed to exercise its warrant to acquire up to 500,000 shares of Planet's common stock after July 1, 1999 at Planet's request, in the event that Planet's cash flows were less than currently projected or were insufficient to fund its operating requirements. On November 5, 1999 and March 3, 2000, at Planet's request, Agway exercised warrants with respect to a total of 1,000,000 shares of Planet's common stock on the terms, and subject to conditions, set forth in the warrants and Planet received a total of $1,000,000 in connection with such exercises. Contemporaneously with the execution of the Agway Holdings 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, Planet is reimbursed for certain qualifying research and development costs from Agway. Also in November 1998, Planet 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, Planet 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 19 24 fall within, Agway's Field of Business (as defined in the License Agreement). Moreover, Planet may not enter into any arrangements or agreements with any third party for a license under any of Planet'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, Planet's ability to develop or license its technology to third parties for agricultural and food applications is significantly restricted by the License Agreement. Planet and Agway agreed to execute further sub-agreements (each a "Sub-Agreement") to specify the royalties to be paid to Planet for Agway's use of Planet's technology on certain specific products. In March 2000, Planet 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, Planet 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, Planet entered into a ten year technology and license agreement with Cominco Fertilizers Ltd. (now named Agrium Inc.), pursuant to which Agrium desired to have Planet 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. Planet'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 Planet 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 Planet determined in accordance with the terms of the agreement. On June 23, 1999, Planet 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 allows Planet to enter into an arrangement or agreement with Agway with respect to the development of certain technologies involving controlled-released coatings of fertilizers. If Planet enters into such arrangements or agreements with Agway, then Planet 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 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 Planet's technologies. Planet has entered into non-disclosure agreements providing for the confidential exchange of information and discussion with potential strategic partners and customers. There can be no assurance that any such agreements will result in any development and license agreements or commercial relationships. There can be no assurance that Planet 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 Planet 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 Planet primarily relies on direct sales efforts and strategic marketing alliances to market Planet's products and technologies. Many of these direct sales efforts are based on the initiatives of Planet's senior management. Planet believes that these efforts have provided Planet 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." 20 25 Most of Planet's technologies are designed to be specially engineered to enhance, and become incorporated into, customers' products. Due to this high degree of product specialization, Planet 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 Planet's staff to educate the customer, understand the customer's unique application requirements and recommend and develop the appropriate solution. COMPETITION Planet 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, Planet competes indirectly with Pursell Inc. and The Scotts Company in the United States and Haifa Chemical Company in Israel. Planet 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 Planet's EnviroPlastic(R) and Aquadro(R) 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 Planet's competitors, who provide these non-degradable products, have significantly greater financial, technical and human resources than Planet. Direct competition with respect to degradable polymer materials is limited. Technologies which Planet 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 Planet'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 Planet's products. The development of a competing or superior technology or the commercialization of such technology by any one of Planet's potential competitors could have a material adverse effect on Planet's sales or operating profits. MANUFACTURING AND SUPPLIERS Planet manufactures polymer materials in pellet form from base raw materials purchased from third party vendors. Planet has manufactured only limited production quantities of its products at its facility in San Diego, California, and continues to use contract manufacturers to produce larger quantities of materials when required. The components for Planet's polymer blends, alloys and coating products are available from several suppliers such as Union Carbide Corporation, The Dow Chemical Company, Dupont, Eastman Chemical Company and Air Products and Chemicals, Inc. as well as other sources. Planet has not executed long-term supply agreements with any of its vendors. To date, Planet 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. Planet does not anticipate significant difficulties in obtaining raw materials in sufficient quantities to meet its anticipated needs. Should supply problems arise, however, Planet's inability to develop alternative cost-effective sources could materially impair Planet'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 21 26 in vendor prices, could materially and adversely affect Planet's operating results and damage customer relationships. RESEARCH AND DEVELOPMENT Research and development expenditures during the years ended December 31, 1998 and 1999, and the six months ended June 30, 1999 and 2000, were approximately $634,000, $727,000, $392,000 and $269,000, respectively, of which approximately $122,000, $497,000, $310,000 and $139,000, 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. Planet 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. Planet aims to design and develop new products internally and, where appropriate, acquire existing technologies for commercialization, although Planet currently has no plans for any such acquisitions. Planet anticipates that some of the 2000 research and development expenditures in the agrotechnology area will be reimbursed by Agway under its Feasibility Agreement. For the years ended December 31, 1998 and 1999, and the six months ended June 30, 1999 and 2000, Planet recorded reimbursable research and development costs of approximately $62,000, $355,000, $251,000 and $94,000, respectively, from Agway. INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGIES Planet 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. Planet 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, Planet expanded its existing patent portfolio with the issuance of US name registration and patents for Planet's AQUAMIM(R) technology, and US patent allowed on fresh produce coating technology. All other technologies of Planet are considered trade secrets and patent protection will be pursued as appropriate. While Planet believes that a competitor with substantial financial resources and technical expertise could develop polymer materials equivalent to Planet's, Planet believes that its lead times, continued research and development efforts and relationship driven strategic alliances with customers provide it with a competitive advantage. Planet 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 Planet would have adequate remedies for any breach or that Planet'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 Planet's pending patent applications will be approved, that Planet will develop additional proprietary materials or processes that are patentable, that any patents issued to Planet or any of its licenses will provide Planet 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 Planet to conduct its business. Furthermore, there can be no assurance that others will not independently develop similar or superior technologies, duplicate any of Planet's processes or design around the patented materials developed by Planet. Planet 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 Planet may need to acquire licenses to, or to contest the validity of, issued or pending patents of third parties relating to Planet's technology. There can be no assurance that licenses under such patents would be made available to Planet on acceptable terms, if at all, or that Planet would prevail in any such contest. In addition, Planet could incur 22 27 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 Planet'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. Planet may be required to provide its customers with technical information on its products to be used by the customer in the regulatory process. Planet's customers will have primary responsibility for obtaining any required governmental approvals. The approval process could be costly and lengthy and potential sales of Planet's products could be significantly delayed and/or eliminated as to end products subject to such regulatory approval. EMPLOYEES Planet 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. Planet believes that its future success will depend in part on its ability to recruit, retain and motivate qualified management, marketing, technical and administrative employees. Planet has an employment agreement with one key employee. None of Planet's employees are covered by collective bargaining agreements, and management considers relations with employees to be good. FINANCIAL INFORMATION On January 7, 2000, Planet sold all of its common stock shares of Deltco. In accordance with the Stock Purchase Agreement, dated December 30, 1999, Planet 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, Planet's continuing operations are now comprised of one segment, the "Research and Development" business segment. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Except for the historical information, the following discussion contains forward-looking statements that involve certain risks and uncertainties. Planet's actual results could differ materially from those discussed below. Since Planet was founded in 1991, with the exception of resources expended in connection with the purchase and ongoing operation of Deltco, substantially all of Planet's resources have been devoted to the development and commercialization of its technologies and products. This has included the expenditure of funds to develop Planet's corporate infrastructure, support Planet'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 June 30, 2000 of approximately $12.1 million. Pending commercial deployment of and related volume orders for Planet's products, Planet expects to incur additional losses. RESULTS OF OPERATIONS On January 7, 2000, Planet sold all of its common stock shares of Deltco. In accordance with the Stock Purchase Agreement, Planet received total proceeds of $1,000,000 in the form of $900,000 in cash and $100,000 in a secured promissory note 23 28 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 Planet and Deltco as a discontinued operation. Accordingly, Planet'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 Planet's continuing operations. Planet's revenues increased from $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 Company's Irrigation Division. Planet's revenues increased from $0 for the six months ended June 30, 1999 to approximately $401,000 for the same period in 2000. This increase was also attributable to the commercial deployment of EnviroPlastic(R) Z. Cost of sales increased from $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. Cost of sales increased from $0 for the six months ended June 30, 1999 to approximately $274,000 for the same period in 2000. This increase was also 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. The aforementioned expenses increased $38,000 from approximately $477,000 for the six months ended June 30, 1999 to approximately $515,000 for the same period in 2000. This increase was primarily attributable to professional fees paid to an independent consultant for providing investor relation services. 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. Marketing expenses increased $24,000 from approximately $84,000 for the six months ended June 30, 1999 to approximately $108,000 for the same period in 2000. These increases were primarily attributable to increased costs associated with the promotion of AQUAMIM(R) which included professional fees paid to an independent consultant. Planet'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(R). 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. In addition, Planet's net research and development expenses increased from approximately $82,000 for the six months ended June 30, 1999 to approximately $130,000 for the same period in 2000. This increase was primarily due to a reduction in allocated research and development resources to projects that are reimbursable by Agway under the Feasibility Agreement. Offsetting reimbursable research and development revenue from customers other than Agway decreased from approximately $59,000 for the six months ended June 30, 1999 to approximately $44,000 for the same period in 2000. Offsetting reimbursable research and development costs from Agway decreased from approximately $251,000 for the six months ended June 30, 1999 to approximately $94,000 for the same period in 2000. These decreases were due to a reduction in the research and development labor rates charged to Agway. 24 29 In 1996, Planet recorded an obligation of $265,000 for outstanding employment tax issues. During the three months ended September 30, 1999, Planet resolved a portion of the employment tax issue and recorded other income of $113,000. In 1998 and 1999, Planet recorded an income tax provision of $800, which represented a current tax liability for California minimum taxes. Planet'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. Planet's net loss increased from approximately $592,000 for the six months ended June 30, 1999 to approximately $594,000 for the same period in 2000. As of December 31, 1999, Planet had net operating loss carry forwards 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. Planet's annual utilization of net operating loss and tax credit carry forwards may be limited if Planet's ownership were to change in the future, as defined by Sections 382 and 383 of the Internal Revenue Code. Due to the possible limitations under Sections 382 and 383 of the Internal Revenue Code and Planet's lack of historical earnings, the Company has recorded a full valuation allowance for deferred tax assets as it is more likely than not that such assets will not be realized. Planet'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 Planet 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, Planet 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, Planet 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 1999, a Small Business Administration loan obtained in connection with a purchase business combination was repaid in full in the amount of approximately $96,000 with cash obtained from the redemption of a certificate of deposit. In September 1997, Planet 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 Planet's shareholders' approval, Planet 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, Planet recorded reimbursable research and development costs of approximately $355,000 from Agway under the Feasibility Agreement. Planet anticipates that some of the 2000 research and development expenditures in the agrotechnology area will be reimbursed by Agway under the Feasibility Agreement. Additionally, in February 1999, Planet received a commitment from Agway whereby Agway agreed to exercise its warrant to acquire up to 500,000 shares of Planet's common stock as early as July 1, 1999, at Planet's request, in the event Planet's cash flows were less than projections and/or insufficient to fund its operating requirements. On November 5, 1999, at Planet's request, Agway exercised the warrant with respect to 500,000 shares of Planet's common stock on the terms, and subject to conditions, set forth in the warrant and Planet 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 25 30 warrants to purchase 1,000,000 shares of common stock and holds a warrant to purchase an additional 1,000,000 shares. Planet 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. Planet used approximately $536,000 for continuing operations for the six months ended June 30, 2000. Such funds were used primarily for research and development activities, marketing efforts and administrative support. Planet 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 investing activities of approximately $753,000 for the six months ended June 30, 2000 resulted from proceeds from the sale of Deltco of approximately $818,000, net of Deltco's cash, offset by approximately $65,000 used for the purchase of equipment and for the preparation and filing of patents. 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. Net cash provided by financing activities of approximately $480,000 for the six months ended June 30, 2000 resulted from net proceeds of approximately $440,000 from the exercise of warrants, $102,000 from the exercise of stock options, and $3,000 from the issuance of warrants, offset by a net reduction in the advance of funds of approximately $61,000 from Agway and $4,000 used for capital lease obligations. At December 31, 1999, Planet's cash and cash equivalents were approximately $356,000. On January 7, 2000, Planet received $900,000 in cash from the sale of Deltco. Planet 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 Planet's projected working capital and other cash requirements through February 2001. There can be no assurance, however, that future revenue decreases or changes in Planet's plans or other events affecting Planet's operating expenses will not result in the expenditure of additional Company resources. On August 15, 2000 Planet entered into the Equity Line of Credit Agreement which gives Planet the right, until August 15, 2003, or earlier, to exercise a drawdown and require that Triton purchase between $100,000 and $7,000,000 of our common stock. The maximum amount that Planet can require Triton to purchase at any given time is subject to a floating number based on our closing bid price and our average trading volume in a thirty-day period. Planet expects that it will need to raise substantial additional funds to continue its current and planned operations. Planet 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 under the Equity Line of Credit or other sources. Planet'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 Planet will be able to satisfy the criteria for continued quotations on the Nasdaq SmallCap Market. SEE ALSO "RISK FACTORS." DESCRIPTION OF PROPERTY Planet'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, Planet 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. Planet believes its current facility is suitable for its present and future needs. 26 31 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In November 1998, 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, Planet is reimbursed for certain qualifying research and development costs relating to such applications. During 1999 and the six months ended June 30, 2000, Planet recorded reimbursable research and development costs of $355,000 and $94,000, respectively, from Agway under the Feasibility Agreement. Also in November 1998, Planet granted Agway an exclusive worldwide license in connection with Planet'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. Planet and Agway agreed to execute further sub-agreements specifying the royalties to be paid to Planet for Agway's use of Planet's technology with certain products. Agway Holdings Inc., an indirect wholly owned subsidiary of Agway, is a beneficial owner of more than 10% of Planet's common stock. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Planet's common stock has been traded on the Nasdaq SmallCap tier of the Nasdaq Stock Market under the symbol "POLY" since Planet's initial public offering on September 21, 1995. The following table sets forth the high and low sales prices of Planet's common stock for the period from January 1, 1998 through December 31, 1999, and the first two quarters ended June 30, 2000, as furnished by Nasdaq. These prices reflect prices between dealers without retail markups, markdowns or commissions, and may not necessarily represent actual transactions:
Trade Prices ------------------- High Low ------ ------- 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 Fiscal year ending December 31, 2000 First Quarter 5 2 17/32 Second Quarter 3 1/4 2 3/50
On August 31, 2000, the last reported sale price of Planet's common stock on the Nasdaq SmallCap market was $2.56. As of August 31, 2000, there were approximately 143 holders of record of Planet's common stock with 7,639,947 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 Planet and Special Situations Private Equity Fund, L.P., holder of Planet's Series A Preferred Shares and related Amended and Restated Certificate of Determination of Planet filed with the California Secretary of State on September 19, 1997, Special Situations is entitled to receive, quarterly as a dividend, such number of shares of common stock (or, if Planet 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 27 32 4:00 p.m. closing bid price of Planet'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, Planet issued to Special Situations dividends of 40,918 shares of common stock, valued at approximately $60,000, in 1999, issued 29,914 shares of common stock valued at approximately $60,000, and for the six months ended June 30, 2000, issued 6,975 shares of common stock valued at approximately $21,580. Except to Special Situations as set forth above, Planet has never declared or paid a cash dividend. Planet 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 Planet's operations. Any payment of dividends in the future will depend upon Planet's earnings, capital requirements, financial condition and such other factors as the Board of Directors may deem relevant. In February 1999, Planet received a commitment from Agway whereby Agway agreed to exercise its warrant to acquire up to 500,000 shares of Planet's common stock after July 1, 1999 at Planet's request, in the event that Planet's cash flows were less than currently projected or were insufficient to fund its operating requirements. On November 5, 1999, at Planet's request, Agway exercised the warrant with respect to 500,000 shares of Planet's common stock on the terms, and subject to conditions, set forth in the warrant and Planet 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. EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS During 1999, options to purchase an aggregate of 66,083 shares of Planet's common stock were granted to Planet's directors pursuant to Planet's 1995 Stock Option Plan as follows: (i) in May 1999, the Board of Directors of Planet approved and granted non-statutory stock option grants to each non-employee director to purchase 13,000 shares of Planet's common stock at an exercise price of $1.8125 per share, vesting fully at the date of grant; and (ii) Mr. LaHood received non-statutory stock option grants to purchase an additional 1,083 shares for services to the Board of Directors rendered April 12, 1999 to May 21, 1999. On May 1, 2000, each director, excluding Robert Petcavich, Peter O'Neill and Ronald Sunderland, was granted a non-statutory stock option to purchase 5,000 shares of Planet's common stock at $2.50 per share pursuant to Planet's 2000 Stock Incentive Plan as compensation for services rendered in 1999, and may in the future be granted additional options pursuant to the 2000 Plan. Also on May 1, 2000, each director, excluding Robert Petcavich, was granted a non-statutory stock option to purchase 18,000 shares of Planet's common stock at $2.50 per share under the 2000 Plan as compensation for services to be rendered from May 1, 2000 through May 1, 2001. Directors are reimbursed for reasonable travel expenses incurred in connection with attendance at Board meetings, or any committee meetings, or otherwise in connection with their service as a director. 28 33 COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth, for the fiscal years ended December 31, 1999, 1998, and 1997, certain compensation awarded or paid to, or earned by Planet's Chief Executive Officer. No other executive officer's total annual salary and bonus for services to Planet exceeded $100,000 in the fiscal year ended December 31, 1999. SUMMARY COMPENSATION TABLE
Annual Shares All Other Compen- Underlying Compen- Name and Principal Position Year Salary($) Bonus($)(1) sation($)(2) Options(#) sation($)(3) - --------------------------- ---- --------- ----------- ------------ ---------- ------------ Robert J. Petcavich 1999 $210,000 $ 25,000 $ - - $ 1,136 Chairman of the Board, 1998 $201,000 $ - $ - 125,000(4) 955 President and Chief 1997 $176,114 $ - $ 9,000 57,851(5) 1,357 Executive Officer
(1) Includes $25,000 accrued as a bonus pursuant to a five-year employment agreement effective January 1, 1999, but paid in March 2000. (2) Includes $9,000 paid as director fees during 1997. (3) Represents insurance premiums paid by Planet under a term life insurance policy insuring Dr. Petcavich. (4) Represents an incentive stock option granted on November 18, 1998 with an exercise price of $1.65 (which is equal to 110% of the fair market value on the date of grant). Of the 125,000 shares, 25,000 vest immediately, 35,000 shall vest on the first anniversary, 35,000 on the second anniversary, and 30,000 on the third anniversary. (5) Represents a non-statutory stock option granted on October 30, 1997 vesting 50% annually for two years with an exercise price of $3.025. STOCK OPTION GRANTS AND EXERCISES Planet's executive officers have been granted options to purchase the common stock pursuant to the 1995 Plan and are eligible for grants of options under the 2000 Plan. As of August 31, 2000, there were 109,278 remaining shares available for grant under the 1995 Plan, which may be granted under the 2000 Plan, in addition to the 325,500 shares that are available for grant under the 2000 Plan. There were no stock options granted to executive officers in 1999. The following table sets forth information with respect to the number of securities underlying unexercised options held by the Chief Executive Officer as of December 31, 1999 and the value of unexercised in-the-money options (i.e., options for which the current fair market value of the common stock underlying such options exceeds the exercise price): AGGREGATED OPTION EXERCISES LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END($)(1) ACQUIRED ON VALUE ---------------------------- --------------------------- NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---------- ----------- -------- ----------- ------------- ----------- ------------- Robert J. Petcavich -0- -0- 157,533 65,000 $69,750 $75,563
(1) Calculated based on the estimated fair market value of Planet's common stock as of December 31, 1999, less the exercise price payable upon the exercise of such options. Such estimated fair market value as of December 31, 1999 was $2.8125, the last price posted at the close of trading on December 31, 1999. 29 34 DESCRIPTION OF EMPLOYEE BENEFIT PLANS 2000 STOCK INCENTIVE PLAN Planet's 2000 Stock Incentive Plan was approved by Planet's shareholders at its annual meeting of shareholders on May 1, 2000. The Board of Directors reserved 500,000 shares of common stock for issuance under the 2000 Plan, together with any remaining shares of common stock eligible for issuance under the 1995 Stock Option Plan expire unexercised. A committee consisting of Planet's Board of Directors or appointed Board members has the sole discretion to determine under which plan stock options and bonuses may be granted. The purpose of the 2000 Plan is similar to that of the 1995 Plan, which was to attract and retain qualified personnel, to provide additional incentives to employees, officers, directors and consultants of Planet and to promote the success of Planet's business. As was the case under the 1995 Plan, under the 2000 Plan, Planet may grant or issue incentive stock options and non-statutory stock options to eligible participants (provided that incentive stock options may only be granted to employees of Planet). Option grants under both plans are discretionary. Options granted under both plans are subject to vesting as determined by the Board, provided that the option vests as to at least twenty percent (20%) of the shares subject to the option per year. The maximum term of a stock option under both plans is ten years, but if the optionee at the time of grant has voting power over more than 10% of Planet's outstanding capital stock, the maximum term is five years (under both plans). Under both plans if an optionee terminates his or her service to Planet, such optionee may exercise only those option shares vested as of the date of termination, and must affect such exercise within the period of time after termination set forth in the optionee's option. The exercise price of incentive stock options granted under both plans must be at least equal to the fair market value of the common stock of Planet on the date of grant. Under both plans the exercise price of options granted to an optionee who owns stock possessing more than 10% of the voting power of Planet's outstanding capital stock must equal at least 110% of the fair market value of the common stock on the date of grant. Payment of the exercise price may be made in cash, by delivery of other shares of Planet's common stock or by any other form of legal consideration that may be acceptable to the Board. 401(K) PLAN Planet provides a defined contribution 401(k) savings plan (the "401(k) Plan") in which all full-time employees of Planet 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 that related to the 401(k) Plan in the years ended December 31, 1998 and 1999, and the six months ended June 30, 1999 and 2000. EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS On November 18, 1998, Planet entered into a five-year employment agreement, effective January 1, 1999, with Dr. Petcavich. This agreement increases Dr. Petcavich's salary to $210,000 and provides that if Dr. Petcavich is terminated for any reason other than for cause during the term of employment, then he shall be engaged to perform services to Planet pursuant to a consulting agreement. On November 18, 1998, in connection with this employment agreement, Planet's Board of Directors also granted Dr. Petcavich an incentive stock option to purchase 125,000 shares of common stock at an exercise price of $1.65 per share under the 1995 Stock Option Plan. 30 35 FINANCIAL STATEMENTS INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Accountants F-2 Consolidated Financial Statements and Notes: Balance Sheet as of December 31, 1999 and June 30, 2000 (Unaudited) F-3 Statements of Operations for the Years Ended December 31, 1998 and 1999 F-4 Statements of Operations (Unaudited) for the Six Months Ended June 30, 1999 and June 30, 2000 F-5 Statements of Shareholders' Equity for the Years Ended December 31, 1998 and 1999, and the Six Months Ended June 30, 2000 (Unaudited) F-6 Statements of Cash Flows for the Years Ended December 31, 1998 and 1999 F-7 Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 1999 and June 30, 2000 F-8 Notes to Consolidated Financial Statements F-9
F-1 36 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 37 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET ---------------
DECEMBER 31, JUNE 30, 1999 2000 ------------ ------------ ASSETS (UNAUDITED) Current assets: Cash and cash equivalents $ 355,645 $ 1,051,454 Accounts receivable 134,917 125,360 Note receivable -- 7,082 Inventories, net 153,435 146,157 Prepaid expenses 48,740 27,882 Net assets of discontinued operations held for sale 914,639 -- ------------ ------------ Total current assets 1,607,376 1,357,935 Property and equipment, net of accumulated depreciation of $214,302 and $239,647, respectively 205,757 188,185 Patents and trademarks, net of accumulated amortization of $127,912 and $140,958, respectively 325,897 374,123 Note receivable, less current portion -- 89,583 Other assets 7,630 6,715 ------------ ------------ Total assets $ 2,146,660 $ 2,016,541 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 73,269 $ 65,755 Accrued payroll and vacation 32,056 60,929 Other accrued expenses 41,053 -- Advances from related party 61,484 -- Current portion of capital lease obligations 7,006 9,200 ------------ ------------ Total current liabilities 214,868 135,884 Capital lease obligations, less current portion 15,798 13,840 Other liabilities 152,886 152,886 ------------ ------------ Total liabilities 383,552 302,610 ------------ ------------ 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 and 321,500 shares issued and outstanding Liquidation preference $1,000,000 and $643,000 804,435 517,251 Common stock, no par value 20,000,000 shares authorized 6,875,976 and 7,634,947 shares issued and outstanding 12,426,143 13,279,470 Accumulated deficit (11,467,470) (12,082,790) ------------ ------------ Total shareholders' equity 1,763,108 1,713,931 ------------ ------------ Total liabilities and shareholders' equity $ 2,146,660 $ 2,016,541 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-3 38 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS ---------------------------
YEARS ENDED DECEMBER 31, 1998 1999 ----------- ----------- Sales $ -- $ 75,600 Cost of sales -- 53,862 ----------- ----------- Gross profit -- 21,738 ----------- ----------- Operating expenses: General and administrative 731,846 888,256 Marketing 178,484 183,001 Research and development, net 511,804 230,129 ----------- ----------- Total operating expenses 1,422,134 1,301,386 ----------- ----------- Loss from operations (1,422,134) (1,279,648) Other income, net 23,834 116,777 ----------- ----------- Loss from continuing operations before income taxes (1,398,300) (1,162,871) Income tax expense (800) (800) ----------- ----------- Loss from continuing operations (1,399,100) (1,163,671) Discontinued operations: Income (loss) from discontinued operations, net of tax (benefit) expense of $(23,838) and $13,286, respectively (229,443) 164,390 Loss on disposal of discontinued operations, net of tax expense of $0 -- (561,277) ----------- ----------- Loss from discontinued operations (229,443) (396,887) =========== =========== Net loss $(1,628,543) $(1,560,558) =========== =========== Loss per share from continuing operations (basic and diluted) $ (0.26) $ (0.18) =========== =========== Loss per share from discontinued operations (basic and diluted) $ (0.05) $ (0.06) =========== =========== Net loss per share (basic and diluted) $ (0.31) $ (0.24) =========== =========== Shares used in per share computations 5,317,297 6,406,145 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-4 39 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS ---------------
SIX MONTHS ENDED JUNE 30, 1999 2000 ----------- ----------- (UNAUDITED) (UNAUDITED) Sales $ -- $ 401,272 Cost of sales -- 273,629 ----------- ----------- Gross profit -- 127,643 ----------- ----------- Operating expenses: General and administrative 476,688 514,784 Marketing 84,284 107,869 Research and development, net 81,789 130,377 ----------- ----------- Total operating expenses 642,761 753,030 ----------- ----------- Loss from operations (642,761) (625,387) Other (expense) income, net (1,446) 32,447 ----------- ----------- Loss from continuing operations before income taxes (644,207) (592,940) Income tax expense (800) (800) ----------- ----------- Loss from continuing operations (645,007) (593,740) Discontinued operations: Income from discontinued operations, net of tax expense of $4,582 53,418 -- ----------- ----------- Income from discontinued operations 53,418 -- ----------- ----------- Net loss $ (591,589) $ (593,740) =========== =========== Loss per share from continuing operations (basic and diluted) $ (0.10) $ (0.08) =========== =========== Income per share from discontinued operations (basic and diluted) $ .01 $ -- =========== =========== Net loss per share (basic and diluted) $ (0.09) $ (0.08) =========== =========== Shares used in per share computations 6,289,353 7,374,234 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-5 40 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ---------------
SERIES A PREFERRED STOCK COMMON STOCK ---------------------------- --------------------------- ACCUMULATED SHARES AMOUNT SHARES AMOUNT DEFICIT ------------ ------------ ------------ ------------ ------------- Balance at December 31, 1997 500,000 $ 804,435 5,300,144 $ 10,940,967 $ (8,158,369) 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 (15,0000 Fair market value of stock options granted to non-employees -- -- -- 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) ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1998 500,000 $ 804,435 5,341,062 $ 11,009,208 $ (9,846,912) Issuance of common stock and related Warrants -- -- 1,000,000 1,000,000 -- Common stock issuance costs -- -- -- (154,940) -- Issuance of Warrants to the finder -- -- -- 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 -- Stock option exercised -- -- 5,000 9,375 -- Net loss for year -- -- -- -- (1,560,558) ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1999 500,000 $ 804,435 6,875,976 $ 12,426,143 $(11,467,470) January 1, 2000 - June 30, 2000 (UNAUDITED) Conversion of Series A Preferred Stock into Common Stock on January 20, 2000 (102,000) (164,105) 119,997 164,105 -- Stock Options exercised for cash on February 15, 2000 -- -- 10,000 30,250 -- Stock Options exercised for cash on March 2, 2000 -- -- 10,000 30,250 -- Warrants exercised on March 3, 2000 -- -- 500,000 500,000 -- Transaction fee to the finder -- -- -- (60,000) -- Issuance of Warrants to the finder on March 9, 2000 -- -- -- 2,500 -- Issuance of common stock as a dividend on Convertible Preferred Stock on March 15, 2000 -- -- 2,736 11,936 (11,936) Conversion of Series A Preferred Stock into Common Stock on March 28, 2000 (76,500) (123,079) 89,999 123,079 -- Stock Options exercised for cash on June 7, 2000 -- -- 2,000 3,625 -- Stock Options exercised for cash on June 9, 2000 -- -- 2,400 4,350 -- Stock Options exercised for cash on June 12, 2000 -- -- 3,000 5,438 -- Stock Options exercised for cash on June 13, 2000 -- -- 4,000 7,250 -- Stock Options exercised for cash on June 14, 2000 -- -- 5,100 9,900 -- Issuance of common stock as a dividend on Convertible Preferred Stock on June 15, 2000 -- -- 4,239 9,644 (9,644) Stock Options exercised for cash on June 16, 2000 -- -- 3,500 7,000 -- Stock Options exercised for cash on June 21, 2000 -- -- 2,000 4,000 -- Net loss for the six months ended June 30, 2000 -- -- -- -- (593,740) ------------ ------------ ------------ ------------ ------------ Balance at June 30, 2000 (UNAUDITED) 321,500 $ 517,251 7,634,947 $ 13,279,470 $(12,082,790) ============ ============ ============ ============ ============
TOTAL ------------ Balance at December 31, 1997 $ 3,587,033 Issuance of common stock as a dividend on Convertible Preferred Stock on March 15, 1998 -- Issuance of common stock as a dividend on Convertible Preferred Stock on June 15, 1998 -- Issuance of common stock as a dividend on Convertible Preferred Stock on September 15, 1998 -- Fair market value of stock options granted to non-employees 8,241 Issuance of common stock as a dividend on Convertible Preferred Stock on December 15, 1998 -- Net loss for year (1,628,543) ------------ Balance at December 31, 1998 $ 1,966,731 Issuance of common stock and related Warrants 1,000,000 Common stock issuance costs (154,940) Issuance of Warrants to the finder 2,500 Issuance of common stock as a dividend on Convertible Preferred Stock on March 15, 1999 -- Issuance of common stock as a dividend on Convertible Preferred Stock on June 15, 1999 -- Issuance of common stock as a dividend on Convertible Preferred Stock on September 15, 1999 -- Issuance of common stock as a dividend on Convertible Preferred Stock on December 15, 1999 -- Warrant exercised 500,000 Stock option exercised 9,375 Net loss for year (1,560,558) ------------ Balance at December 31, 1999 $ 1,763,108 January 1, 2000 - June 30, 2000 (UNAUDITED) Conversion of Series A Preferred Stock into Common Stock on January 20, 2000 -- Stock Options exercised for cash on February 15, 2000 30,250 Stock Options exercised for cash on March 2, 2000 30,250 Warrants exercised on March 3, 2000 500,000 Transaction fee to the finder (60,000) Issuance of Warrants to the finder on March 9, 2000 2,500 Issuance of common stock as a dividend on Convertible Preferred Stock on March 15, 2000 -- Conversion of Series A Preferred Stock into Common Stock on March 28, 2000 -- Stock Options exercised for cash on June 7, 2000 3,625 Stock Options exercised for cash on June 9, 2000 4,350 Stock Options exercised for cash on June 12, 2000 5,438 Stock Options exercised for cash on June 13, 2000 7,250 Stock Options exercised for cash on June 14, 2000 9,900 Issuance of common stock as a dividend on Convertible Preferred Stock on June 15, 2000 -- Stock Options exercised for cash on June 16, 2000 7,000 Stock Options exercised for cash on June 21, 2000 4,000 Net loss for the six months ended June 30, 2000 (593,740) ------------ Balance at June 30, 2000 (UNAUDITED) $ 1,713,931 ============
The accompanying notes are an integral part of the consolidated financial statements. F-6 41 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS ---------------
YEARS ENDED DECEMBER 31, 1998 1999 ----------- ----------- Cash flows from operating activities: Net loss $(1,628,543) $(1,560,558) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 141,463 136,299 Loss on disposal of assets -- 9,994 Deferred income taxes (22,649) -- Non-cash compensation expense 8,241 -- Loss (income) from discontinued operations 254,385 (164,390) Loss on sale of discontinued operations -- 561,277 Changes in assets and liabilities: Accounts receivable (4,437) (70,801) Inventories, net 19,107 (116,635) Prepaid expenses and other assets 18,318 (10,473) Accounts payable and accrued expenses 112,732 (29,638) Other liabilities -- 37,044 ----------- ----------- Net cash used by continuing operations (1,101,383) (1,207,881) Net cash (used) provided by discontinued operations (9,018) 54,955 ----------- ----------- Net cash used by operating activities (1,110,401) (1,152,926) ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (45,219) (130,343) Proceeds from the sale of property and equipment -- 14,000 Cost of patents and other (28,425) (31,639) ----------- ----------- Net cash used by investing activities (73,644) (147,982) ----------- ----------- 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 (80,988) (73,952) Principal payments on borrowings and capital lease obligations (95,652) (106,851) Advances from related party -- 61,484 Restricted cash in connection with borrowings (6,603) 114,880 ----------- ----------- Net cash (used) provided by financing activities (183,243) 1,507,436 ----------- ----------- Net (decrease) increase in cash and cash equivalents (1,367,288) 206,528 Cash and cash equivalents at beginning of year 1,516,405 149,117 ----------- ----------- Cash and cash equivalents at end of year $ 149,117 $ 355,645 =========== =========== Supplemental disclosure of non-cash activity: Cash paid during the year for: Interest paid $ 18,768 $ 5,236 Income taxes paid 30,968 13,092 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
The accompanying notes are an integral part of the consolidated financial statements. F-7 42 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS ---------------
SIX MONTHS ENDED JUNE 30, 1999 2000 ----------- ----------- (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net loss $ (591,589) $ (593,740) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 69,487 38,390 Loss on disposal of assets 9,994 -- Income from discontinued operations (53,418) -- Changes in assets and liabilities: Accounts receivable (61,464) 9,557 Inventories, net 2,011 7,278 Prepaid expenses and other assets 13,315 21,773 Accounts payable and accrued expenses (148,313) (19,694) ----------- ----------- Net cash used by continuing operations (759,977) (536,436) Net cash provided by discontinued operations 116,705 -- ----------- ----------- Net cash used by operating activities (643,272) (536,436) ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (87,995) (3,960) Cost of patents and other (33,998) (61,272) Proceeds from the sale of subsidiary -- 814,639 Payments from note receivable -- 3,335 ----------- ----------- Net cash (used) provided by investing activities (121,993) 752,742 ----------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock 1,000,000 -- Proceeds from issuance of warrants 2,500 2,500 Proceeds from warrants exercised -- 500,000 Payment of equity issuance costs (73,952) (60,000) Proceeds from stock options exercised 9,375 102,063 Principal payments on borrowings and capital lease obligations (100,747) (3,576) Advances from related party 166,291 (61,484) Restricted cash in connection with borrowings 114,880 -- ----------- ----------- Net cash provided by financing activities 1,118,347 479,503 ----------- ----------- Net increase in cash and cash equivalents 353,082 695,809 Cash and cash equivalents at beginning of period 149,117 355,645 ----------- ----------- Cash and cash equivalents at end of period $ 502,199 $ 1,051,454 =========== =========== Supplemental disclosure of non-cash activity: Issuance of common stock dividends on Preferred Stock $ 30,000 $ 21,580 Issuance of note receivable in connection with sale of subsidiary -- 100,000 Equipment acquired under capital leases -- 3,813
The accompanying notes are an integral part of the consolidated financial statements. F-8 43 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. PLANET Planet Polymer Technologies, Inc. ("Planet") was incorporated on August 22, 1991 in the State of California for the purpose of engaging in the design, development, manufacture and marketing of degradable and recycled polymer materials. Planet's proprietary polymer materials are marketed under the trademarks EnviroPlastic(R), Aquadro(R) and AQUAMIM(R). EnviroPlastic(R) and Aquadro(R) 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. Planet sold its wholly owned subsidiary, Deltco of Wisconsin, Inc. on January 7, 2000. The accompanying financial statements present the results of operations of Deltco as a discontinued operation. Accordingly, Planet's continuing operations are now comprised of one segment, the "Research and Development" business segment. 2. LIQUIDITY AND CAPITAL RESOURCES Planet has incurred losses since inception. For the years ended December 31, 1998 and 1999, and the six months ended June 30, 2000 (unaudited), Planet had net losses of approximately $1,629,000, $1,561,000 and $594,000, respectively. As of June 30, 2000, Planet had an accumulated deficit of approximately $12,083,000. Planet believes that its existing sources of liquidity and anticipated revenue will satisfy its projected working capital and other cash requirements through February 2001. Thereafter, Planet's future capital requirements will be dependent upon many factors, including, but not limited to, costs associated with the continued research and development of Planet's proprietary polymer materials, costs associated with the filing and enforcement of Planet's patents, costs associated with manufacturing scale-up and market acceptance, and the timing thereof, of Planet's products. Planet will need to secure additional financing through partnership arrangements or through the issuance of additional equity and/or debt securities or through other means. Planet executed a Stock Purchase Agreement with Triton West Group, Inc. ("Triton") in August 2000, but its ability to require Triton to purchase its shares is dependent upon its ability to register Triton's shares for sale in a public market, among other things (Note 13). There can be no assurance that the Triton or any additional financing will be available to Planet on acceptable terms, or at all. Further, there can be no assurance that Planet will be able to generate positive cash flows or profitability in the future. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements include accounts of Planet 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. Unaudited Financial Statements The interim financial statements as of June 30, 2000 and for the six months ended June 30, 1999 and 2000 are unaudited and have been prepared on the same basis as the audited financial statements. In the opinion of management, these unaudited financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial information set forth therein in accordance with accounting principles generally accepted in the United States. Operating results for the interim periods are not necessarily indicative of operating results for an entire year. All financial statement disclosures related to the six months ended June 30, 1999 and 2000 are unaudited. F-9 44 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 when all of the following conditions are met: the product has been shipped, Planet has the right to invoice the customer at a fixed price, the collection of the receivable is probable and there are no significant obligations remaining. Research and Development Company-sponsored research and development costs related to future products and redesign 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:
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED 1998 1999 JUNE 30, 2000 --------- --------- ------------- (unaudited) Research and development expenses $ 633,520 $ 727,151 $ 269,050 Research and development revenues (60,082) (141,566) (44,260) Reimbursable research and development costs (61,634) (355,456) (94,413) --------- --------- --------- Research and development, net $ 511,804 $ 230,129 $ 130,377 ========= ========= =========
Cash and Cash Equivalents Cash and cash equivalents include U.S. Treasury bills with original maturities of three months or less. Fair Value of Financial Instruments The carrying amounts shown for Planet's financial instruments approximate their fair values at December 31, 1999 and June 30, 2000 (unaudited). 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. F-10 45 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. Planet amortizes these costs on a straight-line basis over fifteen years. Long-Lived Assets Planet 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. Planet has identified no such impairment losses during the years ended December 31, 1998 and 1999, and the six months ended June 30, 2000 (unaudited). Income Taxes Planet 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 Planet 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. 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. F-11 46 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Earnings (Loss) Per Share (Continued) Planet 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, 1998 and 1999, and the six months ended June 30, 1999 and 2000 (unaudited) 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, 1998 and 1999, and the six months ended June 30, 1999 and 2000 (unaudited) was 1,733,386, 3,472,900, 3,960,521 and 2,809,684, respectively. 401(k) Plan Planet provides a defined contribution 401(k) savings plan (the "401(k) Plan") in which all full-time employees of Planet 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 that related to the 401(k) Plan in the years ended December 31, 1998 and 1999, and the six months ended June 30, 2000 (unaudited). 4. DISCONTINUED OPERATIONS On December 30, 1999, Planet 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 Planet 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 Planet 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. Planet 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. 5. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject Planet to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. Planet invests its excess cash in United States government securities and money market funds. Planet limits the amount of credit exposure to any one entity. Planet 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 Planet during the years ended December 31, 1998 and 1999, and the six months ended June 30, 2000 (unaudited). F-12 47 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. CONCENTRATIONS OF CREDIT RISK (CONTINUED) During the year ended December 31, 1999 and the six months ended June 30, 2000 (unaudited), 100% of Planet's revenues were derived from one customer. At December 31, 1999 and June 30, 2000 (unaudited), approximately 85% and 79%, respectively, of Planet's accounts receivable balance was due from this customer. 6. INVENTORIES Inventories consist of the following:
DECEMBER 31, 1999 JUNE 30, 2000 ----------------- ------------- (unaudited) Raw materials $ 63,070 $ 82,721 Finished goods 90,365 63,436 -------- -------- $153,435 $146,157 ======== ========
7. PROPERTY AND EQUIPMENT Property and equipment is comprised of the following:
DECEMBER 31, 1999 JUNE 30, 2000 ----------------- ------------- (unaudited) Machinery and equipment $ 384,477 $ 392,250 Furniture and fixtures 26,274 26,274 Vehicles and trailers 9,308 9,308 --------- --------- 420,059 427,832 Less: Accumulated depreciation (214,302) (239,647) --------- --------- $ 205,757 $ 188,185 ========= =========
Depreciation expense charged to continuing operations in the years ended December 31, 1998 and 1999, and the six months ended June 30, 1999 and 2000 (unaudited) was $80,126, $80,258, $39,163 and $25,344, respectively. Depreciation expense charged to discontinued operations in 1998 and 1999, and the six months ended June 30, 1999 and 2000 (unaudited) was $71,842, $71,433, $35,336 and $0, respectively. 8. COMMITMENTS Planet leases its facility and certain office equipment under non-cancelable operating leases which expire on various dates through October 9, 2004. Planet also leases certain equipment under capital leases that mature on various dates through October 1, 2002 and have interest rates ranging from 15.8% to 42.7%. Machinery and equipment under capital lease obligations totaled $34,950 and $38,763 and related accumulated amortization totaled $14,563 and $18,216 as of December 31, 1999 and June 30, 2000 (unaudited). F-13 48 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. COMMITMENTS (CONTINUED) Future minimum payments under non-cancelable leases as of December 31, 1999 are as follows:
Capital Operating Leases Leases -------- -------- 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 ========
Rent expense charged to continuing operations in the years ended December 31, 1998 and 1999, and the six months ended June 30, 1999 and 2000 (unaudited) was $61,563, $63,655, $30,170 and $34,558, respectively. Rent expense charged to discontinued operations in the years ended December 31, 1998 and 1999, and the six months ended June 30, 1999 and 2000 (unaudited) was $114,427, $114,263, $57,213 and $0, respectively. In November 1998, Planet entered into a five-year employment agreement, effective January 1, 1999, with Planet'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), Planet would engage the officer to perform services to Planet pursuant to a separate consulting agreement. 9. INCOME TAXES The components of income tax benefit (expense) are as follows:
Year Ended December 31, 1998 1999 -------- -------- Federal Current $ -- $ -- Deferred -- -- State Current (800) (800) Deferred 23,838 (13,286) -------- -------- Total $ 23,038 $(14,086) ======== ========
F-14 49 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. INCOME TAXES (CONTINUED) The differences between income tax (expense) benefit provided at the Company's effective rate and the federal statutory rate (34%) are as follows:
Year Ended December 31, 1998 1999 --------- --------- Federal benefit at statutory rate $ 561,810 $ 525,492 State taxes, net of federal benefit 15,206 (9,297) Disallowed losses -- (190,525) Nondeductible expenses (13,966) (14,976) Valuation allowance (540,012) (324,780) --------- --------- Total $ 23,038 $ (14,086) ========= =========
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 Planet's deferred tax assets and liabilities are as follows:
December 31,1999 ---------------- 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 ===========
Planet has determined that a full valuation allowance for Federal and California tax purposes is necessary due to Planet's lack of historical earnings. The aforementioned net deferred tax asset balance 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, Planet 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. Planet'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. Planet 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. Planet's annual utilization of net operating loss and tax credit carryforwards may be limited if Planet's ownership were to change in the future, as defined by Sections 382 and 383 of the Internal Revenue Code. F-15 50 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY Preferred Stock On September 19, 1997, Planet issued to one investor (the "Preferred Issuee") 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 Planet's common stock. Each share of Series A Preferred is convertible at the option of the holder into shares of common stock of Planet. 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 Planet's common stock for a certain number of consecutive days is $6.00 or above. On January 20, 2000, the Preferred Issuee converted 102,000 shares of preferred stock into 119,997 shares of common stock. At the option of Planet, the Series A Preferred can be redeemed at any time if the average market price of Planet'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 Planet, 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, Planet entered into a Stock Purchase Agreement with Agway Holdings, Inc., a subsidiary of Agway whereby Agway Holdings 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 Planet's shareholders' approval. Additionally, in February 1999, Planet received a commitment from Agway whereby Agway agreed to exercise its warrant to acquire up to 500,000 shares of Planet's common stock after July 1, 1999 at Planet's request, in the event that Planet's cash flows are less than currently projected and are insufficient to fund its operating requirements. On November 5, 1999 and March 3, 2000, at Planet's request, Agway exercised warrants with respect to a total of 1,000,000 shares of Planet's common stock on the terms, and subject to conditions, set forth in the warrants and Planet received a total of $1,000,000 in connection with such exercises. Warrants On September 24, 1997, Planet issued to the Preferred Issuee of the Series A Preferred, for $75,000, a warrant to purchase up to 375,000 shares of Planet's common stock at an exercise price of $2.75 per share (the "Preferred's Warrant"). In addition, as partial consideration for services rendered in connection with the issuance of the Series A Preferred and Preferred's Warrant to the Preferred Issuee, Planet issued to the finder, for $2,500, a five-year warrant to purchase up to 50,000 shares of Planet'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, Planet was required to make certain anti-dilution adjustments to Preferred's Warrant issued to the finder. The number of shares issuable under Preferred's Warrant and the exercise price per warrant were adjusted to 64,635 shares and an exercise price of $3.22 per warrant, respectively. F-16 51 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY (CONTINUED) After receiving the $1,000,000 proceeds from Agway pursuant to its purchase of common stock on January 11, 1999, Planet was required to (i) pay a $60,000 cash transaction fee to the finder, LBC Capital Resources, Inc., 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, Planet 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. After receiving cumulative proceeds of $1,000,000 from Agway's warrant exercises on November 5, 1999 and March 3, 2000, Planet 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, Planet may be required to make certain anti-dilution adjustments to the warrants issued to LBC. Accordingly, Planet 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. At December 31, 1999, the following exercisable warrants to purchase Planet's common stock were outstanding:
Underlying Shares Exercise Price Expiration Date ---------- -------------- --------------- 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 =========
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 Planet has a 1995 Stock Option Plan and a 2000 Stock Incentive Plan under which incentive stock options and non-statutory stock options to acquire an aggregate of 1,000,000 shares of common stock may be granted to employees, non-employee directors and consultants to Planet. Incentive stock options may be granted only to employees of Planet whereas non-statutory options may be granted to employees, directors and consultants. The terms of stock options granted under both the 1995 and 2000 Plans are determined by the Board of Directors. Under both Plans, 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 Planet's common stock at the date of grant for incentive stock options and not less than 85% of the fair market value of Planet's common stock at the date of grant for non-statutory stock options. In the case of stock options granted to employees, directors or consultants, who at the time of F-17 52 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY (CONTINUED) grant of such options, own stock possessing more than 10% of the voting power of all classes of stock of Planet, the exercise price shall be no less than 110% of the fair market value of Planet's common stock at the date of grant. Additionally, the term of stock option grants is limited to five years if the grantee owns in excess of 10% of the voting power of all classes of stock of Planet 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. Planet 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 Planet's stock-based compensation plans been determined based on the fair value method at the grant dates for awards under this plan, Planet's net loss and loss per share for 1998 and 1999 would have been increased to the pro forma amounts indicated below:
1998 1999 ------------------------------- ------------------------------- Net Loss Loss per Share Net Loss Loss per Share ------------ -------------- ------------ -------------- As reported $(1,628,543) $(0.31) $(1,560,558) $(0.24) Pro forma $(1,720,645) $(0.32) $(1,683,226) $(0.26)
The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 1998 and 1999: an expected life of 3.7 and 4 years, expected volatility of 82.49% and 93.10%, no dividend yield and a risk-free interest rate of 4.96% and 5.62%, respectively, represented by the interest rate on U.S. Treasury securities with a term of maturity equal to the option's expected time to exercise on the dates of grant. The weighted average fair value of options granted during 1998 and 1999 was approximately $.96 and $1.20 per option, respectively. On May 1, 2000, each director, excluding Robert Petcavich, Peter O'Neill and Ronald Sunderland, was granted a non-statutory stock option to purchase 5,000 shares of Planet's common stock at $2.50 per share pursuant to Planet's 2000 Plan as compensation for services rendered in 1999. These options were fully vested at the date of grant and expire on May 1, 2010. As of June 30, 2000 (unaudited), none of these options have been exercised. On May 1, 2000, each non-employee director was granted a non-statutory stock option to purchase 18,000 shares of Planet's common stock at $2.50 per share under the 2000 Plan as compensation for services to be rendered from May 1, 2000 through May 1, 2001. These options were fully vested at the date of grant and expire on May 1, 2010. As of June 30, 2000 (unaudited), none of these options have been exercised. On May 1, 2000, Planet's Board of Directors granted non-statutory stock options to purchase 5,000 shares of common stock at an exercise price of $2.50 per share to a former director as compensation for services rendered in 1999. These options were fully vested at the date of grant and expire on May 1, 2010. As of June 30, 2000 (unaudited), none of these options have been exercised. F-18 53 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY (CONTINUED) On May 1, 2000, Planet's Board of Directors granted incentive stock options to purchase 10,000 shares of common stock at an exercise price of $2.50 per share to an employee under the 2000 Plan. These options vest 25% per year and expire on May 1, 2010. As of June 30, 2000 (unaudited), none of these options have been exercised. On July 1, 1999, Planet'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 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, Planet'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 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, Planet'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 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, Planet'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 Planet's Chief Executive Officer who is also a significant shareholder of Planet under the 1995 Plan. These options were granted in connection with a certain employment agreement between the officer and Planet (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, Planet'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 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, Planet'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 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, Planet'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 Planet under the 1995 Plan. These options vest ratably over one year and expire on April 28, 2008. In connection with this transaction, Planet 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. F-19 54 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY (CONTINUED) On February 13, 1998, Planet'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 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. A summary of stock option activity during 1998 and 1999 follows:
1995 Stock Option Plan Other Options ---------------------------- ---------------------------- Weighted Weighted Underlying Avg. Exercise Underlying Avg. Exercise Shares Price Shares Price --------- ------------- --------- ------------- 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 ========= =========
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:
Weighted- Average Range of Remaining Exercise Number Contractual Number Prices Outstanding Life (years) Exercisable -------- ----------- ------------ ----------- $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 ========= =========
11. RELATED PARTY TRANSACTIONS In November 1998, 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, Planet will be reimbursed for certain qualifying research and development costs relating to such applications. During the years ended December 31, 1998 and 1999, and the six months ended June 30, 1999 and 2000 (unaudited), Planet recorded reimbursable research and development costs of $61,634, $355,456, $250,645 and $94,413, respectively, from Agway under the Feasibility Agreement. F-20 55 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. RELATED PARTY TRANSACTIONS (CONTINUED) Also in November 1998, Planet 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. Planet and Agway agreed to execute further sub-agreements ("Sub-Agreement") to specify the royalties to be paid to Planet for Agway's use of Planet's technology on certain specific products. In March 2000, Planet 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, Planet 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. During the years ended December 31, 1998 and 1999, and the six months ended June 30, 2000 (unaudited), Planet received no royalty payments. Agway Holdings Inc., an indirect wholly owned subsidiary of Agway, is a beneficial owner of more than 10% of Planet's common stock since January 11, 1999. Planet 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, Planet initiated litigation against Brian To, a former director, officer and consultant of Planet, Tarrenz Inc. and Tarrenz Management Consultants, Inc., entities owned by Brian To, in the Superior Court of the State of California for the County of San Diego. The complaint alleges breach of contract, breach of fiduciary duty and other tort claims arising from services the defendants performed for or on behalf of Planet. Planet 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 Planet alleging breach of contract, misrepresentation, slander, intentional infliction of emotional distress and fraud. In response to a motion filed by Planet, the arbitrator issued a ruling on May 1, 2000 disqualifying defendants' counsel based on a finding that said counsel had previously represented Planet in a related matter. As a result, the arbitration previously set for February 28, 2000 was rescheduled for September 11, 2000. However, the defendants filed a motion in San Diego Superior Court to vacate the arbitrator's order granting Planet's motion to disqualify defendants' counsel. The Court has scheduled a hearing on this issue for September 22, 2000. The arbitration will be rescheduled after the Superior Court rules on defendants' motion to vacate. 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 Planet's financial position or results of operations. F-21 56 PLANET POLYMER TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. SUBSEQUENT EVENTS (UNAUDITED) On August 15, 2000, Planet entered into a Stock Purchase Agreement with Triton West Group. Under this agreement, Planet has the right, until August 15, 2003, or earlier, to request a drawdown and require that Triton purchase between $100,000 and $1,250,000 of Planet's common stock. The maximum amount that Planet can require Triton to purchase at any given time is subject to a floating number based on the closing bid price and the average trading volume in a thirty-day period. Planet may not make requests less than fifteen (15) trading days apart unless accepted by Triton. F-22 57 PART II - INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Planet's Restated Articles of Incorporation ("Articles") include provisions to eliminate the personal liability of its directors to the fullest extent permitted by Section 204(a)(10) under the General Corporation Law of California (the "California Law"). Planet's Articles also include provisions that authorize Planet to indemnify its directors and officers to the fullest extent permitted by Sections 204 and 317 of the California Law. Planet's Bylaws also provide Planet with the authority to indemnify its other officers, employees and other agents as set forth in the California Law. Pursuant to Sections 204 and 317 of the California Law, a corporation generally has the power to indemnify its present and former directors, officers, employees and agents against expenses incurred by them in connection with any suit to which they are, or are threatened to be made, a party by reason of their serving in such positions so long as they acted in good faith and in a manner they reasonably believed to be in the best interests of the corporation, and with respect to a manner they reasonably believed to be in the best interests of the corporation, and with respect to any criminal action, they had no reasonable cause to believe their conduct was unlawful. A corporation may not eliminate liability: (i) for acts or omissions involving intentional misconduct or knowing and culpable violations of law; (ii) for acts or omissions that the individual believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the individual; (iii) for any transaction from which the individual derived an improper personal benefit; (iv) for acts or omissions involving a reckless disregard for the individual's duty to the corporation or its shareholders when the individual was aware or should have been aware of a risk of serious injury to the corporation or its shareholders; (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to any abdication of the individual's duty to the corporation or its shareholders; or (vii) for improper distribution to shareholders and loans to directors and officers. Also, a corporation may not eliminate liability for any act or omission occurring prior to the date on which the corporation authorizes indemnification of its directors, officers, employees and agents. Planet has entered into agreements with its directors and executive officers that require Planet to indemnify such persons against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred (including expenses of a derivative action) in connection with any proceeding, whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director or officer of Planet or any of its affiliated enterprises, provides such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of Planet and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The table below sets forth the estimated expenses (except the SEC registration fee, which is an actual expense) in connection with the offer and sale of the shares of common stock of the registrant covered by this Registration Statement.
SEC Registration fee..................................... $ 1,400 Printing and EDGARization................................ $ 8,000 Accountants' fees and expenses........................... $15,000 Attorneys' fees and expenses............................. $25,000 Total.................................................... $49,400
58 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES In 1999, Planet paid common stock dividends to holders of its Series A Convertible Preferred Stock. 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. On March 15, 2000 and June 15, 2000, Planet paid common stock dividends of 2,736 shares and 4,239 shares, respectively. The 2000 common stock dividends were also issued pursuant to an exemption from registration for transactions not involving a public offering. After receiving the $1,000,000 proceeds from Agway Holdings, Inc. ("AHI") pursuant to its purchase of Planet common stock on January 11, 1999, Planet 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 Planet 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 AHI's stock purchase transaction in January 1999 and pursuant to the terms of the warrants issued to LBC, Planet was required to increase the number of shares of common stock issuable under the warrants to 59,243 and reduce the exercise price to $3.5131 per warrant. LBC was also issued a warrant to purchase 50,000 shares of Planet common stock on March 9, 2000 with an exercise price of $4.1625. The March 9, 2000 warrant to LBC was also issued pursuant to an exemption from registration for transactions not involving a public offering. AHI exercised warrants to purchase and was issued 500,000 shares of common stock on November 5, 1999 and March 3, 2000 pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. After receiving cumulative proceeds of $1,000,000 from AHI, Planet 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 AHI's stock purchase transaction in January 1999 and pursuant to the terms of the warrants issued to LBC, Planet may be required to make certain anti-dilution adjustments to the warrants issued to LBC. Accordingly, Planet may issue additional shares of common stock and reduce the exercise price of the outstanding warrants. As part of compensation for establishing and entering into the Private Equity Line of Credit Agreement on August 15, 2000, Triton West Group, Inc. was issued 5,000 shares of Planet common stock and a warrant to purchase up to 125,000 shares of Planet common stock. Both the 5,000 shares of Planet common stock and warrant issued to Triton were issued pursuant to an exemption from registration for transactions not involving a public offering.
ITEM 27. EXHIBITS -------- 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.
59 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 Opinion of Blanchard Krasner & French, APC. 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(8) Stock Purchase Agreement, dated November 12, 1998 between the Registrant and Agway Holdings, Inc. 10.16(8) Warrant to Purchase common stock, dated January 11, 1999, issued by the Registrant to Agway Holdings, Inc. 10.17(10) Registration Rights Agreement, dated January 11, 1999, between the Registrant and Agway Holdings, Inc. 10.18(10) Product Feasibility Agreement dated as of November 12, 1998 between the Registrant and Agway Consumer Products, Inc. 10.19(10) License Agreement dated as of November 12, 1998 between the Registrant and Agway Consumer Products, Inc. 10.20(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. 10.21(13) Warrant to Purchase common stock, dated March 29, 1999, issued by the Registrant to LBC Capital Resources, Inc.
60 10.22(12) Amended Technology Development and License Agreement, dated June 23, 1999, between the Registrant and Agrium Inc. (formerly known as Cominco Fertilizers Ltd.). 10.23(13) Sub-Agreement to License Agreement (Animal Feed) effective as of March 1, 2000 between the Registrant and Agway, Inc. 10.24(13) Sub-Agreement to License Agreement (Fruits, Vegetables, Etc.) effective as of March 1, 2000 between the Registrant and Agway, Inc. 10.25(13) Warrant to Purchase common stock, dated March 9, 2000, issued by the Registrant to LBC Capital Resources, Inc. 10.26(14) Registrant's 2000 Stock Incentive Plan (the "2000 Plan"). 10.27(14) Form of Incentive Stock Option Grant under the 2000 Plan. 10.28(14) Form of Non-statutory Stock Option Grant under the 2000 Plan. 10.29 Private Equity Line of Credit Agreement dated August 15, 2000 and Exhibits. 10.30 Letter dated September 11, 2000 amending the Private Equity Line of Credit Agreement. 11.1(13)(15) Statement of Computation of Common and Common Equivalent Shares. 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Blanchard Krasner & French, APC. (included in Exhibit 5.1). 24.1 Power of Attorney (included on signature page to this Registration Statement). 27.1 Financial Data Schedule.
(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. 61 (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) Previously filed as an exhibit to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999 and incorporated herein by reference. (14) Previously filed as an exhibit to the Registrant's Registration Statement on Form S-8 (No. 333-38500) filed on June 2, 2000 and incorporated herein by reference. (15) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000. ITEM 28. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; provided, however, that Paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section (d) of the Exchange Act that is incorporated by reference in this Registration Statement shall be deemed to be a new 62 registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has duly authorized this Registration Statement or amendment thereto to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on September 18, 2000. Planet Polymer Technologies, Inc. Dated September 18, 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. In accordance with the requirements of the Securities 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. SIGNATURE DATE - --------- ---- /s/ Robert J. Petcavich September 18, 2000 - ------------------------------ ROBERT J. PETCAVICH, PH.D, Chairman of the Board, Chief Executive Officer, and Principal Accounting Officer of Planet 63 /s/ H.M. Busby September 18, 2000 - ------------------------------ H.M. BUSBY, Director /s/ Michael M. Coleman September 18, 2000 - ------------------------------ MICHAEL M. COLEMAN, PH.D., Director /s/ Dennis LaHood September 18, 2000 - ------------------------------ DENNIS J. LAHOOD, Director /S/ Thomas A. Landshof September 18, 2000 - ------------------------------ THOMAS A. LANDSHOF, Director /s/ Peter J. O'Neill September 18, 2000 - ------------------------------ PETER J. O'NEILL, Director /S/ Ronald B. Sunderland September 18, 2000 - ------------------------------ RONALD B. SUNDERLAND, Director EX-5.1 2 a65820ex5-1.txt EXHIBIT 5.1 1 EXHIBIT 5.1 OPINION OF COUNSEL We are of the opinion that all of the shares of common stock of Planet Polymer Technologies, Inc. to be registered by this Registration Statement are validly issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit to this Registration Statement and the use of our name wherever it appears in this Registration Statement. /s/ BLANCHARD, KRASNER & FRENCH La Jolla, California September 21, 2000 EX-10.29 3 a65820ex10-29.txt EXHIBIT 10.29 1 EXHIBIT 10.29 PRIVATE EQUITY LINE OF CREDIT AGREEMENT BETWEEN PLANET POLYMER TECHNOLOGIES, INC. AND TRITON WEST GROUP, INC. PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of August 15, 2000 (the "Agreement"), between Triton West Group, Inc., a Cayman Islands corporation (the "Investor") and Planet Polymer Technologies, Inc., a corporation organized and existing under the laws of the State of California (the "Company"). WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to Investor from time to time as provided herein, and Investor shall purchase, up to $7,000,000 (subject to adjustment below) of the Common Stock (as defined below); and WHEREAS, such investments will be made by the Investor as statutory underwriter of a registered indirect primary offering of such Common Stock by the Company. NOW, THEREFORE, in consideration of the foregoing premises, and the promises and covenants herein contained, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties, intending to be legally bound, hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS SECTION 1.1 "Capital Shares" shall mean the Common Stock and any shares of any other class of common stock whether now or hereafter authorized, having the right to participate in the distribution of earnings and assets of the Company. SECTION 1.2 "Capital Shares Equivalents" shall mean any securities, rights, or obligations that are convertible into or exchangeable for or give any right to subscribe for any Capital Shares of the Company or any warrants, options or other rights to subscribe for or purchase Capital Shares or any such convertible or exchangeable securities. SECTION 1.3 "Closing" shall mean one of the closings of a purchase and sale of the Common Stock pursuant to Section 2.1. SECTION 1.4 "Closing Date" shall mean, with respect to a Closing, the third Trading Day following the end of the Valuation Period related to such Closing, provided all conditions to such Closing have been satisfied on or before such Trading Day. 1 2 SECTION 1.5 "Commitment Amount" shall mean an amount up to $7,000,000 which the Investor has agreed to provide to the Company in order to purchase the Put Shares pursuant to the terms and conditions of this Agreement. SECTION 1.6 "Commitment Period" shall mean the period commencing on the Effective Date and expiring on the earliest to occur of (x) the date on which the Investor shall have purchased $7,000,000 of Put Shares pursuant to this Agreement, (y) the date this Agreement is terminated pursuant to Section 2.4, or (z) the date occurring thirty-six (36) months from the date of commencement of the Commitment Period. SECTION 1.7 "Common Stock" shall mean the Company's common stock, no par value per share. SECTION 1.8 "Condition Satisfaction Date" shall have the meaning set forth in Section 7.2. SECTION 1.9 "Effective Date" shall mean the date on which the SEC first declares effective a Registration Statement registering the sale by the Company and resale by the Investor of the Registrable Securities as set forth in Section 7.2(f). SECTION 1.10 "Escrow Agent" shall mean the escrow agent designated in the Escrow Agreement. SECTION 1.11 "Escrow Agreement" shall mean the escrow agreement in the form attached hereto as Exhibit A. SECTION 1.12 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. SECTION 1.13 "Investment Amount" shall mean the dollar amount to be invested by the Investor to purchase Put Shares with respect to any Put Date as notified by the Company to the Investor, all in accordance with Section 2.2 hereof. SECTION 1.14 "Market Price" on any given date shall mean the lowest closing bid price (as reported by Bloomberg L.P.) of the Common Stock on the Principal Market during normal trading hours during the Valuation Period applicable to such date. SECTION 1.15 "Material Adverse Effect" shall mean any effect on the business, operations, properties, prospects, or financial condition of the Company that is material and adverse to the Company and its subsidiaries and affiliates, taken as a whole, and/or any condition, circumstance, or situation that would prohibit or otherwise interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement, the Registration Rights Agreement or the Escrow Agreement in any material respect. SECTION 1.16 "Maximum Put Amount" shall be determined according to the following table:
- ------------------------------------------------------------------------------------------------------------ Stock Price 0 - 15,000 15,001-50,000 50,001-100,000 100,001-150,000 150,001-Above Avg. 30 Day Avg. 30 Day Avg. 30 Day Avg. 30 Day Avg. 30 Day Volume Volume Volume Volume Volume - ------------------------------------------------------------------------------------------------------------ .01-.50 $10,000 $20,000 $35,000 $50,000 $60,000 - ------------------------------------------------------------------------------------------------------------ .51-1.00 $20,000 $50,000 $100,000 $150,000 $200,000 - ------------------------------------------------------------------------------------------------------------
2 3 - ------------------------------------------------------------------------------------------------------------ 1.01-3.00 $35,000 $250,000 $250,000 $500,000 $500,000 - ------------------------------------------------------------------------------------------------------------ 3.01-4.50 $50,000 $250,000 $500,000 $500,000 $750,000 - ------------------------------------------------------------------------------------------------------------ 4.51-6.00 $60,000 $500,000 $500,000 $750,000 $750,000 - ------------------------------------------------------------------------------------------------------------ 6.01-7.50 $75,000 $500,000 $750,000 $750,000 $1,000,000 - ------------------------------------------------------------------------------------------------------------ 7.51-9.00 $90,000 $750,000 $750,000 $1,000,000 $1,000,000 - ------------------------------------------------------------------------------------------------------------ 9.01-Above $100,000 $750,000 $1,000,000 $1,000,000 $1,250,000 - ------------------------------------------------------------------------------------------------------------
SECTION 1.17 "NASD" shall mean the National Association of Securities Dealers, Inc. SECTION 1.18 "Outstanding" when used with reference to shares of Common Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as of which the number of such Shares is to be determined, all issued and outstanding Shares, and shall include all such Shares issuable in respect of outstanding scrip or any certificates representing fractional interests in such Shares; provided, however, that "Outstanding" shall not mean any such Shares then directly or indirectly owned or held by or for the account of the Company. SECTION 1.19 "Person" shall mean an individual, a corporation, a partnership, a limited liability company, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. SECTION 1.20 "Principal Market" shall mean the NASDAQ National Market, the NASDAQ SmallCap Market, the American Stock Exchange or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. Principal Market shall not include the OTC Bulletin Board without the express written consent of the Investor. SECTION 1.21 "Purchase Price" shall mean with respect to Put Shares, eighty-five percent (85%) (the "Purchase Price Percentage") of the Market Price on the Trading Day immediately following the Valuation Period related to a Put (or such other date on which the Purchase Price is calculated in accordance with the terms and conditions of this Agreement); provided, however, that the Purchase Price Percentage shall be increased to eighty-seven percent (87%) for Puts if the Market Price is equal to or greater than $10 on the applicable Put Date. SECTION 1.22 "Put" shall mean each occasion the Company elects to exercise its right to tender a Put Notice requiring the Investor to purchase shares of the Company's Common Stock, subject to the terms of this Agreement. SECTION 1.23 "Put Date" shall mean the Trading Day during the Commitment Period that a Put Notice to sell Common Stock to the Investor is deemed delivered pursuant to Section 2.2(b) hereof. SECTION 1.24 "Put Notice" shall mean a written notice to the Investor setting forth the Investment Amount that the Company intends to sell to the Investor in the form attached hereto as Exhibit B. SECTION 1.25 "Put Shares" shall mean all shares of Common Stock or other securities issued or issuable pursuant to a Put that has occurred or may occur in accordance with the terms and conditions of this Agreement. 3 4 SECTION 1.26 "Registrable Securities" shall mean the Put Shares and the Warrant Shares until (i) all Put Shares and Warrant Shares have been disposed of pursuant to the Registration Statement, (ii) all Put Shares and Warrant Shares have been sold under circumstances under which all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") are met, (iii) all Put Shares and Warrant Shares have been otherwise transferred to persons who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend or (iv) such time as, in the opinion of counsel to the Company, all Put Shares and Warrant Shares may be sold without any time, volume or manner limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act. SECTION 1.27 "Registration Rights Agreement" shall mean the agreement regarding the filing of the Registration Statement for the sale and resale of the Registrable Securities annexed hereto as Exhibit C. SECTION 1.28 "Registration Statement" shall mean a registration statement to be filed on Form S-3 (if use of such form is then available to the Company pursuant to the rules of the SEC and, if not, on such other form promulgated by the SEC, such as Form S-1 or SB-2, for which the Company then qualifies and which counsel for the Company shall deem appropriate, and which form shall be available for the resale by the Investor of the Registrable Securities to be registered thereunder in accordance with the provisions of this Agreement, the Registration Rights Agreement, and in accordance with the intended method of distribution of such securities), for the registration of the resale by the Investor of the Registrable Securities under the Securities Act. SECTION 1.29 "SEC" shall mean the Securities and Exchange Commission. SECTION 1.30 "Securities Act" shall mean the Securities Act of 1933, as amended. SECTION 1.31 "SEC Documents" shall mean the Company's latest Form 10-K or 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed thereafter, and the Proxy Statement for its latest fiscal year as of the time in question until such time as the Company no longer has an obligation to maintain the effectiveness of a Registration Statement as set forth in the Registration Rights Agreement. SECTION 1.32 "Threshold Price" is the lowest Market Price at which the Company will sell its Common Stock with respect to this Agreement. SECTION 1.33 "Trading Cushion" shall mean the mandatory fifteen (15) Trading Days between Put Dates, unless waived by the Investor. SECTION 1.34 "Valuation Event" shall mean an event in which the Company at any time prior to the end of the Commitment Period takes any of the following actions: (a) subdivides or combines its Common Stock; (b) pays a dividend on its Capital Shares or makes any other distribution of its Capital Shares; (c) issues any additional Capital Shares ("Additional Capital Shares"), otherwise than as provided in the foregoing Subsections (a) and (b) above or (d) and (e) below, at a price per share less, or for other consideration lower, than the closing bid price in effect immediately prior to such issuance, or without consideration (other than pursuant to this Agreement and other than the exercise of the right of first refusal of Agway Holdings, Inc. ("Agway") granted to Away pursuant to the Stock Purchase Agreement dated November 12, 1998); 4 5 (d) issues any warrants, options or other rights to subscribe for or purchase any Additional Capital Shares and the price per share for which Additional Capital Shares may at any time thereafter be issuable pursuant to such warrants, options or other rights shall be less than the closing bid price in effect immediately prior to such issuance; (e) issues any securities convertible into or exchangeable for Capital Shares and the consideration per share for which Additional Capital Shares may at any time thereafter be issuable pursuant to the terms of such convertible or exchangeable securities shall be less than the closing bid price in effect immediately prior to such issuance; (f) makes a distribution of its assets or evidences of indebtedness to the holders of its Capital Shares as a dividend in liquidation or by way of return of capital or other than as a dividend payable out of earnings or surplus legally available for dividends under applicable law or any distribution to such holders made in respect of the sale of all or substantially all of the Company's assets (other than under the circumstances provided for in the foregoing subsections (a) through (e); or (g) takes any action affecting the number of Outstanding Capital Shares, other than an action described in any of the foregoing Subsections (a) through (f) hereof, inclusive, which in the opinion of the Company's Board of Directors, determined in good faith, would have a Material Adverse Effect upon the rights of the Investor at the time of a Put. SECTION 1.35 "Valuation Period" shall mean the period of six (6) Trading Days beginning two (2) Trading Days before the Trading Day on which a Put Notice is deemed to be delivered and ending three (3) Trading Days after such date; provided, however, that if a Valuation Event occurs during a Valuation Period, a new Valuation Period shall begin on the Trading Day immediately after the occurrence of such Valuation Event and end on the sixth (6th) Trading Day thereafter. SECTION 1.36 "Warrants" shall mean the 125,000 Common Stock Purchase Warrants in the form of Exhibit D hereto to be delivered to the Investor at the initial Closing. "Warrant Shares" shall mean the shares of Common Stock issuable upon exercise of the Warrants. ARTICLE II PURCHASE AND SALE OF COMMON STOCK SECTION 2.1 Investments. (a) Puts. Upon the terms and conditions set forth herein (including, without limitation, the provisions of Article VII hereof), on any Put Date the Company may make a Put by the delivery of a Put Notice. The number of Put Shares that the Investor shall be obligated to purchase pursuant to such Put shall be determined by dividing the Investment Amount specified in the Put Notice by the Purchase Price for such Valuation Period. In connection with each Valuation Period, the Company may set the Threshold Price, if any, in the Put Notice. If the Market Price is less than the Threshold Price, the Company shall not sell and the Purchaser shall not be obligated to purchase the Shares otherwise to be purchased for such Put, except that, the Investor, in its sole discretion, may purchase such shares at the Threshold Price. (b) Maximum Aggregate Amount of Puts. Anything in this Agreement to the contrary notwithstanding, (i) at no time will the Company request a Put which would result in the issuance of an aggregate number of shares of Common Stock pursuant to this Agreement which exceeds 19.9% of the number of shares of Common Stock issued and outstanding on any Closing Date without obtaining stockholder approval of such excess issuance, and (ii) the Company may not make a Put to the extent that, after such purchase by the Investor, the sum 5 6 of the number of shares of Common Stock and Warrants beneficially owned by the Investor and its affiliates would result in beneficial ownership by the Investor and its affiliates of more than 9.9% of the then outstanding shares of Common Stock. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities and Exchange Act of 1934, as amended. SECTION 2.2 Mechanics. (a) Put Notice. At any time during the Commitment Period, the Company may deliver a Put Notice to the Investor, subject to the conditions set forth in Section 7.2; provided, however, that the Investment Amount for each Put as designated by the Company in the applicable Put Notice shall be neither less than $100,000 nor more than the Maximum Put Amount. (b) Date of Delivery of Put Notice. A Put Notice shall be deemed delivered on (i) the Trading Day it is received by facsimile or otherwise by the Investor if such notice is received prior to 12:00 noon Eastern Time, or (ii) the immediately succeeding Trading Day if it is received by facsimile or otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day which is not a Trading Day. No Put Notice may be deemed delivered on a day that is not a Trading Day. SECTION 2.3 Closings. On or before each Closing Date for a Put the Investor shall deliver the Investment Amount specified in the Put Notice by wire transfer of immediately available funds to the Escrow Agent, less, as to the first six Closings only, a commitment fee equal to twenty-three thousand three hundred thirty-three dollars ($23,333). In addition, on or prior to the Closing Date, each of the Company and the Investor shall deliver to the Escrow Agent all documents, instruments and writings required to be delivered or reasonably requested by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein. Upon receipt of notice from the Escrow Agent that the Escrow Agent has possession of the Investment Amount, the Company shall, if possible, deliver the Put Shares to the Investor's account through the Depository Trust Company DWAC system, per written account instructions delivered by the Investor to the Company, and if the Company is not eligible to participate in the DWAC system, to deliver to the Escrow Agent one or more certificates, as requested by the Investor, representing the Put Shares to be purchased by the Investor pursuant to Section 2.1 herein, registered in the name of the Investor or, at the Investor's option, registered in the name of such account or accounts as may be designated by the Investor. Payment of funds to the Company and delivery of the certificates to the Investor (unless delivered by DWAC) shall occur out of escrow in accordance with the Escrow Agreement, provided, however, that to the extent the Company has not paid the fees, expenses, and disbursements of the Investor's counsel in accordance with Section 13.7, the amount of such fees, expenses, and disbursements shall be paid in immediately available funds, at the direction of the Investor, to Investor's counsel with no reduction in the number of Put Shares issuable to the Investor on such Closing Date. SECTION 2.4 Termination of Investment Obligation. (a) The obligation of the Investor to purchase shares of Common Stock and the Commitment Period shall terminate permanently (including with respect to a Closing Date that has not yet occurred) in the event that (i) there shall occur any stop order or suspension of the effectiveness of the Registration Statement for an aggregate of thirty (30) Trading Days during the Commitment Period, for any reason other than deferrals or suspensions in accordance with the Registration Rights Agreement as a result of corporate developments subsequent to the Effective Date that would require such Registration Statement to be amended to reflect such event in order to maintain its compliance with the disclosure requirements of the Securities Act or (ii) the Company shall at any time fail to comply with the requirements of Section 6.2, 6.3 or 6.5. (b) If the Investor fails to honor any Put Notice within two (2) Trading Days of the Closing Date scheduled for such Put, or otherwise becomes in breach of any material representation, warranty, covenant or other obligation under this Agreement including, without limitation, all exhibits attached hereto, and the Company notifies Investor of such termination, (i) the obligation of the Company to sell Put Shares to the Investor and, at the election of the Company, the Commitment Period shall terminate, and 6 7 (ii) except as to any of the Warrants already exercised by the Investor, the Investor shall return to the Company for cancellation a pro-rata portion of the Warrants, based upon one-fifth of the warrants vesting on each of the first five times the Company exercises a Put. Upon such termination the Company shall maintain the Registration Statement in effect for such reasonable period, not to exceed forty-five (45) days, as the Investor may request in order to dispose of any remaining Put Shares. Such termination and cancellation of the Warrants shall be the Company's sole remedy for the Investor's failure to honor a Put. Section 2.5 Additional Shares. In the event that (a) within five (5) Trading Days of any Closing Date, the Company gives notice to the Investor of an impending "blackout period" in accordance with Section 3(f) of the Registration Rights Agreement and (b) the closing bid price on the Trading Day immediately preceding such "blackout period" (the "Old Closing Price") is greater than the closing bid price on the first Trading Day following such "blackout period" (the "New Closing Price") the Company shall issue to the Investor a number of additional shares (the "Blackout Shares") equal to the difference between (y) the product of the number of Registrable Securities purchased by the Investor on such most recent Closing Date and still held by the Investor during such "blackout period" that are not otherwise freely tradable during such "blackout period" and the Old Closing Price, divided by the New Closing Price and (z) the number of Registrable Securities purchased by the Investor on such most recent Closing Date and still held by the Investor during such "blackout period" that are not otherwise freely tradable during such "blackout period". If any such issuance would result in the issuance of a number of shares which exceeds the number set forth in Section 2.1(b), then in lieu of such issuance and to the extent permitted under applicable law, the Company shall pay Investor the closing ask price of the Blackout Shares on the first Trading Day following the end of the blackout period in cash within five Trading Days. SECTION 2.5 Liquidated Damages. The parties hereto acknowledge and agree that the obligation to issue Registrable Securities under Section 2.4 above shall constitute liquidated damages and not penalties. The parties further acknowledge that (a) the amount of loss or damages likely to be incurred is incapable or is difficult to precisely estimate, (b) the amounts specified in such Sections bear a reasonable proportion and are not plainly or grossly disproportionate to the probable loss likely to be incurred by the Investor in connection with the failure by the Company to timely cause the registration of the Registrable Securities or in connection with a "blackout period" under the Registration Rights Agreement, and (c) the parties are sophisticated business parties and have been represented by legal and financial counsel and negotiated this Agreement at arm's length. ARTICLE III REPRESENTATIONS AND WARRANTIES OF INVESTOR Investor represents and warrants to the Company that: SECTION 3.1 Intent. The Investor is entering into this Agreement for its own account and not with a view to or for sale in connection with any distribution of the Common Stock and the Investor has no present arrangement (whether or not legally binding) at any time to sell the Common Stock to or through any person or entity; provided, however, that by making the representations herein, the Investor does not agree to hold the Common Stock for any minimum or other specific term and reserves the right to dispose of the Common Stock at any time in accordance with federal and state securities laws applicable to such disposition. SECTION 3.2 Sophisticated Investor. The Investor is a sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as defined in Rule 501 of Regulation D), and Investor has such experience in business and financial matters that it has the capacity to protect its own interests in connection with this transaction and is capable of evaluating the merits and risks of an investment in Common Stock. The Investor acknowledges that an investment in the Common Stock is speculative and involves a high degree of risk. 7 8 SECTION 3.3 Authority. This Agreement has been duly authorized and validly executed and delivered by the Investor and is a valid and binding agreement of the Investor enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. SECTION 3.4 Not an Affiliate. Investor is not an officer, director or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of the Company. SECTION 3.5 Organization and Standing. Investor is a corporation duly organized, validly existing, and in good standing, and has all legal and corporate authority to enter into and perform this Agreement in accordance with its terms, under the laws of the Cayman Islands. SECTION 3.6 Absence of Conflicts. The execution and delivery of this Agreement and any other document or instrument executed in connection herewith, and the consummation of the transactions contemplated thereby, and compliance with the requirements thereof, will not violate any law, rule, regulation, order, writ, judgment, injunction, decree, administrative action or award binding on Investor, or, to the Investor's knowledge, (a) violate any provision of any indenture, instrument or agreement to which Investor is a party or is subject, or by which Investor or any of its assets is bound; (b) conflict with or constitute a material default thereunder; (c) result in the creation or imposition of any lien pursuant to the terms of any such indenture, instrument or agreement, or constitute a breach of any fiduciary duty owed by Investor to any third party; or (d) require the approval of any third-party (which has not been obtained) pursuant to any material contract, agreement, instrument, relationship or legal obligation to which Investor is subject or to which any of its assets, operations or management may be subject. SECTION 3.7 Disclosure; Access to Information. Investor has received and reviewed all documents, records, books and other publicly available information pertaining to Investor's investment in the Company that have been requested by Investor. The Company is subject to the periodic reporting requirements of the Exchange Act, and Investor has reviewed copies of any such reports that have been requested by it. SECTION 3.8 Manner of Sale. At no time was Investor presented with or solicited by or through any leaflet, public promotional meeting, television advertisement or any other form of general solicitation or advertising. SECTION 3.9 Financial Capacity. Investor currently has the financial capacity to meet its obligations to the Company hereunder, and the Investor has no present knowledge of any circumstances which could cause it to become unable to meet such obligations in the future. SECTION 3.10 Underwriter Liability. Investor understands that it is the position of the SEC that the Investor is an underwriter within the meaning of Section 2(11) of the Securities Act and that the Investor will be identified as an underwriter of the Put Shares in the Registration Statement. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Investor that, except as set forth on the Disclosure Schedule prepared by the Company and attached hereto: SECTION 4.1 Organization of the Company. The Company is a corporation duly incorporated and existing in good standing under the laws of the State of California and has all requisite corporate authority to own its properties and to carry on its business as now being conducted. The Company does not have any subsidiaries and does not own more that 8 9 fifty percent (50%) of or control any other business entity except as set forth in the SEC Documents. The Company is duly qualified and is in good standing as a foreign corporation to do business in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those in which the failure so to qualify would not have a Material Adverse Effect. SECTION 4.2 Authority. (i) The Company has the requisite corporate power and corporate authority to enter into and perform its obligations under this Agreement, the Registration Rights Agreement, the Escrow Agreement, and the Warrants and to issue the Put Shares, the Warrants and the Warrant Shares pursuant to their respective terms, (ii) the execution, issuance and delivery of this Agreement, the Registration Rights Agreement, the Escrow Agreement and the Warrants by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors or stockholders is required, and (iii) this Agreement, the Registration Rights Agreement, the Escrow Agreement and the Warrants have been duly executed and delivered by the Company and at the initial Closing shall constitute valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. The Company has duly and validly authorized and reserved for issuance shares of Common Stock sufficient in number for the issuance of the Put Shares and for the exercise of the Warrants. SECTION 4.3 Capitalization. The authorized capital stock of the Company consists of 20,000,000 shares of Common Stock, no par value per share, of which 7,608,708 shares are issued and outstanding and 4,250,000 shares of preferred stock of which none are issued and outstanding. Except for (i) outstanding options and warrants as set forth in the SEC Documents and (ii) as set forth in the Disclosure Schedule, there are no outstanding Capital Share Equivalents nor any agreements or understandings pursuant to which any Capital Shares Equivalents may become outstanding. The Company is not a party to any agreement granting registration or anti-dilution rights to any person with respect to any of its equity or debt securities. All of the outstanding shares of Common Stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable. SECTION 4.4 Common Stock. The Company has registered its Common Stock pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance with all reporting requirements of the Exchange Act, and the Company is in compliance with all requirements for the continued listing or quotation of its Common Stock, and such Common Stock is currently listed or quoted on, the Principal Market. As of the date hereof, the Principal Market is the NASDAQ SmallCap Market and, except as provided in the Disclosure Schedule, the Company has not received any notice regarding, and to its knowledge there is no threat, of the termination or discontinuance of the eligibility of the Common Stock for such listing. SECTION 4.5 SEC Documents. The Company has made available to the Investor true and complete copies of the SEC Documents. The Company has not provided to the Investor any information that, according to applicable law, rule or regulation, should have been disclosed publicly prior to the date hereof by the Company, but which has not been so disclosed. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act, and rules and regulations of the SEC promulgated thereunder and the SEC Documents did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto at the time of such inclusion. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and 9 10 the results of operations and cash flows for the periods then ended (subject, in the case of unaudited interim statements, to normal year-end audit adjustments). Neither the Company nor any of its subsidiaries has any material indebtedness, obligations or liabilities of any kind (whether accrued, absolute, contingent or otherwise, and whether due or to become due) that would have been required to be reflected in, reserved against or otherwise described in the financial statements or in the notes thereto in accordance with GAAP, which was not fully reflected in, reserved against or otherwise described in the financial statements or the notes thereto included in the SEC Documents or was not incurred in the ordinary course of business consistent with the Company's past practices since the last date of such financial statements. SECTION 4.6 Valid Issuances. When issued and paid for in accordance with the terms hereof or of the Warrants, the Put Shares and the Warrant Shares will be duly and validly issued, fully paid, and non-assessable. Neither the sales of the Put Shares, the Warrants or the Warrant Shares pursuant to, nor the Company's performance of its obligations under, this Agreement, the Registration Rights Agreement, the Escrow Agreement or the Warrants will (i) result in the creation or imposition by the Company of any liens, charges, claims or other encumbrances upon the Put Shares, the Warrants or the Warrant Shares or, except as contemplated herein, any of the assets of the Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive or other rights to subscribe for or acquire the Capital Shares or other securities of the Company. The Put Shares, the Warrants and the Warrant Shares shall not subject the Investor to personal liability to the Company or its creditors by reason of the possession thereof. SECTION 4.7 No Conflicts. Except as set forth on the Disclosure Schedule, the execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, including without limitation the issuance of the Put Shares, the Warrants and the Warrant Shares, do not and will not (i) result in a violation of the Company's Articles of Incorporation or By-Laws or (ii) conflict with, or constitute a material default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument, or any "lock-up" or similar provision of any underwriting or similar agreement to which the Company is a party, or (iii) result in a violation of any federal, state or local law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or by which any material property or asset of the Company is bound or affected, nor is the Company otherwise in violation of, conflict with or default under any of the foregoing (except in each case for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not have, individually or in the aggregate, a Material Adverse Effect). The business of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental entity, except for possible violations that either singly or in the aggregate would not have a Material Adverse Effect. The Company is not required under any Federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or issue and sell the Put Shares or the Warrants in accordance with the terms hereof (other than any SEC, Principal Market or state securities filings that may be required to be made by the Company subsequent to the initial Closing, any registration statement that may be filed pursuant hereto, and any shareholder approval required by the rules applicable to companies whose common stock trades on the Principal Market); provided that, for purposes of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of the Investor herein. SECTION 4.8 No Material Adverse Change. Since March 31, 2000 no Material Adverse Effect has occurred or exists with respect to the Company, except as disclosed in the SEC Documents. SECTION 4.9 No Undisclosed Events or Circumstances. Since March 31, 2000, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, prospects, operations or financial condition, that, under applicable law, rule or regulation, requires public disclosure or announcement prior to the 10 11 date hereof by the Company but which has not been so publicly announced or disclosed in the SEC Documents. SECTION 4.10 Litigation and Other Proceedings. Except as disclosed in the SEC Documents, there are no lawsuits or proceedings pending or, to the knowledge of the Company, threatened, against the Company or any subsidiary, nor has the Company received any written or oral notice of any such action, suit, proceeding or investigation, which could reasonably be expected to have a Material Adverse Effect. Except as set forth in the SEC Documents, no judgment, order, writ, injunction or decree or award has been issued by or, to the knowledge of the Company, requested of any court, arbitrator or governmental agency which could result in a Material Adverse Effect. SECTION 4.11 No Misleading or Untrue Communication. The Company and, to the knowledge of the Company, any person representing the Company, or any other person selling or offering to sell the Put Shares or the Warrants in connection with the transaction contemplated by this Agreement, have not made, at any time, any oral communication in connection with the offer or sale of the same which contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading. SECTION 4.12 Material Non-Public Information. The Company has not disclosed to the Investor any material non-public information that (i) if disclosed publicly, would reasonably be expected to have a material effect on the price of the Common Stock or (ii) according to applicable law, rule or regulation, should have been disclosed publicly by the Company prior to the date hereof but which has not been so disclosed. SECTION 4.13 Insurance. The Company and each subsidiary maintains property and casualty, general liability, workers' compensation, environmental hazard, personal injury and other similar types of insurance with financially sound and reputable insurers that is adequate, consistent with industry standards and the Company's historical claims experience. The Company has not received notice from, and has no knowledge of any threat by, any insurer (that has issued any insurance policy to the Company) that such insurer intends to deny coverage under or cancel, discontinue or not renew any insurance policy presently in force. SECTION 4.14 Tax Matters. The Company and each subsidiary has filed all Tax Returns which it is required to file under applicable laws; all such Tax Returns are true and accurate and has been prepared in compliance with all applicable laws; the Company has paid all Taxes due and owing by it or any subsidiary (whether or not such Taxes are required to be shown on a Tax Return) and have withheld and paid over to the appropriate taxing authorities all Taxes which it is required to withhold from amounts paid or owing to any employee, stockholder, creditor or other third parties; and since December 31, 1998, the charges, accruals and reserves for Taxes with respect to the Company (including any provisions for deferred income taxes) reflected on the books of the Company are adequate to cover any Tax liabilities of the Company if its current tax year were treated as ending on the date hereof. No claim has been made by a taxing authority in a jurisdiction where the Company does not file tax returns that the Company or any subsidiary is or may be subject to taxation by that jurisdiction. There are no foreign, federal, state or local tax audits or administrative or judicial proceedings pending or being conducted with respect to the Company or any subsidiary; no information related to Tax matters has been requested by any foreign, federal, state or local taxing authority; and, except as disclosed above, no written notice indicating an intent to open an audit or other review has been received by the Company or any subsidiary from any foreign, federal, state or local taxing authority. There are no material unresolved questions or claims concerning the Company's Tax liability. The Company (A) has not executed or entered into a closing agreement pursuant to Section 7121 of the Internal Revenue Code or any predecessor provision thereof or any similar provision of state, local or foreign law; and (B) has not agreed to or is required to make any adjustments pursuant to Section 481 (a) of the Internal Revenue Code or any similar provision of state, local or foreign law by reason of a change in accounting 11 12 method initiated by the Company or any of its subsidiaries or has any knowledge that the IRS has proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of the Company. The Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Internal Revenue Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Internal Revenue Code. The Company has not made an election under Section 341(f) of the Internal Revenue Code. The Company is not liable for the Taxes of another person that is not a subsidiary of the Company under (A) Treas. Reg. Section 1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a transferee or successor, (C) by contract or indemnity or (D) otherwise. The Company is not a party to any tax sharing agreement. The Company has not made any payments, is obligated to make payments or is a party to an agreement that could obligate it to make any payments that would not be deductible under Section 280G of the Internal Revenue Code. For purposes of this Section 4.14: "IRS" means the United States Internal Revenue Service. Tax" or "Taxes" means federal, state, county, local, foreign, or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, environmental, communications, real or personal property, capital stock, license, payroll, wage or other withholding, employment, social security, severance, stamp, occupation, alternative or add-on minimum, estimated and other taxes of any kind whatsoever (including, without limitation, deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or not. "Tax Return" means any return, information report or filing with respect to Taxes, including any schedules attached thereto and including any amendment thereof. SECTION 4.15 Property. Neither the Company nor any of its subsidiaries owns any real property. Each of the Company and its subsidiaries has good and marketable title to all personal property owned by it, free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company; and to the Company's knowledge any real property and buildings held under lease by the Company as tenant are held by it under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and intended to be made of such property and buildings by the Company. SECTION 4.16 Licensing and Permits. The Company holds all necessary and material licenses and permits for the conduct of its business. All of such licenses and permits are in good standing and the Company is not in material default of any of the conditions thereof. SECTION 4.17 Intellectual Property. Each of the Company and its subsidiaries owns or possesses adequate and enforceable rights to use all material patents, patent applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other similar rights and proprietary knowledge (collectively, "Intangibles") necessary for the conduct of its business as now being conducted. To the Company's knowledge, except as disclosed in the SEC Documents neither the Company nor any of its subsidiaries is infringing upon or in conflict with any material right of any other person with respect to any Intangibles. Except as disclosed in the SEC Documents, no adverse claims have been asserted by any person to the ownership or use of any Intangibles and the Company has no knowledge of any basis for such claim. 12 13 SECTION 4.18 Internal Controls and Procedures. The Company maintains books and records and internal accounting controls which provide reasonable assurance that (i) all material transactions to which the Company or any subsidiary is a party or by which its properties are bound are executed with management's authorization; (ii) the recorded accounting of the Company's consolidated assets is compared with existing assets at regular intervals; (iii) access to the Company's consolidated assets is permitted only in accordance with management's authorization; and (iv) all material transactions to which the Company or any subsidiary is a party or by which its properties are bound are recorded as necessary to permit preparation of the financial statements of the Company in accordance with U.S. generally accepted accounting principles. SECTION 4.19 Payments and Contributions. Neither the Company, any subsidiary, nor any of its directors, officers or, to its knowledge, other employees has (i) used any Company funds for any unlawful contribution, endorsement, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment of Company funds to any foreign or domestic government official or employee; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other similar payment to any person with respect to Company matters. SECTION 4.20 No Misrepresentation. The representations and warranties of the Company contained in this Agreement, any schedule, annex or exhibit hereto and any agreement, instrument or certificate furnished by the Company to the Investor pursuant to this Agreement, do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. ARTICLE V COVENANTS OF THE INVESTOR Investor covenants with the Company that: SECTION 5.1 Compliance with Law. The Investor's trading activities with respect to shares of the Company's Common Stock will be in compliance with all applicable state and federal securities laws, rules and regulations and rules and regulations of the Principal Market on which the Company's Common Stock is listed. Without limiting the generality of the foregoing, the Investor agrees that it will, whenever required by federal securities laws, deliver the prospectus included in the Registration Statement to any purchaser of Put Shares from the Investor. SECTION 5.2 No Short Sales. The Investor and its affiliates shall not engage in short sales of the Company's Common Stock (as defined in applicable SEC and NASD rules) during the Commitment Period. ARTICLE VI COVENANTS OF THE COMPANY SECTION 6.1 Registration Rights. The Company shall cause the Registration Rights Agreement to remain in full force and effect and the Company shall comply in all material respects with the terms thereof. SECTION 6.2 Listing of Common Stock. The Company hereby agrees to use its best efforts to maintain the listing of the Common Stock on a Principal Market, and as soon as practicable (but in any event prior to the commencement of the Commitment Period) to list the Put Shares and the Warrant Shares. The Company further agrees, if the Company applies to have the Common Stock traded on any other Principal Market, it will include in such application the Put Shares and the Warrant Shares and will take such other action as is necessary or desirable in the opinion of the investor to cause the Common Stock to be listed on such other Principal Market as promptly as possible. The Company will take all 13 14 action to continue the listing and trading of its Common Stock on the Principal Market (including, without limitation, maintaining sufficient net tangible assets) and will use its best efforts to comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the Principal Market and shall provide Investor with copies of any correspondence to or from such Principal Market which questions or threatens delisting of the Common Stock, within one Trading Day of the Company's receipt thereof. SECTION 6.3 Exchange Act Registration. The Company will cause its Common Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange Act, will use its best efforts to comply in all respects with its reporting and filing obligations under the Exchange Act, and will not take any action or file any document (whether or not permitted by the Exchange Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said Act. SECTION 6.4 Legends. The certificates evidencing the Common Stock to be sold to the Investor shall be free of restrictive legends. SECTION 6.5 Corporate Existence. The Company will take all steps necessary to preserve and continue the corporate existence of the Company. SECTION 6.6 Additional SEC Documents. During the Commitment Period, the Company will deliver to the Investor, as and when the originals thereof are submitted to the SEC for filing, copies of all SEC Documents so furnished or submitted to the SEC, or else notify the Investor that such documents are available on the EDGAR system. SECTION 6.7 Notice of Certain Events Affecting Registration; Suspension of Right to Make a Put. The Company will immediately notify the Investor upon the occurrence of any of the following events in respect of a registration statement or related prospectus in respect of an offering of Registrable Securities; (i) receipt of any request for additional information from the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement the response to which would require any amendments or supplements to the registration statement or related prospectus; (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that to the Company's knowledge makes any statement made in the Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; and the Company will promptly make available to the Investor any such supplement or amendment to the related prospectus. The Company shall not deliver to the Investor any Put Notice during the continuation of any of the foregoing events. SECTION 6.8 Expectations Regarding Put Notices. Within ten (10) days after the commencement of each calendar quarter occurring subsequent to the commencement of the Commitment Period, the Company must notify the Investor, in writing, as to its reasonable expectations as to the dollar amount it intends to raise during such calendar quarter, if any, through the issuance of Put Notices. Such notification shall constitute only the Company's good faith estimate and shall in no way obligate the Company to raise such amount, or any amount, or otherwise limit its ability to deliver Put Notices. The failure by the Company to comply with this provision can be cured by the Company's notifying the 14 15 Investor, in writing, at any time as to its reasonable expectations with respect to the current calendar quarter. SECTION 6.9 Consolidation; Merger. The Company shall not, at any time after the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all of the assets of the Company to, another entity (a "Consolidation Event") unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument or by operation of law the obligation to deliver to the Investor such shares of stock and/or securities as the Investor is entitled to receive pursuant to this Agreement. SECTION 6.10 Limitation on Future Financing. The Company agrees that it will not enter into any sale of its securities for cash at a discount to its then-current closing bid price during the Commitment Period except for any sales (i) pursuant to any presently existing stock incentive plan as amended from time to time and any plan replacing such stock incentive plan, which plan has been approved by the Company's stockholders, (ii) pursuant to any compensatory plan for a full-time employee, director or key consultant, (iii) pursuant to any underwritten public offering with an established investment bank, (iv) in connection with a strategic partnership or other business transaction, the principal purpose of which is not simply to raise money, (v) pursuant to any option, warrant or agreement outstanding on the date of this Agreement, or (vi) with the prior approval of the Investor, which will not be unreasonably withheld. Further, the Investor shall have a right of first refusal, to elect to participate, in such subsequent transaction in the case of (iii) and (vi) above. Such right of first refusal must be exercised in writing within seven (7) Trading Days of the Investor's receipt of notice of the proposed terms of such financing. ARTICLE VII CONDITIONS TO DELIVERY OF PUTS AND CONDITIONS TO CLOSING SECTION 7.1 Conditions Precedent to the Obligation of the Company to Issue and Sell Common Stock. The obligation hereunder of the Company to issue and sell the Put Shares to the Investor incident to each Closing is subject to the satisfaction, at or before each such Closing, of each of the conditions set forth below. (a) Accuracy of the Investor's Representation and Warranties. The representations and warranties of the Investor shall be true and correct in all material respects as of the date of this Agreement and as of the date of each such Closing as though made at each such time. (b) Performance by the Investor. The Investor shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Investor at or prior to such Closing, and Investor shall provide a certificate to the Company, substantially in the form of that delivered by the Investor. SECTION 7.2 Conditions Precedent to the Right of the Company to Deliver a Put Notice and the Obligation of the Investor to Purchase Put Shares. The right of the Company to deliver a Put Notice and the obligation of Investor hereunder to acquire and pay for the Put Shares incident to a Closing is subject to the satisfaction, on both (i) the date of delivery of such Put Notice and (ii) the applicable Closing Date (each a "Condition Satisfaction Date"), of each of the following conditions: (a) Closing Certificate. All representations and warranties of the Company contained herein shall remain true and correct in all material respects as of the Closing Date as though made as of such date and the Company shall have delivered into escrow an Officer's Certificate signed by its Chief Executive Officer certifying that to the best of such officer's knowledge all of the Company's representations and warranties herein remain true and correct as of the Closing Date and that the Company has performed all covenants and satisfied all conditions to be performed or satisfied by the Company prior to such Closing; 15 16 (b) Blue Sky. The Company shall have obtained all permits and qualifications required by any state for the offer and sale of the Common Stock to the Investor and by the Investor as set forth in the Registration Rights Agreement or shall have the availability of exemptions therefrom; (c) Delivery of Put Shares. Delivery into escrow or to DTC of the Put Shares; (d) Opinion of Counsel. Receipt by the Investor of an opinion of counsel to the Company, in the form of Exhibit D hereto; and (e) Transfer Agent. Delivery to the Company's transfer agent of instructions to such transfer agent in form and substance reasonably satisfactory to the Investor. (f) Registration of the Common Stock with the SEC. The Registration Statement shall have previously become effective and shall remain effective and available for making resales of the Put Shares and Warrant Shares by the Investor on each Condition Satisfaction Date and (i) neither the Company nor the Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC's concerns have been addressed and the Investor is reasonably satisfied that the SEC no longer is considering or intends to take such action), and (ii) no other suspension of the use or withdrawal of the effectiveness of the Registration Statement or related prospectus shall exist. (g) Authority. The Company will satisfy all laws and regulations pertaining to the sale and issuance of the Put Shares. (h) Performance by the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement, the Registration Rights Agreement and the Escrow Agreement to be performed, satisfied or complied with by the Company at or prior to each Condition Satisfaction Date. (i) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits or directly and adversely affects any of the transactions contemplated by this Agreement, and no proceeding shall have been commenced that may have the effect of prohibiting or adversely affecting any of the transactions contemplated by this Agreement. (j) Adverse Changes. Since the date of filing of the Company's most recent SEC Document, no event that had or is reasonably likely to have a Material Adverse Effect has occurred. (k) No Suspension of Trading In or Delisting of Common Stock. The trading of the Common Stock (including, without limitation, the Put Shares) is not suspended by the SEC or the Principal Market, and the Common Stock (including, without limitation, the Put Shares) shall have been approved for listing or quotation on and shall not have been delisted from the Principal Market. The issuance of shares of Common Stock with respect to the applicable Closing, if any, shall not violate the shareholder approval requirements of the Principal Market. The Company shall not have received any notice threatening to delist the Common Stock from the Principal Market. (l) No Knowledge. The Company has no knowledge of any event more likely than not to have the effect of causing such Registration Statement to be suspended or otherwise ineffective (which event is reasonably likely to occur within the thirty (30) Trading Days following the Trading Day on which such Notice is deemed delivered). (m) Trading Cushion. The Trading Cushion shall have elapsed since the next preceding Put Date. 16 17 (n) Other. On each Condition Satisfaction Date, the Investor shall have received and been reasonably satisfied with such other certificates and documents as shall have been reasonably requested by the Investor in order for the Investor to confirm the Company's satisfaction of the conditions set forth in this Section 7.2. ARTICLE VIII DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION. SECTION 8.1 Due Diligence Review. The Company shall make available for inspection and review by the Investor, advisors to and representatives of the Investor (who may or may not be affiliated with the Investor and who are reasonably acceptable to the Company), any underwriter participating in any disposition of the Registrable Securities on behalf of the Investor pursuant to the Registration Statement, any such registration statement or amendment or supplement thereto or any blue sky, NASD or other filing, all SEC Documents and other filings with the SEC, and all other publicly available corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company's officers, directors and employees to supply all such publicly available information reasonably requested by the Investor or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Investor and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of the Registration Statement. SECTION 8.2 Non-Disclosure of Non-Public Information. (a) The Company shall not disclose non-public information to the Investor, advisors to or representatives of the Investor unless prior to disclosure of such information the Company identifies such information as being non-public information and provides the Investor, such advisors and representatives with the opportunity to accept or refuse to accept such non-public information for review. The Company may, as a condition to disclosing any non-public information hereunder, require the Investor's advisors and representatives to enter into a confidentiality agreement in form reasonably satisfactory to the Company and the Investor. (b) The Company represents that it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors and representatives of the Investor and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 8.2 shall be construed to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of a material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading. 17 18 ARTICLE IX TRANSFER AGENT INSTRUCTIONS SECTION 9.1 Transfer Agent Instructions. Upon each Closing, the Company will issue to the transfer agent for its Common Stock (and to any substitute or replacement transfer agent for its Common Stock upon the Company's appointment of any such substitute or replacement transfer agent) instructions to deliver the Put Shares without restrictive legends to the Escrow Agent. SECTION 9.2 No Legend or Stock Transfer Restrictions. No legend shall be placed on the share certificates representing the Put Shares and no instructions or "stop transfer orders," so called, "stock transfer restrictions," or other restrictions have been or shall be given to the Company's transfer agent with respect thereto. SECTION 9.3 Investor's Compliance. Nothing in this Article shall affect in any way the Investor's obligations under any agreement to comply with all applicable securities laws upon resale of the Put Shares. ARTICLE X CHOICE OF LAW SECTION 10.1 Governing Law/Arbitration. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made in California by persons domiciled in San Francisco and without regard to its principles of conflicts of laws. Any dispute under this Agreement or any Exhibit attached hereto shall be submitted to arbitration under the American Arbitration Association (the "AAA") in San Francisco, California, and shall be finally and conclusively determined by the decision of a board of arbitration consisting of three (3) members (hereinafter referred to as the "Board of Arbitration") selected as according to the rules governing the AAA. The Board of Arbitration shall meet on consecutive business days in San Francisco, California, and shall reach and render a decision in writing (concurred in by a majority of the members of the Board of Arbitration) with respect to the amount, if any, which the losing party is required to pay to the other party in respect of a claim filed. In connection with rendering its decisions, the Board of Arbitration shall adopt and follow the laws of the State of California. To the extent practical, decisions of the Board of Arbitration shall be rendered no more than thirty (30) calendar days following commencement of proceedings with respect thereto. The Board of Arbitration shall cause its written decision to be delivered to all parties involved in the dispute. The Board of Arbitration shall be authorized and is directed to enter a default judgment against any party refusing to participate in the arbitration proceeding within thirty days of any deadline for such participation. Any decision made by the Board of Arbitration (either prior to or after the expiration of such thirty (30) calendar day period) shall be final, binding and conclusive on the parties to the dispute, and entitled to be enforced to the fullest extent permitted by law and entered in any court of competent jurisdiction. The prevailing party shall be awarded its costs, including attorneys' fees, from the non-prevailing party as part of the arbitration award. Any party shall have the right to seek injunctive relief from any court of competent jurisdiction in any case where such relief is available. The prevailing party in such injunctive action shall be awarded its costs, including attorney's fees, from the non-prevailing party. ARTICLE XI ASSIGNMENT SECTION 11.1 Assignment. Neither this Agreement nor any rights of the Investor or the Company hereunder may be assigned by either party to any other person except by operation of law. Notwithstanding the foregoing, upon the prior written consent of the Company, which consent shall not unreasonably be withheld or delayed in the case of an assignment to an affiliate of the Investor, the Investor's interest in this Agreement may be assigned at any time, in whole or in part, to any other person or entity (including any 18 19 affiliate of the Investor) who agrees to make the representations and warranties contained in Article III and who agrees to be bound hereby. ARTICLE XII NOTICES SECTION 12.1 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by reputable courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: If to the Company: 9985 Business Park Avenue San Diego, CA 92131 Attn: Robert Petcavich, Ph.D. Facsimile: (858) 549-5130 With a copy to: Robert W. Blanchard, Esq. (shall not constitute notice) Blanchard, Kramer & French notice) to: 800 Silverado 2nd Floor La Jolla, CA 92037 Telephone: (858) 551-2440 Facsimile: (858) 551-2437 if to the Investor: Triton West Group c/o Corporate Filing Services, Ltd. 4th Floor, Harbour Centre P.O. Box 61GT Georgetown, Grand Cayman Attention: E. Edward Jung Telephone: (345) 949-4244 Facsimile: (345) 949-8635 with a copy to: Robert F. Charron, Esq. (shall not constitute notice) Epstein Becker & Green, P.C. 250 Park Avenue New York, New York Telephone: (212) 351-4500 Facsimile: (212) 661-0989 Either party hereto may from time to time change its address or facsimile number for notices under this Section 12.1 by giving at least ten (10) days' prior written notice of such changed address or facsimile number to the other party hereto. ARTICLE XIII MISCELLANEOUS SECTION 13.1 Counterparts/ Facsimile/ Amendments. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties 19 20 actually executing such counterparts and all of which together shall constitute one and the same instrument. Except as otherwise stated herein, in lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original. This Agreement may be amended only by a writing executed by all parties. SECTION 13.2 Entire Agreement. This Agreement, the Exhibits hereto, which include, but are not limited to the Escrow Agreement, the Registration Rights Agreement and the Warrants, set forth the entire agreement and understanding of the parties relating to the subject matter hereof and supersedes all prior and contemporaneous agreements, negotiations and understandings between the parties, both oral and written relating to the subject matter hereof. The terms and conditions of all Exhibits to this Agreement are incorporated herein by this reference and shall constitute part of this Agreement as is fully set forth herein. SECTION 13.3 Survival; Severability. The representations, warranties, covenants and agreements of the parties hereto shall survive each Closing hereunder. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party. SECTION 13.4 Title and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. SECTION 13.5 Reporting Entity for the Common Stock. The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of the Investor and the Company shall be required to employ any other reporting entity. SECTION 13.6 Replacement of Certificates. Upon (i) receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of a certificate representing the Put Shares and (ii) in the case of any such loss, theft or destruction of such certificate, upon delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company (which shall not exceed that required by the Company's transfer agent in the ordinary course) or (iii) in the case of any such mutilation, on surrender and cancellation of such certificate, the Company at its expense will execute and deliver, in lieu thereof, a new certificate of like tenor. SECTION 13.7 Fees and Expenses. Each of the Company and the Investors agrees to pay its own expenses incident to the performance of its obligations hereunder, except that the Company shall pay the fees, expenses and disbursements of Investors' counsel in the amount of $15,000 plus $1,500 per Closing of a Put. SECTION 13.8 Brokerage. Each of the parties hereto represents that it has had no dealings in connection with this transaction with any finder or broker who will demand payment of any fee or commission from the other party. The Company on the one hand, and the Investor, on the other hand, agree to indemnify the other against and hold the other harmless from any and all liabilities to any person claiming brokerage commissions or finder's fees on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby. SECTION 13.9 Publicity. The Company agrees that it will not issue any press release or other public announcement of the transactions contemplated by this Agreement without the prior consent of the Investor, which shall not be unreasonably withheld nor delayed by more than two (2) Trading Days from its receipt of such proposed release; provided, however, that if the Company is advised by its outside counsel that it is required by law or the applicable rules of any Principal Market to issue any such press release or public announcement, then, it may do so without the prior consent of the 20 21 Investor, although it shall be required to provide prior notice (which may be by telephone) to the Investor that it intends to issue such press release or public announcement. No release shall name the Investor without its express consent. SECTION 13.10 Effectiveness of Agreement. This Agreement shall become effective only upon satisfaction of the conditions precedent to the Initial Closing set forth in Article I of the Escrow Agreement. 21 22 IN WITNESS WHEREOF, the parties hereto have caused this Private Equity Line of Credit Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above. Dated: August 15, 2000 PLANET POLYMER TECHNOLOGIES, INC. By: /s/ Robert Petcavich -------------------------------------------- Robert Petcavich, Ph.D., Chairman & CEO TRITON WEST GROUP, INC. By: /s/ E. Edward Jung -------------------------------------------- E. Edward Jung, Authorized Signatory 22 23 EXHIBIT A ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Agreement") is made as of August 15, 2000, by and among Planet Polymer Technologies, Inc., a corporation incorporated under the laws of the State of California (the "Company"), Triton West Group, Inc., a British Virgin Islands corporation ("Investor"), and Epstein Becker & Green, P.C., (the "Escrow Agent"). Capitalized terms used but not defined herein shall have the meanings set forth in the Private Equity Line of Credit Agreement referred to in the first recital. W I T N E S S E T H: WHEREAS, the Investor will from time to time as requested by the Company, purchase shares of the Company's Common Stock from the Company as set forth in that certain Private Equity Line of Credit Agreement (the "Purchase Agreement") dated the date hereof between the Investor and the Company, which will be issued as per the terms and conditions contained herein and in the Purchase Agreement; and WHEREAS, the Company and the Investor have requested that the Escrow Agent hold in escrow and then distribute the initial documents and certain funds which are conditions precedent to the effectiveness of the Purchase Agreement, and have further requested that upon each exercise of a Put, the Escrow Agent hold the relevant documents and the applicable purchase price pending receipt by the Investor of certificates representing the securities issuable upon such Put; NOW, THEREFORE, in consideration of the covenants and mutual promises contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and intending to be legally bound hereby, the parties agree as follows: ARTICLE 1 TERMS OF THE ESCROW FOR THE INITIAL CLOSING 1.1. The parties hereby agree to establish an escrow account with the Escrow Agent whereby the Escrow Agent shall hold the funds and documents which are referenced in Section 7.2 of the Purchase Agreement. 1.2. At the initial Closing, the Company shall deliver to the Escrow Agent: (i) the original Warrant certificate in the form of Exhibit D to the Purchase Agreement; (ii) the original executed Registration Rights Agreement in the form of Exhibit C to the Purchase Agreement; (iii) the original executed opinion of Blanchard, Krasner & French, a Professional Corporation, counsel of the Company, in the form of Exhibit E to the Purchase Agreement; (iv) the sum of $15,000; (v) a certificate representing five thousand (5,000) shares of Common Stock issued to the Investor (the "Triton Certificate"); 1 24 (vi) the original executed Company counterpart of this Escrow Agreement; and (vii) the original executed Company counterpart of the Purchase Agreement. 1.3. Upon receipt of the foregoing, and receipt of executed counterparts from Investor of the Purchase Agreement, the Registration Rights Agreement and this Escrow Agreement, the Escrow Agent shall calculate the exercise price of the Warrant and, after confirmation from the Company as to such calculation, enter the Exercise Price, the Commencement Date and Termination Date of the Warrant on the face of the Warrant and immediately transfer the sum of Fifteen Thousand Dollars ($15,000) to Epstein Becker & Green, P.C. ("EB&G"), 250 Park Avenue, New York, New York 10177 for the Investor's legal and administrative costs and the Escrow Agent shall then arrange to have the Warrant certificate, the Purchase Agreement, this Escrow Agreement, the Registration Rights Agreement and the opinion of counsel delivered to the Investor and the Triton Certificate to the Investor. ARTICLE 2 TERMS OF THE ESCROW FOR EACH PUT 2.1. (a) Each time the Company shall send a Put Notice to the Investor as provided in the Purchase Agreement, it shall send a copy, by facsimile, to the Escrow Agent. (b) Each time the Investor shall purchase shares pursuant to a Put, the Investor shall send the applicable Investment Amount of the Put Shares to the Escrow Agent on or before the Closing Date for such Put, less, as to the first six Closings only, a commitment fee equal to twenty-three thousand three hundred thirty-three dollars ($23,333). The Company shall promptly, but no later than five (5) Trading Days after receipt of notice from the Escrow Agent that it has the funds for the Investment Amount cause its Transfer Agent to deliver the Put Shares to Investor's account through the Depository Trust Company, if possible, or else to deliver such certificates to the Escrow Agent. In the event that the certificates representing the Put Shares are not in the Investor's or the Escrow Agent's possession within five (5) Trading Days of the date of the Escrow Agent's notice, then Investor shall have the right to demand, by notice, the return of the Investment Amount, and the Put Notice shall be deemed cancelled. The Escrow Agent shall within one (1) Trading Day of Closing wire the Purchase Price per the written instructions of the Company net of One Thousand Five Hundred Dollars ($1,500) as escrow expenses to the Escrow Agent. ARTICLE 3 MISCELLANEOUS 3.1. No waiver or any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act. All notices or other communications required or permitted hereunder shall be in writing, and shall be sent by fax, overnight courier, registered or certified mail, postage prepaid, return receipt requested, and shall be deemed received upon receipt thereof, as set forth in the Purchase Agreement. 3.2. This Escrow Agreement shall be binding upon and shall inure to the benefit of the permitted successors and permitted assigns of the parties hereto. 2 25 3.3. This Escrow Agreement is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. This Escrow Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the parties to be charged or by their respective agents duly authorized in writing or as otherwise expressly permitted herein. 3.4. Whenever required by the context of this Escrow Agreement, the singular shall include the plural and masculine shall include the feminine. This Escrow Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if both parties had prepared the same. Unless otherwise indicated, all references to Articles are to this Escrow Agreement. 3.5. The parties hereto expressly agree that this Escrow Agreement shall be governed by, interpreted under and construed and enforced in accordance with the laws of the State of New York. Except as expressly set forth herein, any action to enforce, arising out of, or relating in any way to, any provisions of this Escrow Agreement shall brought through the American Arbitration Association at the designated locale of New York, New York as is more fully set forth in the Purchase Agreement. 3.6. The Escrow Agent's duties hereunder may be altered, amended, modified or revoked only by a writing signed by the Company, each Investor and the Escrow Agent. 3.7. The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by the Escrow Agent to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be personally liable for any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while acting in good faith, excepting only its own gross negligence or willful misconduct, and any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow Agent's attorneys-at-law (other than Escrow Agent itself) shall be conclusive evidence of such good faith. 3.8. The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case the Escrow Agent obeys or complies with any such order, judgment or decree, the Escrow Agent shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 3.9. The Escrow Agent shall not be liable in any respect on account of the identity, authorization or rights of the parties executing or delivering or purporting to execute or deliver the Purchase Agreement or any documents or papers deposited or called for thereunder or hereunder. 3.10. The Escrow Agent shall be entitled to employ such legal counsel and other experts as the Escrow Agent may deem necessary properly to advise the Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. THE ESCROW AGENT HAS ACTED AS LEGAL COUNSEL FOR THE INVESTOR, AND MAY CONTINUE TO ACT AS LEGAL COUNSEL FOR THE INVESTOR, FROM TIME TO TIME, NOTWITHSTANDING ITS DUTIES AS THE ESCROW AGENT HEREUNDER. THE COMPANY CONSENTS TO THE ESCROW AGENT IN SUCH CAPACITY AS LEGAL COUNSEL FOR THE INVESTORS AND WAIVES ANY CLAIM THAT SUCH REPRESENTATION REPRESENTS A CONFLICT OF INTEREST ON THE PART OF THE ESCROW AGENT. THE COMPANY UNDERSTANDS THAT THE INVESTOR AND THE ESCROW AGENT ARE RELYING EXPLICITLY ON THE FOREGOING PROVISION IN ENTERING INTO THIS ESCROW AGREEMENT. 3.11. The Escrow Agent's responsibilities as escrow agent hereunder shall terminate if the Escrow Agent shall resign by written notice to the Company and the Investor. In the event of any such resignation, the Investors and the Company shall each 3 26 use their reasonable best efforts as quickly as practicable to appoint a successor Escrow Agent. 3.12. If the Escrow Agent reasonably requires other or further instruments in connection with this Escrow Agreement or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 3.13. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the documents or the escrow funds held by the Escrow Agent hereunder, the Escrow Agent is authorized and directed in the Escrow Agent's sole discretion (1) to retain in the Escrow Agent's possession without liability to anyone all or any part of said documents or the escrow funds until such disputes shall have been settled either by mutual written agreement of the parties concerned by a final order, decree or judgment or a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but the Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings or (2) to deliver the escrow funds and any other property and documents held by the Escrow Agent hereunder to a state or federal court having competent subject matter jurisdiction and located in the State and City of New York in accordance with the applicable procedure therefor. 3.14. The Company and the Investor agree jointly and severally to indemnify and hold harmless the Escrow Agent and its partners, employees, agents and representatives from any and all claims, liabilities, costs or expenses in any way arising from or relating to the duties or performance of the Escrow Agent hereunder or the transactions contemplated hereby or by the Purchase Agreement other than any such claim, liability, cost or expense to the extent the same shall have been determined by final, unappealable judgment of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Escrow Agent. 4 27 IN WITNESS WHEREOF, the parties hereto have executed this Agreement. Dated: August 15, 2000 PLANET POLYMER TECHNOLOGIES, INC. By: /s/ Robert Petcavich ------------------------------------------- Robert Petcavich, Ph.D., Chairman & CEO INVESTOR: TRITON WEST GROUP, INC. By: /s/ E. Edward Jung ----------------------------------------- E. Edward Jung, Authorized Signatory ESCROW AGENT: EPSTEIN BECKER & GREEN, P.C. /s/ Robert F. Charron -------------------------------------------------- Robert F. Charron, Authorized Signatory 5 28 EXHIBIT B PUT NOTICE/COMPLIANCE CERTIFICATE PLANET POLYMER TECHNOLOGIES, INC. The undersigned, to the best of the undersigned's knowledge, hereby certifies, with respect to shares of Common Stock of Planet Polymer Technologies, Inc. (the "Company") issuable in connection with this Put Notice and Compliance Certificate dated _____________ (the "Notice"), delivered pursuant to Article II of the Private Equity Line of Credit Agreement dated as of August 15, 2000 (the "Agreement"), as follows: 1. The undersigned is the duly appointed ______________ of the Company. 2. The representations and warranties of the Company set forth in the Agreement are true and correct in all material respects as though made on and as of the date hereof and all SEC Documents are as represented in Section 4.5 of the Agreement. 3. The Company has performed in all material respects all covenants and agreements to be performed by the Company on or prior to the date of this Put Notice and has complied in all material respects with all obligations and conditions contained in the Agreement. 4. The Investment Amount is $___________. 5. The Threshold Price per share is $ ___________. The undersigned has executed this Certificate this ____ day of ________, _____. PLANET POLYMER TECHNOLOGIES, INC. -------------------- Authorized Signatory 29 EXHIBIT C REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of the 15th day of August, 2000, between Triton West Group, Inc. ("Holder") and Planet Polymer Technologies, Inc. a corporation incorporated under the laws of the State of California (the "Company"). WHEREAS, simultaneously with the execution and delivery of this Agreement, pursuant to a Private Equity Line of Credit Agreement dated the date hereof (the "Purchase Agreement") the Holder has committed to purchase up to $7,000,000 pursuant to the Purchase Agreement of the Company's Common Stock (terms not defined herein shall have the meanings ascribed to them in the Purchase Agreement); and WHEREAS, the Company desires to grant to the Holder the registration rights set forth herein with respect to the Put Shares and the Blackout Shares issuable upon exercise of the Company's Put rights from time to time and the Warrant Shares (hereinafter referred to as the "Put Shares" or "Stock" or "Securities" of the Company). NOW, THEREFORE, the parties hereto mutually agree as follows: SECTION 1. Registrable Securities. As used herein the term "Registrable Security" means the Securities until (i) all Put Shares and Warrant Shares have been disposed of pursuant to the Registration Statement, (ii) all Put Shares and Warrant Shares have been sold under circumstances under which all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") are met, (iii) all Put Shares and Warrant Shares have been otherwise transferred to persons who may trade such Securities without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such Put Shares and Warrant Shares not bearing a restrictive legend or (iv) such time as, in the opinion of counsel to the Company, all Put Shares and Warrant Shares may be sold without any time, volume or manner limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act. The term "Registrable Securities" means any and/or all of the securities falling within the foregoing definition of a "Registrable Security." In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be deemed to be made in the definition of "Registrable Security" as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Agreement. SECTION 2. Restrictions on Transfer. The Holder acknowledges and understands that in the absence of an effective Registration Statement authorizing the resale of the Securities as provided herein, the Securities are "restricted securities" as defined in Rule 144 promulgated under the Act. The Holder understands that no disposition or transfer of the Securities may be made by Holder in the absence of (i) an opinion of counsel to the Holder, in form and substance reasonably satisfactory to the Company, that such transfer may be made without registration under the Securities Act or (ii) such registration. With a view to making available to the Holder the benefits of Rule 144 under the Securities Act or any other similar rule or regulation of the Commission that may at any time permit the Holder to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (a) comply with the provisions of paragraph (c)(1) of Rule 144; and (b) file with the Commission in a timely manner all reports and other documents required to be filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act; and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Holder, make available other information as required by, and so long as necessary to permit sales of, its Registrable Securities pursuant to Rule 144. 1 30 SECTION 3. Registration Rights With Respect to the Securities. (a) The Company agrees that it will prepare and file with the Securities and Exchange Commission ("Commission"), within forty-five (45) days after the date hereof, one or more registration statements (on Form S-1, S-3, or other appropriate form of registration statement) under the Securities Act (the "Registration Statement"), at the sole expense of the Company (except as provided in Section 3(c) hereof), so as to permit a public offering and resale of the Securities under the Act by Holder. The Company shall use its best efforts to cause the Registration Statement to become effective within ninety (90) days from the date hereof, or, if earlier, within five (5) days of SEC clearance to request acceleration of effectiveness. The number of shares designated in the Registration Statement to be registered shall be such number of shares as the Company reasonably expects to issue from the date thereof pursuant to this Agreement (including the Warrant Shares and Blackout Shares) and shall include appropriate language regarding reliance upon Rule 416 to the extent permitted by the Commission. The Company will notify Holder of the effectiveness of the Registration Statement within one Trading Day of such event. (b) The Company will maintain the Registration Statement or post-effective amendment filed under this Section 3 hereof effective under the Securities Act until the earlier of (i) the date that none of the Securities are or may become issued and outstanding, (ii) the date that all of the Securities have been sold pursuant to the Registration Statement, (iii) the date the holders thereof receive an opinion of counsel to the Company, which counsel shall be reasonably acceptable to the Holder, that the Securities may be sold under the provisions of Rule 144 without limitation as to volume, (iv) all Securities have been otherwise transferred to persons who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend, (v) two (2) years from the date of the last Put or (vi) all Securities may be sold without any time, volume or manner limitations pursuant to Rule 144(k) or any similar provision then in effect under the Securities Act in the opinion of counsel to the Company, which counsel shall be reasonably acceptable to the Holder (the "Effectiveness Period"). (c) All fees, disbursements and out-of-pocket expenses and costs incurred by the Company in connection with the preparation and filing of the Registration Statement under subparagraph 3(a) and in complying with applicable securities and Blue Sky laws (including, without limitation, all attorneys' fees of the Company) shall be borne by the Company. The Holder shall bear the cost of underwriting and/or brokerage discounts, fees and commissions, if any, applicable to the Securities being registered and the fees and expenses of its counsel. The Holder and its counsel shall have a reasonable period, not to exceed ten (10) Trading Days, to review the proposed Registration Statement or any amendment thereto, prior to filing with the Commission, and the Company shall provide each Holder with copies of any comment letters received from the Commission with respect thereto within two (2) Trading Days of receipt thereof. The Company shall make reasonably available for inspection by Holder, any underwriter participating in any disposition pursuant to the Registration Statement, and any attorney, accountant or other agent retained by such Holder or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the Company's officers, directors and employees to supply all information reasonably requested by such Holder or any such underwriter, attorney, accountant or agent in connection with the Registration Statement, in each case, as is customary for similar due diligence examinations; provided, however, that all records, information and documents that are designated in writing by the Company, in good faith, as confidential, proprietary or containing any material non-public information shall be kept confidential by such Holder and any such underwriter, attorney, accountant or agent (pursuant to an appropriate confidentiality agreement in the case of any such Holder or agent), unless such disclosure is made pursuant to judicial process in a court proceeding (after first giving the Company an opportunity promptly to seek a protective order or otherwise limit the scope of the information sought to be disclosed) or is required by law, or such records, information or documents become available to the public generally or through a third party not in violation of an accompanying obligation of confidentiality; and provided further that, if the foregoing inspection and information gathering would otherwise disrupt the Company's conduct of its business, such inspection and information gathering shall, to the maximum 2 31 extent possible, be coordinated on behalf of the Holder and the other parties entitled thereto by one firm of counsel designated by and on behalf of the majority in interest of Holder and other parties. The Company shall qualify any of the securities for sale in such states as such Holder reasonably designates and shall furnish indemnification in the manner provided in Section 6 hereof. However, the Company shall not be required to qualify in any state which will require an escrow or other restriction relating to the Company and/or the sellers, or which will require the Company to qualify to do business in such state or require the Company to file therein any general consent to service of process. The Company at its expense will supply the Holder with copies of the Registration Statement and the prospectus included therein and other related documents in such quantities as may be reasonably requested by the Holder. (d) The Company shall not be required by this Section 3 to include a Holder's Securities in any Registration Statement which is to be filed if, in the opinion of counsel for both the Holder and the Company (or, should they not agree, in the opinion of another counsel experienced in securities law matters acceptable to counsel for the Holder and the Company) the proposed offering or other transfer as to which such registration is requested is exempt from applicable federal and state securities laws and would result in all purchasers or transferees obtaining securities which are not "restricted securities", as defined in Rule 144 under the Securities Act. (e) No provision contained herein shall preclude the Company from selling securities pursuant to any Registration Statement in which it is required to include Securities pursuant to this Section 3. (f) If at any time or from time to time after the effective date of the Registration Statement, the Company notifies the Holder in writing of the existence of a Potential Material Event (as defined in Section 3(g) below), the Holder shall not offer or sell any Securities or engage in any other transaction involving or relating to Securities, from the time of the giving of notice with respect to a Potential Material Event until such Holder receives written notice from the Company that such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event; provided, however, that if the Company so suspends the right to such holders of Securities for more than thirty (30) days in the aggregate during any twelve month period, during the periods the Registration Statement is required to be in effect such excess periods shall be a Registration Default, and shall entitle the Investor to receive Blackout Shares as provided in the Purchase Agreement. If a Potential Material Event shall occur prior to the date the Registration Statement is filed, then the Company's obligation to file the Registration Statement shall be delayed without penalty for not more than thirty (30) days. The Company must give Holder notice in writing at least two (2) Trading Days prior to the first day of the blackout period, if lawful to do so. (g) "Potential Material Event" means any of the following: (a) the possession by the Company of material information that is not ripe for disclosure in a registration statement, as determined in good faith by the Chief Executive Officer or the Board of Directors of the Company or that disclosure of such information in the Registration Statement would be detrimental to the business and affairs of the Company; or (b) any material engagement or activity by the Company which would, in the good faith determination of the Chief Executive Officer or the Board of Directors of the Company, be adversely affected by disclosure in a registration statement at such time, which determination shall be accompanied by a good faith determination by the Chief Executive Officer or the Board of Directors of the Company that the Registration Statement would be materially misleading absent the inclusion of such information. SECTION 4. Cooperation with Company. Holder will cooperate with the Company in all respects in connection with this Agreement, including timely supplying all information reasonably requested by the Company (which shall include all information regarding the Holder and proposed manner of sale of the Registrable Securities required to be disclosed in the Registration Statement) and executing and returning all documents reasonably requested in connection with the registration and sale of the Registrable Securities and entering into and performing its obligations under any underwriting agreement, if the offering is an underwritten offering, in usual and customary form, with 3 32 the managing underwriter or underwriters of such underwritten offering. The Holder consents to be named as a statutory underwriter in the Registration Statement. SECTION 5. Registration Procedures. If and whenever the Company is required by any of the provisions of this Agreement to effect the registration of any of the Registrable Securities under the Act, the Company shall use its best efforts (except as otherwise provided in this Agreement), as expeditiously as possible, subject to the Holder's assistance and cooperation as reasonably required: (a) (i) prepare and file with the Commission such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the Holder of such Registrable Securities shall desire to sell or otherwise dispose of the same (including prospectus supplements with respect to the sales of securities from time to time in connection with a registration statement pursuant to Rule 415 promulgated under the Act) and (ii) take all lawful action such that each of (A) the Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, not misleading and (B) the Prospectus forming part of the Registration Statement, and any amendment or supplement thereto, does not at any time during the Registration Period include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) (i) prior to the filing with the Commission of any Registration Statement (including any amendments thereto) and the distribution or delivery of any prospectus (including any supplements thereto), provide draft copies thereof to the Holders and reflect in such documents all such comments as the Holders (and their counsel) reasonably may propose and (ii) furnish to each Holder such numbers of copies of a prospectus including a preliminary prospectus or any amendment or supplement to any prospectus, as applicable, in conformity with the requirements of the Act, and such other documents, as such Holder may reasonably request in order to facilitate the public sale or other disposition of the securities owned by such Holder; (c) register and qualify the Registrable Securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as the Holder shall reasonably request (subject to the limitations set forth in Section 3(d) above), and do any and all other acts and things which may be necessary or advisable to enable each Holder to consummate the public sale or other disposition in such jurisdiction of the securities owned by such Holder, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or to file therein any general consent to service of process; (d) list such Registrable Securities on the Primary Market, and any other exchange on which the Common Stock of the Company is then listed, if the listing of such Registrable Securities is then permitted under the rules of such exchange; (e) notify each Holder at any time when a prospectus relating thereto covered by the Registration Statement is required to be delivered under the Act, of the happening of any event of which it has knowledge as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and the Company shall prepare and file a curative amendment under Section 5(a) as quickly as commercially possible; (f) as promptly as practicable after becoming aware of such event, notify Holder (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the Commission or any state authority of any stop order or other suspension of 4 33 the effectiveness of the Registration Statement at the earliest possible time and take all lawful action to effect the withdrawal, recession or removal of such stop order or other suspension; (g) cooperate with the Holder to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Holder reasonably may request and registered in such names as the Holder may request; and, within three Trading Days after a Registration Statement which includes Registrable Securities is declared effective by the Commission, deliver and cause legal counsel selected by the Company to deliver to the transfer agent for the Registrable Securities (with copies to the Holder) an appropriate instruction and, to the extent necessary, an opinion of such counsel; (h) take all such other lawful actions reasonably necessary to expedite and facilitate the disposition by the Holder of its Registrable Securities in accordance with the intended methods therefor provided in the prospectus which are customary for issuers to perform under the circumstances; (i) in the event of an underwritten offering, promptly include or incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the managers reasonably agree should be included therein and to which the Company does not reasonably object and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after it is notified of the matters to be included or incorporated in such Prospectus supplement or post-effective amendment; and (j) maintain a transfer agent and registrar for its Common Stock. SECTION 6. Indemnification. (a) The Company agrees to indemnify and hold harmless the Holder and each person, if any, who controls the Holder within the meaning of the Securities Act ("Distributing Holder") against any losses, claims, damages or liabilities, joint or several (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees), to which the Distributing Holder 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 upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any related preliminary prospectus, final prospectus or amendment or supplement 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; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, preliminary prospectus, final prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by the Distributing Holder, specifically for use in the preparation thereof. This Section 6(a) shall not inure to the benefit of any Distributing Holder with respect to any person asserting such loss, claim, damage or liability who purchased the Registrable Securities which are the subject thereof if the Distributing Holder failed to send or give (in violation of the Securities Act or the rules and regulations promulgated thereunder) a copy of the prospectus contained in such Registration Statement to such person at or prior to the written confirmation to such person of the sale of such Registrable Securities, where the Distributing Holder was obligated to do so under the Securities Act or the rules and regulations promulgated thereunder. This indemnity agreement will be in addition to any liability which the Company may otherwise have. Each Distributing Holder agrees that it will indemnify and hold harmless the Company, and each officer, director of the Company or person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages or liabilities (which shall, for all purposes of this Agreement, include, but not be limited 5 34 to, all reasonable costs of defense and investigation and all reasonable attorneys' fees) to which the Company or any such officer, director or controlling person 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 upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any related preliminary prospectus, final prospectus or amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, preliminary prospectus, final prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by such Distributing Holder, specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Distributing Holder may otherwise have. Notwithstanding anything to the contrary herein, the Distributing Investor shall not be liable under this Section 6(b) for any amount in excess of the net proceeds to such Distributing Investor as a result of the sale of Registrable Securities pursuant to the Registration Statement. (b) Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve the indemnifying party from any liability which it may have to any indemnified party except to the extent of actual prejudice demonstrated by the indemnifying party. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, assume the defense thereof, subject to the provisions herein stated and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless the indemnifying party shall not pursue the action to its final conclusion. The indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel reasonably satisfactory to the indemnified party; provided that if the indemnified party is the Distributing Holder, the fees and expenses of such counsel shall be at the expense of the indemnifying party if (i) the employment of such counsel has been specifically authorized in writing by the indemnifying party, or (ii) the named parties to any such action (including any impleaded parties) include both the Distributing Holder and the indemnifying party and the Distributing Holder shall have been advised by such counsel that there may be one or more legal defenses available to the indemnifying party different from or in conflict with any legal defenses which may be available to the Distributing Holder (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the Distributing Holder, it being understood, however, that the indemnifying party shall, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable only for the reasonable fees and expenses of one separate firm of attorneys for the Distributing Holder, which firm shall be designated in writing by the Distributing Holder). No settlement of any action against an indemnified party shall be made without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld. All fees and expenses of the indemnified party (including reasonable costs of defense and investigation in a manner not inconsistent with this Section and all reasonable attorneys' fees and expenses) shall be paid to the indemnified party, as incurred, within ten (10) Trading Days of written notice thereof to the indemnifying party (regardless of whether it is ultimately determined that an indemnified party is not entitled to indemnification hereunder; provided, that the indemnifying party may require such indemnified party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such indemnified party is not entitled to indemnification hereunder). 6 35 SECTION 7. Contribution. In order to provide for just and equitable contribution under the Securities Act in any case in which (i) the indemnified party makes a claim for indemnification pursuant to Section 6 hereof but is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of Section 6 hereof provide for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any indemnified party, then the Company and the applicable Distributing Holder shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees), in either such case (after contribution from others) on the basis of relative fault as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the applicable Distributing Holder on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Distributing Holder agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 7. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding any other provision of this Section 7, in no event shall any (i) Holder be required to undertake liability to any person under this Section 7 for any amounts in excess of the dollar amount of the net proceeds to be received by such Holder from the sale of such Holder's Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) pursuant to any Registration Statement under which such Registrable Securities are to be registered under the Securities Act and (ii) underwriter be required to undertake liability to any person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it and distributed pursuant to the Registration Statement. SECTION 8. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by reputable courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be as set forth in the Purchase Agreement. Either party hereto may from time to time change its address or facsimile number for notices under this Section 8 by giving at least ten (10) days' prior written notice of such changed address or facsimile number to the other party hereto. SECTION 9. Assignment. Neither this Agreement nor any rights of the Holder or the Company hereunder may be assigned by either party to any other person. Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure to the benefit of, and be 7 36 enforceable by, any transferee of any of the Common Stock purchased by the Investor pursuant to the Purchase Agreement, and (b) upon the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed in the case of an assignment to an affiliate of the Holder, the Holder's interest in this Agreement may be assigned at any time, in whole or in part, to any other person or entity (including any affiliate of the Holder) who agrees to be bound hereby. SECTION 10. Additional Covenants of the Company. The Company agrees that at such time as it meets all the requirements for the use of Securities Act Registration Statement on Form S-3 it shall file all reports and information required to be filed by it with the Commission in a timely manner and take all such other action so as to maintain such eligibility for the use of such form. SECTION 11. Counterparts/Facsimile. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when together shall constitute but one and the same instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party. In lieu of the original, a facsimile transmission or copy of the original shall be as effective and enforceable as the original. SECTION 12. Remedies. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. SECTION 13. Conflicting Agreements. The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise prevents the Company from complying with all of its obligations hereunder. SECTION 14. Headings. The headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 15. Governing Law, Arbitration. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Any dispute under this Agreement shall be submitted to arbitration under the American Arbitration Association (the "AAA") in San Francisco, California, and shall be finally and conclusively determined by the decision of a board of arbitration consisting of three (3) members (hereinafter referred to as the "Board of Arbitration") selected as according to the rules governing the AAA. The Board of Arbitration shall meet on consecutive business days in San Francisco, California, and shall reach and render a decision in writing (concurred in by a majority of the members of the Board of Arbitration) with respect to the amount, if any, which the losing party is required to pay to the other party in respect of a claim filed. In connection with rendering its decisions, the Board of Arbitration shall adopt and follow the laws of the State of California. To the extent practical, decisions of the Board of Arbitration shall be rendered no more than thirty (30) calendar days following commencement of proceedings with respect thereto. The Board of Arbitration shall cause its written decision to be delivered to all parties involved in the dispute. The Board of Arbitration shall be authorized and is directed to enter a default judgment against any party refusing to participate in the arbitration proceeding with thirty days of any deadline for such participation. Any decision made by the Board of Arbitration (either prior to or after the expiration of such thirty (30) calendar day period) shall be final, binding and conclusive on the parties to the dispute, and entitled to be enforced to the fullest extent permitted by law and entered in any court of competent jurisdiction. The prevailing party shall be awarded its costs, including attorneys' fees, from the non-prevailing party as part of the arbitration award. Any party shall have the right to 8 37 seek injunctive relief from any court of competent jurisdiction in any case where such relief is available. The prevailing party in such injunctive action shall be awarded its costs, including attorney's fees, from the non-prevailing party. SECTION 16. Severability. If any provision of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof and this Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. 9 38 IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed, on the day and year first above written. Dated: August 15, 2000 PLANET POLYMER TECHNOLOGIES, INC. By: /s/ Robert Petcavich ----------------------------------------- Robert Petcavich, Ph.D., Chairman & CEO TRITON WEST GROUP, INC. By: /s/ E. Edward Jung ----------------------------------------- E. Edward Jung, Authorized Signatory 10 39 EXHIBIT D NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT. STOCK PURCHASE WARRANT To Purchase 125,000 Shares of Common Stock of PLANET POLYMER TECHNOLOGIES, INC. THIS CERTIFIES that, for value received, Triton West Group, Inc. (the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or February 23, 2001 (the "Initial Exercise Date") and on or prior to the close of business on February 23, 2004 (the "Termination Date") but not thereafter, to subscribe for and purchase from Planet Polymer Technologies, Inc., a California corporation (the "Company"), up to one hundred twenty-five thousand (125,000) shares (the "Warrant Shares") of Common Stock, no par value, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be $2.5781 (125% of the lowest closing bid price during the Six Trading Days immediately preceding the initial Closing Date). The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. In the event of any conflict between the terms of this Warrant and the Private Equity Line of Credit Agreement dated August 15, 2000 pursuant to which this Warrant has been issued (the "Purchase Agreement"), the Purchase Agreement shall control. Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement. 1 40 1. Title to Warrant. Prior to the Termination Date and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. 2. Authorization of Shares. The Company covenants that all shares of Common Stock which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). 3. Exercise of Warrant. Except as provided in Section 4 herein, exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date, and before the close of business on the Termination Date, unless this Warrant is forfeited on such earlier date pursuant to Section 2.4(b) of the Purchase Agreement. Exercise of this Warrant or any part hereof shall be effected by the surrender of this Warrant and the Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank, the holder of this Warrant shall be entitled to receive a certificate for the number of shares of Common Stock so purchased. Certificates for shares purchased hereunder shall be delivered to the holder hereof within three (3) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. This Warrant may also be exercised by means of a "cashless exercise" in which the holder shall be entitled to receive a certificate for the number of shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: (A) = the average of the high and low trading prices per share of Common Stock on the Principal Market on the Trading Day preceding the date of such election; (B) = the Exercise Price of the Warrants; and (X) = the number of shares issuable upon exercise of the Warrants in accordance with the terms of this Warrant. 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the Exercise Price. 5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be 2 41 accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. 6. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant. 7. Transfer, Division and Combination. (a) Subject to compliance with any applicable securities laws, 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, together with a written assignment of this Warrant substantially in the form attached 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 execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations 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, may be exercised by a new holder for the purchase of shares of Common Stock without having a new Warrant issued. (b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office 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 7(a), 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. (c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7. (d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants. 8. No Rights as Shareholder until Exercise. This Warrant does not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so purchased shall be and be deemed to be issued to such holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment. 9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant certificate or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. 11. Adjustments of Exercise Price and Number of Warrant Shares. (a) Stock Splits, etc. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine its outstanding shares of Common 3 42 Stock into a smaller number of shares of Common Stock or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which he would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the holder of this Warrant shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then either (i) Holder shall have the right thereafter to receive, upon exercise of this Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event or (ii) the successor or acquiring corporation shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 11. For purposes of this Section 11, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 11 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 12. Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 13. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the holder of this Warrant notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such 4 43 adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such notice, in the absence of manifest error, shall be conclusive evidence of the correctness of such adjustment. 14. Notice of Corporate Action. If at any time: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least 30 calendar days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 30 calendar days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 16(d). To the extent that the notice required to be given to Holder hereunder is material, non-public information, then such Holder shall sign such confidentiality agreement with the Company as it or its counsel may reasonably require to protect against the premature disclosure of such event. 15. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Principal Market upon which the Common Stock may be listed. The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid 5 44 and nonassessable shares of Common Stock upon the exercise of this Warrant, and (c) use all commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form reasonably satisfactory to Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. Before taking any action which would cause an adjustment reducing the current Exercise Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of such Common Stock at such adjusted Exercise Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 16. Miscellaneous. (a) Jurisdiction. This Warrant shall be binding upon any successors or assigns of the Company. This Warrant shall constitute a contract under the laws of California without regard to its conflict of law principles or rules, and be subject to arbitration pursuant to the terms set forth in the Purchase Agreement. (b) Restrictions. The holder hereof acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. (c) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the Company willfully fails to comply with any material provision of this Warrant, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. (d) Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. (e) Limitation of Liability. No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. (f) Remedies. Holder, 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 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 this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (g) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of 6 45 and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. (h) Indemnification. The Company agrees to indemnify and hold harmless Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against Holder in any manner relating to or arising out of any failure by the Company to perform or observe in any material respect any of its covenants, agreements, undertakings or obligations set forth in this Warrant; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from Holder's negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. (i) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. (j) 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 provisions or the remaining provisions of this Warrant. (k) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 7 46 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: August 15, 2000 PLANET POLYMER TECHNOLOGIES, INC. By: /s/ Robert Petcavich --------------------------------------- Robert Petcavich, Ph.D., Chairman & CEO 8 47 NOTICE OF EXERCISE To: Planet Polymer Technologies, Inc. (1) The undersigned hereby elects to purchase ________ shares of Common Stock (the "Common Stock"), of Planet Polymer Technologies, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: - -------------------------------------- (Name) - -------------------------------------- (Address) - -------------------------------------- Dated: ------------------------------ Signature 48 ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to ______________________________________________ whose address is _______________________________________________________________. _______________________________________________________________ Dated: ______________, _______ Holder's Signature: _____________________________ Holder's Address: _____________________________ Signature Guaranteed: ___________________________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in an fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. 49 EXHIBIT E DISCLOSURE SCHEDULE TO PRIVATE EQUITY LINE OF CREDIT AGREEMENT SECTION 4.3 1. AGWAY HOLDINGS, INC. ("AGWAY"): a. Under the Stock Purchase Agreement dated November 12, 1998, Agway was given a right of first refusal to purchase its pro-rata share of any Common Stock or other Security of the Company that Planet proposed to sell or issue after the date of the Stock Purchase Agreement. Under Section 5 (b) of this Agreement, Planet is required to give Agway written notice of its intention, describing the securities to be issued, the price and the terms and conditions upon which Planet proposes to issue the securities and Agway has twenty (20) days from that date to purchase its pro-rata share. However, under Section 5(d), Agway may waive this right of first refusal in writing. b. Under the Warrant Agreement dated January 11, 1999, if Planet issues or sells any shares of Common Stock for less than the Exercise Price (which was $1.00), then Agway's Exercise Price shall be reduced as provided by the formula in Section 6.4 of the Warrant Agreement. c. The Warrant Agreement of subsection (b) was amended by the First Amendment to Warrant dated February 25, 1999, however, the anti-dilution provisions were not effected. 2. SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.: /Special Situations holds Series A Preferred Stock. a. Under the Amended and Restated Certificate of Determination of Preferences of Series A Convertible Preferred Stock dated September 22, 1997, Section 5(d) provides that the Conversion Price (which was $2.00 per share) shall be adjusted if Planet issues or sells any shares of Common Stock for less than the greater of the Conversion Price in effect prior to the issuance and eighty-five percent (85%) of the market price on the date of such issue or sale. b. Under the Securities Purchase Agreement dated September 19, 1997, there are no specific references to anti-dilution rights. c. Also note that Section 5(f) of the Certificate of Determination provides that at no time shall Planet have outstanding more than an aggregate of 925,000 shares of Common Stock and/or options that were issued or granted to management, other employees, directors or consultants as compensation. This provision is to remain in effect until there are less than 100,000 Preferred Shares outstanding. Thus, Planet may be unable to issue all of the shares under the 2000 Stock Incentive Plan. d. Under the Warrant Agreement dated September 24, 1997, the Exercise Price ($2.75) shall be adjusted if Planet issues or sells any shares of Common Stock for less than the greater of the Conversion Price in effect prior to the issuance and eighty-five percent (85%) of the market price on the date of such issue or sale. 3. LBC CAPITAL RESOURCES. a. Under the Warrant Agreement dated March 29, 1999, Section 6.4(a) provides that the Exercise Price ($4.1250) shall be adjusted if Planet issues or sells any shares of Common Stock for less than the Exercise Price in effect prior to the issuance. b. Under the Warrant Agreement dated March 9, 2000, Section 6.4 (a) provides that that the Exercise Price ($4.1625) shall be adjusted if Planet issues or sells any shares of Common Stock for less than the Exercise Price in effect prior to the issuance. 1 50 SECTION 4.4 The Company does not meet the net tangible asset listing requirement set forth in the NASD Manual. SECTION 4.14 The Company has not filed its 1999 income tax returns, but has filed for extensions and the returns will be due September 15, 2000. SECTION 4.15 Certain personal property is leased and subject to the terms of the capital lease agreements. 2 EX-10.30 4 a65820ex10-30.txt EXHIBIT 10.30 1 EXHIBIT 10.30 PLANET POLYMER TECHNOLOGIES, INC. 9985 Business Park Avenue San Diego, CA 92131 September 11, 2000 Triton West Group, Inc. c/o Corporate Filings Services, Ltd. 4th Floor, Harbour Centre P.O. Box 61GT Georgetown, Grand Cayman Attn: E. Edward Jung Re: Amendment to Private Equity Line of Credit Gentlemen: Reference is made to that certain Private Equity Line of Credit (the "Purchase Agreement"), dated August 15, 2000, between Planet Polymer Technologies, Inc. (the "Company") and Triton West Group, Inc. (the "Purchaser"). In order to register for resale the Common Stock to be purchased pursuant to the Purchase Agreement, certain provisions of the Purchase Agreement must be revised. In consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree to restate the following section of the Purchase Agreement as follows: Section 2.2(a) Put Notice. At any time during the Commitment Period, the Company may deliver a Put Notice to the Investor, subject to the conditions set forth in Section 7.2; provided, however, that the Investment Amount for each Put as designated by the Company in the applicable Put Notice shall be neither less than $100,000 nor more than the Maximum Put Amount. Notwithstanding anything herein to the contrary, if the Maximum Put Amount for any given Put Notice is less than $100,000, the Investment Amount for such Put shall be the Maximum Put Amount. Except as specifically amended by the terms of this letter, the Purchase Agreement and its exhibits shall remain unmodified and in full force and effect, and shall not be in any way changed, modified or superseded by the terms set forth herein. All terms used but not defined in this letter shall have the meanings set forth in the Purchase Agreement. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. Execution may be made by delivery by facsimile. If the foregoing correctly sets forth our understanding and agreement, please so indicate by signing where indicated below. PLANET POLYMER TECHNOLOGIES, INC. By: /s/ Robert Petcavich ---------------------------------------- Robert Petcavich, Ph.D., Chairman & CEO ACCEPTED AND AGREED TO: TRITON WEST GROUP, INC. By: /s/ E. Edward Jung --------------------------------------- E. Edward Jung, Authorized Signatory EX-23.1 5 a65820ex23-1.txt EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form SB-2 of our report dated March 27, 2000 relating to the financial statements of Planet Polymer Technologies, Inc., which appears in this Registration Statement. PricewaterhouseCoopers LLP San Diego, California September 21, 2000 EX-27.1 6 a65820ex27-1.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED JUNE 30, 2000 BALANCE SHEET AND STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS AS FILED IN PLANET'S FORM 10-QSB FOR THE SIX MONTHS ENDED JUNE 30, 2000. 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1,051,454 0 132,442 0 146,157 1,357,935 427,832 (239,647) 2,016,541 135,884 0 0 517,251 13,279,470 (12,082,790) 2,016,541 401,272 401,272 273,629 273,629 753,030 0 1,960 (592,940) (800) (593,740) 0 0 0 (593,740) (0.08) (0.08)
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